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/raid1/www/Hosts/bankrupt/TCR_Public/050211.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, February 11, 2005, Vol. 9, No. 35 Headlines 360NETWORKS INC: Directors & Officers Disclose New Equity Stakes ADELPHIA COMMS: DIP Financing Maturity Extended to March 31 AERO PLASTICS: Will File Schedules & Statements on Valentine's Day ALLIANCE ATLANTIS: Names Andrea Wood Integrated Operational Head ALOHA AIRGROUP: Trustee Appoints 9-Member Creditors Committee ALOHA AIRGROUP: Intends to Subpoena E-Mail Records from ISPs AMERICAN MEDIA: Third Quarter Net Income Narrows to $281,000 ANC RENTAL: Liquidating Plan Declared Effective on Feb. 3 ANECO ELECTRICAL: Files Schedules of Assets & Liabilities ATA AIRLINES: Balks at NatTel's Motion to Appoint Examiner BALLY TOTAL: Moody's Pares Ratings on Credit Facilities BEAR CREEK: S&P Rates Proposed $245 Million Unsecured Notes BEAR STEARNS: Fitch Puts BB Rating on $2.277 Million Private Class BEAR STEARNS: Moody's Junks Classes I & J Certificates BELL CANADA: Receives 88.8% of Nexxlink Shares in Tender Offer BLOCKBUSTER INC: Exchange Offer Cues Moody's to Review Ratings CADMUS COMMS: Declares $0.0625 Per Share Quarterly Cash Dividend CAMCO INC: Equity Deficit Widens to $22,879,000 at Dec. 31 CATHOLIC CHURCH: Court Allows Portland to Keep Union Bank Accounts CITIGROUP MORTGAGE: Fitch Rates $9.2 Mil. Class M10 Cert. at BB+ COMPUTER ASSOCIATES: John Swainson Assumes CEO Post CORN PRODUCTS: Board Authorizes Stock Repurchase Program COVANTA ENERGY: Liquidating Trustee Wants to Close Eight Cases DEX MEDIA: Forms Partnership with Aptas to Upgrade Capabilities EARL BRICE: Look for Bankruptcy Schedules by Mar. 1 ELAN CORP: Final SEC Settlement Concludes Investigation ENRON CORP: Inks Pact to Settle Two Federal Insurance Claims EXIDE TECHNOLOGIES: Proposes $350 Million Senior Debt Offering FALCON PRODUCTS: Gets Interim Okay to Use Fleet's Cash Collateral FEDERAL-MOGUL: Insurers Says Plan Alters Business Relationship FLOWSERVE CORP: Moody's Affirms Ratings & Says Outlook is Stable FPL ENERGY: Fitch Assigns BB Rating on $100 Million Senior Debt FREEDOM MEDICAL: U.S. Trustee Will Meet Creditors on Mar. 9 FRONTIER OIL: Hosting FY 2004 Conference Call on Feb. 23 GARDENA CALIFORNIA: S&P Pares Certificate Rating to BB- from BBB- GENCORP INC: Posts $398 Million Net Loss in Fiscal 2004 GENOIL INC: Issues Stock to Complete Proposed Debt Settlement GLOBAL LEARNING: Plan Confirmation Hearing Set for Mar. 3 GLOBAL LEARNING: Dismissal Hearing Continued to March 3 HEALTH NET: Names Stephen Lynch Pres. of Largest Health Plan Unit HIGH VOLTAGE: Wants to Hire Akin Gump as Bankruptcy Counsel HIGH VOLTAGE: Look for Bankruptcy Schedules by Mar. 25 HOLLY ENERGY: Moody's Puts Ba3 Rating on $150MM Sr. Unsec. Notes INTERSTATE BAKERIES: Amends DIP Financing Agreement with JPMorgan JARDEN CORP: Moody's Pares Rating on Sr. Sub. Notes to B3 from B2 KMART CORP: ESL Companies Swap Kmart Options for Sears Options LEHMAN BROTHERS: S&P Slices Rating on Class L Certificates to BB+ LEUCADIA NATIONAL: Fitch Lowers Long-Term Issuer Rating to BB+ LIFESTREAM TECH: Sells Interactive's IP Rights to LifeNexus MADISON RIVER: Earns $7.9 Million of Net Income in Fourth Quarter MCDERMOTT INTERNATIONAL: Names Roger Brown to Board of Directors MEGO FINANCIAL: Sells Real Property to Case Int'l for $565,000 MEYER'S BAKERIES: U.S. Trustee Will Meet Creditors on Mar. 18 MIRANT CORP: Reject Consumers Energy Contract to Save Costs MORGAN STANLEY: Fitch Junks $22.6 Million Class H Series 1997-XL1 MORGAN STANLEY: S&P Puts Low-B Ratings on Six Certificate Classes NATIONSLINK FUNDING: S&P Junks Class J Certificates NNRG ENERGY: Tacoma City Seeks Summary Judgment on Four Issues NTELOS INC: S&P Junks $225 Million Second-Lien Term Loan OMNOVA SOLUTIONS: Consolidates Chemical Business Leadership OWENS CORNING: Parties File Asbestos Estimation Post-Trial Briefs PACIFIC COAST: S&P Places Ratings on CreditWatch Negative PARMALAT: Tuscan Wants $57.5M Claim Allowed for Voting Purposes PEGASUS SATELLITE: Court Approves Amended Disclosure Statement PEGASUS SATELLITE: Nixes Claim Aggregation for Voting Proposal PEGASUS SATELLITE: Has Until May 1 to Decide on Leases PILLOWTEX CORP: Court Approves Sale of Trademark Rights to GGST RURAL/METRO CORP: Moody's Junks $140M Senior Subordinated Notes RURAL/METRO: Obtains Commitment for New Secured Credit Facilities RURAL/METRO: S&P Junks $140 Million Senior Subordinated Notes SMC HOLDINGS: Files for Chapter 11 Protection in Delaware SMC HOLDINGS CORP: Case Summary & 20 Largest Unsecured Creditors SOLUTIA INC: Court Approve CP Films & 3M Global Supply Agreement STANDARD COMMERCIAL: Declares $0.0875 Quarterly Cash Dividend STAR GAS: Fitch Revises Outlook to Negative After Inergy Purchase STATE STREET: Must File Monthly Operating Reports by February 18 STELCO INC: Algoma Steel Withdraws from Purchase Talks STELCO INC: Developing Reasonable Plan to Address Pension Issues STELCO INC: Ontario Court Extends CCAA Protection Until Apr. 29 STERICYCLE INC: 4th Qtr. Net Income Up 3.5% to $19.1 Million TEXEN OIL: Inks Control Block Sale Agreement TROPICAL SPORTSWEAR: Court Okays $88.5 Million Sale to Perry Ellis TRUMP HOTELS: Amended Plan's Classification & Treatment of Claims TRUMP HOTELS: Feb. 14 Telephonic Disclosure Statement Hearing Set UNISPHERE WASTE: All Five Directors Walk Away from Board URS CORP: Earns $26.1 Million of Net Income in Fourth Quarter US AIRWAYS: Pension Benefit Takes $2.3 Billion Pension Loss US AIRWAYS: Wants to Enter into Fuel Hedging Programs USM CORP: Judge Walsh Orders Transfer of Chapter 22 Case to Mass. VEO: Voluntary Chapter 11 Case Summary WISTON XIV: U.S. Trustee Will Meet Creditors on Mar. 4 YUKOS OIL: Judge Clark Approves Stipulation with U.S. Trustee * Cadwalader Moves New York Offices to One World Financial Center * Jonathan Aberman & David Dutil Join Mintz Levin's D.C. Office * BOOK REVIEW: Health Plan: The Practical Solution ********* 360NETWORKS INC: Directors & Officers Disclose New Equity Stakes ---------------------------------------------------------------- As of January 18, 2005, Directors and Senior Officers of 360networks Corporation beneficially own directly or indirectly these shares in 360: Number of Percentage Name Position Shares Owned Outstanding ---- -------- ------------ ----------- Gregory B. Maffei Director, - - Chairman, & CEO William T. Brock Director - - Michael Brown Director - - George T. Haymaker, Jr. Director - - Wilbur L. Ross, Jr. Director - - David Van Valkenberg Director - - Chris Mueller Senior VP, 32,501 0.02% Finance Rob Frasene Senior VP, 30,004 0.02% Operations Lin Gentemann Senior VP, 70,000 0.05% General Counsel and Corporate Secretary In early 2004, Mr. Maffei transferred all of his 340,000 Shares to a trust for the benefit of his four minor children. Mr. Brock resigned from the Board of Directors as of December 31, 2004, while Mr. Ross resigned as of January 17, 2005. The Directors and Senior Officers also own stock options in 360, as of December 31, 2004: Number of Number of Percentage Name Options Owned Options Vested Outstanding ---- ------------- -------------- ----------- Gregory B. Maffei 175,000 - 8.5% William T. Brock 35,000 35,000 1.7% Michael Brown 35,000 20,000 1.7% George T. Haymaker, Jr. 35,000 20,000 1.7% Wilbur L. Ross, Jr. 35,000 20,000 1.7% David Van Valkenberg 35,000 20,000 1.7% Chris Mueller 45,000 - 2.2% Rob Frasene 45,000 - 2.2% Lin Gentemann 35,000 - 1.7% The maximum number of Shares authorized for issuance pursuant to 360's 2002 Long Term Incentive Award Plan is 3,750,000 Shares. Headquartered in Vancouver, British Columbia, 360networks, Inc. -- http://www.360.net/-- is a leading independent provider of fiber optic communications network products and services worldwide. The Company and its 22 debtor-affiliates filed for chapter 11 protection on June 28, 2001 (Bankr. S.D.N.Y. Case No. 01-13721), obtained confirmation of a plan on October 1, 2002, and emerged from chapter 11 on November 12, 2002. Alan J. Lipkin, Esq., and Shelley C. Chapman, Esq., at Willkie Farr & Gallagher, represent the Company before the Bankruptcy Court. When the Debtors filed for protection from its creditors, they listed $6,326,000,000 in assets and $3,597,000,000 in liabilities. (360 Bankruptcy News, Issue No. 80; Bankruptcy Creditors' Service, Inc., 215/945-7000) ADELPHIA COMMS: DIP Financing Maturity Extended to March 31 ----------------------------------------------------------- On January 26, 2005, Adelphia Communications Corporation and its debtor-affiliates entered into a commitment letter and a related fee letter with JPMorgan Chase Bank, N.A., J.P. Morgan Securities Inc., Citigroup Global Markets, Inc., and Citicorp North America, Inc. The Committed Banks agreed to provide a portion of and to syndicate an extended debtor-in-possession credit facility. The terms of the Commitment Letter contemplate: (i) the extension of the maturity date from March 31, 2005, the maturity date under the ACOM Debtors' Existing DIP Facility, to March 31, 2006; (ii) an increase in the aggregate commitments of the lenders from $1.0 billion, representing the aggregate commitments of the lenders under the Existing DIP Facility, to $1.3 billion, comprised of an $800 million revolving credit facility and a $500 million loan; and (iii) a decrease in the borrowing margins with respect to loans made under the Extended DIP Facility. The commitment letter and the related fee letter will only become binding on the ACOM Debtors upon Bankruptcy Court approval. A full-text copy of the Commitment Letter is available for free at: http://sec.gov/Archives/edgar/data/796486/000104746905002049/a2150738zex-10_01.htm 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. (Adelphia Bankruptcy News, Issue No. 79; Bankruptcy Creditors' Service, Inc., 215/945-7000) AERO PLASTICS: Will File Schedules & Statements on Valentine's Day ------------------------------------------------------------------ Aero Plastics, Inc., asks the U.S. Bankruptcy Court for the Northern District of Georgia, Atlanta Division, for an additional 7-day extension to prepare and deliver its schedules of assets and liabilities and statements of financial affairs. The Debtor's current deadline expired on Feb. 7. Aero Plastics needs this brief extension to complete its schedules and statements. Aero assures the Court that creditors will have ample time to review the documents before the Feb. 17 creditors meeting. Headquartered in Leominster, Massachusetts, Aero Plastics, Inc. -- http://www.aeroplastics.com/-- manufactures household products. The Company filed for chapter 11 protection on Jan. 6, 2005 (Bankr. N.D. Ga. Case No. 05-60451). J. Michael Lamberth, Esq., at Lamberth, Cifelli, Stokes & Stout, PA, represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it estimated assets and debts between $10 million to $50 million. ALLIANCE ATLANTIS: Names Andrea Wood Integrated Operational Head ---------------------------------------------------------------- Michael MacMillan, Chairman and CEO of Alliance Atlantis Communications disclosed the appointment of Andrea Wood, Executive Vice President, Business and Legal Affairs as head of the integrated operational and corporate legal departments, effective immediately. Based in Toronto, Ms. Wood will oversee all operational and corporate legal activities for Alliance Atlantis. Having joined Alliance Atlantis in 1992, Ms. Wood has played a significant leadership role in the company on a broad range of business and legal affairs issues. "[Wednesday]'s appointment reflects our more efficient and integrated organizational structure within Alliance Atlantis," said Michael MacMillan. "In this new role, Andrea will continue to provide invaluable leadership as our organization builds on our solid foundation as one of Canada's best performing broadcasters." About the Company In 2005, Alliance Atlantis Communications Inc. -- http://www.allianceatlantis.com/-- celebrates its 10th anniversary as a leading specialty broadcaster, continuing to offer Canadians recognizable, high-quality brands boasting targeted, high-quality programming across 13 specialty channels. The Company co-produces and distributes a limited number of television programs in Canada and internationally, including the hit CSI franchise, and holds a 51% limited partnership interest in Motion Picture Distribution LP, Canada's leading motion picture distribution business. The Company's common shares are listed on the Toronto Stock Exchange - trading symbols AAC.A, AAC.NV.B and on NASDAQ - trading symbol. * * * As reported by the Troubled Company Reporter on Nov. 1, 2004, Standard & Poor's Ratings Services raised its long-term corporate credit rating on Alliance Atlantis Communications Inc. to 'BB' from 'BB-'. Standard & Poor's also assigned its 'BB' rating to the company's proposed C$700 million senior secured bank facility. A recovery rating of '3' was assigned to the loan, indicating expectations of a meaningful recovery of principal (50%-80%) in the event of default. The bank loan rating is based on preliminary terms and conditions and is subject to review once final documentation is received. Borrowings under the proposed bank facility are being used to refinance the existing senior subordinated debt and revolving credit facility. Standard & Poor's will withdraw the 'B' rating on the company's subordinated debt, effective October 28, 2004. The outlook is stable. ALOHA AIRGROUP: Trustee Appoints 9-Member Creditors Committee ------------------------------------------------------------- The United States Trustee for Region 15 appointed nine creditors to serve on an Official Committee of Unsecured Creditors in Aloha Airgroup, Inc., and its debtor-affiliate's chapter 11 cases: 1. Air Line Pilots Association c/o Katz & Ranzman, P.C. Attn: Daniel M. Katz 1015 18th Street, N.W., Suite 801 Washington, District of Columbia 20036 Tel: 202-659-1799, Fax: 202-659-3145 2. International Association of Machinist and Aerospace Workers, AFL-CIO c/0 Lowenstein Sandler, P.C. Attn: Sharon L. Levine 65 Livingston Avenue Roseland, New Jersey Tel: 973-597-2374, Fax: 973-597-2375 3. Association of Flight Attendants - CWA Attn: Peggy H. Gordon 3375 Koapaka Street, D-131 Honolulu, Hawaii 96819 Tel: 808-792-7137, Fax: 808-792-7138 4. SITA Attn: George Parker 3100 Cumberland Boulevard, Suite 200 Atlanta, Georgia 30339 Tel: 770-612-4869, Fax: 770-303-3448 5. Milici Valenti Ng Pack, Inc. Attn: Nick Ng Pack 999 Bishop Street, 24th Floor Honolulu, Hawaii 96813 Tel: 808-536-0881, Fax: 808-529-6208 6. Pratt & Whitney Attn: F. Scott Wilson 400 Main Street, M/S 133-54 East Hartford, Connecticut 06108 Tel: 860-565-7364, Fax: 860-557-9946 7. HMSA Attn: Edward S. Van Lier Ribbink P.O. Box 860 Honolulu, Hawaii 96808-0860 Tel: 808-948-6275, Fax: 808-948-5999 8. Pension Benefi Guaranty Corp. Attn: Craig Yamaoka 1200 K Street, N.W. Washington, District of Columbia 20005 Tel: 202-326-4070, Fax: 202-842-2643 9. Gate Gourmet c/o Arnold & Porter LLp Attn: Robert Barret 370 Seventeenth Street, Suite 4500 Denver, Colorado 80202-1370 Tel: 303-863-2319, Fax: 303-832-0428 Official creditors' committees have the right to employ legal and accounting professionals and financial advisors, at the Debtors' expense. They may investigate the Debtors' business and financial affairs. Importantly, official committees serve as fiduciaries to the general population of creditors they represent. Those committees will also attempt to negotiate the terms of a consensual chapter 11 plan -- almost always subject to the terms of strict confidentiality agreements with the Debtors and other core parties-in-interest. If negotiations break down, the Committee may ask the Bankruptcy Court to replace management with an independent trustee. If the Committee concludes reorganization of the Debtors is impossible, the Committee will urge the Bankruptcy Court to convert the chapter 11 cases to a liquidation proceeding. Headquartered in Honolulu, Hawaii, Aloha Airgroup, Inc. -- http://www.alohaairlines.com/-- provides air carrier service connecting the five major airports in the State of Hawaii. Aloha Airgroup and its subsidiary Aloha Airlines, Inc., filed for chapter 11 protection on Dec. 30, 2004 (Bankr. D. Hawaii Case No. 04-03063). Alika L. Piper, Esq., Don Jeffrey Gelber, Esq., and Simon Klevansky, Esq., at Gelber Gelber Ingersoll & Klevansky represent the Debtors in their restructuring efforts. When the Debtor filed for protection from its creditors it listed more than $50 million in estimated assets and debts. ALOHA AIRGROUP: Intends to Subpoena E-Mail Records from ISPs ------------------------------------------------------------ Aloha Airgroup, Inc., and Aloha Airlines, Inc., ask the U.S. Bankruptcy Court for the District of Hawaii to issue an order directing three Internet service providers -- Road Runner HoldCo., LLC, Hawaii.Com and Load.Com -- to produce certain documents relevant to the Debtors' bankruptcy proceedings. The Debtors want to obtain records relating to certain e-mail messages and the identity of the senders pursuant to Federal Rule 2004. The Debtors relate that on Dec. 24, 2004, e-mail messages containing false information were sent to people with which the Debtors have business relationships. The Debtors deny having anything to do with those e-mail communications. Aloha's negotiations and relations with various groups have significantly been disrupted by those e-mail messages. The Debtors found that the e-mail