/raid1/www/Hosts/bankrupt/TCR

/raid1/www/Hosts/bankrupt/TCR_Public/041112.mbx T R O U B L E D C O M P A N Y R E P O R T E R Friday, November 12, 2004, Vol. 8, No. 248 Headlines ACTUANT CORP: S&P Revises Outlook on Double-B Ratings to Positive ADELPHIA COMMS: Wants to Postpone 7.5% Series E Stock Conversion ADVANCE HI-TECH: Case Summary & 20 Largest Unsecured Creditors AIR CANADA: U.S. Transportation Allows AC Cargo to Serve Routes ALTERRA HEALTHCARE: Seeks Extension to File Final Reports AMERICAN WOOD: Case Summary & 6 Largest Unsecured Creditors ATA AIRLINES: Gets Court Nod to Honor Employee Obligations BROWN JORDAN: Moody's Withdraws Junk Ratings for Business Reasons BUILDING MATERIALS: Moody's Affirms Low-B & Junk Ratings CARBONDALE NURSING: Voluntary Chapter 11 Case Summary CATHOLIC CHURCH: Portland Hires BMC as Claims Agent CE SOFTWARE: Reports Q2 Results & Proceeds with Liquidation Plan CKE RESTAURANTS: Better Performance Cues Credit Facility Repricing CLASSIC COMMUNICATIONS: Court Formally Closes Chapter 11 Cases COLE NATIONAL: Moody's Withdraws Low-B Ratings After Acquisition CSFB MORTGAGE: Fitch Assigns Low-B Ratings to Three Cert. Classes DELTA AIR: Pilots Ratify Contract to Save $1 Billion Annually DELTA AIR: 95% of Flight Superintendents Agree to Revised Pact DELTA AIR: Can Issue Up to 75,000,000 Shares, NYSE Says DEVELOPERS DIVERSIFIED: Buying 15 Real Estate Assets for $1.15B ENRON CORP: Wants Court to Reduce Two State Street Bank Claims ENRON CORP: Wants Court to Disallow $366-Mil Oregon Claim ENRON CORP: Asks Court to Approve U.S. Agencies' Settlement Pact EXIDE TECH: Will Host Second Quarter Conference Call on Nov. 16 FAIRFAX FINANCIAL: 3rd Qtr. Results Won't Affect Fitch's Ratings FEDERAL-MOGUL: Inks Pact to Sell Dayton Transmission Operation FEDERAL-MOGUL: Asks Court to Okay U.K. Business Sale Bid Protocol FLEXTRONICS: S&P Places 'BB-' Rating on $500 Mil. Sr. Sub. Notes FLYi, INC.: Liquidity Concerns Prompt Bankruptcy Warning GLOBAL CROSSING: GLT Liquidating Trust Wants to File Late Claim GOLF TRAINING: Trustee Sells Unissued Shares to BBG for $15,000 GRAFTECH INTL: S&P Affirms Single-B Ratings with Negative Outlook GSMPS MORTGAGE: Moody's Places Low-B Ratings on Classes B-4 & B-5 INTERSTATE BAKERIES: Court Approves Skadden Arps' Retention INTERSTATE BAKERIES: Ad Hoc Committee Asks for Equity Committee INTRABIOTICS: Evaluating Options Including Possible Liquidation KAISER ALUMINUM: Court Extends Exclusive Periods Until Feb. 28 KGG LLC: Case Summary & 14 Largest Unsecured Creditors KMART CORP: SunTrust Asks Court to Decide Rights Under Lease Claim LEAP WIRELESS: Moody's Rates Planned $650M Sr. Sec. Loans at B1 M.A.T. MARINE: Voluntary Chapter 11 Case Summary MAGNUS FUNDING: Moody's Junks $202 Million Class A Debt Rating MARSHALL OIL GROUP: Case Summary & 20 Largest Unsecured Creditors MERRILL LYNCH: Fitch Puts Low-B Ratings on Six Certificate Classes MICROCELL: S&P Withdraws Junk Ratings After Rogers Acquisition MIRANT CORP: Asks Court to Approve Bid Protections for Invenergy MIRANT CORP: Asks Court to Approve Turbine Sale Bidding Procedures MOTHERNATURE.COM: Paying Stockholders $469K in Final Distribution MOUNT CLEMENS: Fitch Pares Rating on $82.8M Revenue Bonds to 'BB' NATIONAL ENERGY: Inks Settlement Agreement with Reliant Energy NEW WORLD: Closes Deal with Barbero SRL for Italian Subsidiaries NEW WORLD: Wants to Hire Keen Realty as Real Estate Consultant NOMURA ASSET: Fitch Lifts Rating on $33.7M Class B-2 Certs. to BB NORSE CBO: Moody's Reviewing Class C's B3 Ratings & May Upgrade NYLIM STRATFORD: Moody's Reviewing B Ratings & May Downgrade OAO SEVERSTAL: S&P Puts B+ Corporate Credit Rating on CreditWatch ORMET CORP.: Gets Court Okay to Reject 2 CBAs OWENS CORNING: Objects to Lakehill Environmental Claim OWENS CORNING: Legal Battle Ensues Over Review of Medical Records PARMALAT: Farmland Asks Court to Approve Puzino Dairy Settlement PEGASUS: Junior Lenders Want to Collect Interest & Prepayments PENN TRAFFIC: Wants Exclusive Period Extended Until Jan. 24 PENN TRAFFIC: Committee Hires FTI Consulting as Financial Advisors PG&E NATIONAL: USGen Taps Patton Boggs as Benefits Counsel PLAINS PRODUCE: Case Summary & 20 Largest Unsecured Creditors POLYMER RESEARCH: Look for Bankruptcy Schedules on Nov. 18 PORTOLA PACKAGING: S&P Slices Corporate Credit Ratings to 'B-' RCN CORPORATION: Objects to IBM Patent Infringement Claims REBECCA KNIGHT: Case Summary & 20 Largest Unsecured Creditors RELIANCE: Creditors Want Modified Disclosure Statement Approved REVLON INC: Sept. 30 Balance Sheet Upside-Down by $1.083 Billion SEMCO ENERGY: Stable Credit Profile Spurs S&P to Hold BB- Rating SPIEGEL INC: Court Allows Credit Suisse's Claim for $20.5 Million SUNRISE CDO: Fitch Junks $14.8 Million Class C Notes TENNECO AUTOMOTIVE: Fitch Puts B- Rating on $500M Sr. Sub. Notes THE WATSON LAW: Case Summary & 20 Largest Unsecured Creditors TRAILER BRIDGE: S&P Assigns B- Corporate Credit Rating TRANSTECHNOLOGY: Completes Debt Refinancing with $71.5M Bank Loan TXU CORP: Fitch Affirms BB+ Preferred Stock Rating UAL CORP: Wants District Court to Review Judge Wedoff's Order UAL CORPORATION: Wants to Amend Service Agreement with ARINC UNITED AIRLINES: Seeks Competitive Bids to Reduce Non-Labor Costs US AIRWAYS: Inks Pact with Lenders for Continued Use of Aircraft VP CBO: Fitch Junks Classes B & C & Rates Class A-3 BB WORLDCOM INC: MCI Officers Dispose 40,984 Shares in Common Stock * BOOK REVIEW: CORPORATE RESPONSIBILITY: Law and Ethics ********* ACTUANT CORP: S&P Revises Outlook on Double-B Ratings to Positive ----------------------------------------------------------------- Standard & Poor's Ratings Services revised its outlook on Actuant Corp. to positive from stable. At the same time, S&P affirmed its rating on the Milwaukee, Wisconsin-based company. As reported in the Troubled Company Reporter on May 5, 2004, Standard & Poor's Ratings Services assigned its 'BB' rating to the $250 million senior revolving credit facility of Actuant Corp. (BB). "The outlook revision reflects our view that the company's strategy of focused, niche acquisitions that increases scale, in conjunction with a further track record of balancing this growth with an improving financial profile, could lead to a modest upgrade over the next two years," said Standard & Poor's credit analyst Nancy Messer. The ratings were raised to the current level in October 2003 and although we believe that the company's business profile has not changed significantly over the past 12 months, Actuant should continue to gain scale and diversity through acquisitions, with 2005 revenues estimated to rise to around $750 million compared to $463 million in fiscal 2002. Credit measures for the fiscal year ended August 2004 reached or, in some cases, exceeded levels consistent with expectations for the current rating. As a result, internal cash generation could permit Actuant to make several modest-size acquisitions while also sustaining a financial profile that could lead to an upgrade. Actuant manufactures a variety of standard and customized products for automotive, industrial and retail customers. It had total lease-adjusted debt of about $270 million at August 31, 2004. ADELPHIA COMMS: Wants to Postpone 7.5% Series E Stock Conversion ---------------------------------------------------------------- On September 27, 2002, the U.S. Bankruptcy Court for the Southern District of New York enforced the automatic stay and approved the proposed notification and hearing procedures of Adelphia Communications Corporation and its debtor-affiliates for trading in equity securities. Marc Abrams, Esq., at Willkie Farr & Gallagher, in New York, recounts that the Trading Order established procedures that enabled ACOM to monitor trading of its equity securities preventing trading that would cause a change of ownership pursuant to Section 382 of the Internal Revenue Code. The Trading Order preserved the Debtors' net operating loss carryovers to offset future income. By signing the Trading Order, the Court recognized the importance of preserving the NOL carryovers as valuable property of the Debtors' estates, Mr. Abrams notes. The ACOM Debtors currently estimate their federal tax NOL carryovers at $6,700,000,000. When they emerge from Chapter 11, the ACOM Debtors expect substantially higher NOL carryovers. The Debtors will use the NOL carryovers to offset future income by reducing future federal income tax liability under applicable IRC rules. Pursuant to the terms of a certain ACOM "Certificate of Designations, Preference and Relative, Participating, Optional and Other Special Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof of 7.5% Series E Mandatory Convertible Preferred Stock," each share of the Series E Preferred Stock will automatically convert on November 15, 2004, into a number of newly issued shares of Class A Common Stock equal to the Conversion Rate. The ACOM Debtors ask the Court to protect its NOL carryovers, by postponing the automatic conversion of ACOM's 7.5% Series E Preferred Stock into shares of Class A Common Stock, to February 1, 2005. Section 382 of the IRC, Mr. Abrams says, limits the amount of taxable income that can be offset by a corporation's NOL carryovers in any taxable year after an ownership change. When an ownership change occurs, Section 382 limits the use of NOLs to an annual amount equal to the value of the corporation prior to the ownership change multiplied by the long-tem exempt rate. Because the value of a distressed company's stock prior to reorganization may be quite low, the formula can severely restrict the amount of available NOLs. Mr. Abrams explains that an ownership change generally occurs if the percentage of the corporation's stock owned by one or more 5% stockholders has increased by more than 50 percentage points over the lowest amount of stock they owned at any time during a three- year testing period ending the date of ownership change. As of October 29, 2004, transfers of ACOM's equity securities have resulted in 5% stockholders increasing their holding by about 14% within the relevant three-year testing period. If the conversion of Series E Preferred Stock on November 15, 2004, causes an ownership change that exceeds 50%, a Section 382 change will be triggered and thus limiting ACOM's future use of its NOL carryovers from and after the time of the change. The Debtors therefore need to postpone the conversion until a time when there will be no risk pursuant to Section 382. Mr. Abrams asserts that the postponement will preserve the ACOM Debtors' flexibility in crafting a plan of reorganization that maximizes their ability to use their NOLs. The NOL carryovers are an asset of the Debtors' estates. The Debtors believe that the NOLs availability will facilitate their successful reorganization. Headquartered in Coudersport, Pennsylvania, Adelphia Communications Corporation (OTC: ADELQ) is the fifth-largest cable television company in the country. Adelphia serves customers in 30 states and Puerto Rico, and offers analog and digital video services, high-speed Internet access and other advanced services over its broadband networks. The Company and its more than 200 affiliates filed for Chapter 11 protection in the Southern District of New York on June 25, 2002. Those cases are jointly administered under case number 02-41729. Willkie Farr & Gallagher represents the ACOM Debtors. ADVANCE HI-TECH: Case Summary & 20 Largest Unsecured Creditors -------------------------------------------------------------- Debtor: Advance Hi-Tech Nursing, Inc. dba LifeSpan Home Health fdba Pathways Health Service 6243 IH-10 West, Suite 375 San Antonio, Texas 78201 Bankruptcy Case No.: 04-56480 Type of Business: The Company provides a comprehensive long- and short-term home healthcare. See http://www.lifespanhomehealth.com/ Chapter 11 Petition Date: November 9, 2004 Court: Western District of Texas (San Antonio) Judge: Ronald B. King Debtor's Counsel: William B. Kingman, Esq. Law Offices of William B. Kingman, P.C. 7801 Broadway #200 San Antonio, Texas 78209 Tel: (210) 829-1199 Total Assets: $707,335 Total Debts: $1,514,586 Debtor's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Internal Revenue Service Employment Taxes $722,197 Special Procedures Staff 300 East 8th Street Austin, Texas 78701 Centers for Medicare/ $282,152 Medicaid Services c/o Medicare Finance PO Box 100183 Attn: AG-361 (control #079392) Columbia, South Carolina 29202 Shari Hammond $100,000 800 Virginia Place Fort Worth, Texas 76107 Bryan Charles $100,000 800 Virginia Place Fort Worth, Texas 76107 J. Wayne Lovelace $71,213 Roy Lovelace $71,213 Premium Financing Specialists $32,352 Pediatric Speech Solutions $22,500 Nurses Etc. Staffing $17,633 Speech Specialists of $10,752 San Antonio United Healthcare $10,175 SBC Smart Yellow Pages $9,482 4-K, Inc. $6,247 M. Jan Spears & Associates, $6,227 Incorporated Gulf South Medical Supply $5,159 Allegiance Telecom of Texas $5,057 Incorporated Heinrichs & DeGennaro, PC $3,119 Dahill Industries $2,843 Nurse & Therapy Group $2,500 Sigma Business Services, Inc. $2,194 AIR CANADA: U.S. Transportation Allows AC Cargo to Serve Routes --------------------------------------------------------------- On September 29, 2004, the United States Department of Transportation approved the application by AC Cargo Limited Partnership, doing business as Air Canada Cargo, for exemption from 49 U.S.C. Section 41301. The Transportation Department allows Air Canada Cargo to provide scheduled foreign air transportation of property and mail on routes authorized pursuant to the Air Transport Agreement between the Government of the United States and the Government of Canada, dated February 24, 1995. The exemption and statements of authorization are effective September 29, 2004, through September 29, 2005. Air Canada Cargo Air Canada Cargo was created as a separate entity as part of Air Canada's Consolidated Plan of Reorganization, Compromise and Arrangement sanctioned by the Ontario Superior Court of Justice. Air Canada Cargo was created to perform Air Canada's all-cargo operations. For the early part of its existence, Air Canada Cargo will not operate its own aircraft, or hold its own Air Operator Certificate. Instead, it will block space on and market the cargo capacity offered by Air Canada and its affiliates. Thus, Air Canada Cargo will be using aircraft operated and maintained by Air Canada and its affiliates. Basis of Approval Paul L. Gretch, Director of the Office of International Aviation, reasons that "[a]uthority to conduct scheduled, all-cargo services between the United States and Canada and to block space for such operations is encompassed by the United States-Canada Air Transport Agreement." Under authority assigned by the Department in its regulations, 14 CFR Part 385, the OIA found that: "(1) our action was consistent with Department policy; (2) the applicant was qualified to perform its proposed operations; (3) grant of the authority was consistent with the public interest; and (4) grant of the authority would not constitute a major regulatory action under the Energy Policy and Conservation Act of 1975." "We found . . . that Air Canada Cargo is properly licensed by its homeland government, operationally and financially qualified to undertake its proposed operations (as conditioned), and is substantially owned and effectively controlled by citizens of Canada," Mr. Gretch says. The Canadian Transportation Agency and Transport Canada retain regulatory oversight over Air Canada Cargo. In September 2004, the CTA issued a license authorizing Air Canada Cargo to operate scheduled trans-border all-cargo services. Canadian law requires that no more than 25% of a Canadian carrier's voting stock may be held by non-Canadian citizens. Air Canada Cargo Can Support Operation According to Anita M. Mosner, Esq., at Garfinkle, Wang, Seiden & Mosner, plc, in Arlington, Virginia, Air Canada Cargo has adequate financial resources to support its operations. As part of the restructuring, Air Canada Cargo will receive title to property and equipment previously owned by Air Canada, as well as operating capital, which will be characterized as a line of credit. In addition, Air Canada Cargo's operations are insured at levels which meet and exceed the requirements of the Transportation Department. Moreover, Canada is a contracting party to the International Convention on Civil Aviation. Ms. Mosner also notes that Air Canada has a family assistance plan under the Aviation Disaster Family Assistance Act on file with the Transportation Department and with the National Transportation Safety Board. Furthermore, Air Canada Cargo has not had any fatal accidents in the past five years, nor has it been found to have violated any applicable safety or tariff regulations. John Gilmore Wants Order Reviewed John P.T. Gilmore disagrees with the U.S. Department of Transportation's finding that Air Canada is substantially owned by Canadian citizens. In an e-mail message to the Transportation Department, Mr. Gilmore asserts that 80% of the shares issued by Air Canada on its emergence from CCAA proceedings were owned by non-Canadians. As a result, the new Air Canada may lose the rights held by the old Air Canada to operate routes into the United States. Mr. Gilmore points out that the Canadian Transportation Agency has acknowledged that "[w]hen the CCAA proceedings terminate, it is anticipated that a large majority of [ACE Aviation Holdings'] voting shares will be held by non Canadians." Air Canada also admitted in a press release that the Class A variable voting shares are held by non-Canadians: "The Corporation confirmed that 77,334,674 Class A variable voting shares (ACE.RV) of ACE and 11,480,430 Class B voting shares (ACE. 6) of ACE were issued today and will start trading on the Toronto Stock Exchange (TSX) on October 4, 2004. Ernst & Young, as court-appointed Monitor and disbursing agent under the Plan, has retained in escrow 7,680,365 ACE shares pending the resolution of the disputed claims." Mr. Gilmore notes that the United States has a longstanding "homeland ownership and control policy" requiring foreign airlines seeking to fly to the U.S. to be "substantially owned and effectively controlled" by nationals of the foreign country in question. This is a legal requirement under 49 U.S.C. Section 40109. Mr. Gilmore notes that as recently as December 2002, Lan Ecuador, despite being designated as the flag carrier of Ecuador by the Government of Ecuador, was denied permission to operate into the U.S. because it was not considered to be substantially owned and effectively controlled by Ecuadoran nationals or able to justify that an exemption should be made for it. In 1999, Air Aruba, which was 70% owned by foreign nationals, was given an exemption by the U.S. government from this requirement in large part because the Government of Aruba owned the remaining 30%. "I would submit to you that your decision is in error and should accordingly be revisited. I would also submit to you that to certify a foreign carrier as substantially owned by the nationals of that foreign country -- at the very least 50% + 1 of the issued shares of such airline must be owned by nationals of that country: Not as is the case here where a mere 20% are owned by Canadians," Mr. Gilmore wrote to Mr. Gretch. "I would further submit that a flexible interpretation of the ownership requirement is inconsistent with the interests of US airlines in that they are not permitted to source more than 50% of their equity from non national sources -- where, in the instant case, Air Canada has sourced 80% of its equity capital from foreign sources." Mr. Gilmore, a private citizen, has three decades of experience as an aviation consultant, according to Brent Jang, Transportation Reporter at Globe and Mail. AC Cargo Responds From a procedural standpoint, Anita M. Mosner, Esq., at Garfinkle, Wang, Seiden & Mosner, plc, in Arlington, Virginia, argues that Mr. Gilmore's petition is wholly inadequate. Ms. Mosner explains that the U.S. Department of Transportation's rules concerning Petitions for Review of Staff Action do not permit third parties who did not bother to file pleadings in the docket -- like Mr. Gilmore -- to request review of the Transportation Department's decisions after the fact, unless good cause can be shown for failure to participate. Moreover, even parties who had submitted pleadings must show that they have an interest in the outcome of the decision that is substantial enough to warrant their demand for post-decision relief. "As a third party who filed no comments at the Department while Air Canada Cargo's Application was pending, and who failed to offer even a prima facie statement of his interest in this matter, Mr. Gilmore's Petition is utterly defective on procedural grounds." As a substantive matter, Mr. Gilmore's comments are based on multiple errors of law and fact. Ms. Mosner asserts that the Transportation Department was fully correct in endorsing the comprehensive analysis the Canadian Transportation Agency performed in determining that the Air Canada family of companies will remain under Canadian ownership and control after those companies emerged from CCAA protection. The governance documents and ownership structure of ACE Aviation Holdings were carefully drafted to ensure that Canadians would continue to own and control at least 75% of the voting interests in the company. Ms. Mosner notes that Mr. Gilmore's critique of the Transportation Department's decision rests not on the carefully reasoned decision of the CTA, but instead on a selective misreading of some press releases and a fundamental misunderstanding of U.S. and Canadian law. "As the regulatory authority which exercises primary jurisdiction over Air Canada Cargo, the CTA decision is entitled to considerable deference. The exercise of deference in this case also would be warranted on the basis of comity," Ms. Mosner says. Therefore, Mr. Gilmore's late and ill-founded attack on Air Canada Cargo's U.S. authority must be promptly rejected. 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. (Air Canada Bankruptcy News, Issue No. 51; Bankruptcy Creditors' Service, Inc., 215/945-7000) ALTERRA HEALTHCARE: Seeks Extension to File Final Reports --------------------------------------------------------- Alterra Healthcare Corporation asks the U.S. Bankruptcy Court for the District of Delaware for an extension, through March 24, 2005, to file its final report and accounting. The Debtor's Plan of Reorganization became effective on December 4, 2003. The Debtor wants to address remaining Plan-related issues. The Official Committee of Unsecured Creditors and the Reorganized Debtor still have to work out the amount available for distribution to the estate's unsecured creditors. The Debtor stress that a final report and accounting will not be accurate until the claims administration process and other pending disputes are concluded. Headquartered in Milwaukee, Wisconsin, Alterra Healthcare Corporation offers supportive and selected healthcare services to the elderly and is one of the largest operator of freestanding Alzheimer's and memory care residences in the U.S. The Company filed for chapter 11 protection on January 22, 2003 (Bankr. Del. Case No. 03-10254). James L. Patton, Esq., Edmon L. Morton, Esq., Joseph A. Malfitano, Esq., and Robert S. Brady, Esq., at Young, Conaway, Stargatt & Taylor, LLP, represent the Debtor in its restructuring. When the Debtor filed for protection from its creditors, it listed $735,788,000 in total assets and $1,173,346,000 in total debts. AMERICAN WOOD: Case Summary & 6 Largest Unsecured Creditors ----------------------------------------------------------- Debtor: American Wood Preservers Institute, Inc. 12100 Sunset Hills Road, Suite 130 Reston, Virginia 20190 Tel: (703) 437-4377 Bankruptcy Case No.: 04-14669 Type of Business: The Company is a contractor. Chapter 11 Petition Date: November 10, 2004 Court: Eastern District of Virginia (Alexandria) Debtor's Counsel: James Thomas Bacon, Esq. Allred, Bacon, Halfhill & Young 11350 Random Hills Road, Suite 700 Tel: Fairfax, Virginia 22030 Tel: (703) 352-1300 Fax: (703) 352-1300 Estimated Assets: $50,000 to $100,000 Estimated Debts: More than $100 Million Debtor's 6 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Kevin C. Mehl, Sr., et al. Claims for damages Unknown c/o John F. Romano, Esq. resulting from use of PO Box 21349 treated wood products West Palm Beach, Florida 33416 Barbara Bertoni Claims for damages Unknown c/o John F. Romano, Esq. resulting from use of PO Box 21349 treated wood products West Palm Beach, Florida 33416 Unknown Users of treated Claims for damages Unknown Wood products resulting from use of Address Unknown treated wood products Drohan Management Administrative $30,905 Services Matthews Associates, Inc. Administrative $1,000 Services Patton Boggs, LLP Legal Services $600 ATA AIRLINES: Gets Court Nod to Honor Employee Obligations ---------------------------------------------------------- As of October 26, 2004, ATA Holdings Corp. and its subsidiaries, excluding Chicago Express, employed 6,663 active Employees that provide a myriad of services. More than 89% of them are full-time Employees. Approximately 3,550 of ATA's Employees are covered by collective bargaining agreements. Debtor Chicago Express administers its own payroll and benefits programs although funding for both payroll and benefits is provided by intercompany transfers. As of its bankruptcy filing, Chicago Express employed 661 active Employees, 108 of which were full-time and 553 of which were part-time. None of Chicago Express' Employees is covered by CBAs. Wages, Salaries and Commissions In the ordinary course of its business, the Debtors issue payroll checks to most of their Employees on a bi-weekly basis. The aggregate average gross bi-weekly payroll for ATA's Employees is $12,200,000. The aggregate average gross bi-weekly payroll for Chicago Express's Employees is $700,000. Terry E. Hall, Esq., at Baker & Daniels, in Indianapolis, Indiana, reports that certain prepetition wages, salaries, commissions, overtime, holiday, other paid leave and other compensation -- excluding vacation and severance pay -- have accrued during the most recent payment period, but were not paid because: (a) the Debtors filed for bankruptcy during their regular and customary salary and hourly wage payroll periods; (b) some payroll checks issued to Employees before the Petition Date have not been presented for payment or cleared the banking system and, accordingly, have not been honored and paid as of the Petition Date; and (c) Employees may not have been paid all their salaries and wages for services previously performed on the Debtors' behalf. In particular, ATA owed $13,764,886 and Chicago Express owed $500,000 in Unpaid Compensation. ATA also estimates that the amount of uncashed checks on the Petition Date is $159,747. Other Compensation, Union Dues, Withholdings and Reimbursable Expenses In the ordinary course of business, ATA provides its Employees with: -- other forms of usual and customary compensation, including vacation pay, paid holidays and paid sick time, as well as reimbursing certain necessary business expenses; -- 100% reimbursement for up to $1,200 of eligible costs incurred by the Employee having a minimum of 90 days' service in satisfactorily completing a course or courses taken at an accredited academic institution; -- corporate phone cards and corporate credit cards for long- distance business phone calls and business expenses as well as personal data assistants, cell phones, pagers, and a car allowance to certain employees on a discretionary, as needed basis; and -- COMPASS Benefit plans where Core Full-Time Employees are allowed to make selections from options in these benefit areas: medical, prescription drug, dental, accidental death and dismemberment insurance, vision, life insurance, disability, and other similar benefits. Chicago Express provides it Employees with vacation and paid holiday benefits, sick leave, corporate phone cards and credit cards, and health, disability and retirement benefits. ATA withholds $271,603 per month from the paychecks of certain Employees for the payment of union dues. The withheld amounts are then remitted to the unions on a monthly or semi-monthly basis, normally in arrears. ATA believes that the funds withheld to pay Union Dues, to the extent that they remain in ATA's possession, constitute amounts held in trust and, therefore, are not property of its bankruptcy estates. The Debtors also deduct from their Employees' paychecks: (1) payroll taxes and the Employees' portion of FICA and unemployment taxes; (2) employee contributions for medical, dental, and life insurance; (3) legally ordered deductions like wage garnishments, child support and tax levies; (4) voluntary contributions to charities, political action committees and management associations; and (5) voluntary savings through savings bonds, credit unions or other financial institutions. The Debtors forward amounts equal to the Employee Deductions from their general operating accounts to appropriate third party recipients. Due to the commencement of ATA's Chapter 11 Cases, the funds may have been deducted from employee paychecks but may not have been forwarded to appropriate third party recipients. As of Oct. 26, 2004, the Debtors estimate that the unremitted Employee Deductions total $304,461 with respect to ATA and $161,000 with respect to Chicago Express. Additionally, the Debtors reimburse employees and directors for certain expenses incurred in the scope of their employment. The Debtors estimate, based on average monthly expenditures, that they owe $943,000 to ATA Employees and $1,000 to Chicago Express Employees for prepetition expenses relating to, among other things, business-related travel expenses, meals, relocation allowances, job-related training expenses, relocation expenses, per diems, periodical subscriptions and miscellaneous business expenses. Workers' Compensation All of Debtors workers' compensation benefits are covered under Debtors' worker's compensation insurance program, which is insured primarily by AIG Insurance Company. Ms. Hall notes that there are 327 pending workers' compensation claims for which the Debtors are required to reserve $10,234,468. The Debtors intend to continue paying or contesting in good faith, as appropriate in their business judgment, all amounts related to workers' compensation claims that arose before the Petition Date, including, without limitation, any payments to insurers required as a result of the claims. Employee Obligations Will be Honored Ms. Hall relates that many Employees live from paycheck to paycheck and rely exclusively on receiving their full compensation or reimbursement of their expenses to continue to pay their daily living expenses. The Employees will be exposed to significant financial and health related problems if the Debtors are not permitted to pay certain of the Prepetition Wages and Benefits. In addition, if the Debtors do not honor their Employee Obligations, employee morale and loyalty will be jeopardized at a time when it is critical. If the Debtors don't pay for the Health Benefits, many of their Employees may not be reimbursed or otherwise have their Health Benefits claims paid. Moreover, certain Employees may become primarily obligated for the payment of these claims in cases where health care providers have not been reimbursed, and may face having health services terminated. That uncertainty will cause significant anxiety at precisely the time the Debtors need their Employees to perform their jobs at peak efficiency. Consequently, the Court authorizes the Debtors to honor their obligations to current Employees. The Court also directs the applicable banks and other financial institutions to receive, process, honor and pay all checks presented for payment, and to honor all electronic payment requests made by the Debtors. 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. 3; Bankruptcy Creditors' Service, Inc., 215/945-7000) BROWN JORDAN: Moody's Withdraws Junk Ratings for Business Reasons ----------------------------------------------------------------- Moody's Investors Service has withdrawn the ratings of Brown Jordan International, Inc., for business reasons. As of June 2004, the company had $105 million of rated debt on its balance sheet. Please refer to Moody's withdrawal policy on http://www.moodys.com/ These ratings are withdrawn: * Senior Implied rating of Caa3; * Senior unsecured rating of Ca; * $105 million 12.75% senior subordinated notes rating of C. Brown Jordan International is one of the premier designers, manufacturers and marketers of fine luxury retail and contract furnishings with brand names that include Brown Jordan, Tommy Bahama, Pompeii, Winston, Vineyard and Atlantis. The company had fiscal 2003 revenues of $346.3 million. BUILDING MATERIALS: Moody's Affirms Low-B & Junk Ratings -------------------------------------------------------- Moody's Investors Service affirmed the B2 rating on the $250 million (upsized from $200 million) of senior second secured notes issued by Building Materials Corporation of America and all of the company's existing ratings. The ratings consider the company's leverage levels, large working capital swings, and concerns regarding its parent company. The ratings consider significant improvement in the company's operating results, liquidity, and credit protection measures since December 2000. Moody's affirmed these ratings: * $250 million (upsized from $200 million) 7.75% senior second secured notes due 8/1/2014, rated B2; * $155 million 8% senior second secured notes due 12/1/2008, rated B2; * $100 million 8% senior second secured notes due 10/15/2007, rated B2; * $150 million 7.75% senior second secured notes due 7/15/2005, rated B2; * Senior implied, rated B2; * Senior Unsecured Issuer, rated Caa1. The ratings outlook is stable. Proceeds from the $50 million add-on to its 7.75% senior second secured notes will be applied towards reducing its revolver balance, working capital needs, and other general corporate purposes. The ratings are constrained by Building Materials' parent company, G-I Holdings Inc., as G-I works its way through Chapter 11 bankruptcy proceedings. Uncertainties include the resolution of the ultimate ownership of Building Materials and whether asbestos litigants will be able to substantively consolidate Building Materials with G-I Holdings by imposing successor liability on Building Materials for asbestos claims against its parent. Furthermore, the ratings are constrained by the company's leverage and its overall credit metrics. The ratings also reflect the structural subordination of the senior notes to the company's revolving credit facility (unrated by Moody's). The ratings incorporate the company's strong brand franchise, its industry-leading market position and its generally strong free cashflow generating ability. The ratings benefit from the expectation that revenues are somewhat insulated from economic swings as 80% of Building Materials' sales stem from the replacement (retrofit) market. Given the high shipping and distribution costs, foreign manufacturing of roofing products does not currently seem to have a significant cost advantage. Furthermore, the company's plant utilization rates are currently running near full capacity. The ratings and or outlook could be affected by the legal front. The ratings and outlook may be downgraded if margins contracted significantly or free cashflow weakened substantially. The ratings could improve if free cashflow strengthened as debt and the parent's troubles were resolved favorably. Additionally, should the improvement in the credit profile continue as it has for the past three years, an upgrade in the outlook and/or ratings may be possible. The new senior notes are guaranteed on a senior basis by the existing and certain future subsidiaries, both jointly and severally. The notes are secured by second-priority liens on substantially all of the company's assets and domestic subsidiary guarantors. The $250 million notes are junior to the company's $350 million revolving credit facility. Headquartered in Wayne, New Jersey, Building Materials Corporation of America is a leading national manufacturer of a broad line of asphalt roofing products and accessories for the residential and commercial markets. Incorporated under the laws of Delaware in 1994, the company is an indirect, wholly owned subsidiary of G-I Holdings Inc., whose principal beneficial owner is Samuel Heyman. Revenues, operating income, and net income for fiscal year 2003 were approximately $1.6 billion, $137 million, and $47 million, respectively. CARBONDALE NURSING: Voluntary Chapter 11 Case Summary ----------------------------------------------------- Debtor: Carbondale Nursing & Rehab Center, Inc. 827 S. 5th Street Springfield, Illinois 62703 Bankruptcy Case No.: 04-74965 Type of Business: The Debtor provides nursing and assisted living services. Chapter 11 Petition Date: November 9, 2004 Court: Central District of Illinois (Springfield) Judge: Larry Lessen Debtor's Counsel: Francis J. Giganti, Esq. 8 South Old State Capitol Plaza Springfield, IL 62701 Tel: 217-492-5113 Fax: 217-492-5129 Estimated Assets: $500,000 to $1 Million Estimated Debts: $1 Million to $10 Million The Debtor did not file a list of its 20-Largest Creditors. CATHOLIC CHURCH: Portland Hires BMC as Claims Agent --------------------------------------------------- The Archdiocese of Portland in Oregon asks Judge Perris for permission to employ The BMC Group, Inc., as noticing and claims agent. Portland wants BMC to act as outside agent to (i) assist the Clerk of the U.S. Bankruptcy Court for the District of Oregon, and (ii) assume certain delegated responsibility for the distribution and publication of notices and proof of claim forms, and the maintenance, secondary processing, and docketing of proofs of tort claims filed in Portland's case. Portland also needs BMC to provide training and consulting support necessary to enable Portland to effectively manage and reconcile claims, and to provide the requisite notices of the deadlines for filing claims. BMC may also be required to provide other administrative services to Portland. "[Portland] believes an outside claims agent is absolutely necessary in this case to both provide advise and services in connection with [Portland's] proposed tort claims noticing procedures and to protect the potentially sensitive nature of information which [Portland] is asking the persons filing Tort Claims to provide on the Tort Proof of Claim Form," Thomas W. Stilley, Esq., at Sussman Shank, LLP, tells Judge Perris. Mr. Stilley relates that Portland selected BMC because of the firm's experience and knowledge in connection with Chapter 11 case administration. Portland believes that BMC is well qualified to serve as notice agent. BMC will maintain a confidential list of Portland's Tort Claimant creditors and keep the information provided on the Tort Proof of Claim forms confidential. BMC will disclose information only to Portland, its insurers, and the Official Committee of Tort Claimants. Portland will compensate and reimburse BMC in accordance with the parties' services agreement. BMC will invoice Portland monthly for services provided in the preceding month. Portland believes that BMC's compensation rates are reasonable and appropriate. Tinamarie Feil at BMC attests that the firm does not hold an interest adverse to Portland or its estate. * * * Judge Perris authorizes Portland to employ BMC as claims and noticing agent, nunc pro tunc to August 18, 2004. BMC's compensation will not exceed $10,000, Judge Perris rules. 