communications were sent from Hawaii.com's web mail and one or more subscribers of Road Runner. Load.com is the e-mail service provider for Hawaii.com. Headquartered in Honolulu, Hawaii, Aloha Airgroup, Inc. -- http://www.alohaairlines.com/-- provides air carrier service connecting the five major airports in the State of Hawaii. Aloha Airgroup and its subsidiary Aloha Airlines, Inc., filed for chapter 11 protection on Dec. 30, 2004 (Bankr. D. Hawaii Case No. 04-03063). Alika L. Piper, Esq., Don Jeffrey Gelber, Esq., and Simon Klevansky, Esq., at Gelber Gelber Ingersoll & Klevansky represent the Debtors in their restructuring efforts. When the Debtor filed for protection from its creditors it listed more than $50 million in estimated assets and debts. AMERICAN MEDIA: Third Quarter Net Income Narrows to $281,000 ------------------------------------------------------------ American Media, Inc. (AMI), the nation's largest publisher of celebrity, health and fitness, and Spanish language magazines, reported results for the third fiscal quarter ended Dec. 27, 2004. Financial Highlights -- Revenues for the third fiscal quarter increased 9.3% to $129.4 million, compared to $118.3 million for the prior year fiscal third quarter. -- The Company's EBITDA increased 1.9% to $32.0 million from $31.4 million for the prior year fiscal quarter. David J. Pecker, American Media's Chairman, President and CEO commented, "We continue to focus very heavily on the investments that we have made to re-launch Star as a glossy magazine. We are beginning to see these investments pay dividends with the Star's single copy sales up 6% with a $3.29 cover price through December versus the March 2004 quarter when we transitioned it from a 84 page tabloid with a $2.99 cover price. Advertising revenue for Star is up 50.8% versus the prior year. In addition, Star has increased its subscriptions by 52% since its launch as a glossy magazine bringing total circulation to approximately 1.3 million, an increase of 14.5%. "The results for the Weider acquisition continue to perform better than we originally expected," Mr. Pecker added. "We continue to improve these titles, most recently with the redesign and re- launch of Men's Fitness. Average advertising pages for Men's Fitness are up 25% from the prior year with many new advertisers and the most recent issues are selling 17% higher on the newsstand than the prior year issues. Additionally, Shape has continued to out-perform expectations, and has also taken market share from all of its competitors. Shape is now the market share leader in its category with a 19.2% lead in advertising pages over its nearest competitor. As a result of this performance, Shape was named to the Ad Age Top Ten List in 2004. Shape's newsstand sales continue to improve and registered a 4.1% gain over the prior year." Commenting on the remaining outlook for the 2005 fiscal year, American Media's Chief Financial Officer, Tom Severson, added, "We are currently expecting our full fiscal year 2005 EBITDA to finalize in the $147 million to $153 million range. This is slig htly less than our previous guidance of $155 million due to an increase in production costs and slightly lower than anticipated advertising revenue projected for certain magazines in the fourth fiscal quarter of 2005. We still expect double digit advertising revenue growth in the fourth fiscal quarter compared to the prior year. In addition, we will be changing our year end to a calendar or Mar. 31, 2005 year end from a publishing calendar or March 28, 2005 year end. This will result in three additional days of operational expenses in the quarter. We will be reporting on traditional calendar quarters on a going forward basis." Revenues for the fiscal quarter ended Dec. 27, 2004 increased 9.3% to $129.4 million compared to $118.3 million for the prior year fiscal quarter. Advertising revenues increased 29.2% to $37.7 million for the quarter and circulation revenues increased 3.2% to $84.2 million for the quarter. These revenue increases were primarily related to Star's success as a glossy magazine and the continuing strength of Shape. These increases were partially offset by a 7.2% decline in newsstand units for AMI's weekly publications when compared to the prior year quarter. Revenues for the three fiscal quarters ended Dec. 27, 2004 increased 7.9% to $399.4 million compared to $370.2 million for the prior year period. When compared to the prior year period, advertising revenues increased 16.9% to $123.1 million for the three fiscal quarters and circulation revenues increased 4.9% to $253.3 million for the three fiscal quarters. These revenue increases were primarily related to the success of Star magazine and the continuing strength of Shape. These increases were partially offset by an 8.4% decline in newsstand units for AMI's weekly publications when compared to the prior year's three fiscal quarters. Total operating expenses for the December 2004 fiscal quarter increased 11.8% to $108.5 million from $97.0 million compared to the prior year fiscal quarter. Total operating expenses for the three fiscal quarters ended Dec. 27, 2004 increased 13.1% to $331.4 million from $292.9 million compared to the prior year three fiscal quarters. These increases in operating expenses for the fiscal quarter and for the three fiscal quarters ended December 27, 2004 were primarily due to an increase in operating expenses related to the new cost structure of the Star as a glossy magazine and an increase in advertising sales expense relating to our increases in advertising revenues. The Company's EBITDA for the December 2004 fiscal quarter increased 1.9% to $32.0 million from $31.4 million compared to the prior year fiscal quarter. The Company's EBITDA for the three fiscal quarters ended December 2004 decreased to $101.2 million from $107.6 million compared to the prior year three fiscal quarters. This decrease was primarily due to an increase in production expenses, the new cost structure of the Star as a glossy magazine and legal charges incurred during the three fiscal quarters ended Dec. 27, 2004. Net loss was $281,000 for the December 2004 fiscal quarter compared to net income of $692,000 in the prior year fiscal quarter primarily due to increased interest expense and depreciation. Net income was $3.1 million for the three fiscal quarters ended December 27, 2004 compared to net income of $12.0 million for the prior year period. This decrease in net income for the period resulted from the circumstances mentioned above combined with an increase in interest expense of $4.4 million and an increase in depreciation expense of $2.7 million. Headquartered in Boca Raton, Florida, American Media Operations is a leading publisher of consumer magazines. The company recorded sales of $517 million for the fiscal year ending March 2004. * * * As reported in the Troubled Company Reporter on Dec. 2, 2004, Moody's Investors Service has downgraded American Media Operations, Inc.'s senior implied rating to B1 from Ba3. Full details of the rating action are: Ratings confirmed: * $60 million senior secured revolving credit facility, due 2006 -- Ba3 * $3 million senior secured term loan tranche A, due 2006 -- Ba3 * $304 million (remaining amount) senior secured term loan tranche C, due 2007 -- Ba3 * $133 million senior secured term loan tranche C-1, due 2007 -- Ba3 Ratings downgraded: * $150 million 8.875% senior subordinated notes, due 2011 -- B3 from B2 * $400 million 10.25% senior subordinated notes, due 2009 -- B3 from B2 * Senior Implied rating -- B1 from Ba3 * Issuer rating -- B2 from B1 The rating outlook is stable. ANC RENTAL: Liquidating Plan Declared Effective on Feb. 3 --------------------------------------------------------- Joseph Grey, Esq., at Stevens & Lee, PC, advises the U.S. Bankruptcy Court for the District of Delaware that as of Feb. 3, 2005, all conditions precedent for the Effective Date of the Amended Joint Chapter 11 Liquidating Plan of ANC Rental and its debtor-affiliates and Statutory Creditors' Committee had been satisfied. Accordingly, the Plan became effective Feb. 3, 2005. Headquartered in Fort Lauderdale, Florida, ANC Rental Corporation, is the world's third-largest publicly traded car rental company. The Company filed for chapter 11 protection on November 13, 2001 (Bankr. Del. Case No. 01-11200). On April 15, 2004, Judge Walrath confirmed the Debtors' 3rd amended Chapter 11 Liquidation Plan, in accordance with Section 1129(a) and (b) of the Bankruptcy Code. Upon confirmation, Blank Rome, LLP, and Fried, Frank, Harris, Shriver & Jacobson, LLP, withdrew as the Debtors' counsel. Gazes & Associates, LLP, and Stevens & Lee, PC, serve as substitute counsel to represent the debtors' post-confirmation interests. When the Company filed for protection from their creditors, they listed $6,497,541,000 in assets and $5,953,612,000 in liabilities. (ANC Rental Bankruptcy News, Issue No. 65; Bankruptcy Creditors' Service, Inc., 215/945-7000) ANECO ELECTRICAL: Files Schedules of Assets & Liabilities --------------------------------------------------------- Aneco Electrical Construction, Inc., filed with the U.S. Bankruptcy Court for the Middle District of Florida, Tampa Division, its schedule of assets and liabilities, disclosing: Name of Schedule Assets Liabilities ---------------- ------ ----------- A. Real Property B. Personal Property $27,929,688 C. Property Claimed As Exempt D. Creditors Holding Secured Claims $15,753,674.53 E. Creditors Holding Unsecured Priority Claims 408.59 F. Creditors Holding Unsecured Nonpriority Claims 10,056,728.93 ----------- -------------- Total: $27,929,688 $25,810,812.05 Headquartered in Clearwater, Florida, Aneco Electrical Construction, Inc. -- http://www.anecoinc.com/-- is an electrical and telecommunications company serving the commercial, entertainment, industrial, medical, government and institutional building markets in the southeastern United States. The Company filed for chapter 11 protection on Dec. 30, 2004 (Bankr. M.D. Fla. Case No. 04-24883). Scott A. Stichter, Esq., at Stichter, Riedel, Blain & Prosser, represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed $51 million in estimated assets and $41 million in estimated debts. ATA AIRLINES: Balks at NatTel's Motion to Appoint Examiner ---------------------------------------------------------- As previously reported, NatTel, LLC, asked the United States Bankruptcy Court for the Southern District of Indiana to appoint an examiner to investigate and analyze the financial and other dealings between Debtor Chicago Express Airlines, Inc., on the one hand, and ATA Holdings Corp., ATA Airlines, Inc. and the other Debtors, on the other hand. Aaron L. Hammer, Esq., at Freeborn & Peters, LLP, in Chicago, Illinois, contends the Non-Chicago Express Debtors have engaged in a pattern of activities and ATA Holdings has forced Chicago Express to engage in various transactions that have likely caused Chicago Express to suffer substantial harm to its business and financial affairs for the exclusive benefit of the Non-Chicago Express Debtors. Objections (A) Official Committee of Unsecured Creditors "The legislative history of section 1104 of the Bankruptcy Code clearly evinces Congress' intent to provide for the appointment of an examiner in a bankruptcy case when it is in the estate's interests or in order to protect holders of public debt in large estates," John W. Ames, Esq., at Greenbaum, Doll & McDonald, PLLC, in Louisville, Kentucky, reminds the Court. "The purpose of the statute is not to provide a disgruntled bidder in a bankruptcy auction process with a vehicle to derail a debtor's chapter 11 case, to the severe detriment of the debtor's estate and its unsecured creditors, for its own gain." Mr. Ames tells Judge Lorch that NatTel is attempting to derail the Debtors' restructuring efforts. On learning that it was not the winning bidder for the purchase of the stock of Chicago Express Airlines, Inc., NatTel purchased two small trade claims to gain standing to object to the Debtors' transaction with Southwest Airlines Co. Upon failure of that attempt, NatTel now seeks a broad-based investigation of each of the Debtors' financial transactions and other dealings with and involving Chicago Express. It, however, fails to satisfy the statutory requisites or congressional intent for appointment of an examiner under Section 1104. Mr. Ames asserts that NatTel's unsupported accusations of mismanagement do not provide a basis upon which to appoint an examiner. NatTel maintains that the Debtors have "abused" and are "exploiting" Chicago Express. It has failed to substantiate that charge. NatTel relies primarily on the existence of a Chicago Express guarantee securing third party loans to the Debtors, and incorrectly asserts that Chicago Express has not received a benefit from that contractual guarantee. Mr. Ames contends Chicago Express received both direct and indirect benefits from its guarantee of two loans of ATA Holdings, Inc., its parent company: -- The mechanics of the Debtors' integrated, prepetition cash management procedures, which have been continued postpetition, has permitted Chicago Express to receive proceeds of those loans from the general operating accounts of the parent corporation; and -- The loans enabled the affiliates of Chicago Express to continue their operations in the face of difficult financial conditions, strengthening the "ATA" corporate group as a whole. Furthermore, the appointment of an examiner is unnecessary, expensive and would cause undue delay in the resolution of the Debtors' cases for these reasons: -- Under the Debtors' current DIP Facility and the Cash Collateral Order, the appointment of an examiner with expanded powers will trigger an event of default. The appointment of an examiner will place the Debtors and their creditors in peril of losing continued use and access to cash, jeopardizing the Debtors' continued operations; -- The Debtors' unsecured creditors, who are already facing less than full recoveries, would directly bear the impact of all of the expenses attributable to the appointment of an examiner; and -- Courts have concluded that the appointment of an examiner would be duplicative when a committee exists pursuant to Section 1103 of the Bankruptcy Code, replete with investigative authority under Section 1103(c). Mr. Ames tells the Court that the nature and scope of the investigation and due diligence proposed by NatTel falls squarely within the responsibility of the Official Committee of Unsecured Creditors. The Creditors Committee, through its legal and financial advisors, is fully capable of investigating the relationships and financial affairs among Chicago Express and the Debtors to the extent it determines it is warranted. There is no need to introduce an examiner into the Debtors' cases at this time. Thus, the Creditors Committee asks the Court to deny NatTel's request. In the alternative, if the Court determines that the appointment of an examiner is mandatory, the Creditors Committee asks the Court to allow an examiner to conduct a limited investigation according to appropriate limitations and proscriptions designed to substantially reduce expense and interference with the administration of the Debtors' Chapter 11 cases. (B) Debtors Terry E. Hall, Esq., at Baker & Daniels, in Indianapolis, Indiana, tells Judge Lorch that the appointment of an examiner would only: (a) materially interfere with the Debtors' efforts to reorganize; (b) burden the Debtors' estates with significant and wasteful expense; and (c) confer no benefit to the Debtors' estates or to their creditors. "The Examiner Motion appears to be nothing more than an attempt to cause Debtors to reconsider their determination, in concert with the Official Committee of Unsecured Creditors and other creditors, that the offer made by NatTel to acquire ownership of CE for $38,000 was and is of no interest to the Debtors because the offer is so far below the market value of CE that the offer does not merit further consideration," Ms. Hall points out. Ms. Hall maintains that no grounds exist for the appointment of an examiner at this time: (a) NatTel is not a "party in interest" that Section 1104 of the Bankruptcy Code seeks to protect. NatTel is not the holder of Chicago Express' publicly traded bonds, nor was it a creditor of Chicago Express at the Petition Date; and (b) The monetary threshold is not present to require an examiner. Chicago Express's debt level, excluding insider, contingent, unliquidated, or secured debts, and debts for goods, services, or taxes, do not reach the $5,000,000 triggering threshold under Section 1104(c)(2). Ms. Hall relates that the Debtors are engaged with the Creditors Committee and the secured lenders in an intense process to reorganize and restructure their businesses after the initial closing of the Southwest Transaction. To devote significant resources to an examiner to assist in any investigation of Chicago Express is simply not in the best interest of anyone. The Debtors, representing the unsecured creditors, the secured lenders, including the ATSB, and the U.S. Trustee are sufficient watchdogs of the estates and the creditors' interests. Should the Court grant NatTel's request, the Debtors want the appointment to be very limited in scope and designed and funded so as not to materially burden or interfere with the efforts of the Debtors and the real parties-in-interest to restructure and maximize the value of the Debtors' estates for the benefit of creditors, employees, and customers. (C) ATSB The United States of America, on behalf of the Air Transportation Stabilization Board, joins in the Debtors' objection to NatTel's request. 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. 14; Bankruptcy Creditors' Service, Inc., 215/945-7000) BALLY TOTAL: Moody's Pares Ratings on Credit Facilities ------------------------------------------------------- Moody's Investors Service downgraded the credit ratings of Bally Total Fitness Holding Corporation and changed the outlook to negative, concluding a review of the Company's ratings for possible downgrade initiated on November 4, 2004. The ratings downgrade reflects Moody's expectation of continued poor operating performance and weak free cash flow generation due to increasing industry competition, continued high attrition rates and the mounting cost of the continuing investigation into accounting matters at the company. The ratings also reflect the Company's limited financial flexibility due to its highly leveraged capital structure, concern that the Company's access to liquidity may be constrained, material weaknesses in internal controls over financial reporting and Moody's estimates of recovery values for the various classes of debt in the event of default. The ratings downgraded are: * $175 million Senior Secured Term Loan B Facility, due 2009, downgraded to B3 from B2; * $100 million Senior Secured Revolving Credit Facility, due 2008, downgraded to B3 from B2; * $235 million 10.5% Senior Unsecured Notes (guaranteed), due 2011, downgraded to Caa1 from B3; * $300 million 9.875% Senior Subordinated Notes, due 2007, downgraded to Ca from Caa2; * Senior Implied, downgraded to Caa1 from B3; * Senior Unsecured Issuer Rating, downgraded to Caa2 from Caa1; The ratings outlook is negative. Moody's believes that it will be difficult for Bally Total to grow its revenue base, increase profitability and generate positive free cash flows in an increasingly competitive environment. Although Bally Total reported a 2% increase in its membership base for the nine months ended September 30, 2004, free cash flow for the same period was negative $2.7 million. While Bally is capital constrained, its competitors are continuing to expand. It is unclear whether marketing dollars spent by Bally to attract new members will be able to offset the significant rate of member attrition. In addition, Bally Total's results will continue to be pressured by general increases in operating costs as well as the cost of the continuing investigation into accounting matters and audit restatements. For these reasons, Moody's is concerned that Bally may be unable to comply with financial covenants in its credit agreement over the next few quarters, which, absent a waiver, would prevent the company from borrowing under its $100 million revolving credit facility. In December 2004, Bally Total received a limited waiver, which may be extended until July 31, 2005, from the holders of a majority of its unsecured and subordinated notes of any default arising from Bally's failure to file with the Securities and Exchange Commission ("SEC") and furnish to the holders of the notes and trustee required financial reports. Lenders under the Company's senior secured credit facility have foregone any requirement for receipt from Bally of any financial statements filed with the SEC. However, the credit agreement provides for a cross-default in the event of delivery of a default notice under either the senior unsecured or senior subordinated indentures. Bally Total announced that it intends to restate its financial statements for the years ended December 31, 2000 through December 31, 2003 and the first quarter of 2004 due to a number of accounting errors. Bally has engaged KPMG LLP, its new auditor, to re-audit the company's financial statements for the years ended December 31, 2002 and 2003, which were previously audited by Ernst & Young LLP. Bally expects to complete the restatements by July 2005. As part of the restatement, previously reported installment receivables and related deferred revenues will no longer be reported on the balance sheet. Bally Total's audit committee recently completed its investigation into various accounting issues at the Company. The audit committee concluded that there were multiple accounting errors in the financial statements and that certain former executives were responsible for those errors and creating a culture within the accounting and finance groups at Bally that encouraged aggressive accounting. Two financial executives of Bally were also terminated for improper conduct. Bally identified numerous deficiencies in its internal controls over financial reporting which deficiencies, either individually or in the aggregate, constitute material weaknesses in its internal controls over financial reporting. Bally Total also recently announced that it is working with a financial advisor to develop a long-term financial strategy to improve the Company's capital structure and maximize free cash flows. Among the strategies being considered is the possible divestiture of non-core assets. The negative ratings outlook reflects Moody's expectation of minimal revenue growth and break-even free cash flow over the next 12 months. As a result, Moody's believes that Bally may be unable to comply with the financial covenants in its credit facility during the next few quarters. If Bally Total improves its operating performance by generating sustainable annualized free cash flows of over $20 million over the next few fiscal quarters, Moody's would consider revising the outlook to stable or positive. Asset divestitures that materially improve leverage and liquidity would also likely benefit the rating. A relaxation of bank covenants that provides the company with significant covenant cushion would also be positive for the ratings or outlook. The continued generation of negative free cash flow would likely further pressure the rating. The ratings or outlook will also be sensitive to the results of the continuing SEC investigation, the ability of Bally to correct its material deficiencies in internal controls over financial reporting and the ability of the company to complete and file its restated financial statements with the SEC. The B3 rating on the senior secured credit facility reflects the benefits of a pledge of substantially all the assets of the company and its subsidiaries. The credit facility has been notched above the senior implied rating reflecting expected full recovery in the event of default due to the expected enterprise value of the company and the value of secured assets including installment receivables and property and equipment. The Caa1 rating on the senior notes reflects the senior unsecured nature of these obligations and the guarantee by substantially all of the subsidiaries of the Company. The senior notes have been notched at the senior implied rating reflecting relatively high expected recovery rates in the event of default. The Ca rating on the senior subordinated notes reflects contractual subordination and expected low recovery rates in the event of default. Headquartered in Chicago, Illinois, Bally Total Fitness Holding Corporation is the largest commercial operator of fitness centers in North America. BEAR CREEK: S&P Rates Proposed $245 Million Unsecured Notes ----------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B' corporate credit rating to specialty food gifts and horticultural products direct marketer Bear Creek Corp. The outlook is stable. At the same time, Standard & Poor's assigned its 'B-' rating to the company's proposed $245 million of unsecured notes to be issued under Rule 144A with registration rights. The proposed debt issue will comprise a combination of fixed- and floating-rate note issues, with maturities projected between 2012 and 2013. The notes are rated one notch lower than the corporate credit rating due to the significant amount of priority debt in the capital structure. Proceeds will be used to refinance an existing $155 million second-lien loan and a $14 million holding company loan, as well as to pay an $83 million dividend to shareholders. Pro forma for the transaction, Bear Creek will have $245 million of debt outstanding. Concurrent with the transaction, the company plans to amend and restate its first-lien revolving credit facility and reduce the size of the credit facility to $125 million from $150 million. Bear Creek was acquired in June 2004 from Yamanouchi Consumers, Inc., for $242 million, by equity funds controlled by Wasserstein & Co. L.P. (65% ownership) and Highfields Capital Management L.P. (35% ownership). "The ratings on Bear Creek reflect an aggressive financial policy, a highly leveraged capital structure, the company's participation in the intensely competitive and fragmented specialty food gifts direct marketing and retailing businesses, and the very high seasonality of its operations," said Standard & Poor's credit analyst Ana Lai. As a direct marketer of specialty food gifts and horticultural products, Bear Creek faces intense competition from other direct marketers, such as 1800flowers.com and FTD.com, Omaha Steaks, and Williams-Sonoma, Inc., specialty stores, and other retail channels with similar product offerings. However, the company benefits from the recognized Harry & David brand, and it has a long track record of operations. BEAR STEARNS: Fitch Puts BB Rating on $2.277 Million Private Class ------------------------------------------------------------------ Bear Stearns Asset Backed Securities (BSABS) Trust 2005-SD1, asset-backed certificates, series 2005-SD1 are rated by Fitch Ratings: Group 1 certificates: -- $204,922,000 classes I-A-1, I-A-2, I-A-3 'AAA'; -- $7,627,000 class I-M-1 'AA'; -- $3,757,000 class I-M-2 'A'; -- $2,277,000 class I-M-3 'A-'; -- $2,277,000 class I-M-4 'BBB+'; -- $2,277,000 class I-M-5 'BBB'; -- $2,277,000 class I-M-6 'BBB-'; -- $2,277,000 privately offered class I-B 'BB'. Group 2 certificates: -- $94,207,000 class II-A 'AAA'; -- $5,927,200 class II-M-1 'AA'; -- $3,875,500 class II-M-2 'A'; -- $3,248,600 class II-M-3 'BBB'; -- $2,621,718 class II-B 'BBB-'. The 'AAA' rating on the group 1 certificates reflects the 11.65% initial credit enhancement provided by: * 3.35% class I-M-1, * 1.65% class I-M-2, * 1.00% class I-M-3, * 1.00% class I-M-4, * 1.00% class I-M-5, * 1.00% class I-M-6, and * 1.00% class I-B, along with * target overcollateralization - OC -- of 1.65%. The 'AAA' rating on the group 2 certificates reflects the 18.30% initial credit enhancement provided by: * 5.20% class II-M-1, * 3.40% class II-M-2, * 2.85% class II-M-3, and * 2.30% class II-B, along with OC. The initial OC for the group 2 certificates is 3.55% with a target OC of 4.55%. In addition, the ratings on the certificates reflect the quality of the underlying collateral and Fitch's level of confidence in the integrity of the legal and financial structure of the transaction. The group 1 mortgage pool consists of fixed-rate mortgage loans secured by first liens on one- to four-family residential properties, with an aggregate principal balance of $ 227,691,541. As of the cut-off date, Jan. 1, 2005, the mortgage loans had a weighted average loan-to-value ratio - LTV -- of 76.98%, weighted average coupon - WAC -- of 6.422%, and an average principal balance of $151,089. Single-family properties account for 75.99% of the mortgage pool, two- to four-family properties 9.50%, and condos 4.69%. Approximately 86.50% of the properties are owner- occupied. The three largest state concentrations are: * California (12.30%), * Florida (7.90%), and * New York (7.31%). The group 2 mortgage pool consists of adjustable-rate mortgage loans secured by first liens on one- to four-family residential properties, with an aggregate principal balance of $113,983,732. As of the cut-off date, Jan. 1, 2005, the mortgage loans had a weighted average loan-to-value ratio of 78.26%, weighted average coupon of 5.663%, and an average principal balance of $185,944. Single-family properties account for 72.00% of the mortgage pool, two- to four-family properties 4.32%, and condos 5.99%. Approximately 90.25% of the properties are owner-occupied. The three largest state concentrations are: * California (18.56%), * New Jersey (13.00%), and * Virginia (6.79%). None of the mortgage loans are 'high cost' loans as defined under any local, state, or federal laws. For additional information on Fitch's rating criteria regarding predatory lending legislation, see the press release 'Fitch Revises Rating Criteria in Wake of Predatory Lending Legislation,' dated May 1, 2003, available on the Fitch Ratings web site at http://www.fitchratings.com/ Bear Stearns Asset Backed Securities I LLC deposited the loans into the trust, which issued the certificates, representing beneficial ownership in the trust. JPMorgan Chase Bank, N.A. will act as trustee. Wells Fargo Bank N.A., rated 'RMS1' by Fitch, will act as master servicer for this transaction. BEAR STEARNS: Moody's Junks Classes I & J Certificates ------------------------------------------------------ Moody's Investors Service upgraded the rating of three classes, downgraded the ratings of four classes and affirmed the ratings of four classes of Bear Stearns Commercial Mortgage Securities Inc., Commercial Mortgage Pass-Through Certificates, Series 1999-C1: * Class A-1, $42,935,503, Fixed, affirmed at Aaa * Class A-2, $280,821,086, Fixed, affirmed at Aaa * Class X, Notional, affirmed at Aaa * Class B, $23,900,199, Fixed, upgraded to Aaa from Aa2 * Class C, $17,925,149, Fixed, upgraded to Aa2 from A2 * Class D, $21,510,179, Fixed, upgraded to Baa1 from Baa2 * Class E, $5,975,050, Fixed, affirmed at Baa3 * Class G, $4,780,040, Fixed, downgraded to Ba3 from Ba2 * Class H, $3,585,030, Fixed, downgraded to B2 from Ba3 * Class I, $9,560,080, Fixed, downgraded to Caa2 from B2 * Class J, $2,390,020, Fixed, downgraded to C from B3 As of the January 14, 2005 distribution date, the transaction's aggregate principal balance has decreased by approximately 10.4% to $428.3 million from $478.0 million at securitization. The Certificates are collateralized by 118 loans secured by commercial and multifamily properties. The loans range in size from less than 0.1% to 3.3% of the pool, with the top ten loan groups representing 26.2% of the pool. Nine loans, representing 8.9% of the pool, have defeased and been replaced with U.S. Government securities. One loan has been liquidated from the pool resulting in a realized loss of approximately $2.8 million. Three loans, representing 2.6% of the pool, are in special servicing. Moody's has estimated aggregate losses of approximately $5.2 million for all of the specially serviced loans. Twenty-two loans, representing 13.9% of the pool, are on the master servicer's watchlist. The trust has realized interest shortfalls due to appraisal reductions and special servicing fees. As of the most recent distribution date, Classes K and J have aggregate interest shortfalls of approximately $150,000. Moody's was provided with year-end 2003 operating results for 95.2% of the performing loans and partial year 2004 operating results for 68.5% of the performing loans. Moody's weighted average loan to value ratio is 69.7%, compared to 76.0% at securitization. The upgrade of Classes B, C and D is due to increased subordination levels, improved overall pool performance and defeased loans. The downgrade of Classes G, H, I and J is due to realized and expected losses from the specially serviced loans and LTV dispersion. Based on Moody's analysis, 6.1% of the pool has a LTV greater than 100.0%, compared to 0.0% at securitization. The top three loan groups represent 10.2% of the outstanding pool balance. The largest loan group is the Founders Plaza & Tower 14 Loan ($19.5 million - 4.6%), which is secured two cross- collateralized loans secured by two office properties. Founders Plaza ($14.0 million) is a 390,000 square foot office property located in East Hartford, Connecticut. The property, which was built in 1972, has maintained 95.0% occupancy since securitization. The largest tenant is Bank of America (formerly Fleet Bank; 38.0% NRA; lease expiration December 2006). The property's performance has improved since securitization due to increased rents and stable expenses. Tower 14 ($5.5 million) is a 251,700 square foot Class C office building located in Southfield, Michigan. The property was built in 1973 and is 87.0% occupied, compared to 80.0% at securitization. The largest tenant is Health Alliance Plan (14.0% NRA; lease expirations January and March 2005). The property's performance has improved since securitization due to increased occupancy. Moody's loan to value ratio is 85.2%, compared to 96.0% at securitization. The second largest loan is the Clemens Place Apartments Loan ($14.1 million - 3.1%), which is secured by a 583-unit multifamily property located in Hartford, Connecticut. The property was built between 1915 and 1971 and was renovated in the early 1980s. Currently the property is 95.4% occupied, compared to 97.0% at securitization. The property's performance has improved since securitization due to increased rental income. Moody's loan to value ratio is 74.4%, compared to 85.0% at securitization. The third largest loan is the South Bay Marketplace Loan ($10.8 million - 2.5%), which is secured by a discount oriented community shopping center located in National City in San Diego County, California. National City is located approximately 10 