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., at Sussman Shank LLP, represent the Portland Archdiocese in its restructuring efforts. In its 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) CE SOFTWARE: Reports Q2 Results & Proceeds with Liquidation Plan ---------------------------------------------------------------- CE Software, Inc. (OTC:CESF) reported results for its second quarter ended March 31, 2004. CE Software reports a net loss of $74,000 for its second quarter of fiscal 2004 on revenues of $195,000. For the same quarter a year ago, the company reported a net loss of $143,000 on operating revenues of $295,000. "Our net loss for the quarter was primarily the result of reduced revenues following the sale of the QuickMail software product in December 2003," said John S. Kirk, president of CE Software, Inc. "Operations were also affected by the efforts expended in preparation for the contingent sale of the remaining operations to Startly Technologies, LLC on April 1, 2004. This sale remains subject to shareholder approval. The lease on our premises at 1801 Industrial Circle in West Des Moines was terminated March 31, 2004. Since April 1 the Company has been operating with minimal staff. The Company has had no operating revenues since the contingent sale on April 1, 2004. We do not expect any future operating revenue if the contingent sale and the proposed liquidation of the Company are approved by shareholders. General and administrative expenses are continuing." John S. Kirk continued, "We are continuing to work on the proposed liquidation that was discussed in our press release of April 13, 2004. The company's operations were sold on April 1, 2004 to Startly Technologies, LLC, subject to shareholder approval. For prior press releases, more information, and to ask questions, set your Web browser to: http://www3.cesoft.com/home/pressrelease-all.html or write to: CE Software, Inc. Shareholder Relations P.O. Box 65580 W. Des Moines Iowa 50265 and ask to be put on the 'shareholder news' mailing list. We have also set up a Web page for shareholder questions and our responses." About the Company CE Software, Inc., an Iowa corporation, develops computer software products that enhance communications, connectivity and productivity for businesses and home-based personal computer users for both Windows and Macintosh operating systems. CKE RESTAURANTS: Better Performance Cues Credit Facility Repricing ------------------------------------------------------------------ CKE Restaurants, Inc. (NYSE: CKR) reported the repricing of its credit facility. The repricing, which was effective Nov. 4, 2004, is a direct result of the Company's improved financial performance and significant debt reduction. The repricing includes an across- the-board 25 basis point reduction in the interest rate the company will pay for borrowings and letters of credit under its credit facility. As a result of the new pricing, the Company's term loan, which had a balance of $230 million on June 2, 2004 and presently has a balance of $149.6 million, will bear interest at LIBOR plus 275 basis points. The revolving portion of the credit facility, which currently has a zero balance, will bear interest at LIBOR plus 250 basis points. The company also has approximately $65 million in letters of credit outstanding, which will now incur fees of 250 basis points per annum. The Company has the potential to further reduce the interest rate on all components of the credit facility by an additional 25 basis points by meeting certain financial covenants. Ted Abajian, executive vice president and chief financial officer commented, "The interest rate reduction is clear evidence of the level of confidence our lenders continue to have in our overall financial position. This repricing comes only 5 months after the restructure of our credit facility." Clark King, managing director for BNP Paribas, lead arranger and administrative agent for the credit facility commented, "BNP Paribas is very proud of the long term relationship we have enjoyed with CKE. The Company has continued to make significant strides in terms of improving both its operating and financial results and we are pleased to support this well earned interest rate reduction." As of the end of the second quarter on Aug. 9, 2004, CKE Restaurants, Inc., through its subsidiaries, had a total of 3,206 franchised or company-owned restaurants in 44 states and in 13 countries, including 1,016 Carl's Jr. restaurants, 2,067 Hardee's restaurants and 105 La Salsa Fresh Mexican Grill(R) restaurants. * * * As reported in the Troubled Company Reporter on June 28, 2004, Standard & Poor's Ratings Services revised its ratings outlook on CKE Restaurants Inc. to positive from stable. All ratings, including the 'B' corporate credit rating, were affirmed. "The outlook revision is based on improving operating trends at the company's Hardee's brand and continued strong performance at its Carl's Jr. brand, which have strengthened credit measures," explained Standard & Poor's credit analyst Robert Lichtenstein. "Standard & Poor's expects credit measures to continue to improve, given better operating trends and easier year-over-year comparisons." Same-store sales in the first quarter of 2004 rose 11.9% at Hardee's and 9.8% at Carl's Jr., while operating margins expanded despite higher commodity costs. As a result, EBITDA rose to $50 million from $30 million the year before. The ratings on CKE reflect the company's participation in the highly competitive quick-service sector of the restaurant industry, weak cash flow protection measures, and a highly leveraged capital structure. The ratings also take into account the poor historical operating performance at the company's Hardee's restaurant concept despite major efforts to improve the brand. These risks are somewhat mitigated by the strength of the company's established Carl's Jr. concept. CLASSIC COMMUNICATIONS: Court Formally Closes Chapter 11 Cases -------------------------------------------------------------- The Honorable Peter J. Walsh of the U.S. Bankruptcy Court for the District of Delaware formally closed the chapter 11 proceedings of Classic Communications, Inc., and its affiliates. Judge Walsh agreed to close the cases because the Debtors' estates have been fully administered pursuant to Section 350 of the Bankruptcy Code and Rule 3022 of the Federal Rules of Bankruptcy Procedure, and the confirmed Plan of Reorganization has been substantially consummated and all required fees have been paid. The Plan became effective on January 16, 2003. Under the terms of the Plan, general unsecured claimants were paid 25% of their allowed claims, and bondholders were provided a pro rata share of subscription rights plus a pro rata share of 1,000,000 shares of New Common Stock of the Reorganized Debtors as well as cash payments. Classic Communications, Inc., is a cable operator focused on non- metropolitan markets in the United States. The Company filed for chapter 11 protection on Nov. 13, 2001 (Bankr. Del. Case No. 01- 11257). Brendan Linehan Shannon, Esq., at Young, Conaway, Stargatt & Taylor, represented the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $711,346,000 in total assets and $641,869,000 in total debts. COLE NATIONAL: Moody's Withdraws Low-B Ratings After Acquisition ---------------------------------------------------------------- Moody's Investors Service withdrew all existing ratings of Cole National Group, Inc., pursuant to the acquisition of the company by Luxottica S.p.A. in October 2004. In connection with the acquisition, the rated notes of Cole National Group, Inc., are being tendered and the credit facility has been terminated with the outstanding balance assumed by Luxottica. Moody's does not rate Luxottica. These ratings have been withdrawn: * Senior Implied rating of B1; * $60 million secured bank credit facility of Ba3; * $125 million 8.625% senior subordinated notes due 2007, of B3; * $150 million 8.875% senior subordinated notes due 2012, of B3; * Senior unsecured issuer rating of B2. Cole National Group, Inc., headquartered in Cleveland, Ohio, is a leading operator of vision centers in the U.S. The company operates leased locations in Sears and Target, as well as operating and franchising Pearle Vision stores. Cole is also one of the largest managed care benefit providers in the U.S. and holds a 21% ownership position in Pearle Europe. In addition to its eyecare businesses, Cole operates approximately 728 Things Remembered locations. Reported revenues were $1.15 billion for the fiscal year ended February 2003. CSFB MORTGAGE: Fitch Assigns Low-B Ratings to Three Cert. Classes ----------------------------------------------------------------- Fitch Ratings affirmed and taken rating action on these CSFB Mortgage Securities Corp. issues: * CSFB mortgage backed pass-through certificates, series 1997-2 -- Class A, P affirmed at 'AAA'; -- Class M affirmed at 'AAA'; -- Class B-1 affirmed at 'AAA'; -- Class B-2 upgraded to 'AAA' from 'AA'; -- Class B-3 upgraded to 'AA' from 'A'; -- Class B-4 affirmed 'B+'. * CSFB mortgage backed pass-through certificates, series 2001-1 -- Class A affirmed at 'AAA'; -- Class M-1 upgraded to 'AAA' from 'AA'; -- Class M-2 affirmed at 'A'. * CSFB mortgage backed pass-through certificates, series 2001-9 -- Class IA, IIA, IIIA affirmed at 'AAA'; -- Class B-1 upgraded to 'AAA' from 'AA'; -- Class B-2 upgraded to 'AA' from 'A'; -- Class B-3 affirmed at 'BBB'; -- Class B-4 affirmed 'BB'; -- Class B-5 affirmed 'B'. * CSFB mortgage backed pass-through certificates, series 2001-HS27 -- Class A affirmed at 'AAA'; -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'; -- Class B affirmed 'BBB'. The upgrades, affecting approximately $12,516,850 of outstanding certificates, are being taken as a result of low delinquencies and losses, as well as increased credit support levels. The affirmations, affecting approximately $48,853,950 of outstanding certificates, are due to credit enhancement and collateral performance generally consistent with expectations. The series 1997-2 current pool factor (current mortgage loans outstanding as a percent of the initial pool) is 12% ($10,411,596) as of the October 2004 distribution. The class B-2 currently benefits from 14.69% subordination provided by the subordinate classes (originally 4%); class B-3 benefits from 6.31% subordination (originally 2.15%). The mortgage pool is currently 91 months seasoned. There are 302 mortgage loans remaining. The 90+ delinquencies and REOs represent 4.34% and 2.25% of the mortgage pool, respectively. There are no loans in the foreclosure bucket. The series 2001-1 transaction is backed by fixed-rate mortgage loans. Credit enhancement for this transaction consists of excess spread, overcollateralization -- OC, and subordination. The current pool factor is only 4.30%. As of the October 2004 distribution date, the credit enhancement levels for all the classes in this transaction have increased from the original credit enhancement levels. In addition to monthly excess interest, class A benefits from 90.17% enhancement (originally 3.95%) in the form of subordination and OC; class M-1 benefits from 34.95% enhancement (originally 1.58%) in the form of subordination and OC; and class M-2 benefits from 9.84% (originally 0.50%) in the form of OC. Current OC is at $773,619 (versus a target OC of $1,000,000). The monthly excess interest was $20,267 in October 2004. The underlying trust for series 2001-9 consists of three groups of mortgage loans designated as Group 1 loans, Group 2 loans and Group 3 loans. The trust consist primarily of fixed-rate one- to four-family residential first mortgage loans. The class B certificates are subordinated to and provide credit enhancement for the class A, class X, class P, and class AR certificates. Additionally, class III-A-1 certificates benefit from a certificate guaranty insurance policy issued by MBIA Insurance Corporation. The class B-1 currently benefit from 28.89% subordination provided by the subordinate classes (originally 1.20%). The class B-2 benefits from 14.96% subordination (originally 0.65%). As of the October 2004 distribution, the mortgage pool is 43 months seasoned. The mortgage pool has substantially paid down, with current pool factor at only 0.04%. The 90+ delinquencies represent 25.89% of the mortgage pool, foreclosures and REO represent 9.99% and 8.80%, respectively. There are 38 loans remaining. Fitch will continue to monitor these deals. DELTA AIR: Pilots Ratify Contract to Save $1 Billion Annually ------------------------------------------------------------- Delta Air Lines (NYSE: DAL) confirmed that it was advised by the Air Line Pilots Association, International (ALPA) that Delta pilots ratified a new contract to deliver $1 billion in long-term, annual savings to the company. Many of the key provisions in the contract, which is a critical component of Delta's comprehensive out-of-court restructuring efforts, are scheduled to take effect on Dec. 1, 2004. The savings will be realized through a combination of changes to wages, pension and other benefits, and work rules. In an internal memorandum to Delta pilots, Delta CEO Jerry Grinstein recognized the achievement so far of the company's multi-faceted efforts to avoid bankruptcy. "Your contributions, coupled with the financial benefits realized from Delta people throughout the company, other stakeholders, and our own operational improvements, represent a Herculean effort to control our own destiny -- a feat that is often attempted but seldom attained in our industry," he wrote. Delta's combined restructuring efforts are intended to deliver $5 billion in annual financial benefits by 2006, as compared to its 2002 base year -- an amount the company has calculated it needs to have the opportunity to achieve long-term viability. Through its previously announced Profit Improvement Initiative (PII), Delta is on track to deliver $2.3 billion of the $5 billion annual target by the end of 2004. Delta is implementing a comprehensive transformation plan, announced in September, to deliver the targeted savings while improving operational efficiencies and strengthening its customer focus. "We are preparing to implement the largest single-day schedule transformation in our history. By Jan. 31, 2005, more than 51 percent of our network will be restructured, creating new opportunities for increased efficiency, better operational performance, and improved aircraft utilization. Buttressed by additional improvements to our product and services, network, and fleet, to be carried out immediately and over the next 34 months, our comprehensive plan is designed to take it to the competition and win," Mr. Grinstein noted. Delta has entered into commitment letters with American Express and General Electric under which those companies agreed to provide Delta with a total of $1 billion of financing. These financing commitments are subject to significant conditions. The company also is in discussions with aircraft lessors, vendors and suppliers to achieve an additional $100 million in annual financial benefits. Delta had previously announced a reduction of between 6,000-7,000 additional non-pilot jobs, including a 20 percent reduction in its officer ranks. Other steps include further changes to non-pilot pay and benefits, most of which are scheduled to take effect Jan. 1, 2005. These reductions, together with operational changes and remaining PII initiatives, are expected to deliver approximately $1.6 billion of the total annual benefits targeted for 2006. "Certainly, the completion of hard but necessary restructuring steps is not a cause for celebration. There are no winners in this situation. There are only people caught in the grips of a permanently changing industry and a demanding marketplace who are trying very hard, together and in good faith, to preserve careers and proud professions while helping their company survive, provide jobs and eventually grow profitably," Mr. Grinstein commented. The company is planning soon to unveil details of its Employee Reward Program -- a combination of equity, profit sharing and incentive performance payouts. "Based on our determined and collective efforts, we now have a platform in place that we hope will result in long-term viability and a plan to tangibly recognize the significant contribution Delta's people are making to their company," Mr. Grinstein noted. "Long-term viability, and a program that delivers an upside when a company has recovered and times are better, provide the best basis for stable and rewarding careers," he said. 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 AIR: 95% of Flight Superintendents Agree to Revised Pact -------------------------------------------------------------- Delta Air Lines' (NYSE: DAL) 185 Flight Superintendents, represented by the Professional Airline Flight Control Association (PAFCA), have ratified a new five-year agreement. Of votes cast, 95 percent of the Flight Superintendents voted in favor of the new agreement. "This vote sends a strong signal that our Flight Superintendents are ready and willing to participate in Delta's transformation," said Neil Stronach, vice president, Operations Planning, Control and Reliability Center. "We can only be successful over the long run by reducing costs while improving customer service, and the foundation to service is reliability. Our Flight Superintendents are instrumental in helping Delta achieve operational excellence, one of our transformation cornerstones, and we look forward to sharing the success that these sacrifices make possible." The new contract includes a 10 percent wage reduction and significant productivity enhancements. The Flight Superintendents also agreed to closely align their benefits with those of Delta's non-contract employees, including converting to a cash balance retirement plan. These changes will result in significant cost savings for Delta. 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. At September 30, 2004, Delta Air Lines reported a $3.58 billion shareholder deficit, compared to a $659 million shareholder deficit at December 31, 2003. DELTA AIR: Can Issue Up to 75,000,000 Shares, NYSE Says ------------------------------------------------------- Delta Air Lines, Inc. (NYSE: DAL - News) says the Audit Committee of its Board of Directors approved the use of an exception to the New York Stock Exchange's shareowner approval policy so that the company could issue up to 75 million shares of common stock as part of its efforts to achieve a successful out-of-court restructuring. Approximately 63 million of these shares will be issuable upon the exercise of stock options to be granted to eligible company employees. In taking this action, the Audit Committee determined that the delay necessary in obtaining shareowner approval would seriously jeopardize the financial viability of the company. The New York Stock Exchange has accepted Delta's reliance on the exception to the Exchange's shareowner approval policy. As previously reported, Delta's out-of-court restructuring plan is intended to provide the company with $5 billion in annual benefits by 2006 (as compared to 2002), while also improving the service Delta provides to its customers. Delta believes it is on schedule to achieve $2.3 billion of the targeted $5 billion in annual benefits by the end of 2004 through previously implemented initiatives under its Profit Improvement Initiatives program, which began in 2002. Reductions in employee costs are a key element of the restructuring plan. With respect to its non-pilot employees, Delta plans to: -- eliminate between 6,000 and 6,900 jobs during the next 18 months; -- implement a 10 percent across-the-board pay reduction; and -- reduce certain employee benefits. Delta also recently announced that it reached a tentative agreement with its pilot union that will, if ratified by the union membership, provide the company with $1 billion in long-term, annual cost reductions through a combination of changes in wages, pension and other benefits and work rules. As part of its restructuring program, Delta is implementing new employee incentive programs, including granting non-qualified stock options to approximately 57,000 employees. Each stock option will represent the right to purchase a specified number of shares of Delta common stock at a price per share equal to the closing price of Delta common stock on the New York Stock Exchange on the date the stock options are granted. Approximately 63 million shares of Delta common stock will be subject to these stock options. The options will become exercisable in three equal installments on the first, second and third anniversaries of the grant date. Unexercised options will expire at the close of business on the sixth anniversary of the grant date. Members of the company's Board of Directors and Delta officers will not participate in these programs. The company also plans to issue up to 12 million shares of its common stock to certain debt holders who agree to defer debt maturing in the near term, and to aircraft lessors who participate in the company's aircraft financing concession program. These shares will be issued on or after Nov. 23, 2004. Delta is mailing a letter to all its shareowners notifying them of the company's intent to issue shares of common stock as described above without seeking shareowner approval. The company will not issue any of these shares until at least ten days after this letter is mailed. The securities will not be or have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. 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. At September 30, 2004, Delta Air Lines reported a $3.58 billion shareholder deficit, compared to a $659 million shareholder deficit at December 31, 2003. DEVELOPERS DIVERSIFIED: Buying 15 Real Estate Assets for $1.15B --------------------------------------------------------------- On November 2, 2004, the Developers Diversified Realty Corporation entered into an agreement to purchase 15 Puerto Rican retail real estate assets, totaling nearly 5.0 million square feet from Caribbean Property Group, LLC. The total purchase price is approximately $1.15 billion. The transaction is expected to close during the first quarter of 2005, subject to the Company's due diligence and other standard closing conditions. To finance the acquisition, the Company intends to utilize approximately $300 million in proceeds generated by the joint venture sales of neighborhood grocery anchored centers from its existing portfolio. In addition, the Company will assume approximately $660 million of debt in connection with the acquisition from CPG, of which approximately 85% may be paid off within six months of closing of the acquisition. The Company intends to finance the remainder of the acquisition through a combination of sources, including additional asset sales, new debt financing and private equity. The Company is in discussions with the manager of Macquarie DDR Trust regarding certain assets in the CPG portfolio, which meet MDT's investment criteria that MDT may purchase in the future. Developers Diversified Realty Corporation -- http://www.ddrc.com/ -- owns and manages 460 retail operating and development properties totaling approximately 101 million square feet of real estate in 44 states. Developers Diversified is a self- administered and self-managed real estate investment trust -- REIT -- operating as a fully integrated real estate company, which develops, leases and manages shopping centers. * * * As reported in the Troubled Company Reporter on April 7, 2004, Fitch affirmed Developers Diversified Realty's ratings at 'BBB-' for $833 million outstanding senior unsecured notes due 2004 through 2018, and 'BB+' for $535 million outstanding preferred stock for the real estate investment trust, following the company's announcement to acquire a $2.3 billion retail portfolio. The Rating Outlook is Stable. ENRON CORP: Wants Court to Reduce Two State Street Bank Claims -------------------------------------------------------------- As previously reported, Enron Corporation and its debtor- affiliates brought a lawsuit against Citibank, N.A., JPMorgan Chase & Co., Canadian Imperial Bank of Commerce, Barclays, Merrill Lynch & Co., Inc., and Deutsche Bank AG and certain of their subsidiaries and affiliates on September 24, 2003. The MegaClaim Litigation is currently pending. Based in part on the Enron Examiner's findings, the MegaClaim Litigation alleges that Citibank, among others, knowingly participated with a small group of former senior officers and managers of Enron in a scheme to manipulate and misstate Enron's financial condition from 1997 to 2001. The MegaClaim Litigation also alleges common law claims of aiding and abetting, breach of fiduciary duty, and aiding and abetting fraud. In the MegaClaim Litigation, the Debtors seek, on behalf of their estates, among other things, to equitably subordinate the claims held by Citibank and to recover significant damages. ENA Claim On October 11, 2002, State Street Bank and Trust Company of Connecticut, National Association filed Claim No. 10814 for $25,394,248 against Enron North America Corp. as a secured claim. The ENA Claim was filed by State Street Bank as trustee of the DPLP Asset Monetization Trust I on behalf of itself, Citibank, N.A., Societe Generale, Southwest Agency, The Bank of Nova Scotia, Bank Hapoalim and Dexia Bank. State Street Bank as trustee entered into the First Amended and Restated Contractual Asset Sale Agreement dated December 30, 1997, executed by ECT Coal Company No. 1, LLC, a non-Debtor subsidiary of ENA, and the Claimants. Pursuant to the Coal Agreement, CoalCo assigned its rights to certain royalty payments to the DPLP Trust in exchange for $110 million. The DPLP Trust entered into a SWAP Agreement dated September 30, 1997, with ENA f/k/a Enron Capital & Trade Resources Corp. Pursuant to the SWAP Agreement, ENA paid the monthly interest obligation of the DPLP Trust in exchange for a floating payment and $40 million. Toronto Dominion Bank issued that certain Irrevocable Letter of Credit dated December 30, 1997, to provide credit support to the Bank Claimants in an amount not to exceed $9 million. On December 4, 2001, the DPLP Trust terminated the SWAP Agreement with ENA. State Street Bank then filed the ENA Claim against ENA for amounts owing under the SWAP Agreement. The ENA Claim asserts that to the extent that (i) the CoalCo royalty payments are consolidated with assets of ENA in any manner, or (ii) the purchase of the royalty payments is recharacterized as debt, then State Street Bank reserves the right to assert that all amounts due under the SWAP Agreement are secured by the royalty payments, and to setoff amounts owing under the Coal Agreement against ENA. The royalty payments assigned by CoalCo have not been consolidated with the assets of ENA, nor has ENA, or any other party, contended that ENA is the owner of these royalty payments. Additionally, neither ENA nor the Enron Examiner have alleged that the Coal Agreement was actually a loan made to ENA or CoalCo by the Claimants. Guaranty Claim On October 11, 2002, State Street Bank filed Claim No. 11926 for $25,770,736 against Enron Corporation as a secured claim. The Guaranty Claim was filed by State Street Bank as trustee of the DPLP Trust. The Guaranty Claim is based on a guaranty dated September 30, 1997, executed by Enron in State Street Bank's favor that guarantees the performance of (i) CoalCo under the Coal Agreement and (ii) ENA under the SWAP Agreement. The Guaranty Claim contends that Enron is liable to State Street Bank in connection with the Coal Agreement for $376,489 and SWAP Agreement for $25,394,248. The Guaranty Claim provides that to the extent that (i) the CoalCo royalty payments or assets held by DPLP are consolidated with assets of Enron in any manner or (ii) the purchase of the royalty payments is recharacterized as debt, then State Street Bank reserves the right to assert that all amounts due under the Guaranty are secured by those assets and to set off amounts owing under the Coal Agreement and SWAP Agreement against Enron. Debtors' Objection to Claims The Debtors object to the ENA Claim and Guaranty Claim. The Debtors have reviewed the Claims and have found that the Claims are significantly overstated and no basis exists to classify those Claims as secured claims. Citibank holds, approximately, a 20% interest in the Claims and is a defendant in the MegaClaim Litigation, which alleges, among other things, that all claims held by Citibank should be equitably subordinated or otherwise disallowed. To the extent that the Claims are ultimately allowed, the Debtors will make distributions to the Claimants, except for Citibank, based on their pro rata share of the Claims. Any distributions based on Citibank's pro rata share of the allowed Claims will be funded into the Disputed Claims Reserve pending the outcome of the MegaClaim Litigation with respect to Citibank. Accordingly, the Debtors ask the Court to: -- reduce the amount of the Claims to a dollar amount to be determined, but in no event greater than $15 million each; -- reclassify the Claims as general unsecured claims; and -- direct the Debtors to make a distribution to the Disputed Claim Reserve based on Citibank's pro rata share of the allowed Claims, pending resolution of the MegaClaim Litigation with respect to Citibank. 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: Wants Court to Disallow $366-Mil Oregon Claim --------------------------------------------------------- In October 2003, the State of Oregon filed Claim No. 24387 to amend its Claim No. 12949. Oregon claims more than $366 million in "civil penalties" based on Enron Corporation and its debtor- affiliates' alleged manipulation of the Pacific Northwest market for wholesale power. The claim is based both on certain state statutes, including the Oregon antitrust law and the Oregon Racketeer Influenced and Corrupt Organization Act, and federal antitrust, mail and wire fraud statutes. Edward A. Smith, Esq., at Cadwalader, Wickersham & Taft, in New York, recounts that in January 2004, the Debtors objected to the Oregon Claim, contending that: (i) the Federal Power Act preempts Oregon's claims relating to wholesale electricity rate-setting; and (ii) because Oregon has already litigated the market manipulation claim before the Federal Energy Regulatory Commission, which determined that the Pacific Northwest energy market was competitive, Oregon is collaterally estopped from re-litigating that issue. Pending FERC Proceedings The FERC launched a comprehensive investigation of Enron's wholesale power trading activities, Mr. Smith relates. On March 26, 2003, the FERC issued an order directing Enron Power Marketing, Inc., and Enron Energy Services, Inc., to show cause why their authority to sell power at market-based rates should not be revoked. In June 2003, the FERC issued an order immediately revoking EPMI and EES' blanket licenses to sell power in various western state markets. The FERC found that EPMI and EES had engaged in gaming in the form of inappropriate trading strategies. The "trading strategies" the FERC identified, included the same trading strategies listed in the Oregon Claim. By its January 22, 2004 Order, the FERC denied requests for rehearing of the Revocation Order. In companion orders also issued June 25, 2003 -- the Gaming and Partnership Orders -- the FERC found that EPMI and EES, could also be found to have engaged in gaming or anomalous market behavior in violation of the FERC-approved tariffs during the period from January 1, 2000, through June 20, 2001. The FERC accordingly ordered EPMI and EES to show cause in a trial-type evidentiary proceeding why they should not be found to have engaged in prohibited gaming practices, and authorized the Administrative Law Judge to recommend monetary remedies of disgorgement of unjust profits and any other appropriate non- monetary remedies. The FERC-ordered evidentiary proceeding is currently in the pre- trial phase, Mr. Smith says. The FERC is also considering claims by third-party purchasers of electricity in the California market seeking refunds from EPMI, EES, and other market participants for the difference between the actual prices paid and the market prices that allegedly should have prevailed absent the alleged dysfunction in the market. The California Refund Proceedings are ongoing. The Pacific Northwest Market Case Mr. Smith points out that the FERC already completed an investigation of the Pacific Northwest wholesale power market, finding that the market was not manipulated. In its June 25, 2003 decision, the FERC considered whether Puget Sound Energy, Inc., and various intervenors were entitled to refunds based on purported unjust and unreasonable charges for spot market bilateral wholesale power sales for the period beginning December 25, 2000, through June 20, 2001. The FERC determined that at the relevant times, the market for spot sales of electricity in the Pacific Northwest was competitive and functional because prices were not unreasonable. The FERC also declared that prices in the region were "driven up by a combination of factors, including reduced available power due to drought, increased demand, and relatively high natural gas prices." Oregon was a party in the case. Oregon's Claim Must Be Summarily Disallowed Thus, the Debtors ask the U.S. Bankruptcy Court for the Southern District of New York for a judgment summarily disallowing and expunging Oregon's Claim No. 24387. Mr. Smith maintains that Oregon's state-law based claims, the federal antitrust, mail fraud and wire fraud claims, and the common law fraud and conversion claims are preempted by either the FPA, the Filed Rate Doctrine or both. To the extent the Oregon Claim encompasses claims under federal law that are not preempted, the only authority that can decide those claims, the FERC, has already decided them against Oregon. Mr. Smith reminds the Court that the FERC already concluded that the Pacific Northwest market was free of manipulation and that no monetary remedies were warranted. Oregon cannot now re-litigate the same claims of market manipulation and the appropriateness of monetary relief that the FERC resolved. Summary judgment is proper where there is no genuine dispute of a material fact and a party is entitled to judgment as a matter of law. The Debtors believe that they are entitled to a judgment on their objection summarily disallowing and expunging the Oregon Claim. Pending adjudication of their request for summary judgment, the Debtors also ask the Court to stay discovery with respect to the Oregon Claim and the Debtors' objection. Allowing discovery, Mr. Smith says, would waste the Debtors' and the Court's time and resources. 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. 