miles north of the Mexican border. The property was built in 1997 and contains 133,000 square feet. The property is 100.0% occupied, the same as at securitization. Major tenants include Office Depot, Ross Dress for Less and Old Navy. The property's performance has improved due to increased revenue. Moody's loan to value ratio is 84.0%, compared to 95.9% at securitization. The pool's collateral is a mix of: * multifamily (27.7%), * office and mixed use (24.6%), * retail (22.5%), * industrial and self storage (9.2%), * U.S. Government securities (8.9%) and * lodging (7.1%). The collateral properties are located in 27 states. The highest state concentrations are: * California (27.5%), * New York (13.9%), * Connecticut (9.9%), * Pennsylvania (7.9%), and * New Jersey (6.9%). All of the loans are fixed rate. BELL CANADA: Receives 88.8% of Nexxlink Shares in Tender Offer -------------------------------------------------------------- Bell Canada disclosed that an additional 282,605 common shares of Nexxlink Technologies Inc. (TSX: NTI) had been tendered to the take-over bid by its subsidiary, 4257049 Canada Inc., to acquire all of the outstanding shares of Nexxlink for $6.05 per share. Bell Canada has taken up and intends to pay for these shares on Feb. 10, 2005. At the close of business on Feb. 7, 2005, and taking into account the shares taken up on Jan. 24, 2005, a total of 9,771,094 common shares of Nexxlink, representing approximately 88.8% of the aggregate number of common shares outstanding, had therefore been tendered to the offer. In order to allow shareholders who have not had the opportunity to tender their shares and be paid the consideration under the offer to do so, Bell Canada will grant an extension to Nexxlink shareholders to tender their shares, by extending its offer to 5:00 p.m. (Eastern time) on Feb. 21, 2005. Bell Canada intends to acquire all outstanding common shares not tendered by that date pursuant to rights of compulsory acquisition, if available, or pursuant to a subsequent acquisition transaction. If less than 90% of the aggregate number of Nexxlink common shares outstanding are not tendered by 5:00 p.m. (Eastern time) on Feb. 21, 2005, Bell Canada intends to proceed with a subsequent acquisition transaction and hold a special meeting of the shareholders of Nexxlink to that effect in March 2005. Bell Canada, through 4257049 Canada Inc., already holds a number of common shares sufficient to enable all required corporate and securities laws approvals to be obtained at such special meeting of shareholders. Bell Canada would therefore be in a position to have the subsequent acquisition transaction approved. Bell Canada, Canada's national leader in communications, provides connectivity to residential and business customers through wired and wireless voice and data communications, local and long distance phone services, high speed and wireless Internet access, IP-broadband services, e-business solutions and satellite television services. Bell Canada is wholly owned by BCE Inc. BCI is operating under a court-supervised Plan of Arrangement, pursuant to which BCI intends to monetize its assets in an orderly fashion and resolve outstanding claims against it in an expeditious manner with the ultimate objective of distributing the net proceeds to its shareholder and dissolving the company. BLOCKBUSTER INC: Exchange Offer Cues Moody's to Review Ratings -------------------------------------------------------------- Moody's Investors Service placed the long-term debt ratings of Blockbuster Inc., on review for possible downgrade and downgraded the speculative grade liquidity rating to SGL-2 following the commencement of a hostile exchange offer for all outstanding shares of Hollywood Entertainment Corporation. The review for downgrade in relation to Blockbuster's long-term ratings is based on: 1) the likelihood that the exchange offer, if successful, would result in significantly higher leverage and weaker credit metrics, as well as, 2) the risk that the recent elimination of late fees could constrict earnings and cash flow. The downgrade of the speculative grade liquidity rating from SGL-1 (very good liquidity) to SGL-2 (good liquidity) reflects Moody's expectation that the elimination of the no late fee policy will reduce liquidity in the near term, as well as reducing the amount of cushion that currently exists in the financial covenants in Blockbuster's credit agreement. Currently, Movie Gallery has a definitive agreement to acquire Hollywood Entertainment for $13.25 per share cash plus the assumption of debt for a transaction value of $1.2 billion. Blockbuster has offered to exchange all of the outstanding shares of Hollywood Entertainment for $14.50 per share, comprised of $11.50 per share cash and $3.00 per share in Blockbuster Class A common stock for a transaction value of $1.3 billion. Blockbuster Inc. has received commitments for $1 billion in bank and bond debt to finance the proposed transaction. The offer is subject to various conditions including; a majority of the shares being validly tendered and the termination of the merger agreement with Movie Gallery. It is therefore unclear whether Blockbuster's exchange offer will be successful and whether other bids could surface. The review for possible downgrade will focus on the financial profile of Blockbuster post acquisition should its hostile bid be successful. Whether or not the bid is successful, the review will evaluate the impact of the elimination of late fees on Blockbuster Inc.'s earnings and cash flow, as well as management's financial policies going forward, including its risk appetite for acquisitions. The SGL-2 speculative grade liquidity rating reflects Moody's expectation that the company will maintain good liquidity. Internally generated cash flow and cash on hand will be sufficient to fund its working capital, capital expenditures, term loan amortization, and dividend requirements over the next four quarters. In addition, the Company will have sufficient liquidity to meet the 50% excess cash flow requirement beginning in the first quarter of 2006. Cash on hand at September 30, 2004 was $190.0 million. However, Blockbuster's cushion for complying with the financial agreements in its bank credit facilities is likely to be reduced, in Moody's view, by the elimination of late fees which could constrict earnings and cash flow. In addition, given Blockbuster's limited tangible assets, the company has limited sources of alternative liquidity other than the sale of the entire company, its international business, or its extensive customer database. The ratings placed on review for possible downgrade are: * Senior Implied of Ba2; * Long Term Issuer Rating of Ba3; * Senior Secured Bank Credit Facilities of Ba2; * Senior Subordinated Notes of B1. The rating downgraded is: Speculative Grade Liquidity Rating to SGL-2 from SGL-1. Blockbuster Inc., headquartered in Dallas, Texas, is a leading global provider of in-home movie and game entertainment with nearly 9,000 stores throughout the Americas, Europe, Asia, and Australia. Total revenues for fiscal year 2003 were approximately $5.9 billion. CADMUS COMMS: Declares $0.0625 Per Share Quarterly Cash Dividend ---------------------------------------------------------------- Cadmus Communications Corporation's (Nasdaq: CDMS) Board of Directors approved a regular quarterly cash dividend of $0.0625 per share payable on March 8, 2005 to stockholders of record on Feb. 22, 2005. The Company increased its regular quarterly cash dividend from $0.05 per share to $0.0625 per share effective with the dividend paid on Sept. 14, 2004. Cadmus Communications has approximately nine million shares of common stock outstanding. About the Company Cadmus Communications Corporation -- http://www.cadmus.com/-- provides end-to-end, integrated graphic communications services to professional publishers, not-for-profit societies and corporations. Cadmus is the world's largest provider of content management and production services to scientific, technical and medical journal publishers, the fifth largest periodicals printer in North America, and a leading provider of specialty packaging and promotional printing services. * * * Moody's Rating Services and Standard & Poor's assigned its single-B ratings to Cadmus Communications' 8-3/8% senior subordinated notes due 2014 last year. CAMCO INC: Equity Deficit Widens to $22,879,000 at Dec. 31 ---------------------------------------------------------- Primarily as a result of the closure costs relating to the Hamilton manufacturing and distribution facility, Camco Inc., (TSX:COC) reported a net loss of $4.2 million or $0.21 per share for the fourth quarter ending December 31, 2004. This compares to a net loss of $53.4 million or $2.67 per share for the same period last year, which was primarily driven by significant provisions for Hamilton plant closure costs. Total sales for the fourth quarter of 2004 amounted to $185 million, up 13.5% from sales of $163 million for the fourth quarter of 2003. Camco reported income from operations, before closure costs, of $0.3 million in the fourth quarter of 2004 versus $1.7 million for the same period last year. Excluding plant closure costs, lower income from operations in the fourth quarter of 2004 was primarily the result of increased raw material commodity prices. Recent increases in commodity prices, especially steel have had an adverse impact on manufacturing costs in 2004 and as a result the Company has announced price increases to the domestic market effective January 1, 2005. Closure costs of $5.0 million ($3.5 million net of taxes) were recorded in the fourth quarter of 2004. In 2004, the Company recorded a net loss of $10.7 million on sales of $643 million, compared to a net loss of $52.5 million on sales of $595 million. Income from operations, before closure costs rose to $9.9 million, compared to $5.3 million in 2003. The principal drivers of improved year-over-year operational performance were: (1) strong domestic and export sales, (2) base cost productivity improvements resulting in lower operating costs, and (3) increased production at the Company's manufacturing facility in Montreal. James Fleck, President and CEO commented: "Camco experienced profound changes in 2004, including significant new product introductions, a major expansion of dryer manufacturing capacity in Montreal, new facilities in Burlington and Brantford, and the shutdown of the Hamilton facility. We have always said that Camco's real competitive advantage is the quality of our people. This unique strength was demonstrated in many different ways in 2004, be it our sales success in Canada, our ability to meet GE's dryer requirements, or the high integrity shown by our Hamilton employees. With the major restructuring costs behind us, we look forward to success in 2005 and beyond." Liquidity and Capital Resources On May 30, 2003, the Company renewed its securitization facility under which it sells up to $60.0 million eligible trade receivables on a revolving basis. This program, which originally began in 1995, has been extended through to September 27, 2005. The Company also renewed a $40.0 million line of credit facility on July 10, 2004. The line of credit agreement extends to July 9, 2005. To assist with closure related expenses, the Company has arranged an additional credit facility of up to $10.0 million with its banker available from April 1, 2004 - September 30, 2004 and up to $20.0 million from January 1, 2005 - September 30, 2005. To date, the Company has not needed to draw upon these funds. During the year, the Company met all of its cash and banking requirements. As of Dec. 31, 2004, Camco's stockholders' deficit widened to $22,879,000 from a $12,136,000 deficit at Dec. 31, 2003. Camco, Inc. -- http://www.geappliances.ca/-- is the largest Canadian manufacturer, marketer and service provider of home appliances, with manufacturing operations in Montreal, Quebec. The Company's product line includes such popular names as GE, Hotpoint, Moffat, Monogram, BeefEater and Samsung. Camco also produces and services private brands for major Canadian department stores. CATHOLIC CHURCH: Court Allows Portland to Keep Union Bank Accounts ------------------------------------------------------------------ The United States Trustee contends that Archdiocese of Portland in Oregon is required to obtain an order excusing compliance with Section 345 of the Bankruptcy Code with respect to the continued administration of the Archdiocese's investment accounts located at Union Bank of California. The Archdiocese disagrees. Thomas W. Stilley, Esq., at Sussman Shank LLP, in Portland, Oregon, contends that the provisions of Section 345 pertain only to "investment of the money of the estate for which such trustee serves. . . ." Thus, where Portland is only the trustee or custodian of the investments, Section 345 would not be applicable, Mr. Stilley asserts. The estimated current value of the investments in the Union Bank Investment Accounts is $99 million. Mr. Stilley explains that the investments in the Union Bank Investment Accounts are managed pursuant to a comprehensive Statement of Investment Policy and Guidelines. To assist in carrying out the investment policy, Portland retained Bonnie Haslett, Director of The Consulting Group, a division of Citigroup's Smith Barney. The Consulting Group is responsible for the compilation of investment returns on a quarterly basis by individual investment managers and the review of the overall portfolio. These returns are compared or measured against an established investment benchmark based on the investment manager's particular style. In addition, The Consulting Group is responsible for reviewing the adherence of investment managers to the established investment policy. The Consulting Group also performs asset allocation studies for the Investment Committee and helps coordinate the yearly reallocation of the entire pool. Union Bank of California is the investment custodian responsible for the safekeeping of all equity and fixed income securities purchased by the investment managers. Mr. Stilley contends that investment of the $99 million in strict compliance with the requirements of Section 345(b) is inconsistent with the mandate of Section 345(a) to make the investment of money "as will yield the maximum reasonable net return on such money, taking into account the safety of such deposit or investment." As long as investments are maintained in accordance with current practices, Mr. Stilley maintains that no corporate surety is necessary or required to afford protection to creditors. Mr. Stilley assures Judge Perris that the continued investment in accordance with Portland's historical practices will provide the protection required by Section 345 notwithstanding the absence of a "corporate surety." A bond secured by the undertaking of a corporate surety would be unduly expensive, even if the bond were available, and could offset much of the financial gain derived from investing in private as well as federal or federally guaranteed securities. Therefore, cause exists to waive the requirement of a bond or undertaking. Mr. Stilley also notes that the continuation of the existing Investment Accounts and compliance with preexisting investment guidelines will allow the investments held in the accounts to be maintained in accordance with the advice received from the Archdiocese's professional managers and consistent with the instructions received from the parishes and investment committees that have the responsibility for directing the investments held in the Investment Accounts. At Portland's' request, Judge Perris authorizes the Archdiocese to continue to administer its Union Bank Investment Accounts consistent with prepetition practices. The Archdiocese of Portland in Oregon filed for chapter 11 protection (Bankr. Ore. Case No. 04-37154) on July 6, 2004. Thomas W. Stilley, Esq. and William N. Stiles, Esq. of Sussman Shank LLP represent the Portland Archdiocese in its restructuring efforts. Portland's Schedules of Assets and Liabilities filed with the Court on July 30, 2004, the Portland Archdiocese reports $19,251,558 in assets and $373,015,566 in liabilities. (Catholic Church Bankruptcy News, Issue No. 16; Bankruptcy Creditors' Service, Inc., 215/945-7000) CITIGROUP MORTGAGE: Fitch Rates $9.2 Mil. Class M10 Cert. at BB+ ---------------------------------------------------------------- Citigroup Mortgage Loan Trust $836.2 million asset-backed pass- through certificates, series 2005-OPT1 are rated by Fitch Ratings: -- $668.55 million classes A-1A through A-1C 'AAA'; -- $30.52 million class M1 'AA+'; -- $24.67 million class M2 'AA'; -- $15.88 million class M3 'AA-'; -- $13.79 million class M4 'A+'; -- $13.38 million class M5 'A'; -- $12.12 million class M6 'A-'; -- $10.45 million class M7 'BBB+'; -- $6.69 million class M8 'BBB'; -- $8.36 million class M9 'BBB-'; -- $9.20 million class M10 'BB+'. The 'AAA' rating on the senior certificates reflects the 20.05% total credit enhancement provided by: * the 3.65% class M1, * the 2.95% class M2, * the 1.90% class M3, * the 1.65% class M4, * the 1.60% class M5, * the 1.45% class M6, * the 1.25% class M7, * the 0.80% class M8, * the 1% privately offered class M9, * the 1.10% privately offered class M10 and * the initial overcollateralization - OC -- of 2.70%. All certificates have the benefit of monthly excess cash flow to absorb losses. In addition, the ratings reflect the quality of the loans, the integrity of the transaction's legal structure as well as the capabilities of Option One Mortgage Corp. as servicer and Deutsche Bank National Trust Company, as trustee. The certificates are supported by one collateral group consisting of both conforming and nonconforming loans. The mortgage pool consists of first lien adjustable-rate and fixed-rate, mortgage loans that have a cut-off date pool balance of $836,207,600.96. Approximately 16.89% of the mortgage loans are fixed-rate mortgage loans and 83.11% are adjustable-rate mortgage loans. The weighted average current loan rate is approximately 6.914%. The weighted average remaining term to maturity - WAM -- is 355 months. The average principal balance of the loans equals $180,802. The weighted average original loan-to-value - OLTV -- ratio is 80.65%. The properties are primarily located in: * California (26.33%), * New York (14.17%) and * Massachusetts (8.12%). For federal income tax purposes, multiple real estate mortgage investment conduit elections will be made with respect to the trust estate. Option One was incorporated in 1992, and began originating and servicing subprime loans in February 1993. Option One is a subsidiary of Block Financial, which is in turn a subsidiary of H & R Block, Inc. COMPUTER ASSOCIATES: John Swainson Assumes CEO Post --------------------------------------------------- Computer Associates International, Inc. (NYSE: CA) has named CA's President and CEO-elect John Swainson as chief executive officer of the Company. He also will continue as president. Mr. Swainson, 50, who joined Calif. in November 2004 after a 26- year career at IBM, assumes the role from interim CEO Kenneth D. Cron, 48, who has held the post since April 2004. Mr. Cron will continue as a director of the Company, a position he has held since 2002. "Ken and John have worked extremely well together over the past two and a half months, and I couldn't be more pleased with their performances," said CA Chairman Lewis S. Ranieri. "John has quickly displayed an impressive knowledge of the Company and its technologies, and his industry background is a tremendous asset. Our confidence in his leadership abilities and strategy to move CA forward led the Board to name him CEO at this time." Mr. Ranieri also had significant praise for Mr. Cron, who stepped in as interim CEO more than nine months ago to help stabilize CA during a challenging period. "I can't thank Ken enough for successfully taking on the challenge of leading CA through this turbulent time," Mr. Ranieri said. "Ken and COO Jeff Clarke were able to successfully overcome significant obstacles. The Company performed solidly for the past three quarters, underwent a restructuring effort, made two strategic acquisitions to add to its security portfolio, outlined a growth strategy and continued to fill key management positions with highly credentialed individuals. Much of this credit goes to Ken, and I am delighted that he has agreed to remain on CA's Board of Directors." About the Company Computer Associates International, Inc. (NYSE:CA) -- http://ca.com/-- delivers software and services across operations, security, storage, life cycle and service management to optimize the performance, reliability and efficiency of enterprise IT environments. Founded in 1976, CA is headquartered in Islandia, N.Y., and serves customers in more than 140 countries. * * * As reported in the Troubled Company Reporter on Nov. 17, 2004, Moody's Investors Service assigned a Ba1 to Computer Associates International's proposed $750 million senior unsecured notes. Proceeds of the current offering will be used to refinance $825 million senior notes due in April 2005. Concurrently, Moody's assigned a senior implied rating of Ba1. The rating outlook is stable. The Ba1 rating and stable outlook reflect Moody's expectation for sustained growth in client billings and bookings, strengthened corporate governance structure, conservative acquisition strategy and share repurchase policy, and improved liquidity. CORN PRODUCTS: Board Authorizes Stock Repurchase Program -------------------------------------------------------- Corn Products International, Inc.'s (NYSE: CPO) board of directors has authorized a stock repurchase program. Under the program, which runs through Feb. 28, 2010, the Company can purchase up to 4 million shares of its issued and outstanding common stock. This program replaces the Company's previous stock repurchase program, which expired on Jan. 20, 2005. About the Company Corn Products International, Inc., is one of the world's largest corn refiners and a major supplier of high-quality food ingredients and industrial products derived from the wet milling and processing of corn and other starch- based materials. The Company is the number-one worldwide producer of dextrose and a leading regional producer of starch, high fructose corn syrup and glucose. In 2004, the Company recorded net sales of $2.3 billion with operations in 19 countries at 34 plants, including wholly owned businesses, affiliates and alliances. Headquartered in Westchester, Ill., it was founded in 1906. The Company is listed on the New York Stock Exchange under the symbol CPO. Additional information can be found on the World Wide Web at http://www.cornproducts.com/ * * * As reported in the Troubled Company Reporter on Oct. 22, 2004, Moody's Investors Service placed the debt ratings of Corn Products International (senior implied Ba1) under review for possible upgrade. Ratings placed under review are as follows: * Senior implied rating - Ba1, * $255MM senior unsecured notes, due 2007 - Ba1, * $200MM senior unsecured notes, due 2009 - Ba1, * $145MM senior unsecured shelf - (P) Ba1, * Senior unsecured issuer rating - Ba1. The review is prompted by Corn Products International's steady improvement in operating performance over the past few years, which has been accompanied by debt reduction, improved debt protection measures, and less reliance on subsidiary borrowings. COVANTA ENERGY: Liquidating Trustee Wants to Close Eight Cases -------------------------------------------------------------- Pursuant to Section 350 of the Bankruptcy Code and Rule 3022 of the Federal Rules of Bankruptcy Procedure, the Liquidating Trustee asks the Court to enter a final decree closing the Chapter 11 cases of eight liquidating Debtors: Case No. Debtor -------- ------ 02-40827 Ogden Allied Abatement & Decontamination Service, Inc. 02-40828 Ogden Allied Maintenance Corp. 02-40835 Ogden Allied Payroll Services, Inc. 02-40846 Ogden Facility Management Corp. of Anaheim 02-40850 Ogden Services Corporation 02-40851 Ogden Support Services, Inc. 03-13695 Ogden Aviation Security Services of Indiana (NJ), Inc. 03-13702 Ogden Management Services, Inc. Section 350(a) provides that "[a]fter an estate is fully administered and the Court has discharged the trustee, the Court shall close the case." Bankruptcy Rule 3022 further provides that "[a]fter an estate is fully administered in a Chapter 11 reorganization case, the Court, on its own motion or on motion of a party-in-interest, shall enter a final decree closing the case." Although neither the Bankruptcy Code nor the Bankruptcy Rules define "fully administered," the Advisory Committee's Note to Rule 3022 states that: "[F]actors that the court should consider in determining whether the estate has been fully administered include (1) whether the order confirming the plan has become final; (2) whether deposits required by the plan have been distributed; (3) whether the property proposed by the plan to be transferred has been transferred; (4) whether the debtor or the successor of the debtor under the plan has assumed the business or management of the property under the plan; (5) whether payments under the plan have commenced; and (6) whether all motions, contested matters, and adversary proceedings have been finally resolved." Applying the six factors to the facts and circumstances of the eight Completed Cases demonstrates that the cases have been fully administered. Paul R. DeFelippo, Esq., at Wollmuth, Maher, & Deutsch, LLP, asserts that the entry of a final decree closing the Completed Cases is warranted. The Completed Cases meet the six factors, and the Court has no need to keep them open to exercise jurisdiction over any outstanding matters. Absent the closure of the Completed Cases, the Liquidating Trustee would continue to incur unnecessary U.S. Trustee fees. Headquartered in Fairfield, New Jersey, Covanta Energy Corporation -- http://www.covantaenergy.com/-- is a publicly traded holding company whose subsidiaries develop, own or operate power generation facilities and water and wastewater facilities in the United States and abroad. The Company filed for Chapter 11 protection on April 1, 2002 (Bankr. S.D.N.Y. Case No. 02-40826). Deborah M. Buell, Esq., and James L. Bromley, Esq., at Cleary, Gottlieb, Steen & Hamilton, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $3,280,378,000 in assets and $3,031,462,000 in liabilities. On March 10, 2004, Covanta Energy Corporation and its core subsidiaries emerged from chapter 11 as a wholly owned subsidiary of Danielson Holding Corporation. Some of Covanta's non-core subsidiaries have liquidated under separate chapter 11 plans. (Covanta Bankruptcy News, Issue No. 74; Bankruptcy Creditors' Service, Inc., 215/945-7000) DEX MEDIA: Forms Partnership with Aptas to Upgrade Capabilities --------------------------------------------------------------- Dex Media, Inc. (NYSE: DEX) and Aptas Inc. reported a partnership agreement that will bring next-generation local search capabilities to DexOnline.com, Dex's online Yellow Pages directory. The new capabilities will be introduced throughout this year and in early 2006. "Our partnership with Aptas will enable us to take the local search experience to the next level, making DexOnline even more relevant for consumers and valuable for advertisers," said Dex Media CEO George Burnett. "With its strong management team and breadth of local search expertise, Aptas is an ideal partner to help us extend our local search leadership." DexOnline has been named the usage leader in the company's 14- state region for three straight quarters, according to market research firm comScore. The Kelsey Group, a directory and local search industry research firm, recently gave DexOnline the highest overall rating among 15 U.S. Internet Yellow Pages/Local Search Sites based on depth of content, search capabilities, site intelligence, relevance of results and user interface and interaction. "We look forward to working together to help Dex Media build on its leadership position in local search, introducing new capabilities that will create significant benefits for consumers and advertisers," said Aptas CEO Perry Evans. About Aptas Inc. Aptas' unique methods of relevancy and deep content organization offer the most refined and ready to apply solutions in Local Search. Aptas' user-centered content enhancements and search functionality help connect and build relationships between consumers and locally targeted advertisers. Aptas' Directory Knowledge Base(TM) and suite of products and services transforms complex content into relevant knowledge critical Local Search success. About the Company Dex Media, Inc. is the exclusive publisher of the official White and Yellow Pages directories in print, Internet and CD-ROM for Qwest Communications International Inc. The company publishes 259 directories in Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming. The company's leading Internet based directory, DexOnline.com, is the most used Internet Yellow Pages in the states Dex Media serves, according to market research firm comScore. In 2003, after giving effect to the acquisition of Dex Media West, LLC, Dex Media, Inc. generated revenues of approximately $1.6 billion. * * * As reported in the Troubled Company Reporter on June 18, 2004, Fitch Ratings affirmed these ratings on Dex Media's subsidiaries, Dex Media East LLC (DXME) and Dex Media West LLC (DXMW): DXME -- $1.1 billion senior secured credit facility 'BB-'; -- $450 million senior unsecured notes due 2009 'B'; -- $525 million senior subordinated notes due 2012 'B-; DXMW -- $2.1 billion senior secured credit facility 'BB-'; -- $385 million senior unsecured notes due 2010 'B'; -- $780 million senior subordinated notes due 2013 'B-'. In addition, Fitch has assigned a 'CCC+' rating to the holding company's, Dex Media Inc., $500 million 8% notes due 2013 and its $750 million 9% aggregate principal discount notes due 2013, which has a current accreted value of $512 million. Approximately $6.3 billion of debt is affected by Fitch's actions. The Rating Outlook is Stable. On July 28, 2004, Moody's Investor Service upgraded its credit ratings by two notches to B3. In anticipation of a common stock offering and the use of a portion of the proceeds to reduce debt, on May 17, 2004, Standard & Poors revised the outlook on Dex's single-B credit ratings to stable from negative. EARL BRICE: Look for Bankruptcy Schedules by Mar. 1 --------------------------------------------------- The Honorable Timothy J. Mahoney of the U.S. Bankruptcy Court for the District of Nebraska gave Earl Brice Equipment, LLC, more time to file its Schedules of Assets and Liabilities, Statement of Financial Affairs, and Schedules of Executory Contracts and Unexpired Leases. The Debtor has until March 1, 2005, to file those documents. The Debtor explains that because its assets consist mostly of equipment subject to possible liquidation and located in many locations, it needs the additional time to accurately collect and prepare all the information necessary for those assets and their related contracts. The Debtor assures Judge Mahoney that the extension will give it more time to work with its staff in collecting and completing the Schedules and Statements on or before the extension deadline. Headquartered in Omaha, Nebraska, Earl Brice Equipment, LLC, filed for chapter 11 protection on December 21, 2004 (Bankr. D. Nebr. Case No. 04-84283). Jenna B. Taub, Esq., at Robert F. Craig, P.C., represents the Debtor's restructuring efforts. When the Debtor filed for protection from its creditors, it reported estimated assets and debts of $10 million to $50 million. ELAN CORP: Final SEC Settlement Concludes Investigation ------------------------------------------------------- Elan Corporation, plc said the Commissioners of the Securities and Exchange Commission have given final approval to the previously announced provisional agreement between Elan and the Staff of the SEC to settle the investigation by the SEC's Division of Enforcement that commenced in February 2002. The approved settlement concludes all aspects of the investigation with respect to Elan and its current and former Directors and Officers. "I am pleased to announce the final settlement of the SEC investigation," said Kelly Martin, Elan's president and chief executive officer. "This is an important step forward for Elan, its shareholders and patients. Closure on the SEC investigation removes uncertainty and allows us to focus all of our energies on bringing innovative science to patients in our core areas of neurodegenerative and autoimmune diseases and, in particular, executing on the successful launches of Tysabri and Prialt." Terms of Settlement with SEC Under the agreement reached with the SEC the Company neither admits nor denies the allegations contained in the SEC's civil complaint, which includes allegations of violations of some provisions of the federal securities laws, including Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The settlement contains a final judgment restraining and enjoining the Company from future violations of these provisions. In addition, the Company will pay a civil penalty of $15 million. In connection with the settlement, the Company will not be required to restate or adjust any of its historical financial results or information. On Oct. 4, 2004, the Company had included in its financial statements a reserve of $55 million, net of insurance coverage, to cover the Company's estimated liability related to the SEC investigation and the shareholder class action pending in the U.S. District Court for the Southern District of New York. The terms of the class action settlement are subject to final Court approval. A hearing is scheduled for Feb. 18, 2005, at which the Court will consider final approval of the settlement. About the Company Elan is a neuroscience-based biotechnology company that is focused on discovering, developing, manufacturing, selling and marketing advanced therapies in neurodegenerative diseases, autoimmune diseases and severe pain. Elan's (NYSE: ELN) shares trade on the New York, London and Dublin Stock Exchanges. * * * As reported in the Troubled Company Reporter on Nov. 25, 2004, Standard & Poor's Ratings Services raised the corporate credit and senior unsecured debt ratings on specialty pharmaceutical maker Elan Corp. to 'B' from 'B-'. The rating action reflects the Dublin, Ireland-based company's increased liquidity and anticipates the upcoming market launch of its very promising multiple sclerosis treatment Antegren, a drug that could generate annual sales well in excess of $1 billion. At the same time, Standard & Poor's raised its ratings on subsidiary Elan Finance plc's recently completed offering of $1.15 billion in senior unsecured notes to 'B' from 'B-'. These consist of $850 million in 7.75% fixed-rate notes due 2011 and $300 million in floating rate notes