129; Bankruptcy Creditors' Service, Inc., 15/945-7000) ENRON CORP: Asks Court to Approve U.S. Agencies' Settlement Pact ---------------------------------------------------------------- Pursuant to Rule 9019(a) of the Federal Rules of Bankruptcy Procedure, Debtors Enron Energy Services Operations, Inc., Enron Power Marketing, Inc., Enron Energy Services, Inc., as successor in interest to Enron Capital & Trade Resources Corp., ask Judge Gonzalez to approve their settlement agreement with: (i) the United States of America, acting by and through the General Services Administration, on behalf of itself and its agencies -- the General Services Administration, Veterans Administration, Coast Guard, National Park Service, Internal Revenue Service, Department of Agriculture, National Archives and Record Administration, Hanscom AFB, and Department of Labor; and (ii) the United States Department of Energy, acting by and through the Administrator of Southeastern Power Administration. The Contracts EESI and GSA entered into a certain Indefinite Quantity Contract for Electrical Generator Services at various federal buildings in New England dated May 20, 1998, pursuant to which EESI agreed to supply electric energy to GSA and the United States of America, acting by and through the Agencies. Under the GSA Contract, EESO and GSA entered into certain Value Added Services contracts. EPMI and Southeastern Power entered into a contract executed by the United States of America, Department of Energy, acting by and through the Administrator of Southeastern Power Administration, and EPMI, dated February 7, 1997, pursuant to which EPMI will make necessary arrangements for the coordination, delivery, and sale of energy in scheduled quantities as determined by SEPA. On March 18, 2003, EESI and Enron Energy Marketing Corp. entered into a Settlement Agreement and Mutual Release with Boston Edison Company, Commonwealth Electric Company and Cambridge Electric Light Company that releases GSA and the Agencies from certain payment obligations to the Companies. Nevertheless, Boston Edison, Commonwealth Electric and Cambridge Electric are attempting to collect certain Transportation and Distribution charges of about $743,000 from GSA and the Agencies. The Settlement Agreement After discussions, the parties negotiated the Settlement Agreement, which provides that: (a) The Agencies will pay EESI $4,331,091; (b) Southeastern Power will pay EPMI $59,884; (c) The Contracts will be terminated, to the extent not already otherwise validly terminated; (d) The parties will exchange a mutual release of claims related to the Contracts; and (e) All claims filed by the Counterparties will be deemed withdrawn and released. Among the claims that will be deemed withdrawn and released are: Claimant Claim No. Claim Amount -------- --------- ------------ Fed Reserve Bank 17470 1,869,493 Internal Revenue Service 12481 $127,096 Internal Revenue Service 15532 127,096 Internal Revenue Service 15533 127,096 National Archives 15001 205,125 New England Healthcare 13683 343,729 U.S. Air Force 20618 449,823 USDA Agricultural Research 15471 452,539 U.S. Coast Guard 19280 120,482 U.S. Dept. of Veteran Affairs 21536 343,729 U.S. GSA 18501 774,578 Edward A. Smith, Esq., at Cadwalader, Wickersham & Taft, in New York, points out that the Settlement will result in a substantial payment to the estates. Moreover, the Settlement Agreement will avoid future disputes and litigation concerning the Contracts since the parties have agreed to release one another from the Claims arising from it. The Settlement Agreement will therefore allow the Debtors to capture the value of the Contracts for their estates, while avoiding the costs associated with possible future litigation. 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. 129; Bankruptcy Creditors' Service, Inc., 15/945-7000) EXIDE TECH: Will Host Second Quarter Conference Call on Nov. 16 --------------------------------------------------------------- Exide Technologies (NASDAQ: XIDE), a global leader in stored electrical energy solutions, will release financial results for the second fiscal quarter 2005 ended Sept. 30, 2004 after the market closes on Monday, Nov. 15, 2004. Craig H. Muhlhauser, Exide's President and Chief Executive Officer, J. Timothy Gargaro, Executive Vice President and Chief Financial Officer, and other company executives will host a conference call for members of the investment community to discuss the Company's financial results and general business operations at 9:00 AM Eastern Time on Tuesday, Nov. 16, 2004. The conference call information follows: Date: Tuesday, Nov. 16, 2004 Time: 9:00 AM Eastern Time Domestic Dial-In Number: 800-231-5571 International Dial-In Number: 973-582-2703 For individuals unable to participate in the conference call, a telephone replay will be available from 1:00 PM on Nov. 16, 2004, until midnight on Nov. 24, 2004, at: Domestic Replay Number: 877-519-4471 International Replay Number: 973-341-3080 Passcode: 5331271 An audio webcast of the conference call can also be accessed via http://www.exide.comand will be available for one week. RealPlayer or Windows Media Player will be required in order to access the webcast. Headquartered in Princeton, New Jersey, Exide Technologies is the world-wide leading manufacturer and distributor of lead acid batteries and other related electrical energy storage products. The Company filed for chapter 11 protection on April 14, 2002 (Bankr. Del. Case No. 02-11125). Matthew N. Kleiman, Esq., and Kirk A. Kennedy, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. The Court confirmed Exide's First Amended Joint Plan of Reorganization on April 20, 2004, and that plan took effect May 5, 2004. When they filed for protection from their creditors, the Debtors listed $2,073,238,000 in assets and $2,524,448,000 in debts. (Exide Bankruptcy News, Issue No. 55; Bankruptcy Creditors' Service, Inc., 215/945-7000) FAIRFAX FINANCIAL: 3rd Qtr. Results Won't Affect Fitch's Ratings ---------------------------------------------------------------- Fitch Ratings commented that Fairfax Financial Holdings Limited's ratings and Rating Watch Negative status are unaffected by its recent disclosures via its third-quarter 2004 financial filings and investor conference held on November 8, 2004. Fitch recognizes the positive credit implications afforded by Fairfax's forthcoming $300 million stock offering, which is expected to increase holding company cash and investments to over $600 million, provide flexibility to further term out holding company debt maturities, and help offset unexpected costs/shortfalls in parental dividends/tax-sharing payments. Also, a recently proposed commutation of several reinsurance transactions will lessen the liquidity strain on Fairfax's subsidiary, nSpire Re Limited, and free up potentially needed intercompany reinsurance capacity. However, Fitch continues to believe that Fairfax's long-term credit fundamentals remain weak and that management continues to face challenges with liquidity issues despite substantial funds generated via capital market access or realized gains in recent years, notably: -- Financial leverage remains high; based on U.S. GAAP balance sheet adjustments, Fairfax's pro forma debt to total capital ratio is 45% at September 30, 2004, including the proposed equity issuance; -- Fixed-charge coverage as measured by EBIT-to-interest costs remains negative for the nine months ending Sept. 30, 2004; -- Operating earnings remain unfavorable due in part to losses related to run-off operations. In the past few years, the primary source of earnings for Fairfax has been realized gains on invested assets, implying a low quality of reported earnings; -- Reinsurance utilization and credit exposure to reinsurers is high, as recoverables were 277% of reported shareholders' equity at September 30, 2004; -- Deteriorating market pricing in the U.S. casualty segment may lead to a continued need to tap alternate sources to parental dividends and earnings retention to service subsidiary and holding company obligations; -- Loss reserves have developed unfavorably in the past few years, and uncertainty remains regarding reserve adequacy; -- Fairfax apparently is now unable to take advantage of its corporate credit facility due to stricter financial convents effective mid-2004; and -- Based on Fairfax's competitive position in the U.S. market, Fitch believes the company is more vulnerable to commercial lines price softening and a shifting market preference toward higher rated insurers than peers. Fitch also believes that a number of management actions, while providing short-term benefits, have further limited flexibility. Furthermore, the very need to take these actions is a reflection of the challenges management faces in maintaining organizational viability, including: -- The change in provider of roughly $200 million of capital to Advent Capital PLC from nSpire Re to Odyssey Re Holdings Corp., which may have allowed for nSpire Re to fund Fairfax's indemnification of its runoff subsidiary TIG Insurance Company against losses related to Kingsmead; -- Increased usage of intercompany guarantees that raises the potential liquidity requirements at Fairfax to fund either direct indemnifications or support subsidiary indemnifications; -- Effective movement of letters of credit from Fairfax's secured corporate facility to a new secured facility that Fitch believes may provide inferior claims paying capacity, compared with its replacement, and raises concerns regarding the potential for 'double pledging' of assets effectively securing the facility; -- Extensive utilization of internal and external income smoothing/capital enhancing financial reinsurance has negatively affected investment income and creates difficulty in understanding and interpreting financial results. -- Sales of minority stakes in profitable operating segments have decreased available operating cash flow. -- The company's investment strategy that has produced large reported realized investment gains, while enhancing capitalization of operating subsidiaries, has also diminished future investment income. -- The proposed unwinding of sizable finite reinsurance agreements among TIG, nSpire Re, and outside parties may in part be prompted by a need to 'free up' capacity at nSpire Re to potentially absorb future loss reserve development among other Fairfax entities, such as Crum & Forster. -- The sale of common stock below book value is highly unusual and may reflect a continued need to maintain significant holding company cash to offset unpredictable/limited parental cash flow from subsidiaries despite improvement in core operating earnings. Fitch believes that Fairfax management has proven to be highly skilled in accessing the capital markets and executing transactions to boost capital and meet liquidity challenges. However, following implementation of some of the actions above, management options to address future challenges are now fewer. Fitch believes that the uncertainty related to ongoing rating concerns such as loss reserve adequacy of Fairfax's growing runoff book of business may create additional funding requirements. Furthermore, Fitch is concerned by what it perceives as a meaningful lack of public disclosures in regard to certain transactions, subsidiaries, reclassifications of prior year balance sheet, and footnote information. The complexity of Fairfax's organizational structure, and the nature and volume of intercompany transactions adds to the challenges in completing a credit analysis of the organization. Specifically, Fairfax's ownership of its operating subsidiaries winds through several intermediate holding companies, located in various countries, and the ownership chain has been altered several times in the past few years. These intermediate holding companies have been involved in various transactions over time, including internal financing, intercompany reinsurance, and guaranty arrangements that have not always been fully disclosed, and the rationale for some of these transactions is not always apparent. Fitch will consider Fairfax's Rating Watch following the completion of the proposed common stock offering and reinsurance commutations and after a review of year-end results and disclosures by Fairfax. Fitch remains concerned by the level and quality of public disclosures by the company and will consider withdrawing the ratings if it is determined that the company's year-end 2004 disclosures do not allow for a reasonable assessment of the level or direction of Fairfax's credit worthiness. Fitch's ratings of Fairfax are based primarily on public information. These ratings remain on Rating Watch Negative by Fitch: * Fairfax Financial Holdings Limited -- No action on long-term issuer rated 'B+'; -- No action on senior debt rated 'B+'. * Crum & Forster Holdings Corp. -- No action on senior debt rated 'B'. * TIG Holdings, Inc. -- No action on senior debt rated 'B'; -- No action on trust preferred rated 'CCC+'. * Members of the Fairfax Primary Insurance Group -- No action on insurer financial strength rated 'BBB-'. * Members of the Odyssey Re Group -- No action on insurer financial strength rated 'BBB+'. * Members of the Northbridge Financial Insurance Group -- No action on insurer financial strength rated 'BBB-'. * Members of the TIG Insurance Group -- No action on insurer financial strength rated 'BB+'. * Ranger Insurance Co. -- No action on insurer financial strength rated 'BBB-'. The members of the Fairfax Primary Insurance Group include: * Crum & Forster Insurance Co. * Crum & Forster Underwriters of Ohio * Crum & Forster Indemnity Co. * Industrial County Mutual Insurance Co. * The North River Insurance Co. * United States Fire Insurance Co. * Zenith Insurance Co. (Canada) The members of the Odyssey Re Group are: * Odyssey America Reinsurance Corp. * Odyssey Reinsurance Corp. Members of the Northbridge Financial Insurance Group include: * Commonwealth Insurance Co. * Commonwealth Insurance Co. of America * Federated Insurance Co. of Canada * Lombard General Insurance Co. of Canada * Lombard Insurance Co. * Markel Insurance Co. of Canada The members of the TIG Insurance Group are: * Fairmont Insurance Company * TIG American Specialty Ins. Company * TIG Indemnity Company * TIG Insurance Company * TIG Insurance Company of Colorado * TIG Insurance Company of New York * TIG Insurance Company of Texas * TIG Insurance Corporation of America * TIG Lloyds Insurance Company * TIG Specialty Insurance Company FEDERAL-MOGUL: Inks Pact to Sell Dayton Transmission Operation -------------------------------------------------------------- Federal-Mogul Corporation (OTCBB:FDMLQ) and Sinterstahl Group have signed an agreement under which Federal-Mogul would sell its Dayton, Ohio, powdered metal operation to Sinterstahl Group. The agreement is subject to approval by the U.S. Bankruptcy Court for the District of Delaware and other conditions. The Dayton related business -- with forecasted sales of approximately $10 million for 2004 -- develops, manufactures and sells powdered metal automatic transmission components and fuel and oil pump gerotors for the automotive industry, as well as other powdered metal components for the appliance industry. The business currently employs 111 people. Under the sale agreement, Sinterstahl Group would acquire the Dayton facility and related Plymouth, Michigan, R&D assets, as well as all inventory. Federal-Mogul would retain all other Plymouth R&D assets, as well as its Valve-train business in Waupun, Wisconsin, and all sintered operations outside of the United States. "The sale of the Dayton operation is well aligned with the company's strategy to focus on its core businesses," said Chairman of the Board and Interim CEO Robert S. Miller. The company will file a motion with Delaware Bankruptcy Court for a sale hearing under Section 363 of the U.S. Bankruptcy Code; a hearing is tentatively scheduled for Dec. 2. The pending sale is expected to be completed by Dec. 31, 2004. Headquartered in Southfield, Michigan, Federal-Mogul Corporation -- http://www.federal-mogul.com/-- is one of the world's largest automotive parts companies with worldwide revenue of some $6 billion. The Company filed for chapter 11 protection on October 1, 2001 (Bankr. Del. Case No. 01-10582). Lawrence J. Nyhan, Esq., James F. Conlan, Esq., and Kevin T. Lantry, Esq., at Sidley Austin Brown & Wood, and Laura Davis Jones, Esq., at Pachulski, Stang, Ziehl, Young, Jones & Weintraub, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from its creditors, they listed $10.15 billion in assets and $8.86 billion in liabilities. At Sept. 30, 2004, Federal-Mogul's balance sheet showed a $1,431,500,000 shareholder deficit, compared to a $1,376,900,000 deficit at Dec. 31, 2003. FEDERAL-MOGUL: Asks Court to Okay U.K. Business Sale Bid Protocol ----------------------------------------------------------------- Federal-Mogul Corporation and its debtor-affiliates, the Official Committee of Unsecured Creditors, the Official Committee of Asbestos Claimants, the Legal Representative for Future Asbestos Claimants, JPMorgan Chase Bank as Administrative Agent for the prepetition lenders, and the Official Committee of Equity Security Holders ask the U.S. Bankruptcy Court for the District of Delaware to establish certain bid procedures for the marketing and any possible sales of the assets and businesses of the U.K. Debtors. James E. O'Neill, Esq., at Pachulski Stang Ziehl Young Jones & Weintraub, in Wilmington, Delaware, recounts that the U.K. Administrators for the U.K. Debtors believed that sales of the assets and businesses will provide greater distributions to creditors of the U.K. Debtors than the distributions provided under the Chapter 11 plans proposed by the Plan Proponents. The Plan Proponents vehemently disagree with the Administrators and submit that any liquidation will result in the loss of jobs in the U.K. and materially lesser distributions to creditors of the U.K. Debtors. Nevertheless, the Plan Proponents have sought to accommodate the Administrators to ensure the continued coordination of the U.S. and U.K. Proceedings to the fullest extent possible. The Plan Proponents revised: -- the plan to specifically provide for a possible "controlled realization" of the U.K. Debtors; and -- their disclosure statement to set forth their position and the position of the Administrators regarding the "controlled realization" and its impact on distributions to creditors of the U.K. Debtors. After the Disclosure Statement Hearing, the Administrators completed their additional due diligence and engaged in further plan discussions with the Plan Proponents. However, the Administrators still believe that they can achieve greater distributions through a controlled realization of the U.K. Debtors, as opposed to the reorganization contemplated by the Plan. Accordingly, the marketing and possible sales of the assets and business of the U.K. Debtors may now occur. Mr. O'Neill tells the Court that the Plan Proponents have asked the Administrators to disclose the procedures they would propose to establish and follow in the marketing or sales of the assets and businesses of the U.K. Debtors. The Plan Proponents want to ensure that any sale is lawful and appropriate under both U.K. and U.S. law and thereby ensure the continued coordination of the cross-border plenary insolvency proceedings to the fullest extent possible. As of September 16, 2004, however, the Administrators have refused to provide any information regarding the procedures they intend to follow in connection with the controlled realization of the U.K. Debtors. The Plan Proponents ask the Court to approve their proposed bid procedures for any sales of the assets and business of the U.K. Debtors. The important terms of Bidding Procedures are: A. The Sale Assets and the Bid Designated Assets and Assumed Liabilities will refer to the assets, executory contracts, unexpired leases and related liabilities subject to sale and identified in any proposal or bid tendered in connection with the Bidding Procedures. The Sale Transaction will be on an "as is, where is" basis. All of the U.K. Debtors' right, title and interest in the Designated Assets will be sold free and clear of encumbrances, if any, to attach to the net proceeds of the Sale Transaction. Any bid must be for all of the Designated Assets and Assumed Liabilities for that particular U.K. Debtor or group of U.K. Debtors for which a bidder is submitting a bid. B. The Qualified Bidder A party who wishes to submit a bid must: (1) execute a confidentiality agreement, the form of which is available from the U.K. Debtors' counsel, prior to receiving any due diligence; and (2) make a cash deposit of 10% of its initial bid amount which will be paid concurrently with its submission of a bid. The cash deposit will be held in an escrow account at a financial institution designated by the U.K. Debtors and will be subject to an escrow agreement, the form of which is available from the U.K. Debtors' investment banker. Upon submitting a qualified bid, each Qualified Bidder will receive a confidential memorandum containing information and financial data with respect to the Designated Assets and the Assumed Liabilities. C. Access to Information Each Qualified Bidder will receive reasonable access during normal business hours to the U.K. Debtors' books, records, facilities, key personnel, officers, independent accountants and legal counsel for the purpose of completing all due diligence investigations deemed necessary by a Qualified Bidder. However, the dissemination of any confidential or proprietary information will not be required if that information would be detrimental to the Debtors' interests and operations. D. The Qualified Bid A proposed bid must provide: (1) the purchase of the Designated Assets and assumption of the Assumed Liabilities that the Qualified Bidder is interested in acquiring; (2) the anticipated purchase price or price range for the Designated Assets together with the Assumed Liabilities that the Qualified Bidder is interested in acquiring; (3) any additional conditions to closing that the Qualified Bidder may wish to impose; (4) the nature and extent of additional due diligence it may wish to conduct; (5) the amount of any proposed credit bid; and (6) other information as may be reasonably requested in order to assess the Qualified Bidder's authority and ability to consummate a Qualified Bid for the Designated Assets together with the Assumed Liabilities. Any Qualified Bidder must disclose these information in its bid as well: (1) the identity of all participants providing funding for the bid; (2) the specific amount, source, and type of funding to be provided by each participant; (3) the identity of any person or entity who will participate in any way in the bid without providing funding, and the nature of the participation; and (4) the principals of each entity that will participate in the Qualified Bidder's proposal. E. Capacity to Close Transaction To demonstrate its financial, legal and managerial capacity to complete the transactions, a Qualified Bidder must submit: (1) written evidence of available cash, a commitment for financing or ability to obtain a satisfactory commitment if selected as the winning bidder and other evidence of its ability to consummate the Sale Transaction; (2) current audited financial statements or, if the Qualified Bidder is an entity formed for the purpose of the Sale Transaction, current audited financial statements of the equity holders of the Qualified Bidder that will guarantee the obligations of the Qualified Bidder, or other form of satisfactory evidence of committed financing or other ability to perform; (3) a copy of a board resolution or similar document demonstrating the authority of the Qualified Bidder to make a binding and irrevocable bid on the terms proposed; and (4) evidence that the Qualified Bidder will be able to obtain any anti-trust and other required regulatory approvals without any material delay. F. Bid Deadline The bid and any related materials must: -- be in writing; -- contain all material terms of the proposed bid; and -- be submitted so that it is received no later than six months after the Confirmation Date. The Bid Deadline may be shortened or extended for cause upon notice and a hearing and a Court order; provided that in no event will the Bid Deadline be extended to more than one year after the Confirmation Date. G. Selection of the Best Bid If more than one Qualified Bid is received, an Auction will be conducted within 30 days of the Bid Deadline. H. Sale Hearing Promptly after the Winning Bidder is selected, an order will be sought authorizing and approving a sale of the applicable Designated Assets and Assumed Liabilities to the Winning Bidder. The Plan Proponents believe that the proposed Bid Procedures are required to maximize value and ensure a fair process. If the U.K. Administrators believe otherwise, they are encouraged to advise the Court on how the Bid Procedures are inconsistent with U.K. law, and if so, what procedures the Administrators believe should be followed in order to conduct the sales and thereby timely conclude the cross-border plenary proceedings. Headquartered in Southfield, Michigan, Federal-Mogul Corporation -- http://www.federal-mogul.com/-- is one of the world's largest automotive parts companies with worldwide revenue of some $6 billion. The Company filed for chapter 11 protection on October 1, 2001 (Bankr. Del. Case No. 01-10582). Lawrence J. Nyhan, Esq., James F. Conlan, Esq., and Kevin T. Lantry, Esq., at Sidley Austin Brown & Wood, and Laura Davis Jones, Esq., at Pachulski, Stang, Ziehl, Young, Jones & Weintraub, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $10.15 billion in assets and $8.86 billion in liabilities. (Federal-Mogul Bankruptcy News, Issue No. 66; Bankruptcy Creditors' Service, Inc., 215/945-7000) FLEXTRONICS: S&P Places 'BB-' Rating on $500 Mil. Sr. Sub. Notes ---------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'BB-' rating to Flextronics' private offering of $500 million, senior subordinated notes due 2014. The notes are offered under Rule 144A, with registration rights. Proceeds of the offering will be used to repay outstanding debt under its revolving credit facilities and for general corporate purposes. The company's 'BB+/Stable/--' corporate credit rating was affirmed. "The ratings on Singapore-based Flextronics International Ltd. reflect a highly competitive and volatile industry and a highly acquisitive growth strategy, offset by the company's top-tier industry position, geographic and end-market diversity, and solid long-term customer relationships: said Standard & Poor's credit analyst Lucy Patricola. Flextronics is the world's largest provider of electronics manufacturing services -- EMS -- to the communications, consumer electronics, and computing industries. Flextronics had total debt outstanding (including operating leases and asset securitizations) of about $2.2 billion as of September 2004. Sales for the quarter were up 18% over the year-earlier period, and up 7% sequentially, to $4.1 billion, reflecting improved demand in Flextronics' broad base of electronics customers. Acquisitions are expected to supplement moderate rates of organic sales growth over the intermediate term, reflecting a ramp in production following the company's purchase of manufacturing and design capabilities from Nortel Networks. The purchase price for Nortel's assets is expected to be between $675 million and $725 million, with staggered payments over five quarters beginning in the December 2004 calendar quarter. The Nortel program is expected to generate positive cash flow for Flextronics during the production ramp. While Standard & Poor's believes Flextronics may increase debt balances intermittently over the next year to fund the payments, leverage is not expected to rise meaningfully above 3x on average, which is appropriate for the rating level. FLYi, INC.: Liquidity Concerns Prompt Bankruptcy Warning -------------------------------------------------------- FLYi, Inc., says that the fierce competition and weak revenue environment that its Independence Air operations have encountered, combined with lower than expected passenger traffic and unprecedented high jet fuel prices have resulted in the carrier's revenues falling significantly below anticipated levels and the Company expending cash at an unsustainable rate. Although the Company has implemented cost savings measures, it cannot reduce its operating costs enough to offset the revenue shortfall. FLYi has an $83 million semi-annual lease payment on its regional jets coming due in January 2005, and will have to pay an additional $16.6 million due on some 328Jets if Delta Air Lines, Inc., doesn't make the payment. While the Company believes that it has sufficient liquidity to fulfill all of its obligations arising prior to the lease payments that are due in January 2005, the Company advises that is in negotiations with various parties to provide sufficient liquidity to make these payments on a revised schedule and to meet its subsequent obligations as they come due. Among others, the Company is in discussions with its CRJ aircraft lessors and lenders to negotiate payment deferrals of amounts due or coming due for the next two years, in discussions with its J41 lessors to terminate the leases, and in discussions with its 328Jet lessors to assign the aircraft to Delta and be released from future obligations. The Company is also in discussions with its Airbus operating lessors regarding the terms for its acceptance of future aircraft deliveries. FLYi warns that if it's unsuccessful in these negotiations in a satisfactory or timely manner, it will be forced to consider commencing a bankruptcy case under Chapter 11 of the U.S. Bankruptcy Code or may be the subject of an involuntary Chapter 11 case commenced against it by creditors. FLYi began operation of its low-fare airline, Independence Air, on June 16, 2004. The inaugural Independence Air flights served five markets from Washington Dulles with more added as the CRJ aircraft completed their interior and exterior conversion to the Independence Air standard. The transition was completed in September when all 87 CRJs were operating as Independence Air serving 40 destinations with over 600 flights per day systemwide. In September, the Company took delivery of its first of 12 leased Airbus A319 aircraft. In addition, the Company has 16 additional A319s on order directly from the manufacturer. Prior to the operation of the larger Airbus aircraft, the Company must receive various FAA approvals. FAA approval will be based on a determination that the Company has adequate training, maintenance and operating procedures necessary to conduct larger aircraft operations. The FAA approval process is ongoing and the Company believes it will be able to obtain all necessary FAA approvals in connection with the conduct of its operation of larger aircraft. However, final FAA approval was not obtained prior to the expected date and as a result the Company's introduction of the A319 aircraft into revenue service has been delayed. Once FAA approval is received, the Company will operate its Airbus single aisle aircraft in larger, long and short-haul markets in which the Company will seek to take advantage of the low cost per seat mile of these aircraft, and will continue to operate its CRJ aircraft in short-haul markets with additional frequencies that will take advantage of the lower per-trip cost of this aircraft relative to larger aircraft. At the Company's 2004 annual stockholder meeting held May 26, 2004, stockholders approved the proposal to change the name of the Company from Atlantic Coast Airlines Holdings, Inc. to FLYi, Inc. Prior to the opening of trading on August 4, 2004, the Company changed the name of its corporate parent and stock ticker symbol to reflect its newly-premiered Independence Air brand name. Atlantic Coast Airlines Holdings, Inc., became FLYi, Inc. and its symbol on the NASDAQ National Market was changed from ACAI to FLYI, mirroring the Independence Air web address at http://www.FLYi.com/ On November 5, 2004 the Company changed the name of its operating subsidiary from Atlantic Coast Airlines to Independence Air, Inc. At September 30, 2004, FLYi's balance sheet showed $869.9 million in assets and $616.8 million in liabilities. For the three months ended September 30, 2004, operating revenues totaled $119.6 million and the company reported an $82.6 million net loss for the quarter. For the nine months ended September 30, 2004, revenues totaled $522.2 million and the company reported a $106.1 million net loss for the three quarters. In February 2004, the Company sold $125 million of Convertible Senior Notes, which have funded the year-to-date loss. The Notes have an interest rate of 6% and are convertible into FLYi, Inc., common stock at a conversion rate of 90.2690 shares per $1,000 principal amount of the Notes (a conversion price of approximately $11.08) once the Company's common stock share price reaches 120% of the conversion price or $13.30. Shares in FLYi trade between $1 and $2 today. GLOBAL CROSSING: GLT Liquidating Trust Wants to File Late Claim --------------------------------------------------------------- GLT Liquidating Trust, as successor-in-interest to Genuity, Inc., and its subsidiaries, asks the U.S. Bankruptcy Court for the Southern District of New York for leave to file a late proof of claim. Genuity and its affiliates were leading providers of internetworking services to business enterprises, and telecommunications service providers. P. Bradley O'Neill, Esq., at Kramer Levin Naftalis & Frankel, LLP, in New York, relates that on November 27, 2002, Genuity and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. In the months before the Genuity Petition Date, Genuity experienced a precipitous decline in its business fortunes that led to an emergency filing. As a result, Genuity had no prospect of continuing its business and, in fact, had entered into an agreement to sell substantially all of its assets to certain affiliates of Level 3 Communications, Inc., subject to a higher and better offer at a public auction. Mr. O'Neill notes that Genuity was principally focused on completing the proposed sale to Level 3. That sale was approved by Judge Beatty, who presided over Genuity's bankruptcy cases, on January 24, 2003. The Level 3 Sale closed on February 4, 2003. On January 15, 2003, Genuity filed an Administrative Proof of Claim, designated as Claim No. 10627, for $761,850 arising out of Global Crossing's breach of various agreements between the entities. The Administrative Claim did not purport to assert any preference claim against Global Crossing in respect of amounts paid by Genuity to Global Crossing in the months preceding the Genuity Petition Date. Moreover, the Administrative Claim was not filed by bankruptcy counsel. "At the time that Genuity filed the Administrative Proof of Claim, Genuity was immersed in the process of selling substantially all of its assets to Level 3 Communications. This sale severely limited Genuity's ability to evaluate all claims that it held against the Debtors," Mr. O'Neill says. Mr. O'Neill adds that there were numerous other complex issues that arose during the course of Genuity's bankruptcy that further prevented Genuity from having the opportunity to timely pursue all claims that it held. On November 19, 2003, Judge Gerber ordered the GX Debtors to establish a reserve with respect to, among other claims, each claim filed by Genuity against the GX Debtors. The reserve's aggregate amount with respect to Genuity's claims exceeds $3.4 million. Genuity's Liquidating Trust On November 21, 2003, Judge Beatty confirmed the Genuity Plan, which transferred substantially all of Genuity's assets to a liquidating trust. Under the Genuity Plan and the Liquidating Trust Agreement filed in connection with the transfer, the Liquidating Trust is authorized to, among other things, wind down Genuity's estates, resolve all claims asserted by creditors against Genuity's estates, and pursue all outstanding claims held by Genuity. The activities of the Liquidating Trust are conducted by the Trustee, subject to the approval of an oversight committee consisting of certain entities appointed by the creditors of Genuity's estates. The creation of the Liquidating Trust triggered the evaluation of all potential preference actions that GLT may hold against parties that had a prior business relationship with Genuity. The Liquidating Trust examined thousands of payments that were made by Genuity to its creditors in the 90 days preceding the Genuity Petition Date. Upon concluding its unavoidably lengthy investigation, the Liquidating Trust discovered that it held a net preference claim against the Debtors for $883,938. To maximize the recovery that its creditors are justly entitled, it is essential that GLT be able to pursue all claims that it holds. The GX Debtors have already established a substantial reserve with respect to claims asserted by Genuity. GX's Bar Date coincided with a particularly chaotic period in Genuity's bankruptcy. Accordingly, GLT's failure to bring the Preference Claim sooner was inadvertent and was not done in bad faith. The delay arose because of the myriad of issues that confronted Genuity in its bankruptcy case. Judge Gerber has the authority to allow GLT to file a late proof of claim if GLT is able to demonstrate that its failure to file a timely proof of claim was the result of excusable neglect. Mr. O'Neill explains that the term "excusable neglect" is not defined in the Bankruptcy Code. Rather, it is a term that has been shaped by case law interpreting Rule 9006(b) of the Federal Rules of Bankruptcy Procedure. The determination of whether excusable neglect exists is essentially an equitable one, which takes into account all relevant circumstances surrounding a party's omission. GX Debtors Object Michael F. Walsh, Esq., at Weil, Gotshal & Manges, LLP, in New York, contends that GLT failed to demonstrate "excusable neglect" for filing a late claim. Rule 3003(c)(2) of the Federal Rules of the Bankruptcy Procedure provides that: "Any creditor or equity security holder whose claim or interest is not scheduled or scheduled as disputed, contingent, or unliquidated will file a proof of claim or interest within the time prescribed by subdivision (c)(3) of this rule; any creditor who fails to do so will not be treated as a creditor with respect to that claim for the purposes of voting and distribution." Mr. Walsh relates that there are four factors to be considered when determining whether excusable neglect exists: (a) the prejudice to the debtor; (b) the length of the delay and its potential impact on judicial proceedings; (c) the reason for the delay, including whether it was within GLT's reasonable control; and (d) whether GLT acted in good faith. The prejudice to New GX, Mr. Walsh points out, is particularly acute because the claim GLT seeks leave to assert is for administrative expense. In addition, the Effective Date and