due 2011. In addition, Standard & Poor's raised the ratings on Elan Pharmaceutical Investments III Ltd.'s $390 million in subordinated notes to 'B' from 'CCC'. The senior unsecured debt rating on Elan Corp.'s $460 million in convertible notes was raised to 'CCC+' from 'CCC'. All the ratings have been removed from CreditWatch, where they were placed November 1, 2004, after the company announced it would issue senior unsecured notes to refinance a significant portion of the EPIL III notes and increase liquidity ahead of the planned Antegren launch. The recently completed debt offering and subsequent retirement of $351 million of EPIL III's notes adds roughly $800 million to the coffers of Elan Corp. The outlook is positive. ENRON CORP: Inks Pact to Settle Two Federal Insurance Claims ------------------------------------------------------------ On April 5, 1999, Enron Corp. executed and delivered to Federal Insurance Company a General Agreement of Indemnity pursuant to which Enron indemnified Federal Insurance for all loss, damage or expense that it would incur as a result of issuing any bond on behalf of Enron or its subsidiaries. Subsequently, Federal Insurance along with American Home Assurance Co. issued a certain advance payment supply surety bond in the maximum amount of $300,071,427. Federal Insurance issued the Surety Bond on behalf of Enron Natural Gas Marketing Corp., and in favor of American Public Energy Agency, with Federal Insurance's contractual share of liability under the Bond being 50% of the Bond's penal amount then outstanding. On January 8, 2002, upon their request, Federal Insurance and American Home were granted an order to show cause with temporary restraints by the United States District Court for the District of New Jersey. With Enron Natural Gas' commencement of its Chapter 11 case on January 11, 2002, the New Jersey litigation was stayed. On March 15, 2002, Federal Insurance and its co-surety, American Home, filed a complaint for declaratory judgment and injunctive relief against Enron Natural Gas, Enron, JPMorgan Chase & Co. and American Public Energy in U.S. Bankruptcy Court for the Southern District of New York. The Court denied Federal Insurance's and American Home's request for summary judgment and granted the Debtors' motion to dismiss the complaint. The District Court affirmed the Bankruptcy Court's dismissal. An appeal to the United States Court of Appeals subsequently was dismissed with prejudice. On October 11, 2002, Federal Insurance filed Claim No. 9315 against Enron for $125,877,601 plus attorneys' fees, and Claim 9317 against Enron Natural Gas for the same amount. In July 2003, Federal Insurance transferred and assigned Claim No. 9315 to SPCP Group, LLC. The Debtors dispute the asserted amount and classification of the Claims. To resolve the dispute regarding the Claims, the Debtors, Federal Insurance and SPCP entered into a stipulation. The Stipulation, which Judge Gonzalez approved, provides that: (a) The two Federal Insurance Claims will be allowed as general unsecured claims: Claim No. Allowed Amount Treatment under the Plan --------- -------------- ------------------------- 9315 $125,877,601 Guaranty Claim to be treated in Class 185 with no right of setoff 9317 125,877,601 General Unsecured Claim to be treated in Class 37 of the Plan with no right of setoff (b) Federal Insurance and SPCP waive all liabilities related to the two Claims that appear on the Debtors' Schedules; (c) The Stipulation supercedes the Debtors' Schedules, as may be amended from time to time; (d) All liabilities relating to the two Claims, as scheduled, will be deemed withdrawn and no distributions will be made on account of the scheduled liabilities; and (e) Federal Insurance and SPCP will discharge the Debtors from any claims, obligations, which they have relating to the two Claims, or any transaction that gave rise to the issuance of the Bond and the Indemnity. 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. Enron 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. The Confirmed Plan took effect on Nov. 17, 2004. 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. 135; Bankruptcy Creditors' Service, Inc., 15/945-7000) EXIDE TECHNOLOGIES: Proposes $350 Million Senior Debt Offering -------------------------------------------------------------- Exide Technologies (NASDAQ: XIDE), a global leader in stored electrical energy solutions, intends to offer $350 million aggregate principal amount of senior notes due in 2013. The net proceeds from the note offering are expected to be used to repay a portion of indebtedness under Exide's senior credit facilities, for general corporate purposes and to provide Exide with greater liquidity. The proposed offering of notes is conditioned upon the receipt of an amendment to the senior credit agreement. The amendment will, among other things, permit the issuance of the notes and the application of the proceeds as described. The notes are being offered in a private placement to qualified institutional buyers under Rule 144A and to persons outside the United States under Regulation S. The notes will not be registered under the Securities Act of 1933, as amended, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. This press release shall not constitute an offer to sell, or the solicitation of an offer to buy, nor shall there be any sale of the senior notes in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state. Headquartered in Princeton, New Jersey, Exide Technologies is the worldwide leading manufacturer and distributor of lead acid batteries and other related electrical energy storage products. The Company filed for chapter 11 protection on Apr. 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. Exide's confirmed chapter 11 Plan took effect on May 5, 2004. On April 14, 2002, the Debtors listed $2,073,238,000 in assets and $2,524,448,000 in debts. (Exide Bankruptcy News, Issue No. 60; Bankruptcy Creditors' Service, Inc., 215/945-7000) FALCON PRODUCTS: Gets Interim Okay to Use Fleet's Cash Collateral ----------------------------------------------------------------- The Honorable Barry S. Schermer of the U.S. Bankruptcy Court for the Eastern District of Missouri gave Falcon Products, Inc., and its debtor-affiliates interim approval to use cash collateral securing repayment of loans from Fleet Capital Corporation. To avoid immediate and irreparable harm to the Debtor's estate, Falcon requires the use of the cash collateral to pay its operating expenses and pay vendors to ensure a continued supply of goods and services essential to the company's ongoing viability. The Debtor's use of the cash collateral will be in accordance with its proposed budget projecting: For the Week Ending ------------------------------------------ 2/5 2/12 2/19 2/26 3/5 ------ ------ ------ ------ ------ Total Collections $2,625 $3,200 $3,200 $3,200 $3,200 Total Disbursements 4,693 3,781 4,547 3,812 4,676 ------ ------ ------ ------ ------ Net Activity ($2,068) ($581) ($1,347) ($612) ($1,476) Revolver Payments (2,625) (3,200) (3,200) (3,200) (3,200) Revolver Borrowings 2,625 3,200 3,200 3,200 3,200 ------ ------ ------ ------ ------ Net Decrease in Cash ($2,068) ($581) ($1,347) ($612) ($1,476) ====== ====== ====== ====== ====== The Court grants Fleet Capital valid and perfected liens and security interests in all accounts receivable to adequately protect its security interests. Headquartered in Saint Louis, Missouri, Falcon Products, Inc. -- http://www.falconproducts.com/-- design, manufacture, and market an extensive line of furniture for the food service, hospitality and lodging, office, healthcare and education segments of the commercial furniture market. The Debtor and its eight debtor- affiliates filed for chapter 11 protection on January 31, 2005 (Bankr. E.D. Mo. Case No. 05-41108). Andrew M. Parlen, Esq., Eve H. Karasik, Esq., Jeffrey C. Krause, Esq., Marina Fineman, Esq., Robert A. Greenfield, at Stutman, Treister & Glatt, PC, and Brian Wade Hockett, Esq., and Mark V. Bossi, at Thompson Coburn LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $264,042,000 in assets and $252,027,000 in debts. FEDERAL-MOGUL: Insurers Says Plan Alters Business Relationship -------------------------------------------------------------- On behalf of 20 insurers of Federal-Mogul Corporation and its debtor-affiliates, Sean J. Bellew, Esq., at Cozen O'Connor, in Wilmington, Delaware, tells Judge Lyons of the U.S. Bankruptcy Court for the District of Delaware that confirmation of the Third Amended Plan of Reorganization would fundamentally alter the nature of the relationship and impose significant new risks on the Insurers. The Plan seeks to assign the Asbestos Insurance Policies to a trust established pursuant to Section 524(g) of the Bankruptcy Code, which would liquidate and pay asbestos claims. The Trust will be controlled by Trustees, a Trust Advisory Committee, and the Future Claimants Representative, all of whom have been or will be selected by the counsel for the asbestos claimants. Thus, instead of indemnifying a policyholder that has financial incentives to cooperate with the Insurers in the defense and settlement of claims, the Insurers will be expected to indemnify an asbestos trust administered both by and for the benefit of the very same asbestos claimants asserting the claims. Moreover, the Plan would eliminate the Insurers' contractual rights to control or participate in the defense and settlement of the claims they will be expected to pay. Among other things, the Plan: * seeks a finding that allowance of an Asbestos Claim by the Trust constitutes a "judgment" and an "adjudication" that binds the Insurers for insurance coverage purposes; * seeks to assign to the Trust insurance policies that are non-assignable under applicable law; * includes anti-insurer findings intended to override the Insurers' defenses in the coverage litigation; * purports to cut off the Insurers' rights to pursue contribution claims against any insurer who settles with the Debtors, regardless of the equities as between the Insurers and the settling insurer; and * purports to vest the Bankruptcy Court with jurisdiction over insurance coverage litigation in violation of the Insurers' jury trial rights. The Plan is an attempt to preempt central issues of the coverage litigation to the detriment of the Insurers, Mr. Bellew adds. It also lays the foundation for later attempts by the Trust to hold the Insurers immediately liable for claims that would not be valid outside of bankruptcy or, if valid, would not be payable for many years. Plan Proponents Respond To limit the Plan's impact on the rights and obligations of the Debtors' insurers, the Debtors, the Official Committee of Asbestos Claimants and the Legal Representative for Future Asbestos Claimants have proposed certain non-material modifications to the Plan, Kenneth P. Kansa, Esq., at Sidley Austin Brown & Wood LLP, in Chicago, Illinois, relates. A full-text copy of the modifications, many of which were requested by or revised to incorporate the comments of the Insurers is available free of charge at: http://bankrupt.com/misc/FMONonmaterialPlanModifications.pdf The Debtors, the Asbestos Committee and the Futures Representative are co-proponents of the Third Amended Joint Plan of Reorganization for the Debtors together with the Official Committee of Unsecured Creditors, the Official Committee of Equity Security Holders, and JPMorgan Chase Bank, as administrative agent under the Debtors' prepetition secured credit facility. Through the Proposed Plan Modifications, the Plan Proponents have limited the Insurers' legitimate interest in the Plan solely to the issue of whether the Debtors can transfer to the Trust their rights to receive proceeds from the Insurers' policies. The Proposed Plan Modifications make clear that, other than defenses that may arise solely as a result of an assignment, the Insurers' defenses to making any payments required by and any other rights they may have under the policies will remain available to them after the Plan is confirmed. On the Debtors' behalf, Mr. Kansa tells the Court that the Insurers' objections go beyond the issue of assignment -- the only issue on which they arguably have standing -- and into issues that are not even plausibly relevant to them. Among other things, Mr. Kansa says, the Insurers object to: -- the proposed treatment of FMP Fund claimants; -- the ability of the Asbestos Personal Injury Trust Distribution Procedures to value and pay claims; -- the neutrality of the Trustees and the members of the Trust Advisory Committee; -- the proposed treatment of equity interests; and -- whether the Plan satisfies the "best interest" test. According to Mr. Kansa, the Insurers cannot be motivated in prosecuting their objections by a benevolent desire to protect the interests of asbestos claimants or other stakeholders in these proceedings, but instead seek to raise any objection that they believe might derail the Plan. "The Insurers' unsubstantiated worries about future happenings that may or may not come to pass are not a legitimate reason to block confirmation of the Plan," Mr. Kansa says. The Plan Proponents assert that the Insurers' attempt to block confirmation of the Plan are improper and their objections should be overruled. With respect to the only issue that the Insurers might have standing to contest -- the Plan's assignment to the Trust of the Debtors' right to proceeds from certain of the Debtors' insurance policies -- a December 2, 2004, Third Circuit opinion in Combustion Engineering makes clear that the Bankruptcy Code provides the Bankruptcy Court with the authority to assign insurance rights of the Debtors to the Trust notwithstanding any anti-assignment provisions in the subject policies. Mr. Kansa points out that the Combustion Engineering decision compels the overruling of the Insurers' objections to the assignment of the Debtors' insurance rights and thus eliminates the only objections to confirmation of the Plan that the Insurers have standing to assert. Insurers Lack Standing Mr. Kansa contends that the Insurers have not established and cannot establish that the Court's confirmation of the Plan will result in any direct and immediate pecuniary impact on their legitimate interests. "They are not creditors of the Debtors and have suffered no injury prompting them to file a claim in [the Debtors'] cases." Assignments are Valid and Enforceable Mr. Kansa notes that it is a condition to confirmation of the Plan that the Court find that the assignments of the Asbestos Insurance Actions and the Asbestos Insurance Action Recoveries to the Trust are valid and enforceable. The proposed assignments are limited to the assignment to the Trust of the right to recover any insurance proceeds that are available for the Asbestos Personal Injury Claims that are being channeled from the Debtors to the Trust. Mr. Kansa contends that the Debtors' assignment is authorized under Sections 541 and 1123(a)(5) of the Bankruptcy Code. Even if Sections 541 and 1123(a)(5) did not grant the Bankruptcy Court the power to assign to the Trust the Debtors' right to insurance, courts have long recognized that the assignments are permitted as a matter of state law. Furthermore, prohibiting the assignment of insurance rights is contrary to Section 524(e) of the Bankruptcy Code and to the insolvency clauses contained in the policies themselves. In addition, Mr. Kansa notes, the Plan's assignment of insurance rights does not change the Insurers' risk. The insurance policies themselves and Section 524(e) of the Bankruptcy Code prevent the Insurers from receiving a windfall as a result of the Debtors' bankruptcy. Other Objections Must be Overruled, Too As to the insurers' other objections, Mr. Kansa argues that the TDPs do not constitute an improper delegation of the power to allow claims. Even if the TDP constituted an "allowance" within the meaning of Section 502, the parties affected by the TDP's processes are the holders of present and future claims. These are the parties who voted overwhelmingly in support of the Plan. Moreover, Mr. Kansa continues, the proposed funding available to the Trust, the ability of the Trustees to adjust the TDP to account for changes in the value of the assets available to the Trust, the Trustees' continuing fiduciary duties, and the Court's retained jurisdiction all operate to provide "reasonable assurance" that present and future claimants will be treated fairly and in a substantially similar manner. Given these thorough protections, the Insurers' claimed concerns are grossly exaggerated. "The Plan complies with all of the requirements of Sections 524(g) and 1129 and should be confirmed." Insurers Talk Back In seven separate pleadings, more than 35 insurers raised supplemental objections to confirmation of the Debtors' Third Amended Joint Plan of Reorganization: 1. ACE Property & Casualty Insurance Company 2. Allianz Global Risks U.S. Insurance Company 3. Allianz Underwriters Insurance Company 4. Allianz Versicherungs AG 5. Allstate Insurance Company, solely as successor-in-interest to Northbrook Excess and Surplus Insurance Company 6. American Home Assurance Company 7. American International Underwriters Insurance Company 8. Birmingham Fire Insurance Company of Pennsylvania 9. Central National Insurance Company of Omaha 10. Century Indemnity Company 11. Certain London Market Insurance Companies 12. Certain Underwriters at Lloyds, London 13. Everest Reinsurance Company 