the date on which New GX decided to assume all administrative expenses occurred nearly ten months before GLT filed its motion for leave. In making its decision to assume the administrative expenses, New GX relied heavily on the record of known and timely filed administrative expense claims, which included GLT's timely filed Claim No. 10627, but did not include GLT's Preference Claim for $883,938. New GX has been operating its business during the past ten months without forewarning that GLT would assert a $883,938 claim. As a result, this sizeable liability asserted would place an unexpected and unnecessary burden on New GX's business. Mr. Walsh further argues that while the Disputed Claims Reserve exists for prepetition claims, there is no administrative claim reserve from which New GX can pay the Preference Claim. To pay GLT's administrative claim, New GX would have to withdraw $883,938 directly from its already lean operating budget. Because GLT chose not to file the Preference Claim by the Administrative Bar Date and further waited close to 21 months after that bar date to assert the claim, New GX could safely propose that GLT was not going to assert any further administrative claims. Mr. Walsh informs the Court that the length of delay by which GLT seeks to file its Preference Claim weighs strongly for denial of GLT's request. Moreover, Mr. Walsh asserts that GLT has failed to provide an acceptable excuse for filing the Preference Claim. Genuity is a large, sophisticated company with competent counsel fully aware of the GX Bar Date. In fact, despite the Level 3 Sale, Genuity managed to file Claim No. 10627 against the GX Debtors by the Bar Date. Even Genuity acknowledges that it could have filed an abbreviated claim to reserve its right to pursue the Preference Claim against the GX Debtors but failed to take this step. "New GX has no evidence that GLT was acting in bad faith when it filed the motion for leave, but this hardly counterbalances the other three factors that weigh heavily in New GX's favor," Mr. Walsh says. Headquartered in Florham Park, New Jersey, Global Crossing Ltd. -- http://www.globalcrossing.com/-- provides telecommunications solutions over the world's first integrated global IP-based network, which reaches 27 countries and more than 200 major cities around the globe. Global Crossing serves many of the world's largest corporations, providing a full range of managed data and voice products and services. The Company filed for chapter 11 protection on January 28, 2002 (Bankr. S.D.N.Y. Case No. 02- 40188). When the Debtors filed for protection from their creditors, they listed $25,511,000,000 in total assets and $15,467,000,000 in total debts. Global Crossing emerged from chapter 11 on Dec. 9, 2003. (Global Crossing Bankruptcy News, Issue No. 69; Bankruptcy Creditors' Service, Inc., 215/945-7000) GOLF TRAINING: Trustee Sells Unissued Shares to BBG for $15,000 --------------------------------------------------------------- The Honorable Mary Grace Diehl of the U.S. Bankruptcy Court for the Northern District of Georgia approved a request by Paul H. Anderson, Jr., Esq., the chapter 7 trustee overseeing the liquidation of Golf Training Systems, Inc., to sell authorized but un-issued shares of stock in Golf Training Systems, Inc., to BBG, Inc., for $15,000 in cash. The Trustee advised the Court that he's not in possession of the Debtor's corporate records relating to the Unissued Stock Interests. BBG, Inc., and its representatives understand and agree that the sale is as is, where is. In its Form 10-Q filed on May 12, 1998, Golf Training reported that it was authorized to issue 10,000,000 shares of common stock and 3,933,104 were outstanding at March 31, 1998. An Order entered October 5, 2004, reopened the Debtor's chapter 7 case, allowed the Trustee to defer payment of the applicable filing fee until there are sufficient funds on hand in the estate to pay the fee, and reinstated Mr. Anderson as the Chapter 7 Trustee so he could pursue this transaction. John Richards Lee, Esq., and Angela D. Dodd, Esq., in the Chicago office of the United States Securities and Exchange Commission successfully blocked a similar sale of un-issued shares in Northwestern Steel and Wire Co., to IMA Advisors, Inc., for $20,000. The SEC successfully blocked a sale of un-issued shares in Ultra Motorcycle Company to Mark E. Rice and IMA Advisors in June 2004. The SEC argues that un-issued shares in a debtor are not property of the estate pursuant to 11 U.S.C. Sec. 541 and can't be sold pursuant to 11 U.S.C. Sec. 363. "A corporation's power to issue stock in itself to others is neither property of the corporation nor an interest in property but rather is an essential attribute of the legal entity known as a corporation," Ms. Dodd explains. Moreover, the SEC argues, this type of a transaction violates public policy because it amounts to trafficking in public shells and that's contrary to public policy. BBG, Inc., can be reached at: BBG, Inc. Attn: Mike Clarke, President 8665 West Flamingo, Suite 2000 Las Vegas, NV 89107 Records from the Secretary of State for the State of Nevada show that BBG, Inc.'s (Corporation File Number C5552-2000) was incorporated on February 29, 2000, and its charter was subsequently revoked. The Secretary of State's records show that the corporation's President and Treasurer is or was: Bill Badi Gammoh 1001 E. Imperial Highway La Habra, CA 90631 and its Secretary is or was: Bruce S. Weiner 1001 E. Imperial Highway La Habra, CA 90631 MagicYellow.com reports that a strip club called the Pelican Theater is located at 1001 E. Imperial Highway in La Hambra. A telephone call to (714) 447-3222 reveals that an adult entertainment facility operates at that address. The establishment changed its name recently from the Pelican Theater to Taboo Theater. The Chapter 7 Trustee can be reached at: Paul H. Anderson, Esq. One Georgia Center, Suite 850 600 W. Peachtree Street, N.W. Atlanta, GA 30308-3603 Telephone (404) 892-9899 Golf Training Systems, Inc. (OTC BB: GTSX), based in Duluth, Georgia, filed for chapter 11 protection on August 11, 1998 (Bankr. N.D. Ga. Case No. 98-75390). The Company attempted to restructure under Chapter 11, but was unable to generate sufficient sales. Extensive layoffs and cutbacks were unsuccessful in changing the profitability of the operation enough to manage the total debt and overhead requirement. On December 17, 1998, all of the company's assets, with the exception of certain contractual assets, were sold at the bankruptcy auction and the Chapter 11 was converted to a Chapter 7 liquidation proceeding. Golf Training Systems developed and marketed golf learning and training products like the Coach, the Glove, the Computer Coach and the Right Link. GRAFTECH INTL: S&P Affirms Single-B Ratings with Negative Outlook ----------------------------------------------------------------- Standard & Poor's Rating Services affirmed its ratings on GrafTech International Ltd. and removed them from CreditWatch where they were placed with negative implications on October 11, 2004. The outlook is negative. The corporate credit rating on GrafTech is affirmed at 'B+', the senior unsecured debt rating at 'B', and convertible debt rating at 'B-'. "Despite the affirmation and improved fundamentals for graphite electrodes, the negative outlook reflects concerns about the company's ability to improve in a timely manner a financial performance that is still weak for the rating," said Standard & Poor's credit analyst Dominick D'Ascoli. This is in light of continual cost pressures, uncertainties about the needle coke market for 2006 and beyond, and limited free cash flow generation at GrafTech. Ratings were placed on CreditWatch following the company's announcement of a reduction in the graphite electrode industry's supply of needle coke and a revision to its third-quarter and full-year earnings due to higher operating expenses. Needle coke is a critical raw material in the manufacture of graphite electrodes. The ratings on GrafTech reflect its aggressive financial leverage, poor free cash flow generation, significant exposure to the cyclical steel industry, and uncertainties/concerns pertaining to needle coke. Somewhat offsetting these negative factors are the company's favorable cost position compared with its competitors, good market position in graphite electrodes, and currently favorable industry conditions. GrafTech manufactures carbon-based materials throughout the world for use in various applications. Its primary product is graphite electrodes, which accounted for 68% of the $800 million in sales generated in the 12 months ended September 30, 2004. Because graphite electrodes are primarily used in electric arc steel furnaces, the company is exposed to the cyclical steel industry, which is currently enjoying extremely good fundamentals. GSMPS MORTGAGE: Moody's Places Low-B Ratings on Classes B-4 & B-5 ----------------------------------------------------------------- Moody's Investors Service assigned Aaa to B2 ratings to the senior and subordinate classes of the GSMPS Mortgage Loan Trust 2004-4 Mortgage Pass-Through Certificates. The transaction consists of the securitization of FHA insured and VA guaranteed reperforming loans virtually all of which were repurchased from GNMA pools. The credit quality of the mortgage loans underlying securitization is comparable to that of mortgage loans underlying subprime securitizations. However after the FHA and VA insurance is applied to the loans, the credit enhancement levels are comparable to the credit enhancement levels for prime-quality residential mortgage loan securitizations. The insurance covers a large percent of any losses incurred as a result of borrower defaults. The Federal Housing Administration -- FHA -- is a federal agency within the Department of Housing and Urban Development -- HUD -- whose mission is to expand opportunities for affordable home ownership, rental housing, and healthcare facilities. The Department of Veterans Affairs -- VA, formerly known as the Veterans Administration, is a cabinet-level agency of the federal government. The rating of this pool is based on the credit quality of the underlying loans and the insurance provided by FHA and the guarantee provided by VA Specifically, about 80% of the loans have insurance provided by FHA, 19% from the VA, and 1% from the Rural Housing Service -- RHS. The rating is also based on the structural and legal integrity of the transaction. The complete rating action is as follows: Issuer: GSMPS Mortgage Loan Trust 2004-4 Class Amount ($) Rate Rating ----- ---------- ---- ------ 1AF $651,365,000 Variable Aaa 1AS Notional Amount Variable Aaa 1A2 $45,527,000 7.50% Aaa 1A3 $46,011,000 8.00% Aaa 1A4 $27,765,000 8.50% Aaa AX Notional Amount 8.50% Aaa 2A1 $85,985,000 Variable Aaa B1 $7,061,000 Variable Aa2 B2 $4,412,000 Variable A2 B3 $3,529,000 Variable Baa2 B4 $3,087,000 Variable Ba2 B5 $3,088,000 Variable B2 The notes are being offered in privately negotiated transactions without registration under the 1933 Act. The issuance was designed to permit resale under Rule 144A. INTERSTATE BAKERIES: Court Approves Skadden Arps' Retention ----------------------------------------------------------- The United States Bankruptcy Court for the Western District of Missouri gave Interstate Bakeries Corporation and its debtor- affiliates permission to employ Skadden, Arps, Slate, Meagher & Flom, LLP, and its affiliated law practice entities as their attorneys under a general retainer to perform the legal services that will be necessary under their Chapter 11 cases. As the Debtors' lead counsel, Skadden Arps will: (a) advise the Debtors with respect to their powers and duties as debtors and debtors-in-possession in the continued management and operation of their businesses and properties; (b) advise the Debtors with respect to corporate transactions and corporate governance, and in any negotiations with creditors, equity holders, prospective acquirers, and investors; (c) assist the Debtors with respect to employee matters; (d) attend meetings and negotiate with representatives of creditors and other parties-in-interest and advise and consult on the conduct of the chapter 11 cases, including all of the legal and administrative requirements of operating in Chapter 11; (e) take all necessary action to protect and preserve the Debtors' estates, including the prosecution of actions on their behalf, the defense of any actions commenced against those estates, negotiations concerning all litigation in which the Debtors may be involved and objections to claims filed against the estates; (f) review and prepare on the Debtors' behalf all documents and agreements as they become necessary and desirable; (g) review and prepare on the Debtors' behalf all motions, administrative and procedural applications, answers, orders, reports and papers necessary to the administration of the estates; (h) negotiate and prepare on the Debtors' behalf plan of reorganization, disclosure statement and all related agreements and documents, and take any necessary action on the Debtors' behalf to obtain confirmation of that plan; (i) review and object to claims; analyze, recommend, prepare, and bring any causes of action created under the Bankruptcy Code; (j) advise the Debtors in connection with any sale of assets; (k) appear before the Court, any appellate courts, and the U.S. Trustee, and protect the interests of the Debtors' estates before those courts and the U.S. Trustee; (l) perform all other necessary legal services and provide all other necessary legal advice to the Debtors in connection with these chapter 11 cases; and (m) continue to assist the Debtors in matters relating to the Restatement Investigation. J. Eric Ivester, Esq., at Skadden, Arps, Slate, Meagher & Flom, LLP, in Chicago, Illinois, discloses that the partners, counsel and associates of the firm: (a) do not have any connection with the Debtors or their affiliates, their creditors, the United States Trustee or any person employed in the office of the United States Trustee, or any other significant party-in-interest, or their attorneys and accountants; (b) are "disinterested persons," as defined in Section 101(14) of the Bankruptcy Code; and (c) do not hold or represent any interest adverse to the estates. Pursuant to an engagement agreement dated August 27, 2004, the Debtors paid Skadden initial retainers totaling $1.3 million. Other than the Initial Retainer, Skadden has not received any other amounts from the Debtors with respect to restructuring and contingency planning matters. Skadden will prepare a reconciliation of its prepetition fees, charges and disbursements and will issue a final statement to the Debtors, which may be less or more than the amount the Debtors paid to Skadden prior to the Petition Date. However, Skadden will write-off the difference and not seek payment for any further amounts in the event the reconciled amount is more than amounts previously paid. Skadden will retain the Final Retainer to pay any fees, charges and disbursements that remain unpaid at the end of the reorganization cases. Other than the fees, charges and disbursements set forth in the Restructuring Invoice and Investigation Invoices, Skadden has not billed the Debtors for any other matters since August of 2000. Any portion of the prepetition amounts received by Skadden that has not been applied to prepetition fees and expenses will be applied when those amounts are identified. Should any balance remain after that application, the remainder will be held as a retainer for an applied against postpetition fees and expenses that are allowed by the Court. Pursuant to the Engagement Agreement, Skadden provides the Debtors with periodic -- no less frequently than monthly -- statements for services rendered and charges and disbursements incurred. During the course of these reorganization cases, the issuance of periodic statements will constitute a request for an interim payment against the reasonable fee to be determined at the conclusion of the representation. For professional services, Skadden's fees are based in part on its guideline hourly rates, which are periodically adjusted. Skadden will be providing professional services to the Debtors under its bundled rate schedules, hence, Skadden will not be seeking to be separately compensated for certain staff, clerical and resource changes. As of April 1, 2004, the hourly rates under the bundled rate structure for the engagement are: $520 - 760 partners and of counsel 495 - 630 counsel and special counsel 250 - 490 associates 85 - 195 legal assistants and support staff The hourly rates are subject to periodic increases in the normal course of the Skadden's business, often due to the increased experience of the particular professional. The firm's hourly rates are set at a level designed to compensate Skadden fairly for the work of its attorneys and legal assistants and to cover fixed and routine overhead expenses, including those items billed separately to other clients under Skadden's standard unbundled rate structure. Consistent with the Skadden's policy to its other clients, Skadden will continue to charge the Debtors for all other services provided and for other charges and disbursements incurred in the rendition of services. These charges and disbursements include, among other things: (1) costs for telephone charges, (2) photocopying -- at a reduced rate of $0.10 per page for black and white copies and a higher commensurate charge for color copies; (3) travel; (4) business meals -- but not overtime meals; (5) computerized research; (6) messengers; (7) couriers; (8) postage; (9) witness fees; and (10) other fees related to trials and hearings. Charges and disbursements are invoiced pursuant to Skadden's policy statement concerning charges and disbursements. Skadden intends to apply to the Court for allowance of compensation for professional services rendered and reimbursement of charges and disbursements incurred in these chapter 11 cases in accordance with applicable provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, the Local Bankruptcy Rules and orders of the Court. Skadden will seek compensation for the services of each attorney and paraprofessional acting on the Debtors' behalf in these cases at the then current standard bundled rate charged for those services on a non-bankruptcy matter. Skadden has agreed to accept as compensation the sums as may be allowed by the Court on the basis of the professional time spent, the rates charged for services, the necessity of these services to the administration of the estates, the reasonableness of the time within which the services were performed in relation to the results achieved, and the complexity, importance, and nature of the problems, issues or tasks addressed in these cases. Headquartered in Kansas City, Missouri, Interstate Bakeries Corporation is a wholesale baker and distributor of fresh baked bread and sweet goods, under various national brand names, including Wonder(R), Hostess(R), Dolly Madison(R), Baker's Inn(R), Merita(R) and Drake's(R). The Company employs approximately 32,000 in 54 bakeries, more than 1,000 distribution centers and 1,200 thrift stores throughout the U.S. The Company and seven of its debtor-affiliates filed for chapter 11 protection on September 22, 2004 (Bankr. W.D. Mo. Case No. 04-45814). J. Eric Ivester, Esq., and Samuel S. Ory, 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 $1,626,425,000 in total assets and $1,321,713,000 (excluding the $100,000,000 issue of 6.0% senior subordinated convertible notes due August 15, 2014 on August 12, 2004) in total debts. (Interstate Bakeries Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 215/945-7000) INTERSTATE BAKERIES: Ad Hoc Committee Asks for Equity Committee --------------------------------------------------------------- The Ad Hoc Equity Committee asks the United States Bankruptcy Court for the Western District of Missouri to appoint an official committee of equity security holders in Interstate Bakeries Corporation and its debtor-affiliates' Chapter 11 cases to ensure the integrity of the bankruptcy process for shareholders and to assure the equity holders' adequate representation in the bankruptcy cases. Amy E. Rush, Esq., at Sonnenschein Nath & Rosenthal, LLP, in Kansas City, Missouri, explains that appointing an official equity committee is suited to the Debtors' cases because: (a) Just 40 days before the Petition Date, the Debtors closed a private placement of $100,000,000 of senior subordinated convertible notes with a conversion price of $10.1025 per share, which was set at a 34.7% premium to the then stock price of $7.50 per share, implying an equity value of $340,000,000 as of August 12, 2004. The Debtors would have had to represent to investors that there was equity value to support the placement of this convertible debt; (b) The Debtors historically had meaningful equity value, unlike most other Chapter 11 debtors. The Debtors' stock traded above $8.00 per share just 30 days before the Petition Date, never traded at levels considered to be "option value," and has continued to trade, rising in price, postpetition: Recent Equity Performance Share Implied Equity Event Date Price Value (mm) ---------------- -------- ----- -------------- Most Recent Date 01/01/04 $4.13 $187 Petition Date 09/22/04 2.05 93 $100mm Convertible Issuance 08/12/04 7.50 340 30 Days Prepetition 08/23/04 8.19 372 60 Days Prepetition 07/23/04 10.07 457 Ave. 30 days Prepetition 5.44 247 Ave. 60 days Prepetition 7.27 330 52 Week High 15.96 724 52 Week Low 2.05 93 (c) On the Petition Date, a significant portion of the convertible debt traded at values in the range of 88 to 90 cents on the dollar and the senior bank debt has been trading in the 97 to 99 cents on the dollar range. The trading price of these debt securities implies that the market believes there is a meaningful equity cushion beyond the convertible and other unsecured debt claims; and (d) On both a balance sheet and market value basis, there is meaningful equity value available to the Debtors' shareholders: * On a balance sheet basis, the Debtors' book value of their assets exceed their liabilities by about $305,000,000 as of the Petition Date, as represented by the Debtors on their petition; and * Using the Debtors' last reported financial information, when compared to other comparable companies and recent comparable transactions, there is meaningful equity value available to the Debtors' shareholders, even with a significant downward adjustment to these amounts. According to Ms. Rush, the Ad Hoc Equity Committee cannot protect the rights of all shareholders because they owe no fiduciary duty to the entire group and are not a substitute for an official committee. Therefore, appointing an official equity committee is the only way to ensure adequate representation to shareholders. Moreover, neither the Debtors' officers and directors nor any other parties in the Debtors' bankruptcy cases can adequately protect the shareholders' interests. The Ad Hoc Committee also believes that the Debtors are not hopelessly insolvent. Their prepetition filings with the Securities and Exchange Commission indicate substantial equity value that is sufficient to pay all creditors in full and distribute value for the benefit of equity holders. "[The Debtors are] opposed to the appointment of an official equity committee," Ms. Rush says. "The Creditors' Committee, by taking the position that there is no equity value in the Company, is clearly adverse to the interests of shareholders." The Ad Hoc Committee asserts that the "substantial likelihood of a meaningful distribution" test does not apply as a standard for appointing an official equity committee. Ms. Rush says that the "substantial likelihood" standard is unworkable because it would require shareholders to prove prematurely that they will receive a meaningful distribution under the strict application of the absolute priority rule. "That burden is misplaced because the entire process of appointing an official equity committee under Section 1102(a)(2) is to provide equal resources (both financial and informational) to shareholder parties, so that they will be on a level playing field with creditors (through an official committee) whose fees are subsidized by the estate and who receive full information," Ms. Rush adds. Ms. Rush maintains that shareholders need an official equity committee to participate meaningfully in the Debtors' bankruptcy cases. Any delay in appointing an official equity committee may unduly prejudice shareholders. Appointing an official equity committee now is paramount, as any remaining equity value to shareholders may be eaten or given away in favor by other constituencies as they resolve disputes, fix claims, and incur fees and costs borne by the Debtors' bankruptcy estate. Headquartered in Kansas City, Missouri, Interstate Bakeries Corporation is a wholesale baker and distributor of fresh baked bread and sweet goods, under various national brand names, including Wonder(R), Hostess(R), Dolly Madison(R), Baker's Inn(R), Merita(R) and Drake's(R). The Company employs approximately 32,000 in 54 bakeries, more than 1,000 distribution centers and 1,200 thrift stores throughout the U.S. The Company and seven of its debtor-affiliates filed for chapter 11 protection on September 22, 2004 (Bankr. W.D. Mo. Case No. 04-45814). J. Eric Ivester, Esq., and Samuel S. Ory, 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 $1,626,425,000 in total assets and $1,321,713,000 (excluding the $100,000,000 issue of 6.0% senior subordinated convertible notes due August 15, 2014 on August 12, 2004) in total debts. (Interstate Bakeries Bankruptcy News, Issue No. 6; Bankruptcy Creditors' Service, Inc., 215/945-7000) INTRABIOTICS: Evaluating Options Including Possible Liquidation --------------------------------------------------------------- IntraBiotics Pharmaceuticals, Inc. (Nasdaq: IBPI) reported financial and operating results for the third quarter and nine months ended September 30, 2004. IntraBiotics reported a net loss applicable to common stockholders of $4.0 million for the third quarter of 2004. Research and development expenditures totaled $2.1 million, due primarily to the winding-down of the discontinued clinical trial of iseganan for the prevention of VAP. General and administrative expenses totaled $1.1 million, and a restructuring charge of $0.8 million was recorded for involuntary employee termination benefits, the termination of operating leases and the write-off of leasehold improvements. In June 2004, the Company discontinued its clinical trial of iseganan for the prevention of VAP following a recommendation of the independent data monitoring committee. It has since terminated its iseganan development program, and is now evaluating its strategic options, including mergers, acquisitions, in-licensing opportunities, and liquidation of the Company. On September 30, 2004, the Company had a total of $53.3 million in cash, cash equivalents, restricted cash and short-term investments. Current liabilities totaled $2.0 million. The Company has no long-term debt or other long-term obligations. Based upon currently projected expenses for the remainder of 2004, the Company expects to have available cash and investments of between approximately $46 million and $50 million at December 31, 2004, after providing for current liabilities. There can be no assurance that such a range will be achieved, as actual expenditures may differ significantly from projected expenditures. Approximately 10.6 million common equivalent shares were issued and outstanding on September 30, 2004, including 1.7 million shares underlying outstanding convertible preferred stock. Assuming the net exercise of in-the-money warrants and options at the closing price of the Company's stock as quoted on the Nasdaq National Market as of September 30, 2004, approximately 11.2 million common equivalent shares would be outstanding on Sept. 30, 2004. About the Company IntraBiotics Pharmaceuticals, Inc., develops and commercializes biopharmaceutical products for the prevention and treatment of serious and life-threatening infections. Iseganan, HCl (iseganan) the Company's candidate product in the protegrin class, is a synthetic version of a naturally occurring protegrin. Due to its potent and broad-spectrum antimicrobial properties, iseganan is believed to have great potential in fighting multi-drug-resistant bacteria and yeast that cannot be killed using conventional antibiotics. At Sept. 30, 2004, the Company listed $53,810,000 in total assets and $51,830,000 stockholders' equity. It posted a $3,961,000 net loss for the quarter ended Sept. 30, 2004. KAISER ALUMINUM: Court Extends Exclusive Periods Until Feb. 28 -------------------------------------------------------------- Judge Fitzgerald extends the deadline for Kaiser Aluminum Corporation and its debtor-affiliates to file a plan of reorganization through and including February 28, 2005. The Debtors have until April 30, 2005, to solicit acceptances of that plan. With respect to Kaiser Alumina Australia Corporation, Kaiser Finance Corporation, Alpart Jamaica, Inc., and Kaiser Jamaica Corporation, Judge Fitzgerald rules that if the Debtors fail to file a plan or plans of reorganization for the Alumina Debtors, in a form and substance acceptable to the Debtors and the Official Committee of Unsecured Creditors, within 10 business days after: (a) the approval of the Settlement and Release Agreement dated as of October 5, 2004, by and among the Debtors and the Creditors Committee by the Court, and the closing of the Alumina Partners of Jamaica Sale and the Queensland Alumina Ltd Sale; or (b) an earlier date after the execution of the Intercompany Settlement Agreement as the Creditors Committee will direct in writing -- which date will be no earlier than November 20, 2004, then (x) counsel for the Creditors Committee may file an affidavit with the Court on notice to interested parties; and (y) five business days after the filing of that affidavit, the Exclusive Periods for the Alumina Debtors will be terminated unless otherwise ordered by the Court. * * * Alpart Jamaica and Kaiser Jamaica filed their Chapter 11 Joint Plan of Liquidation on October 29, 2004. 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) KGG LLC: Case Summary & 14 Largest Unsecured Creditors ------------------------------------------------------ Debtor: KGG, LLC PO Box 368 Wirtz, Virginia 24184 Bankruptcy Case No.: 04-74550 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- Gregg K. Kuhn 04-74426 Chapter 11 Petition Date: November 9, 2004 Court: Western District of Virginia (Roanoke) Judge: Chief Judge Ross W. Krumm Debtor's Counsel: A Carter Magee, Esq. Magee, Foster, Goldstein & Sayers, P.C. PO BOX 404 Roanoke, Virginia 24003 Tel: (540) 343-9800 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 14 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Kennett & Kennett PC $111,843 6244 Peters Creek Road Roanoke Virginia 24019 Jonathan Rogers PC $10,000 PO Box 2886 Roanoke Virginia 24001 W. F. Mason Jr., Esq. $2,845 302 Washington Avenue SW Roanoke Virginia 24016 Daugherty Ronald E Curator $1 Gregg K. Kuhn $1 Cutler Marlene $1 Internal Revenue Service $1 Insolvency Units Commonwealth of Virginia $1 Department of Taxation - Legal Unit Internal Revenue Service $1 Insolvency Units Franklin County Treasurer's Office $1 Kuhn Marina Operating Company Inc. $1 SML Crazy Horse Campground Inc. $1 Burnt Chimney Properties Inc. $1 The Hopkins Group $1 KMART CORP: SunTrust Asks Court to Decide Rights Under Lease Claim ------------------------------------------------------------------ Kmart Corporation was the lessee from Park Tower, Ltd., successor to River Parkway Associates, of certain premises located in Sweetwater, Tennessee, designated by the Debtors as Kmart Store No. 6192, pursuant to a written lease. Park Tower was obligated to SunTrust Bank under an indenture for bond financing which was secured, inter alia, by a Deed of Trust on the real property where the Store was situated, the rents, issues, leases, and profits of the real property, the Lease and the guaranty of Kmart Corporation. Pursuant to the documents, which evidenced and governed the bond financing, Park Tower had assigned the Lease to SunTrust. The Debtors rejected the Lease pursuant to Section 365(a) of the Bankruptcy Code. Kmart was obligated to Park Tower for certain amounts due under the Lease and, as a consequence of its rejection, Kmart further became obligated to Park Tower for the damages, subject to the statutory cap set forth in the Bankruptcy Code Section 502(d)(6). Park Tower filed Claim No. 28078 on July 12, 2002, with respect to the Lease Claim. SunTrust filed Claim No. 36406 on July 29, 2002, predicated on Kmart's guaranty. SunTrust's Claim is separate and apart from Park Tower's Claim. It should not be construed as a release or waiver of any rights that SunTrust has with respect to the Lease Claim or Park Tower's Claim. Park Tower has no right to any distribution under the Lease Claim because it has assigned its right and interest to the Lease and the rents, profits, and benefits from the Lease to SunTrust. As a result of the assignment, SunTrust "steps into the shoes" of Park Tower and is therefore the proper party to maintain the Lease Claim as set forth in Park Tower's Claim. Despite SunTrust informing Park Tower that it had no rights to the Lease Claim, Park Tower still asserts that it is the correct party to receive any and all distributions on the Lease Claim. Pursuant to Rule 3001(e)(3) of the Federal Rules of Bankruptcy Procedure, SunTrust asks the U.S. Bankruptcy Court for the Northern District of Illinois to determine that it is the rightful party to maintain the Lease Claim set forth in Park Tower's Claim. Headquartered in Troy, Michigan, Kmart Corporation (n/k/a KMART Holding Corporation) -- http://www.bluelight.com/-- is the nation's second largest discount retailer and the third largest merchandise retailer. Kmart Corporation currently operates approximately 2,114 stores, primarily under the Big Kmart or Kmart Supercenter format, in all 50 United States, Puerto Rico, the U.S. Virgin Islands and Guam. The Company filed for chapter 11 protection on January 22, 2002 (Bankr. N.D. Ill. Case No. 02-02474). Kmart emerged from chapter 11 protection on May 6, 2003. John Wm. "Jack" Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, LLP, represented the retailer in its restructuring efforts. The Company's balance sheet showed $16,287,000,000 in assets and $10,348,000,000 in debts when it sought chapter 11 protection. (Kmart Bankruptcy News, Issue No. 84; Bankruptcy Creditors' Service, Inc., 215/945-7000) LEAP WIRELESS: Moody's Rates Planned $650M Sr. Sec. Loans at B1 --------------------------------------------------------------- Moody's Investors Service assigned a B1 senior implied rating to Leap Wireless International, Inc., and a B1 rating to the proposed $650 million of senior secured credit facilities available to Cricket Communications, Inc., among other ratings actions. The outlook for these ratings is stable. The assigned ratings are: -- Leap Wireless International, Inc. * Senior implied -- B1 * Issuer rating -- B3 * Speculative Grade Liquidity -- SGL-1 -- Cricket Communications, Inc. * $150 million senior secured revolving credit -- B1 * $500 million senior secured term loan -- B1 The B1 senior implied rating reflects: (1) the good financial profile of the company tempered by the uncertain economics of the company's business model over the longer term, (2) its higher sensitivity to general economic conditions, and (3) the probability that Leap will seek to expand its business plan over the intermediate term potentially diluting the currently strong credit metrics. The B1 rating on the $650 million of senior secured credit facilities available to Cricket Communications, a subsidiary of Leap Wireless International, reflects the preponderance of these obligations in the company's debt capital base. Leap's business model of providing nearly unlimited calling from a local area (no roaming) for a flat rate has proven quite attractive in its 39 markets, with 6% penetration of the 25.9 million potential customers in those markets. This model requires Leap to be the low cost provider of minutes, and find a sustainable market for its local, no roaming, wireless offering. However, Leap is significantly smaller that its principal national competitors, and has access to significalty lower financial resources. As total wireless penetration in the US approaches 60%, all of its competitors are likely to pay more attention on the market segments attracted to the Cricket service: people with little credit history, and lower credit quality. Leap Wireless filed for bankruptcy court protection in April 2003, unable to support the over $2.4 billion in balance sheet debt obligations. The company has emerged from Chapter 11 protection, and after closing of the new Cricket bank credit facilities the only balance sheet debt will be the $500 million term loan. Despite its former financial difficulties, the company has launched wireless service in 39 markets and has attracted over 1.5 million subscribers by the end of June 2004. This is a difficult market to serve profitably as witnessed by Leap's high churn rate of 3.7% in 2Q04 (down from 4.6% in 2Q03). Further, subscriber growth has been choppy recently with negative net subscriber additions in 4Q03 and only slight growth in 2Q04. This may reflect some difficulty managing for growth during the restructuring process, but in Moody's opinion it also reflects Leap's sensitivity to soft economic conditions, and the need to generate ever higher amounts of gross new activations to offset the high level of churn. This could become increasingly challenging as the wireless market further matures and competition intensifies. The ratings outlook is stable as reflecting Moody's opinion that the ratings are unlikely to change over the next 12 to 18 months. The ratings could be improved should the company be able to grow its subscriber base, reduce churn rates closer to 3% per month, and generate free cash flow in excess of 15% of total debt. The ratings could be lowered should the subscriber base erode in quantity and quality (reflected in ARPU and churn statistics), or should the company dilute its current financial strength through large, debt financed expansions into new markets. The SGL-1 liquidity rating reflects the company's very good liquidity, pro forma for the bank financing. Upon closing of the new bank deal, Leap will have close to $300 million of cash on its balance sheet and the entire $150 million undrawn revolver available. The company should also produce meaningful amounts of free cash flow (cash provided by operations less capital expenditures), although some of the company's excess cash will be used to fund the purchase of spectrum in Fresno, California. Amortization requirements for the new term loan are quite modest initially, and Moody's projects ample covenant cushion. The combination of these factors (large cash balance, undrawn revolver, free cash flow generation, and ample covenant cushion) produce a very good liquidity profile meriting an SGL-1 speculative grade liquidity rating. Headquartered in San Diego, Leap Wireless International is a wireless service provider in 39 markets with 1.55 million subscribers and LTM revenues of $794 million. M.A.T. MARINE: Voluntary Chapter 11 Case Summary ------------------------------------------------ Debtor: M.A.T. Marine, Inc. 1 Fish Island New Bedford, Massachusetts 02745 Bankruptcy Case No.: 04-19106 Type of Business: The Debtor provides tugboat & towing services. Chapter 11 Petition Date: November 9, 2004 Court: District of Massachusetts (Boston) Judge: Carol J. Kenner Debtor's Counsel: Victor Bass, Esq. Burns & Levinson LLP 125 Summer Street Boston, MA 02110-1624 Tel: 617-345-3290 Estimated Assets: $1 Million to $10 Million Estimated Debts: $500,000 to $1 Million The Debtor did not file a list of its 20-Largest Creditors. MAGNUS FUNDING: Moody's Junks $202 Million Class A Debt Rating -------------------------------------------------------------- Moody's Investors Service lowered its rating on the U.S. $202 million Class A Notes issued by Magnus Funding Ltd., a collateralized debt obligation, to C. The transaction, which has been in default, was in the process of a liquidation of the collateral pool since the rating of the notes were last placed under review for downgrade. MARSHALL OIL GROUP: Case Summary & 20 Largest Unsecured Creditors ----------------------------------------------------------------- Debtor: Marshall Oil Group, LLC 815 North Arendell Avenue Zebulon, North Carolina 27597 Bankruptcy Case No.: 04-04097 Type of Business: The Debtor manufactures oil and gas. Chapter 11 Petition Date: November 10, 2004 Court: Eastern District of North Carolina (Raleigh) Judge: A. Thomas Small Debtor's Counsel: N. Hunter Wyche, Jr., Esq. Smith Debnam P.O. Drawer 26268 Raleigh, NC 27611-6268 Tel: 919-250-2000 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Gary Ellis Marshall Secured Value: $182,412 612 North East 29th Dr. $261,000 Apt. 1 Frt. Lauderdale, FL 33334 Capital Lending Services Secured Value: $28,228 P.O. Box 69135 $35,000 Cincinnati, OH 45269 Capital Lending Secured Value: $25,074 P.O. Box 69135 $70,000 Cincinnati, OH 45269 Internal Revenue Service $10,198 Wake County Revenue Dept. $8,757 Manifest Funding Secured Value: $7,547 $35,000 Bankard Services 6906 $5,000 Bankard Services #3008 $5,000 Franklin County Tax Office $2,568 Automated Controls Equipt. $2,136 Richmond City Tax Office $1,735 City of Rockingham $1,023 Fleet Capital Leasing Secured Value: $754 $50 #353 Bilboa FM Operator $204 City of Raleigh $195 Progress Energy $187 Postmaster $142 Equifax Information Services $50 City of Burlington $23 Copy Service Supply $14 MERRILL LYNCH: Fitch Puts Low-B Ratings on Six Certificate Classes ------------------------------------------------------------------ Merrill Lynch Mortgage Trust (MLMT), series 2004-BPC1, commercial mortgage pass-through certificates are rated by Fitch as follows: -- $55,381,000 class A-1, 'AAA'; -- $182,874,000 class A-1A, 'AAA'; -- $138,500,000 class A-2, 'AAA'; -- $171,324,000 class A-3, 'AAA'; -- $48,845,000 class A-4, 'AAA'; -- $397,195,000 class A-5, 'AAA'; -- $94,752,000 class AJ, 'AAA'; -- $1,242,649,659* class XC, 'AAA'; -- $1,210,412,000* class XP, 'AAA'; -- $26,407,000 class B, 'AA'; -- $12,426,000 class C, 'AA-'; -- $18,640,000 class D, 'A'; -- $9,320,000 class E, 'A-'; -- $15,533,000 class F 'BBB+'; -- $10,873,000 class G, 'BBB'; -- $15,533,000 class H, 'BBB-'; -- $6,213,000 class J, 'BB+'; -- $4,660,000 class K, 'BB'; -- $6,214,000 class L, 'BB-'; -- $4,659,000 class M, 'B+'; -- $3,107,000 class N, 'B'; -- $3,107,000 class P, 'B-'; -- $17,086,659 class Q, 'NR'. *Notional amount and interest only Classes A-1, A-1A, A-2, A-3, A-4, A-5, AJ, B, C, and D are offered publicly, while classes XC, XP, E, F, G, H, J, K, L, M, N, P, and Q are privately placed pursuant to Rule 144A of the Securities Act of 1933. Class Q is not rated by Fitch. The certificates represent beneficial ownership interest in the trust, primary assets of which are 94 fixed-rate loans having an aggregate principal balance of approximately $1,242,649,660 as of the cutoff date. For a detailed description of Fitch's rating analysis, see the Report titled Merrill Lynch Mortgage Trust 2004-BPC1 dated Oct. 21, 2004 available on Fitch Ratings Web site at http://www.fitchratings.com/ MICROCELL: S&P Withdraws Junk Ratings After Rogers Acquisition -------------------------------------------------------------- Standard & Poor's Ratings Services has withdrawn the ratings on Microcell Telecommunications Inc. and subsidiary Microcell Solutions Inc. (both CCC+/Watch Pos/--) following their acquisition by Rogers Wireless Inc. (RWI; BB/Stable/--). Rogers Wireless is likely to repay Microcell's existing senior secured debt facility in full. Microcell had almost C$400 million in senior secured bank debt at September 30, 2004. Under the credit facility covenants, a change of control in Microcell could result in an acceleration of the debt, which could be exercised at the lenders' option. In addition, the debt may be voluntarily prepaid at any time. We assume that Rogers Wireless will prepay the debt and refinance it with new debt to be issued by Rogers Wireless. MIRANT CORP: Asks Court to Approve Bid Protections for Invenergy ---------------------------------------------------------------- Invenergy Turbine Company, LLC, has expended, and will likely continue to expend, considerable time, money and energy in pursuing Mirant Corporation's sale of General Electric Model PG7241 FA 60 Hz dual fueled combustion turbines and all related appurtenances, modules, equipment, and other services. In recognition of Invenergy's effort, Mirant Corporation and its debtor-affiliates seek the permission of the U.S. Bankruptcy Court for the Northern District of Texas to: (a) pay Invenergy a topping fee of: -- $1,395,000, if the Debtors sell two or more of the Turbines to a third party; and -- $697,500, if the Debtors sell only one of the Turbines to a third party; and (b) reimburse Invenergy's reasonable and documented out-of- pocket expenses incurred in connection with the Turbines Sale of up to: -- $600,000, if the Debtors sell three of the Turbines to a third party; -- $600,000, if the Debtors sell two of the Turbines to a third party and Invenergy does not elect to purchase the remaining Turbine; -- $400,000, if the Debtors sell two of the Turbines to a third party and Invenergy elects to purchase the remaining Turbines to a third party. Robin E. Phelan, Esq., at Haynes & Boone, in Dallas, Texas, explains that the Topping Fee and Expense Reimbursement will be payable to Invenergy on the closing of a sale by the Debtors to a third party, provided that the Sale Agreement with Invenergy has not been terminated by the Debtors due to a material breach by Invenergy. An Expense Reimbursement of up to $600,000 will be payable to Invenergy if the Sale Agreement is terminated by Invenergy due to a material breach by the Debtors or under certain other conditions specified in the Sale Agreement. Mr. Phelan informs the Court that the Bid Protections are material inducements for, and are conditions of, Invenergy's entry into the Sale Agreement. Invenergy is unwilling to commit to open its offer to purchase the Turbines unless the Court authorizes the payment of the Topping Fee and Expense Reimbursement. Absent the Court's approval of Bidding Procedures and the Bid Protections, the Debtors may lose the opportunity to obtain what they believe to be the highest and best, and perhaps the only, available offer for the Turbines. Headquartered in Atlanta, Georgia, Mirant Corporation -- http://www.mirant.com/-- together with its direct and indirect subsidiaries, generate, sell and deliver electricity in North America, the Philippines and the Caribbean. Mirant Corporation filed for chapter 11 protection on July 14, 2003 (Bankr. N.D. Tex. 03-46590). Thomas E. Lauria, Esq., at White & Case LLP, represent the Debtors in their restructuring efforts. When the Company filed for protection from their creditors, they listed $20,574,000,000 in assets and $11,401,000,000 in debts. (Mirant Bankruptcy News, Issue No. 47; Bankruptcy Creditors' Service, Inc., 215/945-7000) MIRANT CORP: Asks Court to Approve Turbine Sale Bidding Procedures ------------------------------------------------------------------ Mirant Corporation and its debtor-affiliates ask the U.S. Bankruptcy Court for the Northern District of Texas to approve bidding procedures designed to maximize the sale of General Electric Model PG7241 FA 60 Hz dual fueled combustion turbines and all related appurtenances, modules, equipment, and other services: (a) The deadline for submitting bids for the Turbines will be no later than 4:00 p.m. Eastern Time on November 29, 2004. If needed, the Debtors will conduct an auction on December 3, 2004. (b) Potential purchasers must execute confidentiality agreements with the Debtors and provide evidence of their financial ability to purchase the Turbines and timely consummate the sale. Qualified Bidders who desire to make a competing offer for one or more of the Turbines must provide the Debtors a written copy of its bid. Qualified Bidders must also provide the Debtors with a marked copy of the existing Purchase Agreement, which shows the proposed amendments and modifications. (c) The Marked Agreement, exclusive of any post-closing adjustments that do not guarantee additional consideration to Mirant Bowline's estate, must provide for total consideration to Mirant Bowline of not less than: -- $48,645,000 if it is an offer for the purchase of three Turbines; -- $33,000,000 if it is an offer for the purchase of two Turbines; or -- $16,500,000 if it is an offer for the purchase of one Turbine. (d) Qualified Bidders must include in their bid an earnest money deposit in the form of: -- a fully executed, irrevocable letter of credit issued to Mirant Bowline; -- a cashier's check made payable to Mirant Bowline; or -- cash equal to 5% of the Proposed Consideration. (e) Bidding at the Auction will commence with the highest or otherwise best bid for the Turbines and continue in increments of not less than $100,000 until all parties have made their final offers. At the conclusion of the Auction and after review and consideration, the Debtors will inform each of the Qualified Bidders of the decision regarding who is a Successful Bidder, provided that the second highest or otherwise best bid for any number of the Turbines will remain open and irrevocable until the earlier of the closing of the Sale or 60 days after the Court's approval. If, for any reason, a Successful Bidder fails to consummate the purchase of the Turbines or any part of it, the Second Highest Bidder is automatically deemed to have submitted the highest and best bid. A full-text copy of the Bidding Procedures is available at no charge at: http://bankrupt.com/misc/Mirant_Turbines_Bidding_Procedures.pdf As reported in the Troubled Company Reporter on November 3, the Debtors agreed to sell three Turbines to Invenergy, subject to higher or otherwise better offers. Invenergy will pay $46,500,000 for the assets. Sale Hearing The Debtors ask the Court to hold a sale hearing on Dec. 8, 2004. The Debtors will mail notices of the Bid Deadline, the Auction, and the Sale Hearing to all parties who have an interest in acquiring the Turbines and other parties-in-interest. The Debtors will also publish the Notices in the national edition of The New York Times and in the Rockland County Times. Headquartered in Atlanta, Georgia, Mirant Corporation -- http://www.mirant.com/-- together with its direct and indirect subsidiaries, generate, sell and deliver electricity in North America, the Philippines and the Caribbean. Mirant Corporation filed for chapter 11 protection on July 14, 2003 (Bankr. N.D. Tex. 03-46590). Thomas E. Lauria, Esq., at White & Case LLP, represent the Debtors in their restructuring efforts. When the Company filed for protection from their creditors, they listed $20,574,000,000 in assets and $11,401,000,000 in debts. (Mirant Bankruptcy News, Issue No. 47; Bankruptcy Creditors' Service, Inc., 215/945-7000) MOTHERNATURE.COM: Paying Stockholders $469K in Final Distribution ----------------------------------------------------------------- MotherNature.com, Inc. (MTHR.OB) reported a final distribution of liquidation proceeds to its shareholders of record at close of business on Nov. 15, 2004. The distribution will total approximately $469,000, or $0.03 per common share, and will be paid on Nov. 30, 2004. Cumulative liquidating distributions by MotherNature.com, including this final distribution, total approximately $18 million, or $1.16 per share. The Company ceased active business operations in December, 2000 and dissolved in September, 2001. Since that time, the Company has been engaged in an orderly wind-down of its affairs, including the liquidation of inventories and fixed assets, sale and license of various intellectual property, and extinguishment of liabilities. The Company has filed its Certificate of Dissolution with the Secretary of State of Delaware. Shareholders whose mailing address or contact information has changed should contact Mellon at 800-288-9541 or access the Mellon Web site at http://www.melloninvestor.com/to update their files. MOUNT CLEMENS: Fitch Pares Rating on $82.8M Revenue Bonds to 'BB' ----------------------------------------------------------------- Fitch Ratings downgrades to 'BB' from 'BBB-' the rating on approximately $82.8 million County of Macomb Hospital Finance Authority hospital revenue bonds, series 2003B (Mount Clemens General Hospital). The bonds remain on Rating Watch Negative by Fitch. The Rating Watch Negative status is due to the potential of a qualified audit opinion, which has postponed the release of the audit. For the audit to be released without a qualified opinion, Mount Clemens General Hospital must receive a waiver from all bondholders, which management expects within the next couple of weeks. If Mount Clemens receives the waiver, Fitch anticipates affirming the bonds and removing them from Rating Watch Negative. Otherwise, a rating downgrade is likely. The rating downgrade is primarily due to Mount Clemens' continued operating losses, which were exacerbated by a 35-day nurses' strike that ended September 11, 2004, and low debt service coverage. Management stated that the overall cost of the strike was $8 million, including replacement nursing labor costs ($5 million) and declining revenue due to lower utilization levels ($3 million). The nurses' strike contributed to 15.5% and 4.8% declines in August and September 2004 discharges, respectively, compared with those of the prior year. The decline in discharges through nine months ended September 30, 2004 (interim period) was 2.3% to 12,206, compared with the same period in 2003. Through the interim period, Mount Clemens posted a negative 6.8% operating margin ($12.5 million loss from operations). Debt service coverage was low at 0.3 times (x) through the interim period and negative 1.4x in fiscal 2003, which led to a rate covenant violation. In late 2003, Mount Clemens proactively retained CapGemini to satisfy the conditions of the violation. In fiscal 2003, Mount Clemens' negative 14.9% operating margin ($32.8 million loss from operations) reflected approximately $27 million of audit adjustments, including an understatement of contractual allowances and an increase in bad debt reserves. These revenue and expense adjustments resulted from mid-fiscal year reviews led by the new chief financial officer. Mount Clemens' high debt burden and light liquidity position are additional concerns. Through the interim period, Mount Clemens' debt to EBITDA was 43.4x, well above Fitch's 'BBB' median of 6.5x. At September 30, 2004, MCGH's unrestricted cash represented 56.4 days of operating expenses and 29% of outstanding debt, which greatly hinders Mount Clemens' financial flexibility if operating losses continue, and is close to Mount Clemens' days cash on hand covenant of 50 days. Positive credit factors include Mount Clemens' leading market share and favorable economic characteristics. Despite operating in a fragmented market, Mount Clemens maintains a leading 27% market share in its primary service area. In January 2004, Mount Clemens began implementing numerous revenue enhancement and cost-saving initiatives, as recommended by CapGemini. Before the nurses' strike, Mount Clemens met its targeted savings from many of these initiatives, including a reduction of FTEs and improved supply chain management. Although Fitch believes that Mount Clemens will realize additional savings from CapGemini's recommendations, labor expenses will be pressured by agency staffing and the hiring of 25 additional full-time nurses, as required under the new three-year union contract. Mount Clemens' service area is characterized by above-average income levels and relatively low unemployment despite the concentration of the automotive industry. Fitch expects that Mount Clemens' profitability, as supported by additional operating initiatives, will improve over the medium term. However, any deterioration in balance sheet or operating ratios could lead to additional downward movement in the rating. Mount Clemens' main operating component is a 288-bed acute care osteopathic teaching hospital in Mount Clemens, Michigan, approximately 25 miles northeast of downtown Detroit. Total consolidated revenue including affiliates equaled $220 million in fiscal 2003 (unaudited). Mount Clemens covenants to provide annual and quarterly disclosure to bondholders. Recent disclosure to Fitch have been timely and thorough, including a balance sheet, income statement, statement of cash flows, utilization statistics and management, and discussion and analysis. NATIONAL ENERGY: Inks Settlement Agreement with Reliant Energy -------------------------------------------------------------- In accordance with the Court-approved Procedures for Settlement of Trade Contracts, National Energy & Gas Transmission, Inc., and NEGT Energy Trading - Power, LP, entered into a settlement agreement and mutual release with Reliant Energy Services, Inc., and Reliant Energy, Inc. Pursuant to the Settlement Agreement, Reliant Energy will pay $878,077 to NEG and ET Power in full and final satisfaction of all claims arising out of a Master Agreement between ET Power and Reliant Energy Services, dated September 22, 1998. The parties will release each other from any liabilities whatsoever arising out of the Master Agreement. According to Martin T. Fletcher, Esq., at Whiteford, Taylor & Preston, LLP, in Baltimore, Maryland, the consummation of the Settlement Agreement is advantageous to NEG and ET Power in that the agreement approximates the maximum recovery that NEG and ET Power could otherwise achieve through litigation while avoiding its attendant risks and costs. 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 and its debtor-affiliates 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, and Paul M. Nussbaum, Esq., and Martin T. Fletcher, Esq., at Whiteford, Taylor & Preston, L.L.P., 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 that plan took effect on Oct. 29, 2004. (PG&E National Bankruptcy News, Issue No. 30; Bankruptcy Creditors' Service, Inc., 215/945-7000) NEW WORLD: Closes Deal with Barbero SRL for Italian Subsidiaries ---------------------------------------------------------------- The Honorable Mary D. France of the U.S. Bankruptcy Court for the Middle District of Pennsylvania approved the sale of New World Pasta Company and its debtor-affiliates' interests in their Italian subsidiaries -- Albadoro S.p.A. and Monder Aliment S.p.A. -- to Barbero SRL for approximately $1.6 million. About Albadoro and Monder Albadoro has been losing money since 1987. New World Pasta had to shell out $200,000 every month to maintain Albadoro's operations. On the other hand, Monder's operations are profitable. As the sole provider of dry-filled pasta products in the United States, Monder projects a positive cash flow. But despite this upbeat forecast, it has failed to provide dividends for the Debtors. * * * The $1.6 million cash payment will greatly assist the Debtors in accomplishing a successful reorganization of their businesses. The sale provides an immediate solution to the critical labor and financial strains facing the Debtors. Because of the potential growth of the dry-filled pasta market, Barbero agreed to continually supply New World Pasta with dry- filled pasta products. Headquartered in Harrisburg, Pennsylvania, New World Pasta Company -- http://www.nwpasta.com/-- is a pasta manufacturer in the United States. The Company, along with its debtor-affiliates, filed for chapter 11 protection (Bankr. M.D. Penn. Case No. 04- 02817) on May 10, 2004. Eric L. Brossman, Esq., and Robert Bein, Esq., at Saul Ewing LLP, in Harrisburg, serve as the Debtors' local counsel. Bonnie Steingart, Esq., and Vivek Melwani, Esq., at Fried, Frank, Harris, Shriver & Jacobson LLP, represent the Creditors' Committee. In its latest Form 10-Q for the period ended June 29, 2002, New World Pasta reported $445,579,000 in total assets and $451,816,000 in total liabilities. NEW WORLD: Wants to Hire Keen Realty as Real Estate Consultant -------------------------------------------------------------- New World Pasta Company and its debtor-affiliates ask the U.S. Bankruptcy Court for the Middle District of Pennsylvania for authority to employ Keen Realty, LLC, as its real estate consultant. As exclusive agent, Keen Realty will facilitate the sale of the Debtors' Omaha Property, consisting approximately of 8.59 acres of developed land. The Debtors propose to pay Keen Realty directly from the sale proceeds: * 3% if the property will sell up to $2.5 million; * 4% if the property sells for a price greater than $2.5 million but not more than $3.5 million; or * 5% if the property sells for a price greater than $3.5 million The Firm's professionals will bill the Debtors at their current hourly rates: Designation Rate ----------- ---- President/Chairman $500 Executive Vice President 425 Vice President 350 Director 200 Researcher 125 Matthew Bordwin, at Keen Realty, assures the Court that the Firm is "disinterestedness" as that term is defined in Section 101(14) of the Bankruptcy Code. Headquartered in Harrisburg, Pennsylvania, New World Pasta Company -- http://www.nwpasta.com/-- is a pasta manufacturer in the United States. The Company, along with its debtor-affiliates, filed for chapter 11 protection (Bankr. M.D. Penn. Case No. 04- 02817) on May 10, 2004. Eric L. Brossman, Esq., and Robert Bein, Esq., at Saul Ewing LLP, in Harrisburg, serve as the Debtors' local counsel. Bonnie Steingart, Esq., and Vivek Melwani, Esq., at Fried, Frank, Harris, Shriver & Jacobson LLP, represent the Creditors' Committee. In its latest Form 10-Q for the period ended June 29, 2002, New World Pasta reported $445,579,000 in total assets and $451,816,000 in total liabilities. NOMURA ASSET: Fitch Lifts Rating on $33.7M Class B-2 Certs. to BB ----------------------------------------------------------------- Fitch Ratings upgrades Nomura Asset Securities Corp.'s commercial mortgage pass-through certificates, series 1996-MDV as follows: -- $48.7 million class A-4 to 'AAA' from 'AA'; -- $11.2 million class A-5 to 'AAA' from 'A+'; -- $48.7 million class B-1 to 'AA' from 'BB'; -- $33.7 million class B-2 to 'BB' from 'B'. In addition, classes are affirmed: -- $25 million class A-1A at 'AAA'; -- $352 million class A-1B at 'AAA'; -- $7.5 million class A-1C at 'AAA'; -- Interest-only classes CS-1 and CS-2 at 'AAA'; -- $45 million class A-2 at 'AAA'; -- $52.4 million class A-3 at 'AAA'; -- $24.4 million class S-1 at 'BBB-'. Fitch does not rate class B-2H. The upgrades are due to the anticipated defeasance of the second largest loan, Marriott Residence II (20.1%), which is expected to close on November 12, 2004. As of the October 2004 distribution date, the pool's total principal balance has been reduced by 16.2% to $648.7 million from $773.7 million at issuance, due to the repayment of one loan and amortization on eight of the nine remaining fixed-rate loans. The collateral will consist of government securities (78.1%) from the full defeasance of five loans and partial defeasance of two loans, three crossed pool loans secured by 29 geographically diverse properties and one single asset hotel loan. Although Fitch remains concerned with the remaining collateral, two are hotel loans, which have seen recent improvement and two are partially defeased loans. The Buena Vista loan (6.6%) is secured by a convention hotel located in Lake Buena Vista, Florida. Although Fitch net cash flow -- NCF -- for the year ended 2003 declined approximately 11% since YE 2002, it remains 22.4% higher than at issuance. In addition, the borrower reports a significant increase in September 2004 year-to-date -- YTD -- total revenues (7.6%) and net operating income (21.1%) over YTD September 2003. The YE 2003 debt service coverage ratio -- DSCR -- is 2.50 times (x) compared to 2.68x for the YE 2002 and 1.62x at issuance. The Innkeepers Portfolio loan (3.9%) is collateralized by eight extended stay hotels. Although the adjusted NCF for trailing 12 months June 2004 has declined 19.6% since issuance, the trend since 2003 is positive primarily due to the recovering performance of three hotels located in the San Jose, California market (39% of allocated loan balance). The corresponding DSCR remains strong at 2.14x compared to 2.41x at issuance. The Shaner/AEW loan (8.7%) is partially defeased with 18 of its original 35 hotel properties remaining. Adjusted NCF for YE December 2003 for the 18 remaining properties increased slightly compared to YE 2002, but has declined by 29.5% from issuance. Although Fitch is concerned with the decline in NCF, the partial defeasance, eighteen-year amortization schedule, and current low loan exposure of approximately $23,018 per room mitigate the refinance risk. The Horizon loan (9.1%) is partially defeased with three of its original four factory outlet centers remaining. After accounting for the defeasance, the YE 2003 Fitch DSCR was 1.49x compared to 1.55x at issuance. The average occupancy for the remaining properties is 86.5% as of June 30, 2004. As part of its review, Fitch analyzed the performance of each loan and the underlying collateral. Fitch compared each loan's stressed debt service coverage ratio -- DSCR -- for the year ended December 2003 to the DSCR at issuance. DSCR's are based on Fitch adjusted net cash flow and a stressed debt service based on the current loan balance. NORSE CBO: Moody's Reviewing Class C's B3 Ratings & May Upgrade --------------------------------------------------------------- Moody's Investors Service upgraded its rating of the following Class of Notes issued by Norse CBO, Ltd., a collateralized debt obligation issuance: -- $60,000,000 Senior Secured Class B Fixed Rate Notes from A3 on watch for possible upgrade to Aa3 remaining on watch for possible upgrade. Moody's noted that the transaction, which closed in August of 1998, has experienced improvement in overcollateralization levels. The underlying collateral pool consists primarily of non-investment grade corporate debt obligations. The rating of the Class B Notes was placed on the Moody's watchlist for possible upgrade on July 22, 2004. Moody's stated that the rating assigned to the Class B Notes, prior to the rating action taken, is no longer consistent with the credit risk posed to investors. Moody's also announced that as part of the rating monitoring process it has placed the following Classes of Notes issued by Norse CBO, Ltd. on the Moody's watchlist for possible upgrade: (1) $27,000,000 Subordinated Class C-1 Floating Rate Notes currently rated B3. (2) $37,000,000 Subordinated Class C-2 Fixed Rate Notes currently rated B3. Moody's explained that watchlist for possible upgrade status reflects Moody's opinion that the credit quality of the Class C-1 Notes and Class C-2 Notes may be improving. Rating Action: Upgrade Issuer: Norse CBO, Ltd. The rating of this Class of Notes has been upgraded: -- U.S. $60,000,000 Class B Senior Secured Fixed Rate Notes from A3 on watch for possible upgrade to Aa3 remaining on watch for possible upgrade. Rating Action: Placement on Watchlist for Possible Upgrade: Issue: Norse CBO, Ltd. The ratings of these Classes of Notes have been placed on the Moody's watchlist for possible upgrade: -- U.S. $27,000,000 Subordinated Class C-1 Floating Rate Notes currently rated B3. -- U.S. $37,000,000 Subordinated Class C-2 Fixed Rate Notes currently rated B3. NYLIM STRATFORD: Moody's Reviewing B Ratings & May Downgrade ------------------------------------------------------------ Moody's Investors Service placed these two classes of securities issued by NYLIM Stratford CDO 2001-1 Ltd. on watch for possible downgrade: (1) the U.S.$32,000,000 Class C Fixed Rate Notes Due 2036; and (2) the U.S.$16,000,000 Stated Amount of 1% Cumulative Preferred Shares. The Moody's rating of the Preferred Shares only addresses the ultimate receipt of the "Stated Amount" (originally U.S.$16,000,000, and as reduced by all distributions in excess of a 1% dividend) plus required dividends on such amount. According to Moody's, today's action results from deterioration in the credit quality of the collateral pool supporting the issuer's liabilities. Moody's noted that, treating securities in the issuer's pool of collateral that are under review for downgrade as though they have been downgraded by one rating subcategory, the current weighted average rating factor of this originally investment grade rated collateral pool is in excess of 850 (indenture limit is 540, Baa3 rating factor is 610) and that nearly 15% of the portfolio is currently rated Baa3 or lower (indenture limit is 7.5%). Moody's noted that this investment grade asset-backed resecuritization closed on April 11, 2001 and is managed by New York Life Investment Management LLC. Rating Action: Review for Downgrade Issuer: NYLIM Stratford CDO 2001-1 Ltd. Class Description: US$32,000,000 Class C Fixed Rate Notes Due 2036 Prior Rating: Baa3 Current Rating: Baa3 on watch for possible downgrade Class Description: U.S.$16,000 Stated Amount of 1% Cumulative Preferred Shares Prior Rating: Ba3 Current Rating: Ba3 on watch for possible downgrade OAO SEVERSTAL: S&P Puts B+ Corporate Credit Rating on CreditWatch ----------------------------------------------------------------- Standard & Poor's Ratings Services placed its 'B+' long-term corporate credit rating on Russian steel company OAO Severstal on CreditWatch with developing implications. This action follows Severstal's nonbinding offer to acquire the assets of Canadian steel company Stelco Inc. (D/--/--), which is currently under bankruptcy protection. The terms of the bid are subject to approval by the government, labor unions, and other parties. "The CreditWatch placement reflects the uncertainty about the terms of the bid, particularly the amount of postretirement benefits to be assumed and the price to be paid, and about the integration of Stelco with Severstal," said Standard & Poor's credit analyst Elena Anankina. "The 'B+' rating on Severstal is already constrained by the company's appetite for M&A, and, although Severstal's bid is nonbinding, Stelco would be a weighty acquisition that might exceed the flexibility built into the current rating. Furthermore, it might significantly change Severstal's cost position, leverage, asset composition, and resilience to steel industry cycles," added Ms. Anankina. The rating on Severstal could come under pressure if the company assumes a significant part of Stelco's postretirement liabilities and if Stelco fails to achieve a competitive cost structure and generate positive free cash flow through the cycle. Nevertheless, the rating could be raised if the enlarged company is able to generate positive free cash flow, even at the low points of the steel cycle. The Stelco acquisition would provide a larger and more diversified asset base that combines low-cost facilities in Russia with higher value-added production close to large customers in North America. The fact that a significant proportion of production and revenues would be generated in North America may help to reduce the negative impact of Russia country risk on Severstal's rating going forward. OAO Severstal is the principal operating company within a major Russia-based industrial group with substantial assets in metallurgy; mining; automobile manufacture; machinery; transportation and other businesses. The company's principal activity is the production and sale of steel and steel products. The Group operates more than 30 plants in 14 regions of Russia and in the United States, produces approximately 14 million tons of steel annually, and exports to more than 100 countries. ORMET CORP.: Gets Court Okay to Reject 2 CBAs --------------------------------------------- At the conclusion of a three-day evidentiary hearing, the Honorable Barbara J. Sellers of the U.S. Bankruptcy Court for the Southern District of Ohio authorized Ormet Corporation, Ormet Primary Aluminum Corporation, Ormet Aluminum Mill Products Corporation, Specialty Blanks Holdings Corporation, Specialty Blanks, Inc., Formcast Development, Inc., and Ormet Railroad Corporation to reject two collective bargaining agreements. The Debtors filed a "conditional application" pursuant to 11 U.S.C. Sec. 1113 for relief from their collective bargaining agreements with employees at their reduction plant and rolling mill in Hannibal, Ohio, in the event that consensual agreements cannot be reached. The Official Committee of Unsecured Creditors in Ormet's chapter 11 cases supported the Debtors' request. The United Steelworkers of America, the authorized representative of Ormet's employees, opposed the Debtors' application. Agreement with Local No. 5724 The Debtors proposed 13 modifications to their agreement with the Local No. 5724, affecting 900 employees at the Reduction Plant, and projected to save $9.4 million annually: * No change in wage rates; * Offer Ormet Bonus Profit Sharing Plan, so that 8% of profits are distributed to the employees' 401(k) plan and to eligible participants; * Levelize vacations over 52 weeks; * Modify vacation pay calculation from 44 to 40 hours; * Introduce monthly employee contributions to health insurance: $50 Single, $70 Double, $90 Family per month; * Replace prescription drug plan with three-tier formulary plan; * Implement employee option to elect cash payment up to $4,000 per year in lieu of all benefits; * Eliminate the two-year supplemental unemployment benefit program and medical related benefits during future layoff; * Freeze existing defined benefit retirement plan and eliminate pension supplements; * Implement new medical plan that provides future retirees with option to participate in an HMO or opt out of coverage in exchange for cash payment; * Eliminate T-bid (temporary job bid) language; * Reduce headcount by implementing manning changes and consolidating Reduction Plant and Rolling Mill storerooms; and * Modify contracting out language to allow more flexibility in the use of contractors for various maintenance tasks. Agreement with Local No. 5670 The Debtors proposed 14 modifications to their agreement with the Local No. 5670, affecting 496 employees at the Rolling Mill, and projected to save $5.2 million annually: * No change in wage rates; * Offer Ormet Bonus Profit Sharing Plan, so that 8% of profits are distributed to the employees' 401(k) plan and to eligible participants; * Levelize vacations over 52 weeks; * Modify vacation pay calculation from 44 to 40 hours; * Modify overtime solicitation procedure; * Eliminate Quarterly Achievement Bonus; * Introduce monthly employee contributions to health insurance: $50 Single, $70 Double, $90 Family per month; * Replace prescription drug plan with three-tier formulary plan; * Implement employee option to elect cash payment up to $4,000 per year in lieu of all benefits; * Eliminate the two-year supplemental unemployment benefit program and medical related benefits during future layoffs; * Freeze existing defined benefit retirement plan and eliminate pension supplements; * Implement new medical plan that provides future retirees with option to participate in an HMO or opt out of coverage in exchange for cash payment; * Reduce headcount by consolidating Reduction Plant and Rolling Mill storerooms; and * Modify contracting out language -- allow more flexibility in the use of contractors for various maintenance tasks. The statutory framework for the Debtors' request is set forth in 11 U.S.C. Sec. 1113. Court Explains Ruling The testimony and other evidence adduced at the hearing, Judge Sellers says, established that the Debtors made a proposal to the USWA right after their bankruptcy filing. The Debtors delivered their proposals to the USWA on March 11, 2004, and did not file their conditional application for relief from the collective bargaining agreements until September 22, 2004. The proposal provides for modifications that the Debtors believe are necessary to permit their reorganization to go forward. The Court notes that there was no real challenge either to the necessity of the modifications or to the equitable spread of these provisions among the employees and retirees of the two plants and the sacrifices to be made by the various other constituencies in Ormet's cases. The USWA submitted its counter-proposal on October 5, 2004. Judge Sellers observes that there was substantial evidence that certain of the USWA's proposals, with their resulting financial impact, would not achieve the labor cost savings all parties agree are required. Judge Sellers notes that the USWA refused to accept the Debtors' proposals without just cause. Although the USWA denies that charge and insists that it has insufficient information and wishes to bargain in good faith, the evidence establishes otherwise, Judge Sellers says. Judge Sellers says that while she understands the USWA's concerns about the Debtors' long-term viability and the absence of structural changes in the Debtors' proposals, the need for economic concessions is uncontested. It is also clear that the USWA rejected the Debtors' proposals early on, in a manner that at least appeared to discourage meaningful efforts at negotiations. Judge Sellers additionally finds that the balance of the equities clearly favors rejection of the collective bargaining agreements. The USWA, as a member of the Committee, has known for many months that the terms of a plan of reorganization were being widely discussed. The resulting plan is consensual as to all major constituencies except for the USWA. All of these constituencies will be sacrificing rights they held prepetition. With the anticipated steep increase in electricity costs beginning in January 2005, the Debtors need to reduce all of their controllable costs of which labor costs are a significant factor. Every employee group is impacted and will share in these cost reductions. The Court regrets that the hourly employees may have to give up certain provisions that are important to their economic security. Some of the gains they have made in prior collective bargaining agreements, however, are no longer sustainable in the economic climate currently existing within the aluminum manufacturing industry. That reality has to be taken into account, Judge Sellers says. Headquartered in Wheeling, West Virginia, Ormet Corporation -- http://www.ormet.com/-- is a fully integrated aluminum manufacturer, providing primary metal, extrusion and thixotropic billet, foil and flat rolled sheet and other products. The Company and its debtor-affiliates filed for chapter 11 protection on January 30, 2004 (Bankr. S.D. Ohio Case No. 04-51255). Adam C. Harris, Esq., in New York, represents the Debtors in their restructuring efforts. When the Company filed for bankruptcy protection, it listed $50 million to $100 million in estimated assets and more than $100 million in total debts. OWENS CORNING: Objects to Lakehill Environmental Claim ------------------------------------------------------ Owens Corning and its debtor-affiliates object to Claim No. 7223 filed by Lakehill Associates, Inc., for an amount "undetermined but in no event less than $500,000." J. Kate Stickles, Esq., at Saul Ewing, LLP, in Wilmington, Delaware, relates between 1965 and 1995, the Debtors manufactured and sold fiberglass tanks for the underground storage tank business to Fluid Containment, Inc., now known as Containment Solutions, Inc. Under the transaction, the Debtors retained liability for warranty and product-related claims with respect to the USTs it had manufactured. The Disputed Claim concerns property located at 4000 Hempstead Turnpike in Bethpage, New York, owned by Lakehill and operated as a gas station by a third party. According to Lakehill, the fiberglass USTs manufactured by the Debtors were installed at the Property and that as a result of a defect in one of those USTs, "gasoline was released into the environment causing continuous contamination of and damage to the Property (specifically to the soil and groundwater onsite)." Ms. Stickles alleges that the Disputed Claim does not indicate either: -- the date the debt was incurred; or -- the date that the rupture of the UST and resulting environmental contamination occurred or were discovered by Lakehill. Nevertheless, documents establish that Lakehill knew of the alleged defects in the Owens Corning UST, the resulting release of petroleum causing environmental contamination, and Lakehill's obligation to incur the expense of environmental mediation well before the Petition Date. Ms. Stickles relates that the Debtors investigated a warranty claim regarding a "problem" with Owens Corning UST at the Property in 1991 and found buckles, a split and a crack in that tank. The investigation report was addressed to the Property. Lakehill served a notice of claim with respect to that tank failure and resulting environmental contamination on Owens Corning in 1996. In June 2000, Lakehill entered into a Stipulation with the New York State Department of Environmental Conservation pursuant to which Lakehill committed to "clean up and remove a discharge of petroleum which occurred at 4000 Hempstead Turnpike, Bethpage, New York." Despite the fact that the alleged failure of the Owens Corning UST at the Property and Lakehill's obligation to clean up resulting environmental contamination both occurred well before the Petition Date, Lakehill apparently asserts that its claim is entitled to administrative priority. It appears that the Disputed Claim was filed as a protective proof of claim by Lakehill in the event the Court did not allow its administrative claim. A review of the claims registry, however, reveals that Lakehill has not filed an administrative claim in the Debtors' cases. Lakehill further asserts that "its claim against the Debtor is a non-dischargeable claim pursuant to Section 523 of the Bankruptcy Code." Ms. Stickles argues that Claim No. 7223, should be disallowed and expunged on three grounds: (a) Lakehill failed to provide adequate documentation in support of its claim; (b) To the extent that it be allowed, the Disputed Claim is a general unsecured non-priority claim; and (c) The claim is dischargeable because Section 523 does not apply to the Debtors. Headquartered in Toledo, Ohio, Owens Corning -- http://www.owenscorning.com/-- manufactures fiberglass insulation, roofing materials, vinyl windows and siding, patio doors, rain gutters and downspouts. The Company filed for chapter 11 protection on October 5, 2000 (Bankr. Del. Case. No. 00-03837). Mark S. Chehi, Esq., at Skadden, Arps, Slate, Meagher & Flom, represents the Debtors in their restructuring efforts. At June 30, 2004, the Company's balance sheet shows $7.3 billion in assets and a $4.3 billion stockholders' deficit. (Owens Corning Bankruptcy News, Issue No. 87; Bankruptcy Creditors' Service, Inc., 215/945-7000) OWENS CORNING: Legal Battle Ensues Over Review of Medical Records ----------------------------------------------------------------- As reported in the Troubled Company Reporter on Oct. 12, Credit Suisse of First Boston, as agent for the bank lenders of Owens Corning and its debtor-affiliates, asked Judge Fullam of the U.S. District Court for the District of Delaware to: (a) set up procedures: (i) for the prompt production of a random sampling of Medical Records, including X-rays, from asbestos personal injury claimants who have claims alleging non-malignant asbestos personal injuries against Owens Corning, as well as (ii) to establish a document depository for inspection by experts retained by CSFB; and (b) modify the Scheduling Order dated August 19, 2004, regarding claims estimation issues, to allow the Bank lenders sufficient time to conduct their own study. The modification is necessary for the Banks to prepare their case in light of the recent disclosure of the Friedman, Vasquez and Mayer Reports that the Debtors concealed, as well as the recent Johns Hopkins study. The Banks seek adjournment and modification of the January 13, 2005, estimation trial date. Responses (A) Futures Representative James J. McMonagle, the legal representative for future claimants, argues that CSFB's request would delay the Debtors' cases by at least six months or so, and, in all probability, far longer. According to CSFB's proposed order, the process of reviewing the medical records would take at least 191 days, even without counting the inevitable delays. Since the Official Committee of Asbestos Personal Injury Claimants does not have custody or control over the Medical Records being requested by the Bank Debt Holders, Sharon M. Zieg, Esq., at Young Conaway Stargatt & Taylor, LLP, in Wilmington, Delaware, says, the Bank Debt Holders will have to subpoena them from the 1,000 personal injury claimants. Thus, the process is likely to drag on for a substantial period of time, thereby preventing the Debtors from emerging from these Chapter 11 cases and further delaying distributions to deserving creditors. Ms. Zieg asserts that CSFB erroneously presumes that it is necessary for the Asbestos Estimation to result in a precise valuation of asbestos personal injury claims through a claims allowance and disallowance process. The very reason that bankruptcy courts are empowered to estimate claims under Sections 502(c) and 524(g) of the Bankruptcy Code is so that litigation can be minimized and the court can arrive at a reasonable, though inexact, approximation of the value of the claims in question. Neither the Bankruptcy Code nor the Federal Rules of Bankruptcy Procedure provides guidelines for the means by which claims are to be estimated by the bankruptcy courts. Therefore, it has been held that bankruptcy judges may use any method that is consistent with the policy underlying the Bankruptcy Code, that a "reorganization must be accomplished quickly and efficiently." Thus, the Futures Representative asks Judge Fullam to deny CSFB's request in all respects. (B) Asbestos Claimants Committee The Official Committee of Asbestos Claimants asserts that CSFB's request must be denied for five reasons: (1) Owens Corning's decision to settle weaker claims reflects a calculated decision to avoid the risk of trial, thus, Owens Corning's settlement history must be considered in its entirety to accurately reflect Owens Corning's liability; (2) the Bank Debt Holders' proposed Random Sample as a basis for challenging non-malignant claims ignores the medically authoritative 2004 American Thoracic Society standards for the Diagnosis and Initial Management of Nonmalignant Diseases Related to Asbestos, which require neither impairment nor a 1/0 x-ray for diagnoses of non- malignant asbestos-related diseases; (3) by drawing only from pending unsettled cases, the Random Sample would be biased and fail to accurately represent the universe of non-malignant claims filed against Owens Corning; (4) the CSFB Motion is an unfair attempt to re-litigate the parameters of the estimation process; and (5) the CSFB Motion is procedurally flawed and based on erroneous assumptions. (C) Debtors "Stripped of its scurrilous distortions of the Debtors' record concerning estimation discovery and its extraneous excursion into the merits of the valuation of non-malignancy claims for estimation purposes, CSFB's motion -- filed on the eve of the fourth anniversary of the Debtors' petition for bankruptcy -- is reduced to a request that the [District] Court reconsider its August 19 Scheduling Order and adjourn the estimation hearing for at least six months, and more likely a full year, to permit CSFB's new counsel to conduct a study that its predecessor counsel could have sought at any time during the past four years," Norman L. Pernick, Esq., at Saul Ewing, LLP, in Wilmington, Delaware, says. Mr. Pernick argues that nothing in CSFB's request should change the District Court's determination in its August 19 Scheduling Order that "the data now available -- the Debtor's claim history, the experience in other cases, etc. -- viewed in light of the expert testimony at the scheduled hearing, should probably suffice for Claims Estimation purposes." According to Mr. Pernick, the only alleged changed circumstance is that CSFB has seen a Pulmonary Function Test and X-ray study prepared by Dr. Gary Friedman for the Debtors and a similar study published by Dr. Joseph N. Gitlin in Academic Radiology. "But the fact that others have generated studies that CSFB interprets as favorable to its position provides no cause for adjourning the estimation hearing to permit CSFB to generate a third study of the same subject under its own sponsorship." The Debtors ask Judge Fullam to deny CSFB's request because: (1) The supposedly fraudulent nature of unimpaired non- malignancy claims against the Debtors has been a central theme of the Official Committee of Unsecured Creditors and the Banks since the inception of Owens Corning's bankruptcy proceedings. If the sampling study contemplated by CSFB's counsel is so important, there is no good reason why the Banks could not have initiated that study considerably earlier. (2) The proposed study is essentially cumulative of the Friedman Report and the Gitlin Study, and CSFB is in no way materially prejudiced by the absence of a third study of its own creation. Most importantly, the proposed study would cause a material delay of the estimation hearing in a bankruptcy that is already over four years old. Perhaps recognizing that a request for a trial adjournment to create new evidence in a four-year old proceeding would ordinarily be flatly denied, CSFB strives mightily to blame the Debtors for the Banks' own failure to commence the study earlier. (3) While the Debtors believe that detailed discussion of the appropriate valuation of unimpaired non-malignancy claims is well beyond the scope of CSFB's Motion, CSFB's misunderstanding of the relationship between the contractual impairment criteria in the Debtors' National Settlement Program agreements and the compensability of a claim in the tort system is so profound as to require immediate correction. Contrary to the Banks' apparent view that unimpaired claims have no settlement value, unimpaired plaintiffs can and do bring their cases to trial and sometimes win large jury verdicts. These claims have settlement value in the tort law system, and any rational estimation of the value of claims against the Debtors must take this fact into consideration. Bondholders and Century Support CSFB King Street Capital Management, L.L.C., D.E. Shaw Laminar Portfolios, L.L.C, Harbert Management Corporation, Canyon Partners Inc., and Lehman Brothers, Inc., are in agreement with the Banks that the Plan's valuation of asbestos personal injury claims at $16 billion is not only significantly overstated, but is inappropriately based on the Debtors' highly questionable prepetition claims settlement practices. Century Indemnity Company, as successor to CCI Insurance Company, as successor to Insurance Company of North America, and Central National Insurance Company believe the discovery sought by CSFB is well within the parameters of the type of discovery permitted in asbestos bankruptcies, can be accomplished in a reasonable period of time, and is necessary to accomplish the claims estimation process. According to Century, Judge Kathryn C. Ferguson recently authorized discovery of the evidence underlying a sample of the approximately 110,000 current asbestos claimants that had asserted claims in another asbestos bankruptcy, In re Congoleum Corp., United States Bankruptcy Court, District of New Jersey, Case No. 03-51524 (KCF). The experience in In re Congoleum Corp. demonstrates that the discovery sought by CSFB can be provided with little burden and in a reasonable period of time. By agreeing to pursue a sample of claimants, CFSB's proposal will ensure that the claimant files that need to be pulled is broadly distributed so that the burden of responding does not fall on any one plaintiffs' firm. As aptly argued by CSFB, without an evaluation of that data, there cannot be an accurate and legally supportable estimation of the Debtors' asbestos liabilities. Thus, the Bondholders and Century fully support CSFB's request for an order: (i) establishing a procedure for requiring the production of medical records from certain asbestos-related personal injury claimants; (ii) authorizing the establishment of a document depository; (iii) establishing a schedule for the production of expert reports and expert depositions; and (iv) modifying the schedule set forth in the Court's scheduling order dated August 19, 2004, regarding claims estimation issues, and establishing a hearing date to determine a new schedule. Headquartered in Toledo, Ohio, Owens Corning -- http://www.owenscorning.com/-- manufactures fiberglass insulation, roofing materials, vinyl windows and siding, patio doors, rain gutters and downspouts. The Company filed for chapter 11 protection on October 5, 2000 (Bankr. Del. Case. No. 00-03837). Mark S. Chehi, Esq., at Skadden, Arps, Slate, Meagher & Flom, represents the Debtors in their restructuring efforts. At June 30, 2004, the Company's balance sheet shows $7.3 billion in assets and a $4.3 billion stockholders' deficit. (Owens Corning Bankruptcy News, Issue No. 87; Bankruptcy Creditors' Service, Inc., 215/945-7000) PARMALAT: Farmland Asks Court to Approve Puzino Dairy Settlement ---------------------------------------------------------------- Farmland Dairies, Inc. -- a Parmalat USA Corporation debtor- affiliate -- and Puzino Dairy, Inc., entered into a supply agreement dated November 8, 2000, which set forth the principal terms of Puzino's agreement to purchase milk and other products from Farmland on an exclusive basis. The Supply Agreement provides for an initial term through November 10, 2004, with provision for automatic renewal subject to certain notice requirements by either Puzino or Farmland. Contemporaneous with the execution of the Supply Agreement, Puzino also executed a Security Agreement, pursuant to which Puzino pledged to Farmland all of Puzino's inventory and accounts receivable from its sale of the Products. In addition, Vincent Puzino, as sole owner of Puzino, along with Glenn Puzino and Craig Puzino, executed personal guaranties of the obligations of Puzino pursuant to a Guaranty Agreement. Beginning early January 2004, Puzino alleged that Farmland was overcharging Puzino for the purchase of Products and began withholding payments due to Farmland under the Supply Agreement. On February 10, 2004, Farmland and Puzino participated in informal mediation discussions with the State of New Jersey Department of Agriculture Division of Dairy and Commodity Regulation regarding Puzino's allegations with respect to prices charged for Products, but no resolution was reached. Subsequently, on Feb. 11, 2004, and again on March 19, 2004, Puzino filed notice with the DOA, stating that it intended to switch to a new supplier and asserting that it had no outstanding indebtedness due to Farmland. On March 2, 2004, and again on March 25, 2004, Farmland notified Puzino that Puzino's failure to pay certain accounts receivable, totaling $1,762,154, for Products delivered by Farmland were breaches of the Supply Agreement and violations of the automatic stay. Moreover, Farmland informed Puzino that its Notice to Change Suppliers was also a breach of the Supply Agreement and in violation of the automatic stay. On March 31, 2004, Puzino filed a request to lift the stay, alleging that Farmland had overcharged Puzino in breach of the terms of the Agreement, and failed to deliver Products to Puzino within the times specified in the Agreement. Farmland denied the allegations. On April 2, 2004, pursuant to its order implementing certain notice and case management procedures, the U.S. Bankruptcy Court for the Southern District of New York held a chambers conference in which counsel for Farmland, Puzino and the Official Committee of Unsecured Creditors participated by teleconference. Based on the representations made by the counsel during the chambers conference, the Court set a hearing on the Puzino Lift Stay Motion for April 22, 2004. On April 15, 2004, at Farmland's request, the Court held a second chambers conference, at which time the Court clarified the scope of the hearing on the Puzino Lift Stay Motion, indicating that it would not reach the merits of the disputes at the hearing. Because Farmland and Puzino sought an expedited final determination of the disputes, the Court approved a Stipulation regarding the Puzino Lift Stay Motion. Under the Stipulation, Farmland agreed to, among other things, reduce on an interim basis, Puzino's per-gallon Milk payment by $0.13 proportionately for types of units of Milk sold subject to the Supply Agreement, and Puzino agreed to pay all amounts due and owing for the Products provided by Farmland under the Supply Agreement on a cash on delivery basis. The Parties agreed that this arrangement would remain in effect until the Court made a final determination with respect to the disputes. In addition, the Stipulation deemed the Puzino Lift Stay Motion withdrawn, and required the Parties to exchange within 10 days statements setting forth their positions and allegations with respect to the disputes, as well as related discovery requests, and the Court had set June 30, 2004, as the deadline to complete all discovery. The Stipulation provided that, at the conclusion of discovery, the Parties would be able to submit dispositive motions on the disputes and oral argument on them would take place no later than August 4, 2004. Furthermore, within 15 days of ruling on any dispositive motion, an evidentiary hearing to resolve the disputes would be scheduled, and both Parties agreed to submit to the exclusive jurisdiction of the Court, and that the Court's ultimate determination regarding the Disputes would be binding. On June 24, 2004, the Court approved the Stipulation. The Discovery Cut-Off was also extended to July 30, 2004, and a hearing on any submitted dispositive motions was scheduled to take place on September 7, 2004. On September 29, 2004, the Court approved a Revised Stipulation and Order regarding discovery, mediation and briefing schedule of the price dispute, delivery dispute and payment dispute, pursuant to which Order discovery cut-off was eventually extended to October 29, 2004, and oral argument on any dispositive motion was extended to November 29, 2004. Pursuant to this revision, the Parties also agreed, in an effort to avoid additional litigation costs, that they would attempt to resolve the disputes during a one-day non-binding mediation session on October 5, 2004. After mediation and extensive arm's-length negotiations, Farmland and Puzino have agreed to resolve the disputes and all outstanding issues arising under and related to the Supply Agreement. Accordingly, on October 15, 2004, Farmland and Puzino entered into a Settlement Agreement containing these salient terms: (a) Puzino will pay Farmland $850,000 in accordance with the payment schedule detailed in the Settlement Agreement; (b) Farmland will exercise its best efforts to effectuate Puzino's change to a new supplier before November 10, 2004; (c) Until the Agreement terminates, Farmland will continue to reduce Puzino's per-gallon Milk payment by $0.13 proportionately for types of units of Milk sold subject to the Agreement and Puzino will continue to pay all amounts for products provided by Farmland on a COD basis; (d) The parties exchange mutual releases. Accordingly, Farmland asks the Court to approve the Settlement Agreement. The Settlement Agreement will bring $850,000 into Farmland's estate and allow it to avoid lengthy, costly and uncertain litigation of the disputes. Farmland would incur substantial expense in seeking to prove the details of its agreements with Puzino regarding pricing for Products. To complete discovery and gather all necessary evidence for the litigation of the Parties' claim would alone be costly and burdensome. Moreover, the Settlement Agreement provides Farmland with the opportunity to sever its strained relationship with Puzino prior to the Agreement Expiration Date, and resolve all disputes with Puzino that have consumed the time of Farmland's management and legal counsel for several months. Farmland believes that the Settlement Agreement will preserve and maximize the value of its estate by concluding what has been a long and expensive process, and avoiding litigation with an uncertain outcome. Headquartered in Wallington, New Jersey, Parmalat USA Corporation -- http://www.parmalatusa.com/-- generates more than 7 billion euros in annual revenue. The Parmalat Group's 40-some brand product line includes milk, yogurt, cheese, butter, cakes and cookies, breads, pizza, snack foods and vegetable sauces, soups and juices and employs over 36,000 workers in 139 plants located in 31 countries on six continents. The Company filed for chapter 11 protection on February 24, 2004 (Bankr. S.D.N.Y. Case No. 04- 11139). Gary Holtzer, Esq., and Marcia L. Goldstein, Esq., at Weil Gotshal & Manges LLP, represent the Debtors in their restructuring efforts. On June 30, 2003, the Debtors listed EUR2,001,818,912 in assets and EUR1,061,786,417 in debts. (Parmalat Bankruptcy News, Issue No. 35; Bankruptcy Creditors' Service, Inc., 215/945-7000) PEGASUS: Junior Lenders Want to Collect Interest & Prepayments -------------------------------------------------------------- Wilmington Trust Company, as administrative agent under an Amended and Restated Term Loan Agreement, dated as of August 1, 2003, among Pegasus Satellite Communications, Inc., and the lenders from time to time party thereto, asks the Court to allow payment of: (i) the 2% Fixed Early Payment Amount -- $2,157,138; (ii) the Post-Default Rate of Interest -- $791,579; and (iii) interest on the Prepayment Premium and Default Interest at the Post-Default Rate through and including the date of payment, which is about $58,000. A number of facts critical to the determination that Wilmington Trust is entitled to payment of the contractual Prepayment Premium, Default Interest and interest on those amounts are undisputed between Wilmington Trust, the Debtors and the Committee: (a) The Credit Agreement is a binding contract that was negotiated at arm's length by sophisticated parties with legal and other representation; (b) Wilmington Trust's claims are secured by cash; (c) The principal and accrued interest on the Junior Term Loan were paid by the Debtors with the Committee's consent prior to the maturity date contained in the Credit Agreement; (d) DIRECTV, Inc.'s termination of the DBS Agreement on June 1, 2004, and NRTC's notice that the Member Agreements would terminate on August 31, 2004, constituted pre- bankruptcy Events of Default under the Credit Agreement; (e) Wilmington Trust did not interfere with the Debtors' bankruptcy proceedings or formally sought to enforce any of its rights other than those granted to it; and (f) The senior noteholders at Pegasus Satellite Communications represent the vast majority of unsecured claims against the Debtors and will likely recover over 60% of the par amount of their claims. Gayle H. Allen, Esq., at Verrill & Dana, LLP, in Portland, Maine, asserts that combining these facts with the relevant legal authority yields only one conclusion -- Wilmington Trust is entitled to be paid the Prepayment Premium and Default Interest and the interest having accrued on those amounts. To receive a contractual premium triggered by the voluntary payment of obligations under a loan agreement before maturity, a secured creditor must demonstrate that: -- its claim is oversecured by more than the amounts sought; -- payment of the obligations under the loan was voluntary; and -- the premium amount is reasonable. There is no dispute that Wilmington Trust's claim is oversecured by amounts in excess of the Prepayment Premium. There also can be little argument that the applicable Prepayment Premium of 2% of the principal and accrued interest as of the payment date is well within the bounds of reasonableness. However, the Debtors and the Committee will assert that the Debtors did not "voluntarily" pay the principal and accrued obligations on the Junior Term Loan because the Junior Term Loan "matured" on the Petition Date as a result of the automatic acceleration triggered by Pegasus' bankruptcy filing and Wilmington Trust planned to take actions in the Debtors' cases to ensure an early payment of its claims and thus cannot be said to have been paid voluntarily. Ms. Allen argues that to the extent that the Debtors and the Committee advance these arguments, they will be without merit based on the actions of the Debtors, the Committee and Wilmington Trust, and the relevant legal precedent. In September 2004, the Debtors, with the Committee's support, sought to pay in full the principal balance and accrued interest on the Junior Term Loan to reduce the continuing accrual of interest on the Junior Term Loan. Pursuant to a stipulation, the loan obligations were paid on September 20, 2004. There can be no question that the Debtors' payment of the loan obligations was voluntary and occurred before the Credit Agreement's stated maturity of August 1, 2009. For purposes of claim analysis and repayment or restructuring negotiations, secured and other claims are often treated as "accelerated" after a bankruptcy filing, but that technical acceleration does not void creditor claims for contractual amounts accruing over time. Ms. Allen insists that relevant authority and common sense simply do not support the proposition that a contractual prepayment premium is nullified when a borrower files for bankruptcy. Section 506(b) of the Bankruptcy Code provides exactly the opposite in its explicit recognition of the ability of an oversecured creditor to collect "interest, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose." To prohibit the enforcement by an oversecured creditor of a contractual charge like a prepayment premium would rewrite Section 506(b) and substitute judicial discretion for unambiguous statutory language. Similarly, to determine that Wilmington Trust's conduct in the Debtors' bankruptcy cases required it to forfeit its right to collect a contractual prepayment premium that was otherwise due would be absurd, Ms. Allen says. Almost immediately after being informed of the Debtors' "cornerstone" litigation strategy, Wilmington Trust arrived at the same conclusion that the Court later reached -- the litigation could not undo the prepetition actions of DIRECTV and the NRTC, and the value of the Debtors' business, as well Wilmington Trust's ability to recover any portion of its claims, would plummet unless the Debtors' subscriber base was sold to DIRECTV or a satellite competitor before August 31, 2004. It was Wilmington Trust who noted that the Debtors' assets were the equivalent of a "melting ice cube" at the hearings on the Debtors' initial bankruptcy motions. It was also Wilmington Trust and the senior secured lenders who voiced their concerns to the Committee, and, with less than a month left before the August 31, 2004, termination of the Member Agreements and the collapse of the Debtors' asset value took the lead in the preparation of a comprehensive motion to approve a sale of the Debtors' subscriber base without the Debtors' consent. Wilmington Trust and the senior secured lenders shared their work product with the Committee and DIRECTV, who had precisely the same concerns as the lenders. Shortly thereafter, the Committee, DIRECTV and the Debtors, with the approval of Wilmington Trust and the senior secured lenders, negotiated the sale of the Debtors' subscriber base to DIRECTV. Not surprisingly, portions of the materials prepared by Wilmington Trust and the senior secured lenders appeared in the pleadings submitted by the Debtors and the Committee in support of the sale to DIRECTV. Accordingly, Ms. Allen asserts that any argument by the Committee that the actions taken by Wilmington Trust in the Debtors' bankruptcy proceedings should prevent it from being paid the Prepayment Premium -- to which it is contractually entitled -- is ridiculous. Wilmington Trust never formally took any action in the Debtors' cases, let alone any action that worked to the detriment of the expeditious resolution of the Debtors' cases, and instead worked behind the scenes with the senior secured lenders and the Committee to ensure that creditors received significant recoveries and that the Debtors' Chapter 11 cases did not end in utter failure. Thus, under any examination, paying the loan obligations was voluntary and the payment of the Prepayment Premium is warranted. There is no bright line test to determine when a secured creditor is entitled to receive default interest in a bankruptcy proceeding. Generally, however, where there is a contractual entitlement to default interest, a secured creditor is entitled to payment unless doing so would prove inequitable -- in which the primary concerns are the reasonableness of the default rate and the damage done to junior creditors if the default interest is paid. There is no dispute that the termination of the DBS Agreement and the NRTC notice of termination of the Member Agreement constituted prepetition Events of Default under the Credit Agreement. There also can be little argument that the post-default increase in the interest rate on the Junior Term Loan of 2.5% is reasonable. However, the Debtors and the Committee are likely to claim that the payment of the Default Interest to Wilmington Trust will reduce recoveries to junior creditors who will not be paid in full and is therefore inequitable. Wilmington Trust's Allowed Claim of over $107,000,000 is senior to about $800,000,000 in senior noteholder claims and about $125,000,000 in subordinated noteholder claims. Given the proceeds from the sale of the Debtors' subscriber base and the $75,000,000 minimum in anticipated proceeds from the sale of the Debtors' television station assets, the senior noteholders will recover cash in excess of approximately 60% of the par value of their claims and the subordinated noteholders will receive nothing due to their contractual subordination to the senior noteholders. While it is true that creditors junior to Wilmington Trust will receive less if Wilmington Trust is paid the Default Interest, the damage to those creditors would be minimal, to the extent that there would be any damage at all. Importantly, the senior noteholder claims, which represent the overwhelming majority of the unsecured obligations at the Debtors' corporate level where the Junior Term Loan was issued, are owned principally by sophisticated distressed investors who purchased their claims at a discount to par value and who will receive a cash distribution from the Debtors' estates that likely is in excess of the purchase price of their claims. The payment of Wilmington Trust's Default Interest of $791,579 also will have a de minimis impact on the senior noteholders from a purely economic standpoint, as the senior noteholders will receive over $400,000,000 in cash from the proceeds of the sale of the Debtors' assets. Paying Wilmington Trust's Default Interest would reduce the recovery to the senior noteholder claims by 0.2%, and even less in the likely event that the auctioned sale of the Debtors' television station assets generates proceeds above the current $75,000,000 stalking horse bid. In addition, due to their contractual subordination, subordinated noteholders will still recover nothing in the event that Wilmington Trust does not receive the Default Interest. Thus, there simply is no valid argument for preventing payment of the Default Interest to Wilmington Trust. The Debtors and the Committee do not dispute that Wilmington Trust is entitled to receive interest on the Prepayment Premium and the Default Interest in the event that the Court authorizes the payment of either or both amounts. However, the Debtors and the Committee dispute what rate of interest should apply to those payments. Once again, both Section 506(b) of the Bankruptcy Code and the Credit Agreement are instructive. Section 506(b) permits the payment of interest to an oversecured creditor and the Credit Agreement instructs that the applicable rate is the default rate of 2.5% above the interest on the Junior Term Loans, or 15%. If the Prepayment Premium and Default Interest are both awarded by the Court, the interest payable to Wilmington Trust will be about $58,000. Ms. Allen relates that paying this modest amount is equitable and respects the agreement entered into between Pegasus and Wilmington Trust. Committee Objects The Official Committee of Unsecured Creditors asks Judge Haines to deny the Junior Lenders' request. The Committee believes that paying the Junior Lenders' requested amounts is completely unjustified and represents a windfall to the Junior Lenders, to the substantial detriment of the Debtors' unsecured creditors. Jacob A. Manheimer, Esq., at Pierce Atwood, in Portland, Maine, notes that based on the equities of the Debtors' cases, the Junior Lenders' request for payment of Default Interest is entirely inappropriate because: (1) the Junior Lenders faced no risk of non-payment since they were assured of being paid as a result of the DIRECTV Offer to purchase the DBS business; (2) the Junior Lenders' contract or base interest rate provided them with an appropriate market rate of return; (3) paying the Default Interest would negatively impact the unsecured creditors' recovery in the Debtors' cases; and (4) the Junior Lenders bore no increased monitoring costs after the event of default. Similarly, the Junior Lenders' request for Prepayment Penalties is not appropriate because: (1) The Prepayment was involuntary because: -- the Junior Lenders effectively forced the Sale of the Debtors' satellite assets; and -- the Debtors are liquidating all of their assets; (2) The Junior Lenders' Prepayment Penalty formulas are fundamentally flawed; and (3) The Junior Lenders could have loaned the amounts collected by the Prepayment to other borrowers. 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. Maine. 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 TRAFFIC: Wants Exclusive Period Extended Until Jan. 24 ----------------------------------------------------------- The Penn Traffic Company and its debtor-affiliates ask the U.S. Bankruptcy Court for the Southern District of New York for an extension, through and including January 24, 2005, within which they alone can file a chapter 11 plan. The Debtors also ask the Court for more time to solicit acceptances of that plan from their creditors, until March 26, 2005. This is the Debtors' sixth request for an extension of their exclusive periods. The Debtors' exclusive period to file a plan is currently set to expire on November 26, 2004. The Debtors filed their Joint Plan of Reorganization and Disclosure Statement on August 20, 2004. The Debtors want to pursue multiple compelling proposals for a potential sale-leaseback transaction they have received involving most of their owned stores and distribution center properties. Penn Traffic would use the net cash proceeds from the proposed sale-leaseback transaction to repay all of its senior secured bank debt in full, to invest in continuing to modernize and enhance its store base, and for other working capital needs. The Company plans to emerge from Chapter 11 debt-free, and with substantial cash reserves. In the event that the Debtors elect to enter into a binding sale- leaseback agreement, they would have to file an amended plan of reorganization and disclosure statement that would include a detailed description of the sale-leaseback transaction and the resulting adjustments to Penn Traffic's capital structure. Thus, the Debtors need more time to enter into a binding sale- leaseback agreement, amend the Plan and Disclosure Statement, solicit acceptances from their creditors, and seek confirmation from the Court of their amended Plan. The Debtors assure the Court that an extension of their exclusive periods will not prejudice the legitimate interests of any parties-in-interest, and will instead afford those parties the opportunity to participate in the beneficial objectives of a consensual Plan of Reorganization. The Court will convene a hearing on November 18, 2004, to consider the Debtors' extension motion and approval of the Debtors' Disclosure Statement. Headquartered in Rye, New York, The Penn Traffic Company distributes through retail and wholesale outlets. The Group through its supermarkets carries on the retail and wholesale distribution of food, franchise supermarkets and independent wholesale accounts. The Company filed for chapter 11 protection on May 30, 2003 (Bankr. S.D.N.Y. Case No. 03-22945). Kelley Ann Cornish, Esq., at Paul Weiss Rifkind Wharton & Garrison, represent the Debtors in their restructuring efforts. When the grocer filed for protection from their creditors, they listed $736,532,614 in total assets and $736,532,610 in total debts. PENN TRAFFIC: Committee Hires FTI Consulting as Financial Advisors ------------------------------------------------------------------ The U.S. Bankruptcy Court for the Southern District of New York gave the Official Committee of Unsecured Creditors of The Penn Traffic Company and its debtor-affiliates permission to employ FTI Consulting, Inc., as its financial advisors. Penn Traffic will: a) assist the Committee in the review of financial related disclosures required by the Court, including Monthly Operating Reports; b) assist in the review of financial information distributed by the Debtors to creditors, including: (i) cash flow projections and budgets, (ii) cash receipts and disbursement analysis, (iii) analysis of various assets and liability accounts, and (iv) analysis of proposed transactions for which Court approval is sought; c) attend meetings and assist in discussions with the Debtors, the Committee and other parties in interest and professionals hired by the Debtors and the Committee; d) assist in the review and preparation of information and analysis necessary for the confirmation of a plan in the Debtors' chapter 11 proceedings; and e) render other general business consulting services and other assistance as the Committee or its counsel may deem necessary that are consistent with FTI Consulting's role as financial advisor and not duplicative of services provided by other professionals in the Debtors' chapter 11 proceedings. Steven Simms, a Managing Director at FTI Consulting, discloses that the Firm will be paid Advisory Fees at $150,000 per month, commencing from October 1, 2004, and until the termination of its engagement with the Committee. Mr. Simms adds that the Fee is subject to change dependent on the amount of services FTI Consulting will provide to the Committee and will be re-evaluated from time to time. FTI Consulting does not represent any interest adverse to the Committee, the Debtors or their estates. Headquartered in Rye, New York, The Penn Traffic Company distributes through retail and wholesale outlets. The Group through its supermarkets carries on the retail and wholesale distribution of food, franchise supermarkets and independent wholesale accounts. The Company filed for chapter 11 protection on May 30, 2003 (Bankr. S.D.N.Y. Case No. 03-22945). Kelley Ann Cornish, Esq., at Paul Weiss Rifkind Wharton & Garrison, represent the Debtors in their restructuring efforts. When the grocer filed for protection from their creditors, they listed $736,532,614 in total assets and $736,532,610 in total debts. PG&E NATIONAL: USGen Taps Patton Boggs as Benefits Counsel ---------------------------------------------------------- USGen New England, Inc., sought and obtained the U.S. Bankruptcy Court for the District of Maryland's approval to employ Patton Boggs, LLP, nunc pro tunc to August 20, 2004, as special employment and benefits counsel. Patton Boggs will provide USGen with legal services relating to employment and benefits law matters including general employee counseling, litigation with employees, and various other employee benefit matters involving issues arising from qualified retirement, health and welfare benefit plans. USGen selected Patton Boggs as benefits counsel because of the firm's expertise in employment and benefits law matters. Moreover, USGen believes that Patton Boggs is both well qualified and uniquely able to represent it in its Chapter 11 case in a most efficient and expeditious manner in connection with the particular matters for which Patton Boggs is retained. On August 5, 2003, Patton Boggs was retained by National Energy & Gas Transmission, Inc., to serve as special employment and employee benefits counsel in connection with NEG's Chapter 11 case. By and through Patton Boggs' retention in NEG's case, it has developed a greater understanding and familiarity of the various employment related issues that are likely to arise in USGen's case. Patton Boggs will be paid in accordance with the firm's customary hourly rates for services rendered. Patton Boggs will also be reimbursed for expenses according to its customary reimbursement policies. Specifically, Patton Boggs' hourly rates are: Partners $350 - 600 Associates & Counsel 180 - 355 Legal Assistants 80 - 200 Sally D. Garr, a Partner at Patton Boggs, assures the Court that the members and associates of Patton Boggs do not have any connection with or any interest adverse to USGen, its creditors, or any other party-in-interest. Headquartered in Bethesda, Maryland, USGen New England, Inc., an affiliate of PG&E Generating Energy Group, LLC, owns and operates several electric generating facilities in New England and purchases and sells electricity and other energy-related products at wholesale. The Debtor filed for Chapter 11 protection on July 8, 2003 (Bankr. D. Md. Case No. 03-30465). John E. Lucian, Esq., Marc E. Richards, Esq., Edward J. LoBello, Esq., and Craig A. Damast, Esq., at Blank Rome, LLP, represent the Debtor in their restructuring efforts. When it sought chapter 11 protection, the Debtor reported assets amounting to $2,337,446,332 and debts amounting to $1,249,960,731. PLAINS PRODUCE: Case Summary & 20 Largest Unsecured Creditors ------------------------------------------------------------- Debtor: Plains Produce, LLC 1457 East 9th Street Minden, Nebraska 68959 Bankruptcy Case No.: 04-43949 Type of Business: The Debtor is a fruits and vegetables retailer. Chapter 11 Petition Date: November 8, 2004 Court: District of Nebraska (Lincoln Office) Judge: Timothy J. Mahoney Debtor's Counsel: John C. Hahn, Esq. Jeffrey, Hahn, Hemmerling & Zimmerman 4701 Van Dorn, Suite 1 Lincoln, NE 68506 Tel: 402-483-7711 Fax: 402-483-6133 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ United Nebraska Bank Second Mortgage $1,200,000 424 West Ave. Holdrege, NE 68949 Small Business Third Mortgage $1,100,000 Administration 11145 Mill Valley Road Omaha, NE 68154-3949 Minden Exchange Bank Operating Note $550,000 448 N. Minden Ave Minden, NE 68959 Nebraska Dept. of Economic $250,000 Development David Grams Operating Note $240,000 Orlan Grams Operating Note $200,000 Safety-Kleen Oil Co. $101,877 Greentex BV $100,000 Seil Construction $62,000 City Of Minden TIF Bonds $48,000 Secured Value: $12,500 Sun Parlour-Growers $41,741 US Bank Corp Equipment $38,500 Finance Co. Mesa Oil $36,025 Hellman & Main $34,576 Fibre Dust LLC $26,500 Mike Eggers Ltd. $23,300 Kearney County Treasurer 2003 Property Taxes $23,057 Univar $22,784 Cline Williams Law $22,648 EPCO $18,437 POLYMER RESEARCH: Look for Bankruptcy Schedules on Nov. 18 ---------------------------------------------------------- Polymer Research Corp. of America asks the U.S. Bankruptcy Court for the Eastern District of New York for more time to file its Schedules of Assets and Liabilities, Statement of Financial Affairs, and Schedule of Executory Contracts and Unexpired Leases. The Debtor is requesting an extension until November 18, 2004, to file those documents. The Debtor explains that its chapter 11 case is complex because it has more than 100 creditors and has more than $5 million in liabilities. The Debtor relates that its President and Chief Executive Officer, Carl Horowitz, has recently been hospitalized and his input is critical in the compilation of the documents necessary for the Schedules. The Debtor adds that its request for an extension is without prejudice to its right to seek a further extension from the Court if it finds it necessary to do. Headquartered in Brooklyn, New York, Polymer Research Corp. of America -- http://www.polymer-ny.com/-- is a company devoted to research and development utilizing a proprietary process called chemical grafting. The Company filed for chapter 11 protection on October 1, 2004 (Bankr. E.D.N.Y. Case No. 04-24036). Randy M. Kornfeld, Esq., at Stavis & Kornfeld LLP, represent the Debtor in its restructuring. When the Debtor filed for protection from its creditors, it listed $15,000,000 in total assets and $5,033,000 in total liabilities. PORTOLA PACKAGING: S&P Slices Corporate Credit Ratings to 'B-' -------------------------------------------------------------- Standard & Poor's Ratings Services lowered its ratings on Portola Packaging, Inc., including its corporate credit rating to 'B-' from 'B'. At the same time, the ratings were removed from CreditWatch, where they were placed on October 19, 2004, with negative implications following concerns regarding the company's weak operating performance for the remainder of fiscal 2004. San Jose, California-based Portola had approximately $199 million of total debt outstanding at Aug. 31, 2004. The outlook is negative. "The downgrade reflects the continuation of weaker-than-expected operating profitability and cash flow generation during the important fiscal fourth quarter, which resulted in additional deterioration to Portola's already weak liquidity position," said Standard & Poor's credit analyst Franco DiMartino. Additionally, Portola's liquidity position could weaken further during upcoming quarters as a result of unabated competitive pressures and continued increases in plastic resin prices due to elevated crude oil and natural gas costs. Consequently, the ratings could be lowered again if Portola is unable to preserve sufficient availability under the company's secured revolving credit facility and begin to substantially improve operating results. The ratings on Portola reflect the company's very aggressive debt leverage, limited financial flexibility, modest size of operations, and a narrow product line offset by its defensible niche positions in mostly stable end markets and favorable geographic diversity. With annual sales of about $240 million, Portola produces tamper-evident plastic closures for packaging applications in dairy, fruit juices, water, and other noncarbonated beverage and food products. RCN CORPORATION: Objects to IBM Patent Infringement Claims ---------------------------------------------------------- On April 26, 1999, International Business Machines Corporation sent a letter to David C. McCourt, Chairman and CEO of RCN Corporation, advising that IBM had completed an analysis of RCN Corp.'s Internet Service Provider business and that RCN Corp. required a license to several IBM patents. During 1999 and 2000, the parties had some discussions regarding IBM's claims, but they have had no substantive discussions since then. On August 11, 2004, IBM filed Claim No. 1424 for $37,600,000 against RCN Corp. On September 24, 2004, IBM asserted Claim Nos. 1420 to 1423, and 2041 to 2045, in unliquidated amounts against RCN Corp.'s subsidiaries. IBM did not provide any indication of why it believes it has claims against the Subsidiary Debtors or how its alleged claims would be calculated. David C. McGrail, Esq., at Dechert, LLP, in New York, relates that the IBM Claims provide none of the documentation that is necessary to support a patent infringement claim -- like a claim chart, identification of which claims of which patents have allegedly been infringed, or a calculation of damages -- let alone expert reports and other evidence required to support a patent infringement claim. A sum total of IBM's "proofs of claim" is one vague sentence. The Claims are allegedly based on the infringement of many IBM patents, including U.S. patent numbers 4,805,135, 5,319,542, 5,442,771, 5,758,072, 5,347,632, and 5,796,967, by Erols Internet, Inc., the Debtors' purported predecessor-in-interest. According to Mr. McGrail, IBM's $37,600,000 Claim vastly exceeds the amount of any demand made by IBM before the Petition Date. The Debtors ask the U.S. Bankruptcy Court for the Southern District of New York to disallow the Claims because the Claims are: (a) not supported by sufficient evidence; (b) without merit, as IBM's patents have not been infringed or are invalid; (c) barred by the laches, estoppel, or 35 U.S.C. Section 286; (d) barred by IBM's patent misuse and other conduct in violation of the antitrust laws; (e) barred by IBM's prior licenses; (f) barred by IBM's failure to comply with 35 U.S.C. Section 287; and (g) duplicative. IBM Responds The Debtors fail to establish grounds for disallowing IBM's patent infringement claims. Steven W. Meyer, Esq., at Oppenheimer Wolff & Donnelly, LLP, in Minneapolis, Minnesota, contends that IBM submitted properly filed claims. Each proof of claim was in writing, set forth IBM's claim, and substantially conformed to the appropriate Official Form. Additional documentation was not required to put the Debtors on notice of the IBM patent infringement claims. Furthermore, even if the Court concludes that IBM lacked sufficient documentation, that determination alone is not enough to disallow IBM's Claims. The courts in Ashford v. Consolidated Pioneer Mortgage (In re Consolidated Pioneer Mortgage), 178 B.R. 222 (B.A.P. 9th Cir. 1995)(aff'd by 91 F.3d 151 (9th Cir. 1996)); In re Stoecker, 5 F.3d 1022 at 1028 (7th Cir. 1993); In re Los Angeles International Airport Hotel Assoc., 196 B.R. 134 (B.A.P. 9th Cir. 1996)(aff'd by 106 F.3d 1479 (9th Cir. 1997)), held that the failure to submit appropriate documentation does not provide substantive grounds for disallowance of a claim. Rather, it merely determines which party will have the burden of proof moving forward on the objection. IBM will supply more than enough information and documentation to support its Claims. Mr. Meyer also asserts that the Debtors' allegation -- that the Claims are without merit because either IBM's patents were not infringed or are invalid -- is completely false. During negotiations between IBM and the Debtors, IBM presented detailed proof of the Debtors' infringement of the IBM patents. The infringement proofs clearly and directly proved that IBM's Claims against the Debtors are valid. IBM's Claims are not barred by laches, estoppel, or 35 U.S.C. Section 286. The equitable defense of laches pertains to the filing of an infringement lawsuit not as a defense to a claim in bankruptcy. The Debtors have failed to establish the requisite estoppel elements of misleading conduct on IBM's part and material prejudice resulting from the Debtors' detrimental reliance on IBM's conduct. Additionally, negotiations between IBM and the Debtors continued and additional infringement evidence was presented. The Debtors' argument that IBM's Claims are barred by the doctrine of license is simply incorrect. IBM has established that the Debtors' products, not Web browsers, infringe IBM's patents. Therefore, any license IBM might have in place with Web browser companies is irrelevant. IBM's Claims are not barred by 35 U.S.C. Section 287 because IBM provided legally sufficient notice of infringement in its April 1999 letter and its presentation of the infringement proofs. IBM's Claims are not barred by patent misuse. There is no evidence that IBM used its "patent portfolio as a weapon to coerce" prospective licensees as the Debtors allege. IBM's Claims are not intended to be duplicative. The $37,600,000 Claim is based on the reported and consolidated revenue for RCN Corp., as IBM was able to discern from public records. The liability of each subsidiary will depend on the extent each participated or profited from the Internet service provider business. The publicly available information does not provide this information and can only be determined through discovery. Once IBM obtains information regarding the business activity of the subsidiaries through discovery, the amount of the various claims can be determined. For these reasons, IBM asks the Court to: -- overrule the Debtors' Objection; -- establish a schedule for discovery and a date for an evidentiary hearing; and -- require the Debtors to pay its Claims. Debtors Want IBM Claims Estimated at $0 Because there is no basis for any of the IBM Claims, David C. McGrail, Esq., at Dechert, LLP, in New York, contends that each Claim should be estimated at $0. Under Section 502(c) of the Bankruptcy Code, Mr. McGrail asserts that the Court is required to estimate the IBM Claims for purposes of allowance, to prevent undue delay in the confirmation and implementation of the Debtors' Joint Plan of Reorganization. Estimation of Claim No. 1424 is necessary to avoid delaying the distributions to which the Debtors' creditors would be entitled under the Plan. In addition, the estimation of the Subsidiary Claims is necessary, among other reasons, because it is a condition to the Plan going effective that the total claims against these entities not exceed $500,000 without the consent of the Official Committee of Unsecured Creditors. The $37,600,000 IBM Claim is substantial. The failure to resolve or estimate the Claim promptly could have a material adverse effect on or delay the implementation of the Plan and, in particular: (a) the amount and form of initial distributions to holders of allowed claims against RCN Corp. under the Plan; (b) the amount of stock and cash the Debtors are required to withhold in the Distribution Reserve pursuant to the Plan; and (c) the amount and timing of any final distribution of stock or cash remaining in the Distribution Reserve pursuant to the Plan. The distributions to the Debtors' legitimate creditors should not be held hostage due to IBM's decision to file an unsupported litigation claim of this magnitude, Mr. McGrail says. Although the Debtors believe that the Claim filed against the Subsidiary Debtors are without merit and will eventually be disallowed and expunged in their entirety, they are unlikely to be resolved through the Objection until after the Confirmation Hearing. Until the Subsidiary Claims are resolved or estimated, the total of all claims under Class 6 could exceed $500,000 and the Debtors could risk triggering Plan Section III.C.6.b, significantly delaying and disrupting the Plan confirmation process. Unless and until Claim No. 1424 is estimated, the Debtors will not be able to determine whether the aggregate amount of cash to be distributed to holders of allowed claims against RCN Corp. that elect to receive cash would exceed $12,500,000, and will not be able to make the full amount of stock distributions promised to the holders. 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. 14; Bankruptcy Creditors' Service, Inc., 215/945-7000) REBECCA KNIGHT: Case Summary & 20 Largest Unsecured Creditors ------------------------------------------------------------- Debtor: Rebecca A. Knight, M.D., S.C. dba Balanced Health Resource Center 5111 North Glen Park Place Peoria, Illinois 61614 Bankruptcy Case No.: 04-85036 Type of Business: Internal Medicine Chapter 11 Petition Date: November 10, 2004 Court: Central District of Illinois (Peoria) Judge: Thomas L. Perkins Debtor's Counsel: B. Kip Shelby, Esq. Rafool & Bourne, PC 411 Hamilton Boulevard #1600 Peoria, IL 61602 Tel: 309-673-5535 Total Assets: $195,147 Total Debts: $3,099,210 Debtor's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Miller Cullinan Joint 03 LM 1561 $2,278,000 Venture 04 LM 1615 c/o Cullinan Properties voided lease One Technology Plaza through January 31, 211 Fulton 2011 Peoria, IL 61602 Union Planters Bank NA (2000) Equipment, $400,000 4516 N. Sterling Ave. fixtures receivables, Peoria, IL 61615 inventory, and guarantor secured value: $174,047 Internal Revenue Service 2002 and 2003 taxes $100,000 Dwayne & Kim Harris Full amount of debt $100,000 claimed is unknown. Creditor used title of CEO of Rebecca A. Knight, M.D., S.C. Hunziker & Walton LLC $37,805 Medical Manager Network $32,101 Services Central Illinois X-ray (2003) unperfected $21,910 purchase agreement RK Dixon Co. $18,101 Illinois Dept. of Revenue 2003 taxes $15,000 Consolidated Communications 04 LM 114 $13,461 John Deere Health $12,610 Blair D. Hunt $10,400 AAA Entertainment Radio Group $7,709 Times Newspaper $4,851 Blair D. Hunt Commissions/wages $4,600 Regent Broadcasting of 04 SC 804 $4,053 Peoria Stericycle $3,962 Methodist Medical Center $3,586 Health Link $3,138 Molleck Publications Debt of Balanced $2,770 Health Resource Center for which debtor may be liable RELIANCE: Creditors Want Modified Disclosure Statement Approved --------------------------------------------------------------- On November 2, 2004, the Official Unsecured Creditors' Committee delivered to the U.S. Bankruptcy Court for the Southern District of New York a reorganization plan for Reliance Financial Services Corporation and related disclosure statement. The Creditors' Committee filed, essentially, the same plan of reorganization that was formulated by the Official Unsecured Bank Committee. The Creditors Committee altered the Bank Committee's Plan by including the particulars of the Committees' stipulation with the Pension Benefit Guaranty Corporation, which has been approved by the Court. The economic terms of the Creditors Committee's Plan are identical to those of the Bank Committee's Plan. Arnold Gulkowitz, Esq., at Orrick, Herrington & Sutcliffe, in New York City, tells Judge Gonzalez that RFSC's case "is currently standing at the eve of confirmation of a plan of reorganization that apparently has been stalled by an apparent disagreement between that plan's sponsor, the Official Unsecured Bank Committee and High River Limited Partnership," over changes to the Bank Committee's Plan based on the PBGC's claims. The lack of progress is "extremely disappointing." The continued delay is costing creditors money in the form of additional administrative claims, and there is no end in sight. To bring the case to a conclusion, the Creditors Committee has taken essentially the same plan of reorganization that was previously filed by the Bank Committee and voted on by creditors, taken essentially the same disclosure statement that was previously approved by the Court as containing "adequate information" and circulated to creditors, and modified both to incorporate the terms of the PBGC Stipulation. The PBGC Stipulation has been approved by the Court but not reflected in the Bank Committee's Plan or Disclosure Statement. By this motion, the Creditors' Committee asks Judge Gonzalez to approve the "modified" Disclosure Statement before submitting the modified Plan for creditor approval. The Creditors Committee assures the Court that the Disclosure Statement contains "adequate information" within the meaning of Section 1125(a)(1) of the Bankruptcy Code. The Disclosure Statement contains descriptions and summaries of: -- the Creditors Committee's Plan; -- the existence of the Bank Committee's Plan; -- the PBGC Stipulation and High River's objection; -- RFSC's prepetition corporate and capital structure; -- RFSC's business; -- certain events leading up to the commencement of RFSC's case; -- the claims asserted against RFSC's estate; -- the new common stock of Reorganized RFSC to be issued under the Creditors Committee's Plan; -- the Settlement Agreements; -- risk factors affecting and implicated by the Creditors Committee's Plan and RFSC's future operations; -- a liquidation analysis; -- financial information relevant to a party's determination whether to accept or reject the Plan; and -- certain securities law and tax law consequences of the Plan. The Disclosure Statement would enable a hypothetical reasonable investor typical of the holders of claims against or interests in RFSC to make an informed judgment about the Plan. According to Mr. Gulkowitz, the Creditors' Committee is in a position to solicit votes on the Plan immediately upon approval of its Disclosure Statement, and will seek confirmation of the Plan once voting is concluded. The Court will convene a hearing on December 8, 2004, at 10:00 a.m. to consider approval of the Disclosure Statement. Objections to the Disclosure Statement are due December 1. Headquartered in New York, New York, Reliance Group Holdings, Inc. -- http://www.rgh.com/-- is a holding company that owns 100% of Reliance Financial Services Corporation. Reliance Financial, in turn, owns 100% of Reliance Insurance Company. The holding and intermediate finance companies filed for chapter 11 protection on June 12, 2001 (Bankr. S.D.N.Y. Case No. 01-13403) listing $12,598,054,000 in assets and $12,877,472,000 in debts. The insurance unit is being liquidated by the Insurance Commissioner of the Commonwealth of Pennsylvania. (Reliance Bankruptcy News, Issue No. 63; Bankruptcy Creditors' Service, Inc., 215/945-7000) REVLON INC: Sept. 30 Balance Sheet Upside-Down by $1.083 Billion ---------------------------------------------------------------- Revlon, Inc. (NYSE: REV) reported results for the third quarter and nine months ended September 30, 2004. The Company indicated that Adjusted EBITDA for the third quarter of 2004 advanced to $26 million, compared with Adjusted EBITDA of $15 million in the third quarter of 2003. In making the announcement, the Company reconfirmed its previous guidance of achieving Adjusted EBITDA of approximately $190 million in 2004 and reiterated its goal to deliver its destination model profit margins over the next several years. Adjusted EBITDA is a non-GAAP measure that is defined in the footnotes of this release and which is reconciled to its most directly comparable GAAP measures, net loss and cash flow used for operating activities, in the accompanying financial tables. During the quarter, the Company made further progress to strengthen its balance sheet, with the successful consummation of a debt refinancing that included entering into new credit facilities and redeeming all of its 12% Senior Secured Notes. As a result of the refinancing, the Company extended to 2010 at the earliest the maturities on much of its debt that would have otherwise matured in 2005. The refinancing also further reduced the Company's annual interest expense. Commenting on the Company's performance, Revlon President and Chief Executive Officer Jack Stahl stated, "We are pleased with the progress we made in the third quarter to strengthen both our business and our balance sheet. Our year-to-date results have positioned us to deliver our Adjusted EBITDA target of approximately $190 million in 2004, up significantly versus the Adjusted EBITDA we generated in 2003. Clearly, our productivity initiatives are proving to be an important driver of our financial progress this year, particularly given the softness of the color cosmetics category in the U.S. mass market. As we move forward, we will continue to take what we believe are the appropriate actions to create long-term value, by capitalizing on the underlying strengthening of our brands, customer partnerships, and organization. In 2005, to further accelerate our progress and the creation of long-term value, we plan to reinvest much, if not all, of the expected margin benefits from our productivity initiatives back into our brands to drive long-term growth. We believe that doing so at this stage of our turnaround is the right course of action and one that will result in long-term value creation." Third Quarter Results Net sales in the third quarter of 2004 declined approximately 7% to $294 million, compared with net sales of $317 million in the third quarter of 2003, while gross sales in the third quarter of 2004 were modestly higher. The net sales performance in the current quarter primarily reflected higher provisions for returns, allowances and discounts combined, partially offset by favorable foreign currency translation in International. Excluding the favorable impact of foreign currency translation, net sales declined approximately 9%. Regarding the Company's previous guidance on sales growth for 2004, Mr. Stahl stated, "Our expectation for gross sales growth of approximately 3% for 2004 remains intact, while net sales will likely be even with year-ago." In North America, net sales for the quarter declined approximately 10% to $192 million, versus $212 million in the third quarter of 2003, largely reflecting higher provisions for returns, allowances and discounts combined, while gross sales were essentially even with year-ago. In International, net sales declined approximately 2% to $102 million, versus $105 million in the third quarter of 2003. The performance primarily reflected higher provisions for returns, allowances and discounts combined, offset by favorable foreign currency translation and higher gross sales, stemming from strength in the Far East region. Excluding the favorable impact of foreign currency translation, International net sales were down 8% versus year-ago, largely reflecting the increase in returns, allowances and discounts that more than offset the gross sales growth in the quarter. Operating loss in the quarter was $2.0 million, versus an operating loss of $7.9 million in the third quarter of 2003. This performance reflected, in part, the absence in the current quarter of approximately $6 million of growth plan charges taken in the third quarter of 2003. The performance also reflected the benefit of manufacturing efficiencies in the current quarter and lower discretionary spending, stemming from a reduction of brand support to more appropriately reflect current top-line trends. Partially offsetting these positive factors were the lower net sales and higher depreciation and amortization. Adjusted EBITDA in the current quarter was $25.7 million, compared with Adjusted EBITDA of $14.6 million in the same period last year. This performance was driven by largely the same factors that impacted the operating income comparison. Net loss of $91.6 million in the third quarter of 2004 included expenses totaling approximately $59 million associated with the Company's refinancing activities completed during the quarter. This compared with a net loss of $54.7 million in the third quarter of 2003. On a diluted per share basis, net loss in the third quarter of 2004 was $0.25, compared with a net loss of $0.78 in the third quarter of 2003. The diluted per share comparison was impacted by the Company's exchange offers, consummated in March 2004, which significantly increased common shares outstanding in the 2004 period. Cash flow used for operating activities in the third quarter of 2004 was $35.2 million, compared with cash flow used for operating activities of $49.1 million in the third quarter of 2003. In terms of U.S. marketplace performance, according to ACNielsen, the color cosmetics category for the quarter declined 3.1% versus the same period last year. For the nine-month period, the category was down 2.0% versus year-ago. Combined share for the Revlon and Almay brands totaled 21.3% for the quarter, compared with 22.5% in the third quarter of 2003. For the nine months, combined market share totaled 21.7% in 2004, compared with 22.6% for the first nine months of 2003. The Company's share performance reflected less share contribution from new products this year, while market share on existing businesses advanced solidly. In other key categories, the Company gained share during the quarter in hair color and beauty tools, while market share was down in anti- perspirants/deodorants. Nine-Month Results Net sales of $919 million in the first nine months of 2004 were down 1% versus net sales of $931 million in the first nine months of 2003. This performance largely reflected softness in North America, offset by growth and favorable foreign currency translation in International. For the nine-month period, gross sales were up modestly. Excluding the favorable impact of foreign currency translation, net sales for the first nine months of 2004 were down approximately 4% versus the same period last year. In North America, net sales of $605 million for the first nine months of 2004 were down approximately 6% versus net sales of $642 million in the same period last year. International net sales of $314 million in the first nine months of 2004 advanced approximately 9% versus net sales of $289 million in the year-ago period. Excluding the favorable impact of foreign currency translation, International net sales grew approximately 1% in the nine-month period. Operating income in the first nine months of 2004 was $16.3 million, versus an operating loss of $15.2 million in the first nine months of 2003. Adjusted EBITDA in the first nine months of 2004 was $93.9 million, compared with Adjusted EBITDA of $58.6 million in the first nine months of 2003. Operating loss and Adjusted EBITDA in the first nine months of 2003 included charges of approximately $31 million and $29 million, respectively, associated with the Company's growth plan. Net loss of $188.7 million, or $0.68 per diluted share, in the first nine months of 2004, included approximately $91 million of fees and expenses associated with the Company's 2004 exchange offers and refinancing activities. Net loss in 2003 was $141.2 million, or $2.36 per diluted share, in the first nine months of 2003. Cash flow used for operating activities in the first nine months of 2004 was $135.3 million, compared with cash flow used for operating activities of $183.9 million in the first nine months of 2003. About Revlon Revlon, Inc., is a worldwide cosmetics, skin care, fragrance, and personal care products company. The Company's vision is to deliver the promise of beauty through creating and developing the most consumer preferred brands. Websites featuring current product and promotional information can be reached at www.revlon.com and http://www.almay.com/Corporate investor relations information can be accessed at http://www.revloninc.com/The Company's brands, which are sold worldwide, include Revlon(R), Almay(R), Ultima(R), Charlie(R), Flex(R), and Mitchum(R). At Sept. 30, 2004, Revlon, Inc.'s balance sheet showed a $1.083 billion stockholders' deficit, compared to a $1.725 billion deficit at Dec. 31, 2003. SEMCO ENERGY: Stable Credit Profile Spurs S&P to Hold BB- Rating ---------------------------------------------------------------- Standard & Poor's Ratings Services affirmed its 'BB-' corporate credit rating on natural gas distributor SEMCO Energy, Inc., and revised the outlook to stable from negative. The action followed a review of the company's credit quality, which determined that SEMCO had stabilized its credit profile at the current rating level. Farmington Hills, Michigan-based SEMCO had $498 million in outstanding debt as of September 30, 2004. "SEMCO has taken necessary steps to fortify its liquidity position for the 2004-2005 heating season," said Standard & Poor's credit analyst John Kennedy. "Importantly, SEMCO is well positioned for the coming winter season with a storage position of 14.8 billion cubic feet, or 100% of capacity, and nearly full availability on its credit lines," added Kennedy. However, the termination of the $90 million Alaska Pipeline sale impedes SEMCO's ability of achieving its goal to reduce debt leverage, thus muting the potential for higher ratings in the near term. Current ratings incorporate stable cash flow and a focus on core regulated operations combined with sufficient access to bank credit facilities. The ratings on SEMCO Energy reflect the company's weak financial profile, exacerbated by excess leverage associated with underachieving nonregulated investments and the lack of a weather- normalization adjustment clause. This exposes the company to volatility in weather conditions, as evidenced by poor financial performance in recent years. These weaknesses overwhelm the firm's average utility business profile. The stable outlook reflects SEMCO's current financial position, its refocus on utility operations, and its liquidity position for the 2004-2005 heating season. The company will be challenged to improve its credit quality from its current depressed level given its marginal ability to generate free cash flow that could be used to repair the highly leveraged balance sheet. Stability at the current rating level is largely predicated on SEMCO's ability to maintain unencumbered access to sufficient liquidity. SPIEGEL INC: Court Allows Credit Suisse's Claim for $20.5 Million ----------------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of New York approved a stipulation allowing Credit Suisse First Boston -- Cayman Islands Branch -- an unsecured claim against Spiegel, Inc., for $20,500,685. Spiegel's Schedules of Assets and Liabilities, which was filed on May 23, 2003, reflects CSFB as having an unsecured claim for $20,613,370. On September 30, 2003, Credit Suisse filed Claim No. 3043 against Spiegel for $20,672,960. Spiegel's books and records show Credit Suisse as having a claim for $20,500,685. Headquartered in Downers Grove, Illinois, Spiegel, Inc. -- http://www.spiegel.com/-- is a leading international general merchandise and specialty retailer that offers apparel, home furnishings and other merchandise through catalogs, e-commerce sites and approximately 560 retail stores. The Company filed for Chapter 11 protection on March 17, 2003 (Bankr. S.D.N.Y. Case No. 03-11540). James L. Garrity, Jr., Esq., and Marc B. Hankin, Esq., at Shearman & Sterling, represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $1,737,474,862 in assets and $1,706,761,176 in debts. (Spiegel Bankruptcy News, Issue No. 33; Bankruptcy Creditors' Service, Inc., 215/945-7000) SUNRISE CDO: Fitch Junks $14.8 Million Class C Notes ---------------------------------------------------- Fitch Ratings affirms one tranche of Sunrise CDO I as follows: -- $175,054,091 class A notes affirmed at 'AAA'; Additionally, Fitch downgrades two tranches of Sunrise CDO I: -- $45,100,000 class B notes to 'BBB-' from 'BBB'; -- $14,785,797 class C notes to 'CCC+' from 'B-'. Sunrise CDO I is a static-pool, collateralized debt obligation structured by Credit Suisse First Boston. The CDO was established in December 2001, to issue approximately $300 million in notes and preference shares. The proceeds were utilized to purchase an investment portfolio consisting primarily of collateralized debt obligations -- CDOs, residential mortgage-backed securities -- RMBS, commercial mortgage-backed securities -- CMBS, asset-backed securities -- ABS -- and corporate debt securities. Since the last rating action in May 2003, the class A overcollateralization ratio decreased from 126.8% to 118.8%, the class B OC ratio decreased from 104.8% to 94.5% and the class C OC ratio decreased from 100.1% to 88.5%, as reported on the September 30, 2004 trustee report. Subsequently, all OC ratios are currently failing their equivalent tests of 120%, 106.5%, and 101.8%, respectively. Overall, the portfolio has experienced negative performance through impaired and defaulted assets, along with a negative change to the weighted average rating factor -- WARF. Since the last rating action, assets rated below 'B-' have increased from approximately 6% to over 20% of Sunrise's outstanding collateral debt securities. Additionally, as of the most recent distribution date in July 2004, the class C notes failed to pay all interest due and are currently Piking. Accordingly, Fitch has determined that the ratings assigned to all rated securities, reflect the current risk to noteholders. The ratings of the class A and B notes address the timely payment of interest and the ultimate payment of principal. The rating assigned to the class C notes address the ultimate receipt of interest and the stated principal amount by the final maturity date. Fitch will continue to monitor and review this transaction for future rating adjustments as needed. TENNECO AUTOMOTIVE: Fitch Puts B- Rating on $500M Sr. Sub. Notes ---------------------------------------------------------------- Fitch Ratings assigned a rating of 'B-' to the $500 million senior subordinated notes issued by Tenneco Automotive and has revised the Rating Outlook on the senior secured bank loan, senior secured debt, and subordinated debt to Positive from Stable. Approximately $1.4 billion in debt is affected. Proceeds from the new notes will be used to redeem a like amount of the company's outstanding 11 5/8% senior subordinated notes due 2009. The new notes carry a coupon of 8 5/8%, with a 10-year maturity. The revision in Rating Outlook is due to Tenneco Automotive's continuous improvement in operating results in a difficult environment, steady margin performance, modest debt reduction achieved to date, and an improved debt structure. Tenneco Automotive remains very highly leveraged, and debt reduction is expected to occur only on a gradual basis. The company remains exposed to intense competition in the aftermarket, volatility in OEM production, raw material headwinds (particularly steel), and an underfunded pension. Continued progress in operating performance and sustained debt reduction could lead to a review of the rating. Tenneco Automotive persistently reduced its cost structure, producing healthy margins versus those of the sector. Facility consolidations and reduced headcount have helped to offset pricing pressures and the steady decline in the exhaust aftermarket segment. It appears that aftermarket volume declines may have troughed, although margin recovery may still be limited as the full impact of steel prices is absorbed. Tenneco Automotive has also demonstrated steady top-line performance over the past several years, in part due to foreign exchange benefits but also due to new product wins. New product wins, which have also required start-up costs, should sustain the top line over the near term and provide a buffer against production volatility. Tenneco Automotive's competitive position continues to improve, and the ownership changes likely to occur among some of its competition could accrue benefits to Tenneco Automotive. Financial metrics continue to improve, with EBITDA/interest coverage improving to 2.4 times (x) over the LTM ended September 30, 2004, from 1.4x in calendar 2001. Tenneco Automotive has remained consistently cash flow positive over the past several years, although a large proportion of this has come from working capital improvement. Debt has been relatively flat, although cash has improved from $54 million at year-end 2002 to $203 million at September 30, 2004, improving the company's liquidity position. The company also retains unused revolving credit capacity of $355 million at September 30, 2004 and has minimal maturities until 2009. THE WATSON LAW: Case Summary & 20 Largest Unsecured Creditors ------------------------------------------------------------- Debtor: The Watson Law Firm nka Watson, Kowis & Rossick dba Watson Rossick 2323 South Shepherd Drive, Suite 1400 Houston, Texas 77019 Tel: (713) 651-1221 Bankruptcy Case No.: 04-46179 Debtor affiliate filing separate chapter 11 petition: Entity Case No. ------ -------- Charles A Watson 04-46189 Type of Business: The Company is a civil trial law firm consisting of nine attorneys and 14 legal assistants and support personnel. The Company is engaged in the practice of insurance defense. See http://www.watsonrossick.com/ Chapter 11 Petition Date: November 10, 2004 Court: Southern District of Texas (Houston) Judge: Marvin Isgur Debtor's Counsel: Keavin David McDonald, Esq. Wilshire, Scott & Dyer, P.C. 1221 McKinney, Suite 3000 Houston, Texas 77010 Tel: (713) 651-1221 Fax: 713-651-0020 Total Assets: $2,220,775 Total Debts: $2,270,000 Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Progressive Systems $64,858 420 Lockhaven Houston, Texas 77073 CMD Investment Fund III $55,342 c/o Bank One PO Box 73322 Chicago, Illinois 60673 Thompson West $33,974 West Group Payment Center PO Box 6292 Carol Stream, Illinois 60197 Gainer Donnelly Desroches $26,738 Great West $25,000 Henjum Goucher Reporting Services $20,509 Travis Realty Corporation $18,455 Guardian $15,596 American Express Business $6,955 Mackenzie Hughes, LLP $6,936 Jet Litigation Support Services $6,712 J. Michael Black $6,153 RecordTrak, Inc. $5,283 Null Lairson, CPA $5,203 Royal Office Products $5,096 Lex Business Solutions $4,839 Ikon Office Solutions $4,370 Word for Word Reporting $4,439 Legal Directories Publishing Company $3,987 Whitney & Bogriss, LLP $3,913 TRAILER BRIDGE: S&P Assigns B- Corporate Credit Rating ------------------------------------------------------ Standard & Poor's Ratings Services assigned its 'B-' corporate credit rating to Trailer Bridge Inc. The rating outlook is stable. At the same time, Standard & Poor's assigned its 'B-' senior secured debt rating to the shipping company's proposed $80 million notes due in 2011, offered under Rule 144A with registration rights. Proceeds from the notes offering will be used to acquire a special-purpose entity that leases the two roll- on/roll-off -- RoRo -- vessels operated by Trailer Bridge and containers currently operating in the Trailer Bridge fleet under operating leases, and repay the current outstanding balance under the company's bank facility. "The ratings reflect Trailer Bridge's weak financial profile, concentrated end-market demand, and participation in the capital- intensive shipping industry," said Standard & Poor's credit analyst Kenneth L. Farer. Jacksonville, Florida-based Trailer Bridge provides transportation between the continental U.S. and Puerto Rico with its fleet of ocean-going barges, truck tractors, containers, and chassis. The company currently operates two single-deck barges and two RoRo barges, with southbound market share in the low-teens percent area. The company also owns three additional single-deck barges used for special projects, approximately 3,000 containers, 2,200 chassis, and over 100 tractors. The three additional barges could be deployed in the Puerto Rican trade, if needed to meet a significant increase in demand, or to another destination. Tug boats and crew are provided by a third party under multi-year, time-charter contracts. The Jones Act requires shipments between U.S. ports to be carried on U.S.-built vessels registered in the U.S. and crewed by U.S. citizens, thereby prohibiting direct competition from foreign- flagged vessels. Trailer Bridge faces ocean-based competition from one other barge line, Crowley Maritime Corp., and two containership companies, Horizon Lines Holding Corp. and Sea Star Lines LLC, and trucking competition from a large number of truckload companies. Customers include major manufacturing and consumer products companies that provide food and other staples. Competition from other modes of transportation is limited due to cost and geographic considerations. The shipping industry is very capital-intensive, with large, cyclical outlays for ocean-going vessels. Trailer Bridge's barges average about six years in age. The company's two oldest barges were built in 1984 and modified to carry additional cargo in 1996. In general, the container shipping industry is more concentrated than most other shipping sectors, with the U.S. liner trade even more concentrated than the overall industry, because of the steady demand and scheduled nature of the business, which requires the operation of a number of vessels on the same route. Trailer Bridge offers twice weekly sailings to and from Puerto Rico. Trailer Bridge's credit ratios are expected to improve modestly over the near- to intermediate-term due to improved freight rates and volumes. However, upside ratings potential is limited by the company's weak financial profile and modest position in the capital-intensive and competitive shipping industry. TRANSTECHNOLOGY: Completes Debt Refinancing with $71.5M Bank Loan ----------------------------------------------------------------- TransTechnology Corporation (NYSE:TT) has completed the refinancing of its senior and subordinated debt with a new $71.5 million credit facility provided by Wells Fargo Foothill, Inc. and Ableco Finance LLC. In addition to allowing the company to retire all of its existing senior and subordinated debt, the new facility provides working capital for the company's current and expected future needs. The new credit facility has a maturity of 42 months and provides for a $10.0 million revolving line of credit and term loans totaling $61.5 million. Joseph F. Spanier, Vice President and Chief Financial Officer of the company, said, "We are very pleased to have accomplished this refinancing with Wells Fargo Foothill and Ableco. As previously announced, the new credit facility, the cost of which is indexed to the Prime Rate, has allowed us to reduce our blended cost of debt to approximately 13.0% (after giving effect to today's action by the Federal Reserve Board) from the 19.5% blended rate of our retired debt. Based upon the outstanding principal balance of our retired debt of $60.3 million at the end of our second quarter of fiscal 2005, that ended September 26th, we expect that the lower rates of the new facility will save us approximately $3.9 million in annual interest costs, or $.36 per diluted share." Mr. Spanier continued, "As previously announced, in connection with the closing of the refinancing, we will recognize a non- recurring, pre-tax charge in the third fiscal quarter currently estimated to be $2.2 million, or $.20 per diluted share, in connection with the write-off of fees and costs associated with the retirement of the old debt. Costs associated with the refinancing and new debt are estimated at $2.0 million and will be capitalized and expensed over the term of the new financing." About the Company TransTechnology Corporation -- http://www.transtechnology.com/-- operating as Breeze-Eastern -- http://www.breeze-eastern.com/-- is the world's leading designer and manufacturer of sophisticated lifting devices for military and civilian aircraft, including rescue hoists, cargo hooks and weapons-lifting systems. The company, which employs approximately 180 people at its facility in Union, New Jersey, reported sales of $64.6 million in the fiscal year ended March 31, 2004. At June 27, 2004, TransTechnology Corporation's balance sheet showed a $4,353,000 stockholders' deficit, compared to a $3,787,000 deficit at March 31, 2004. TXU CORP: Fitch Affirms BB+ Preferred Stock Rating -------------------------------------------------- Fitch Ratings affirms the senior unsecured and preferred stock ratings of TXU Corp. at 'BBB-' and 'BB+', respectively. The Ratings Outlook for TXU Corp. is Stable. The action follows a review of TXU's restated 10-Q filing for the quarter ended September 30, 2004. TXU restated its quarterly financials as it determined that it had incorrectly understated cash flow from operations by $211 million and overstated cash flow from investing activities by the same amount. As the restatement has no net effect upon the company's financial results, Fitch deems the restatement to be immaterial. TXU Corp.'s credit profile benefits from the strong earning and cash flow of its regulated and nonregulated electric operations in Texas. The rating also considers TXU's recent transactions that reduced consolidated group leverage and to reduce future operating costs. Prior to its recent asset sales and securitization of Texas regulatory assets, TXU's consolidated leverage was high for the 'BBB-' rating category, with debt-to-EBITDA at 5.1 times (x) for the 12 months-ended December 31, 2003. The company used the bulk of the proceeds from the sales of TXU Australia, TXU Gas, and a Texas pipeline, as well as the funds from the securitization to pay down debt. TXU plans to buy back 50 million shares of common stock to be financed from the proceeds of new debt. Fitch expects the net effect of the debt retirements and this new issuance to be a roughly $1.5 billion decrease in debt, resulting in adjusted operating debt-to-EBITDA in the range of 4.0x to 4.25x by year-end 2004. While this remains moderately aggressive for the ratings category, leverage is expected to decrease in 2005 in terms of debt-to-EBITDA due to EBITDA improvements at TXU Energy from a strong energy price environment, as well as cost savings in the retail energy segment from its out-sourcing joint venture with CapGemini and other cost-saving initiatives. The Stable Rating Outlook takes into consideration Fitch's view that TXU Corp. will continue a balanced approach to maintaining adequate credit measures while meeting common shareholders' appetite for earnings growth and dividends. Future positive ratings actions could result from continued significant reduction in parent debt and demonstration of the retail energy sector's ability to sustain profitability over time. On the other hand, negative rating actions could result from debt-leveraged acquisitions or failure to effectively manage commodity market risk. TXU Corp. is a holding company that engaged in the generation, delivery, and sale of electricity to both the wholesale and retail customers primarily in Texas. UAL CORP: Wants District Court to Review Judge Wedoff's Order ------------------------------------------------------------- UAL Corporation and its debtor-affiliates will take an appeal from the Stipulation and Agreed Order approved by Judge Wedoff, which authorizes HSBC Bank USA to effectuate its set-off rights related to the Los Angeles International Airport Bond Series 1997, to the U.S. District Court for the Northern District of Illinois. The Debtors want the District Court to review whether they were entitled to receive certain amounts held in the Construction Fund representing the costs of the construction project at the Los Angeles International Airport that the Debtors incurred before filing for bankruptcy, but requisitioned postpetition and under a promise of reimbursement from HSBC. 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. 64; Bankruptcy Creditors' Service, Inc., 215/945-7000) UAL CORPORATION: Wants to Amend Service Agreement with ARINC ------------------------------------------------------------ Pursuant to a service agreement, ARINC provides VHF and Satcom data/voice radio and communication network services to UAL Corporation and its debtor-affiliates. ARINC's communication network services are used to transmit Aircraft Communication Addressing and Reporting System data, which is flight-critical operational information transmitted between flight crews and ground stations while planes are in flight. There are two main providers of VHF and Satcom services -- SITA and ARINC. However, in North America, ARINC is the only provider with sufficient terrestrial ground station coverage to service the Debtors' flight schedules and network. In 2003, the Debtors commenced efforts to introduce competition in the North American VHF data services market. The Debtors investigated the technical and financial risks and benefits of contracting with SITA to invest in the North American market and establish a competitive VHF network. After a thorough review, the Debtors decided against this venture and, instead, to continue their relationship with ARINC. The Debtors sought and received the U.S. Bankruptcy Court for the Northern District of Illinois' permission to amend the existing Services Agreement with ARINC. Under the Amendment: a) the Debtors will pay about 50%, or $100,000, less per month than their current VHF payments to ARINC; b) the Debtors will have the option of using other service providers for air-to-ground communications if new, cheaper technologies are developed; c) ARINC will acknowledge that the Amendment does not constitute an assumption of the Services Agreement; d) the Debtors will assume the Services Agreement upon exit from bankruptcy; and e) if the Debtors do not assume the Service Agreement, ARINC will be allowed an administrative claim under the historic, higher prices. James H.M. Sprayregen, Esq., at Kirkland & Ellis, in Chicago, Illinois, relates that the Amendment will allow the Debtors to take advantage of favorable economic terms without assuming the Services Agreement. The Amendment will defer payment of ARINC's $2,800,000 cure claim until the Debtors have exited from bankruptcy. After the Amendment, the Debtors anticipate paying ARINC a minimum of $230,000 per month. 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. 65; Bankruptcy Creditors' Service, Inc., 215/945-7000) UNITED AIRLINES: Seeks Competitive Bids to Reduce Non-Labor Costs ----------------------------------------------------------------- United Airlines has extended a request for proposal (RFP) to a number of regional airlines to provide up to 70 regional jets to the United Express network. These jets will be used to cover capacity currently operated by Air Wisconsin, one of United's six United Express partners. The RFP is not expected to increase the overall size of the fleet at United Express. Rather, United expects that under the terms of the bids it receives, the cost of the capacity currently operated by Air Wisconsin will likely be reduced. Additionally, the RFP will provide United with an opportunity to fine-tune the mix of smaller and larger regional jet aircraft in the United Express fleet. "As we continue with our cost-control efforts, we must look at every area of the company and within every contract we have," said Sean Donohue, vice president-United Express and Ted. "Air Wisconsin is a long standing, valuable partner for United Airlines that performs well for us today, and we look forward to productive discussions with Air Wisconsin and other potential bidders. We must ensure we are paying market rates for our United Express service. By requesting competitive bids from a number of regional airlines, we are confident we will secure proper market rates for our United Express contracts while providing our customers with safe, reliable service throughout our United Express network." United submitted the RFP to 10 regional airline companies including all of its existing partners. Initial proposals are due back to United by Dec. 10. Companies that received an RFP include: Air Wisconsin, Trans States, Chautauqua, Mesa, SkyWest, Independence Air, Horizon, Pinnacle, Mesaba and Express Jet. "Every aspect of our business has got to be competitive. We will meet the goal of lowering our costs by an additional $2 billion, about one-third of which we expect to come from non-labor costs," said Peter D. McDonald, executive vice president and chief operating officer. 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. US AIRWAYS: Inks Pact with Lenders for Continued Use of Aircraft ---------------------------------------------------------------- US Airways Group, Inc., has reached agreements with its lenders and lessors for continued use and operation of substantially all of its mainline and Express fleet. Section 1110 of the U.S. Bankruptcy Code requires that within 60 days of its Sept. 12, 2004, Chapter 11 filing, US Airways must either: (i) cure and perform under the terms of its aircraft financing or (ii) negotiate consensual arrangements with its lenders and lessors. Currently, US Airways has agreed to cure and perform for all but 36 aircraft, which will be subject to further negotiation. For these 36 aircraft, alternative interim arrangements have been secured for 17 of the aircraft. Also, of the 36, three are Dash-8 turbo-prop aircraft, which had already been returned to lessors. "Identifying these 36 aircrafts is a routine part of the process, and our expectation is that our mainline fleet will remain largely intact," said Bruce R. Lakefield, US Airways president and chief executive officer. "Our intent is to focus on those few aircraft that for a variety of reasons may no longer be economical to fly, and if there is a downsizing of the fleet, that it be minimal, and that it be transparent to our customers." Mr. Lakefield said that the February 2005 schedule US Airways announced last month provided for nearly 230 additional daily flights without adding any new aircraft due to changes in flying patterns and efficiencies -- the equivalent of approximately 36 additional aircraft to the current fleet. "More point-to- point flying, more efficient aircraft utilization, and a focus on key business and leisure markets in the eastern U.S. remain core elements of the company's Transformation Plan. We might conclude, however, that some aircraft with fuel inefficiencies or significant maintenance or operating costs might not make sense in an era of high fuel costs, depressed revenue and over-capacity in the industry. We need to carefully analyze and negotiate with our aircraft financers to reduce our costs and make the company as efficient as possible." US Airways currently operates a fleet of 282 mainline jets. Its wholly owned US Airways Express operations include a fleet of 67 regional jets and 64 turboprop aircraft. Headquartered in Arlington, Virginia, US Airways' primary business activity is the ownership of the common stock of: * US Airways, Inc., * Allegheny Airlines, Inc., * Piedmont Airlines, Inc., * PSA Airlines, Inc., * MidAtlantic Airways, Inc., * US Airways Leasing and Sales, Inc., * Material Services Company, Inc., and * Airways Assurance Limited, LLC. Under a chapter 11 plan declared effective on March 31, 2003, USAir emerged from bankruptcy with the Retirement Systems of Alabama taking a 40% equity stake in the deleveraged carrier in exchange for $240 million infusion of new capital. US Airways and its subsidiaries filed another chapter 11 petition on September 12, 2004 (Bankr. E.D. Va. Case No. 04-13820). Brian P. Leitch, Esq., Daniel M. Lewis, Esq., and Michael J. Canning, Esq., at Arnold & Porter LLP, and Lawrence E. Rifken, Esq., and Douglas M. Foley, Esq., at McGuireWoods LLP, represent the Debtors in their restructuring efforts. In the Company's second bankruptcy filing, it lists $8,805,972,000 in total assets and $8,702,437,000 in total debts. VP CBO: Fitch Junks Classes B & C & Rates Class A-3 BB ------------------------------------------------------ Fitch Ratings affirms three classes of notes issued by VP CBO, Ltd. (formerly known as Triton III CBO, Ltd.). Two classes of notes remain at 'C' and three are affirmed: -- $85,061,692 class A-1 notes affirmed at 'AAA'; -- $50,036,290 class A-2 notes affirmed at 'AAA'; -- $11,258,165 class A-3 notes affirmed at 'BB'; -- $98,136,725 class B notes remain at 'C'; -- $33,102,864 class C notes remain at 'C'. VP CBO, which closed April 20, 1999, is a cash flow CDO currently managed by OH Value Partners, LLC. OH assumed management responsibilities on the transaction from Triton Partners, Ltd. in June 2003 as a result of the resignation of Triton as collateral manager (before which time the deal was known as Triton III CBO, Ltd.) VP CBO is composed of primarily U.S. high yield bonds, leveraged loans, and structured finance securities constituting approximately 88.9%, 3.9%, and 7.2% of the collateral balance, respectively. Included in this review, Fitch discussed the current state of the portfolio with the asset manager. 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. Since the last rating review that Fitch conducted in January 2003, the collateral has continued to deteriorate. As of the September 30, 2004 trustee report, VP CBO had 51.31% in defaulted assets or assets rated 'CCC', or below. All of the interest coverage and principal coverage test ratios have decreased from their levels as of the last review, with the exception of the class A overcollateralization -- OC -- test, which has improved due to continued amortization of the senior notes. From the date of the last review to that of the latest trustee report, the class A OC ratio increased from 109.97% to 120.23% versus a minimum trigger of 118.50%. Also during this time, the class B OC ratio decreased from 91.25% to 71.97% versus a minimum trigger of 103.90%, and the class C OC ratio decreased from 86.68% to 63.39% versus a minimum trigger of 101%. The class B and class C notes are currently PIKing interest payments. Furthermore, the Fitch weighted average rating factor -- WARF -- increased from 61.41 ('B-') to 77.70 ('B-/ CCC+') during this same period. Although VP CBO is a revolving transaction with the reinvestment period ending May 2004, Triton ceded collateral management responsibilities as described above. As a result, OH has been retained by the controlling class (i.e. MBIA Inc., the insurance provider to the class A-1 and class A-2 notes) to manage the transaction. Under the terms of the indenture, OH may only sell assets, which, in their opinion, represent credit-impaired securities and that have experienced a downgrade since original purchase, as well as defaulted, PIKing and equity securities. OH is prohibited from reinvesting in additional collateral assets, and any scheduled or unscheduled principal proceeds will be used to redeem the outstanding notes according to the governing documentation. The ratings of the class A notes address the likelihood that investors will receive timely payment of interest and ultimate payment of principal, as per the governing documents. Payment of principal and interest on the class A-1 and class A-2 notes is unconditionally and irrevocably guaranteed under the terms of an insurance agreement issued by MBIA Inc. The ratings of the class B and C notes address the likelihood that investors will receive ultimate payment of interest and ultimate payment of principal, as per the governing documents. As a result of this analysis, Fitch has determined that the ratings previously assigned to all classes of notes continue to reflect the current risk to investors. Fitch will continue to monitor and review this transaction for future rating adjustments. WORLDCOM INC: MCI Officers Dispose 40,984 Shares in Common Stock ---------------------------------------------------------------- In separate filings with the Securities and Exchange Commission, 11 officers of MCI, Inc., disclose that they recently sold or otherwise disposed of shares of common stock in the company: Securities Officer Designation Amount Price Owned -------- ----------- ------ ----- ---------- Andreotti, Former Pres. Cindy K. Enterprise Markets 2,010 15.54 68,116 Blakely, Robert T. Exec-VP & CFO 4,266 15.9 150,131 Briggs, Pres.-Operations Fred M. & Technology 1,882 15.9 66,234 Capellas, Michael D. Pres. & CEO 22,581 15.9 794,816 Crane, EVP, Strategy Jonathan C. Corp., Dev. 1,546 15.9 66,929 Hackenson, Elizabeth EVP, CIO 377 15.9 13,168 Huyard, Pres-US Sales & Wayne Service 2,510 15.9 88,312 Higgins, Exec-VP, Ethics Nancy and Bus Conduct 1,546 15.9 66,929 Kelly, Exec-VP & Gen. Anastasia D. Counsel 2,039 15.9 71,753 Slusser, Sr. VP & Eric Controller 753 15.9 26,493 Trent, Grace SVP Comm & Chief Chen of Staff 1,474 15.54 49,952 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. 65; Bankruptcy Creditors' Service, Inc., 215/945-7000) * BOOK REVIEW: CORPORATE RESPONSIBILITY: Law and Ethics ------------------------------------------------------- Author: Christopher D. Stone Publisher: Beard Books Paperback: 288 pages List Price: $34.95 Order your personal copy at http://amazon.com/exec/obidos/ASIN/1587982250/internetbankrupt In these days of Enron, WorldCom, Tyson, and a number of other corporate miscreants, Stone's topic of corporate responsibility is on everyone's mind--employees, government officials, legislators, executives, corporate lawyers and consultants, consumers. Stone's book was prompted to some extent by the part of the giant oil companies' role in the energy crisis of the early 1970s. This served as a wake-up call to government overseers of business, business journalists, public-interest groups, and others of the extent to which corporations, "for better or worse, [had become] the most effective 'private' forces to do both widespread good and widespread harm." In today's era of globalization, the scope for corporations' good or harm is even more widespread. Yet despite the wake-up call of the energy crisis, society has not yet struck upon a dependable, effective means of ensuring corporate responsibility, or even for forcing it by laws if necessary. The main reason for this, so Stone maintains, is not that despite what many persons believe, corporations are by nature irresponsible. The main reason is that no one--not government officials, not public-interest groups, not employees of corporations--has a fundamental concept of what corporate responsibility is or should be. To formulate a concept of this, Stone asks basic questions and thoughtfully works his way toward answers of these. Among these questions are just "what is the corporate problem?"; "exactly what is it about corporations, and exactly what is it about the institutions we have available to control them, that so often seems to leave the one frustratingly outside the grasp of the other?"; "what sorts of new controls can be, and must be designed" to control corporate behavior and minimize harmful effects of irresponsibility? Stone has no easy answers to these questions. In working toward practicable principles and standards, he carefully balances the nature, workings, and purposes of corporations with the ideals, mores, and needs of society. While he acknowledges that the law plays a necessary and to some degree defining part in evoking corporate responsibility, he brings in the larger point that the law alone can never provide the fundamental ground for corporate responsibility. The main reason for this is that the law is mostly reactive. In the field of business and commerce, legislators are making new laws all the time in relation to new activities or conditions which come about. Government agencies are modifying their regulations all the time. Nor can the market ensure corporate responsibility by favoring corporations which are seen to act responsibly. Examples Stone points to and the familiar examples of Enron, etc., illustrate how corporations can all too easily give an appearance of responsibility for a time, so the extraordinary success they gain by this leads to an extraordinary disaster affecting large numbers of employees and the public. Stone's conception of corporate responsibility--as any concept of responsibility requires--involves identifiable individuals who are an integral part of the corporate structure and who have decision- making powers. These individuals are board members, members of public directorships, and a corporations' top management. Recognition of the special role individuals in these positions have in corporate responsibility is not enough, however. As Stone stresses, corporations have to make relevant information on what they are doing and how decisions are made available to the public. He begins his chapter "Mending the Information Net" with an anecdote illustrating how corporations manage and can even destroy by shredding information about their operations and goals. Stone recognizes that corporations, like government and private citizens, cannot behave effectively without some privacy. But what he's concerned about in honing in on the subject of information, its preservation, and its availability is preventing practices which allow corporations to so easily appear to be acting responsibility when in fact they are acting against the public interest, and while doing so actually working against their own interests and purposes as corporations. Such desirable practices regarding information would also ensure that board members, members of public directorships, and top management have the information they need to make relevant, beneficial decisions. Thus, situations such as Enron's president saying he was unaware of what some of his chief financial executives were doing would not be possible. The president would know what information he was supposed to have for corporate responsibility, and financial officers and other top executives would know what information, including documents, they were supposed to provide to others entrusted with seeing to corporate responsibility. In the wake of the corporate irresponsibility manifest by Enron, WorldCom, and others, government officials, corporate leaders, and business commentators have been calling for some of the remedies Stone proposes. To these and others, Stone's "Corporate Responsibility" can be turned to for specific recommendations and for general guidance on formulating and implementing such practices conducive to this desirable end. Christopher D. Stone is a professor of law at the University of Southern California. He has been associated with a number of government agencies, and has written extensively about corporate ethics, trade, and other business topics as well as environmental issues. ********* 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 ***