14. Federal Insurance Company 15. Fireman's Fund Insurance Company 16. First State Insurance Company 17. Granite State Insurance Company 18. Hartford Accident and Indemnity Company 19. Insurance Company of North America 20. Insurance Company of the State of Pennsylvania 21. Lexington Insurance Company 22. Lumbermens Mutual Casualty Company 23. Mt. McKinley Insurance Company 24. National Surety Corporation 25. National Union Fire Insurance Company of Pittsburgh, PA 26. New England Insurance Company 27. One Beacon America Insurance Company 28. Pacific Employers Insurance Company 29. Seaton Insurance Company 30. St. Paul Mercury Insurance Company 31. Stonewall Insurance Company 32. The Travelers Indemnity Company and certain affiliates 33. TIG Insurance Company, as successor by merger to International Insurance Company 34. Travelers Casualty and Surety Company 35. U.S. Fire Insurance Company The Insurers point out that the Debtors, the Asbestos Committee, and the Future Claimants' Representative misunderstood and misconstrued the Combustion Engineering decision. In In re Combustion Engineering, 2004 U.S. App. LEXIS 24834 (3d Cir., December 2, 2004), the Third Circuit explained that, contrary to the restrictive requirements for appellate standing, a party-in-interest has a broad right to participate at the trial level of a bankruptcy case, including the right to object to plan confirmation at the plan confirmation hearing. Furthermore, the Third Circuit addressed certain "super- preemptory language" -- which has been referred to by the parties-in-interest as "insurance neutrality language". The super-preemptory language provided that nothing in the plan of reorganization would impair the insurers' legal, equitable, or contractual rights. The Third Circuit concluded that the plan, pursuant to the super-preemptory language, did not diminish the rights of the insurers or increase their burdens under the subject insurance policies and settlements because: (a) the claims handling processes as they existed prepetition were not changed by the Trust Distribution Procedures, and hence the claims would be paid under the TDPs in a manner consistent with the rights and conditions of the subject insurance policies, and (b) the insurers were permitted to dispute coverage and raise any of the same challenges and defenses to the payment of claims under the TDPs as they could do prepetition. The Third Circuit also affirmed the long-standing rule that language in prepetition contracts barring assignment of those contracts or the rights and interests under those contracts does not prevent transfer of the debtor's assets to the debtor-in- possession's estate. The Third Circuit did not address the transfer of a debtor's assets to a trust. According to the Insurers, bankruptcy law, including Section 1123(a)(5), does not permit -- without the insurer's consent -- the transfer of "financial accommodations" like insurance policies from those who are insured to those who are not. More specifically, Section 1123(a)(5) does not authorize the Proponents to substitute one person for another under an insurance policy -- in Federal-Mogul's case, the uninsured non-debtor Trust for the insured Debtors. The Proponents' constitutional argument concerning standing also fails, the Insurers assert. As the Supreme Court has explained, "in terms of Article III limitations on federal court jurisdiction, the question of standing is related only to whether the dispute sought to be adjudicated will be presented in an adversary context and in a form historically viewed as capable of judicial resolution." Camp, 397 U.S. at 151-52. Moreover, contrary to the Proponents' contentions, it is the Proponents, not the Insurers, that seek a windfall. By definition, the Insurers explain, a windfall arises when a party seeks and obtains more than what it is entitled to receive. The Insurers seek only to preserve their legal entitlement to have their rights and obligations determined in strict accordance with the Policies. The Proponents, on the other hand, seek to obtain a windfall by altering the terms and conditions under which the Insurers may be liable for payment. "This is legally impermissible," the Insurers complain. Thus, the Insurers insist that the Plan, as presently formulated, cannot be confirmed. * * * In a letter sent to Judge Lyons in December 2004 regarding the status of objections to confirmation of the Plan, James F. Conlan, Esq., at Sidley Austin Brown & Wood LLP, in Chicago, Illinois, notes that various issues concerning the Insurers' objections have been the subject of ongoing proceedings before the Court. The Plan Proponents submit that there is no present need for further Court proceedings on the Insurers' objections prior to the confirmation hearing. 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 Nos. 65 & 72; Bankruptcy Creditors' Service, Inc., 215/945-7000) FLOWSERVE CORP: Moody's Affirms Ratings & Says Outlook is Stable ---------------------------------------------------------------- Moody's Investors Service has affirmed the ratings of Flowserve Corp., following its recent announcement regarding the restatement of its financial results, divestiture of non-core operations, its 2004 debt reduction amount, and the pending departure of its CEO. The rating outlook remains stable. The ratings affirmed are: * Senior implied rating of Ba3, * Issuer rating of B1, * Ba3 for the $300 million senior secured revolving credit facility, due 2006, * Ba3 for approximately $203 million of senior secured term loan A, due 2006, * Ba3 for approximately $465 million of senior secured term loan C, due 2009, * B2 for approximately $268.5 million of senior subordinated notes, due 2010. (Note: These numbers reflect the last reported financial statements of Flowserve as of the first quarter of 2004 and do not reflect subsequent reported debt reduction by the company in its press releases.) The rating affirmation balances the uncertainty arising from the financial restatement and the CEO's pending departure against the company's seemingly good operating performance and the potentially positive impact from the planned divestiture of non-core assets. Flowserve Corp. has stated that it achieved debt repayments of $210 million in 2004. This, coupled with higher bookings for the fourth quarter of 2004 and the full year 2004, as well as higher backlogs at the end of 2004, indicate a healthy underlying operation. However, its operating and financial performance cannot be fully assessed until it files its 10-Q reports for the second and third quarters of 2004 and its 2004 10-K report until around the third quarter of 2005, as it currently plans to. The Company also expects to report new material control weaknesses, in addition to those previously announced, arising from its ongoing assessment and expects to receive an adverse opinion on the operating effectiveness of its internal controls from its external auditors. Moody's will assess the nature and extent of the potential material control weaknesses once disclosed, and cautions that in the event that the on-going review reveals systematic failure in internal control and reporting, it could have negative implications on the ratings. Furthermore, Moody's says that Flowserve Corp.'s plan to divest of the general services business of its Flow Control Division could have potentially positive impact on its credit facility if the proceeds from the proposed divestiture are used to reduce debt. On the other hand, the pending departure of the CEO, along with the frequent reshuffle of its senior management team over the past year, has created a considerable amount of uncertainty regarding its strategic direction and future operating strategy. Moody's will continue to assess the transition process as it progresses, along with other developments as noted above. Moody's notes that the rating affirmation presumes that the company will be able to obtain the necessary waivers from its bank lenders in order to maintain its financial flexibility. Failure to obtain the banks' consent will jeopardize the company's liquidity and thus have adverse effect on the ratings. Flowserve Corp., headquartered in Dallas, Texas, is one of the world's leading providers of fluid motion and control products and services. Operating in 56 countries, the company produces engineered and industrial pumps, seals and valves as well as a range of related flow management services. FPL ENERGY: Fitch Assigns BB Rating on $100 Million Senior Debt --------------------------------------------------------------- Fitch Ratings expects to assign ratings of 'BBB' and 'BB' to FPL Energy National Wind, LLC's $351 million senior secured indebtedness due 2024 and to FPL Energy National Wind Portfolio, LLC's $100 million senior secured indebtedness due 2019, respectively. The Holdco owns 100% of the Opco and, in turn, is a wholly owned indirect subsidiary of FPL Group Capital, Inc. (FPL Group, rated 'A' by Fitch). The purpose of the proposed financing is to recapitalize a portfolio of wind farms constructed with members' equity. After funding reserve accounts and paying transaction costs, the net proceeds of the issuance will be distributed to FPL Energy, LLC, the sponsor. The Opco is a portfolio of nine operating wind farms with an aggregate capacity of approximately 534 MW. Each project company is wholly owned by the Opco and is otherwise unencumbered with project-level indebtedness. All of the output of each wind farm is committed under long-term power purchase agreements -- PPAs -- with counterparties that are unaffiliated with the Opco. Under the agreements, the Opco generally receives a fixed-energy price for all energy produced by the wind farm, and the counterparty generally pays all costs associated with transmission and scheduling. The Holdco is a special-purpose vehicle formed to own 100% of the Opco. Distributions from the Opco are the Holdco's sole source of revenues. Neither the Opco nor the Holdco has any employees. Operations and maintenance activity will be the responsibility of an affiliate, FPL Energy Operating Services, Inc. Management and overhead functions will be performed by other affiliated entities. Rating Rationale The rating of the Opco bonds is based on the stand-alone credit quality of the Opco, which is derived from the aggregated cash flow generated from the nine wind farm assets and protections in the project indenture. Fitch believes the circumstances of the portfolio, including number of turbines, maintenance requirements, and experience of the sponsor, suggest that a gradual erosion of cash flow or a temporary increase in expenditures is unlikely. Accordingly, Fitch believes the portfolio can withstand debt- service coverages in a stress scenario that are lower than typically observed in the rating category. Fitch views the structural subordination of the Holdco debt as commensurate with deeply subordinated debt of the Opco. Fitch's policy for deeply subordinated debt requires a three-notch differential between the ratings of the senior and subordinate debt unless other circumstances suggest greater notching. Distribution tests at the Opco and consolidated coverage of the combined Opco and Holdco debt service suggest that the minimum three notches are appropriate. The sponsor's outside counsel will provide an opinion that in the event of a bankruptcy of the Holdco's direct and indirect owners, the assets and liabilities of the Holdco would not be consolidated with those of its owners under the federal bankruptcy laws. Furthermore, in the event of a bankruptcy of the Holdco, the assets and liabilities of the Opco would not be consolidated with those of the Holdco. Accordingly, Fitch views the credit quality of the Opco and Holdco to be structurally independent of the rating of its owners. Although the ratings are not directly linked to the ratings of the sponsor, the credit quality of the sponsor is considered a constraint on the rating of the Opco. FPL Group guarantees an average of approximately 40% of annual Opco revenues over the first eight years of the debt life, and affiliated companies manage the operations of the facilities. In the event the future rating of the sponsor deteriorates below the stand-alone credit quality of the Opco, the ratings of the Opco and Holdco bonds will likely be constrained by the then-current rating of FPL Group. The rating of the Opco incorporates the following strengths and concerns. Primary credit strengths: -- The portfolio provides significant equipment, technology, and regional diversity; -- The maintenance requirements of wind turbines minimize the potential for unexpected costs; -- Substantially all revenues are derived under fixed-price arrangements; -- Revenues are derived from counterparties with a strong investment-grade profile; -- The transaction structure incorporates meaningful liquidity to minimize technology risks; -- The sponsor is reported to own the largest fleet of wind turbines in the U.S. and has publicly stated a long-term strategy in the sector. Primary credit concerns: -- The financial projections rely on wind data collected over a short period of time; -- The portfolio and certain turbine models have a limited operating history. Financial Analysis In the sponsor's base case, annual DSCRs for the Opco gradually rise to 2.2 times at maturity from 1.7x with an average of 1.8x. Consolidated annual DSCRs for the combined Opco and Holdco debt are approximately 1.3x in all years until the maturity of the Holdco debt. The sponsor's base case incorporates conservative modeling assumptions for several wind farms. Fitch believes there are credible arguments that the sponsor's base-case cash flows could be stronger in the long term than indicated in the projections. Several stress scenarios were provided to assess the effect of wind volatility. Fitch believes the one-year P90 is most meaningful to assessing the likelihood of a payment default, whereas the 10-year P95 scenario is better suited for recovery analysis. -- One-year P90: This scenario reflects, for every year, the level of production that can be expected in a one-year period with a 90% degree of confidence. Average DSCRs are approximately 0.2x lower than in the base case. -- 10-year P95: This scenario reflects, for every year, the average level of production that can be expected over a 10-year period with a 95% degree of confidence. Average DSCRs are approximately 0.17x lower than in the base case. Several stress scenarios were considered to assess the effect of other modeling assumptions: -- Increased O&M: This scenario increases operations and maintenance expenses by 10%. DSCRs are approximately 0.05x per year lower than in the base case. -- 92% availability: This scenario reduces turbine availability to 92% from 97%. DSCRs are approximately 0.1x per year lower than in the base case. A combination stress was prepared to approximate conditions that Fitch believes could reasonably exist concurrently. This scenario includes the wind production in the one-year P90 scenario, the 5% availability reduction to provide additional allowance for error in the wind resource assessment, and the 10% increase in O&M. Average DSCRs are approximately 0.3x lower than in the base case with a minimum of 1.4x. Fitch has published a presale report with a detailed discussion of the transaction and rating rationale. The presale report 'FPL Energy National Wind LLC,' is available on Fitch's web site at http://www.fitchratings.com/under 'Project Finance' and 'Corporate Finance' sector or by contacting the ratings desk at +1-800-893-4824. FREEDOM MEDICAL: U.S. Trustee Will Meet Creditors on Mar. 9 ----------------------------------------------------------- The United States Trustee for Region 3 will convene a meeting of Freedom Medical, Inc.'s creditors at 3:00 p.m., on March 9, 2005, at the Office of the U.S. Trustee, Meeting Room, Suite 501, located in 833 Chestnut Street in Philadelphia, Pennsylvania. This is the first meeting of creditors required under 11 U.S.C. Sec. 341(a) in all bankruptcy cases. All creditors are invited, but not required, to attend. This Meeting of Creditors offers the one opportunity in a bankruptcy proceeding for creditors to question a responsible office of the Debtor under oath about the company's financial affairs and operations that would be of interest to the general body of creditors. Headquartered in Exton, Pennsylvania, Freedom Medical, Inc., -- http://www.freedommedical.com/-- sells electronic medical equipment and related services to hospitals, alternate site healthcare providers, and EMS transport organizations. The Company filed for chapter 11 protection on December 29, 2004 (Bankr. E.D. Pa. Case No. 04-37092). When the Debtor filed for protection from its creditors, it listed estimated assets and debts of more than $50 million. FRONTIER OIL: Hosting FY 2004 Conference Call on Feb. 23 -------------------------------------------------------- Frontier Oil Corporation (NYSE: FTO) plans to release results for the quarter and year ended Dec. 31, 2004 on Wednesday, Feb. 23, 2005. Management has scheduled a conference call for the morning of Feb. 23 at 11:00 a.m. (eastern time) to discuss the financial results and business outlook. To access the call, which is open to the public, dial (800) 289- 0746 several minutes prior to the call. For those individuals outside the United States, call (913) 981-5573. A recorded replay of the call may be heard through March 9, 2005, by dialing (888) 203-1112 (international callers (719) 457-0820) and entering the code 7142683. Also, the real-time conference call and a recorded replay will be webcast by PR Newswire. To access the call or the replay via the Internet, go to http://www.frontieroil.com/and register from the Investor Relations page of the site. About the Company Frontier operates a 110,000 barrel-per-day refinery located in El Dorado, Kansas, and a 46,000 barrel-per-day refinery located in Cheyenne, Wyoming, and markets its refined products principally along the eastern slope of the Rocky Mountains and in other neighboring plains states. * * * As reported in the Troubled Company Reporter on Sept. 23, 2004, Moody's upgraded Frontier Oil Corporation's Senior Implied Rating from B1 to Ba3 and assigned a B1 rating to its new $150 million of 6.625% senior unsecured guaranteed notes due 2011, with a stable rating outlook. Moody's also upgraded Frontier Oil's senior unsecured issuer rating (a notional non-guaranteed parent issuer rating) from B2 to B1 and Frontier Oil's remaining $170 million of non-guaranteed 11.75% senior unsecured notes from B2 to B1. Note proceeds will fund the majority of Frontier Oil's pending call and retirement of the 11.75% notes (expected to cost roughly $180 million), with $35 million of Frontier Oil's $88 million in June 30, 2004 cash balances funding the rest of the tender cost. The one-notch upgrade in the senior implied rating reflects: * the impact of a continued disciplined approach to evaluating acquisition candidates; * a supportive margin environment driven by supportive regional crack spreads and by amply wide crude oil quality price differentials; * cash balances to provide back-up internal funding for heavy 2005 and 2006 capital spending; and * moderate leverage to bridge margin down-cycles and support revolver borrowings in such an environment in needed to support an escalated capital program and high inventory investment driven by high oil costs. GARDENA CALIFORNIA: S&P Pares Certificate Rating to BB- from BBB- ----------------------------------------------------------------- Standard & Poor's Ratings Services lowered its rating to 'BB-' from 'BBB-' on Gardena, Calif.'s outstanding series 1994 certificates of participation -- COPs. The rating action reflects significant uncertainties concerning the city's ability to meet potential financial obligations derived from reimbursement agreements with two letter of credit -- LOC -- banks. The outlook is developing. "Given the approaching expiration of its LOC support the city's credit is significantly weaker, particularly if it is compelled to somehow absorb significantly higher debt service costs associated paying down its obligations to the banks. All of this is in the context of already limited and somewhat concentrated financial resources, despite recent incremental improvements to general fund operating performance" Standard & Poor's credit analyst Gabriel Petek said. "The outlook is 'developing' because the rating could be revised upward if the city is successful in negotiating a restructuring of its obligations to the lending banks. However, the rating could be revised downward if the city is unsuccessful in negotiating a restructuring of the obligations or if it must absorb the increased debt payments after the LOCs expire." The COPs were issued to provide for the refunding of debts associated with the city's first-time home buyers program ($6.28 million) and its municipal mutual insurance funding program ($20.6 million), both of which are now defunct. Of the city's outstanding $35.9 million in debt, $26.3 million of it is in the form of obligations to two LOC banks under reimbursement agreements for outstanding variable-rate obligations. GENCORP INC: Posts $398 Million Net Loss in Fiscal 2004 ------------------------------------------------------- GenCorp Inc. (NYSE: GY) reported results for the fourth quarter and the fiscal year ended Nov. 30, 2004. 2004 Highlights -- Aerospace & Defense 2004 sales rose 53%, both from higher sales in existing programs, as well as contributions from the Atlantic Research Corporation (ARC) acquisition in late 2003. -- The Company's Sacramento area property in process for development expanded in the fourth quarter by an additional 1,600 acres. Total real estate development projects now in the entitlement process exceed 5,800 acres. -- The under-performing GDX Automotive unit sale was completed August 31, 2004, and in the third quarter the Company classified Aerojet Fine Chemicals (AFC) as a discontinued operation, in accordance with a corporate decision to divest that business. -- A major recapitalization via a series of successful debt and equity offerings and a new credit facility began in the fourth quarter and was completed in the first quarter of 2005. Sales from continuing operations for 2004 totaled $499 million, compared to $348 million in 2003, an increase of 43%. The increase in sales for 2004 primarily reflects contributions from the ARC acquisition, as well as other growth in the Company's Aerospace and Defense business, partially offset by lower real estate sales. The Company's net loss for 2004 was $398 million ($8.82 per share), compared to net income of $22 million ($0.50 per share) for 2003. The loss from continuing operations for 2004 was $86 million ($1.91 per share) compared to income of $12 million ($0.26 per share) for 2003. The decrease in earnings from continuing operations primarily reflects the impact of increases in employee retirement benefit plan expense and interest expense, a tax provision to reflect the uncertainty of realizing deferred tax benefits, given historical losses, and lower real estate income. The earnings decrease was partially offset by contributions from the propulsion business of ARC, which was acquired in October 2003. Sales from continuing operations for the fourth quarter 2004 were $149 million, compared to $103 million in the same 2003 period. The Company reported a fourth quarter net loss of $20 million ($0.42 per share), compared to net income of $12 million ($0.27 per share) for the 2003 period. Loss from continuing operations for the fourth quarter was $14 million compared to income of $8 million for the same 2003 period. The 2004 fourth quarter and full year period reflect both the GDX Automotive segment and Aerojet Fine Chemicals (AFC) segment as discontinued operations. The sale of GDX Automotive was completed on August 31, 2004. In addition, during the third quarter the Company made a strategic decision to divest its AFC business and focus on its Aerospace and Defense and Real Estate segments. The Company will continue to operate AFC in the ordinary course of business pending any sale. "GenCorp is a significantly different and stronger company than it was at this time last year. We are smaller -- with two business segments -- but the 2004 operating performance of our Aerospace and Defense segment and the milestones we achieved in executing our real estate development plans are solid indicators of the strength of the strategy we pursued in 2004," said Terry L. Hall, chairman of the Board, president and chief executive officer. "We have transformed the business portfolio and improved the capital structure of the Company, with the goal of delivering shareholder value over the long term." "Our Aerospace and Defense business experienced significant and impressive growth this year, reinforced by recent strategic acquisitions that expanded both our technology and our market presence," Hall continued. "Aerojet contributed significantly to several important national space and defense missions. Aerojet propulsion systems supported the spectacularly successful NASA Mars and Saturn missions, and are aboard a spacecraft launched in 2004 to Mercury. We continued to strengthen Aerojet's record of participation in all major missile defense systems. With important ongoing and new national initiatives in both defense and space exploration, we expect to capitalize on our market and technology leadership in these important markets in 2005." "Likewise, our Real Estate business achieved important milestones in 2004. We settled a major water dispute that should ensure an adequate water supply to serve our development projects, and we entered into a unique long-term agreement to sell the rights to mine excess aggregates from portions of our property, which will both produce income and reduce the development costs of the property. Most significantly, we increased the amount of our real estate holdings undergoing the entitlement process to approximately 5,800 acres. These actions, together with our work with state and federal authorities to advance the process toward real estate development, are bringing us closer to our long-term goal of monetizing the significant value of our real estate holdings." "Lastly, our recent equity and debt offerings, both in the fourth quarter of 2004 and continuing through the first quarter of 2005, have reduced debt and extended debt maturities. These actions strengthened our balance sheet and improved our financial flexibility going forward. During 2004 we faced impacts of higher corporate expense, employee retirement benefit plan expense, interest expense, and significant expense associated with the Company's balance sheet restructuring. In 2005 we will implement strategies to bring our operations into better conformity with the current size of the Company," concluded Hall. Operations Review Aerospace and Defense Segment Total Year Sales were $492 million for 2004, 53% higher than 2003 sales of $321 million. The ARC acquisition contributed $156 million of the increase. The 2004 sales growth included increased deliveries to Boeing on the F/A-22 program, volume on the Terminal High Altitude Air Defense (THAAD) program that was acquired in 2004 from Pratt & Whitney for a nominal amount, and higher sales on programs utilizing electric and liquid thrusters for orbit and attitude maintenance. These increases were partially offset by lower volume on a variety of defense and armament programs. Segment performance was $30 million for 2004, compared to $43 million in 2003. Excluding the impacts of employee retirement benefit plan expense and unusual items, segment performance was $57 million, compared with $45 million the prior year. The increase in segment performance reflects the impact of higher sales, mainly driven by the ARC acquisition. Segment performance, which is a non-GAAP financial measure, is defined in the footnotes to the Operating Segment Information table at the end of this release. Fourth Quarter Fourth quarter sales increased to $138 million compared to $95 million in the fourth quarter 2003. Higher sales on the Atlas(R) V and THAAD programs and the ARC acquisition contributed to the increase. Fourth quarter segment performance in 2004 was $7 million compared to $17 million in 2003. Excluding the impacts of employee retirement benefit plan expense and unusual items, segment performance was $13 million, compared with $19 million in the same period in 2003. In 2003, the Company benefited from favorable contract performance on space systems programs, including the Delta program. Aerojet continued to make advances in its NASA business during the quarter. Aerojet's engines powered the Genesis Discovery Mission. Aerojet also tested a new Mars Lander and non-toxic Reaction Control Engines. We view these milestones as highly relevant to our ability to participate in NASA's manned and robotic space exploration initiatives. In the missile defense area, Aerojet successfully tested an advanced Throttling Divert and Attitude Control System (TDACS) for interceptor applications and delivered the first THAAD flight test motor. Aerojet also began installation of production equipment at its Socorro, New Mexico facility to support manufacturing of fire suppression systems for the Ford Crown Victoria police cruiser. As of November 30, 2004, Aerojet's contract backlog was $879 million compared to $830 million as of November 30, 2003. Funded backlog, which includes only the amount of those contracts for which money has been directly authorized by the U.S. Congress, or for which a firm purchase order has been received by a commercial customer, was approximately $538 million as of November 30, 2004 compared to $425 million as of November 30, 2003. The increase in funded backlog primarily reflects growth and/or timing of funding on tactical solid rocket motors, missile defense and F/A-22 programs, new funding for design upgrades on the Atlas V program, and additional Crown Victoria business with Ford. Real Estate Segment Real Estate sales and segment performance for 2004 were $15 million and $12 million, respectively, compared to $32 million and $23 million, respectively, for 2003. The 2003 results included sales of several real estate assets. Results for 2004 do not include any sales of real estate assets, but do include a property usage agreement with the Sacramento Regional Transit for construction of a Light Rail station adjacent to property the Company intends to develop. The Company also finalized an agreement with Granite Construction Company for the exclusive rights to mine excess aggregates from certain portions of our Sacramento property. These two transactions occurred in the fourth quarter 2004. Corporate and other expenses increased to $38 million in 2004 compared to $31 million in 2003. The increase is primarily due to higher Sarbanes-Oxley compliance costs, higher insurance costs, an increase in amortization of deferred financing costs, and a provision of $2 million for environmental remediation costs related to a former operating site. Corporate employee retirement benefit plan expense was $17 million in 2004, compared to $2 million in 2003. This change, as well as the change in segment employee retirement benefit plan expense, is primarily due to the recognition of the underperformance of the U.S. pension plan assets in prior years and a decrease in the discount rate used to determine benefit obligations. Interest expense increased to $35 million in 2004 from $22 million in 2003. The increase is due to higher debt levels and higher average interest rates. The additional debt includes amounts incurred in August 2003 to finance the ARC acquisition. Total debt of $538 million at November 30, 2003 increased to $577 million at November 30, 2004. Total debt less total cash decreased from $474 million at November 30, 2003 to $308 million as of November 30, 2004. The decrease of $166 million primarily reflects proceeds received from the sale of the GDX Automotive business and our recent equity offering, offset by increased working capital. In November 2004, the Company initiated the following financing transactions in order to recapitalize its balance sheet and reduce future interest costs: -- A public equity offering of common stock raised net cash proceeds of approximately $131 million, of which approximately $58 million (including premiums) will be used to redeem outstanding 9-1/2% Senior Subordinated Notes. -- The Company issued $80 million of aggregate principal amount of 2-1/4% Convertible Subordinated Debentures due in 2024. The proceeds were used to repurchase $70 million in aggregate principal amount of the Company's 5-3/4% Convertible Subordinated Notes due in 2007. In the first quarter of 2005, the Company issued an additional $66 million of its 2-1/4% Convertible Subordinated Debentures, the proceeds of which were used to repurchase an additional $60 million in aggregate principal amount of the 5 3/4% Notes. -- In the first quarter of 2005, the Company closed a new $180 million credit facility that replaced the senior credit facility in place as of November 30, 2004. The new credit facility consists of an $80 million undrawn revolver, a $25 million term loan and a letter of credit facility of $75 million. Using cash on hand, the Company repaid, in full, $141 million of outstanding term loans that existed under the former facility. In 2004, the Company recorded pre-tax charges of $9 million related to the write-off of deferred financing fees and the premium associated with the repurchase of the 5-3/4% Notes. In addition, in the first quarter of 2005 the Company will record additional pre-tax charges of $19 million which includes the write-off of deferred fees associated with the former senior credit facility, redemption of the 9 1/2% Notes, and the write-off of deferred financing fees and premium associated with the repurchase of the additional 5 3/4% Notes. Together, these actions should save the Company approximately $9 million annually in interest costs, while they also extend the debt maturities. For 2004, the Company recorded an income tax provision consisting of $34 million primarily to reflect the uncertainty of realizing tax benefits in the future, given historical losses, offset by $5 million of benefit related primarily to research tax credit claims. The Company recorded a provision of $6 million relating to discontinued operations in the fourth quarter for foreign tax obligations. No tax benefit has been included in the charge related to the GDX Automotive business divestiture, as realization of the tax benefit in the future is uncertain. Shareholders' equity at November 30, 2004 was $141 million compared to shareholders' equity as of November 30, 2003 of $428 million. The decline includes losses from the continuing and discontinued operations of $433 million, resulting mostly from the sale of GDX Automotive, partially offset by $146 million of other shareholders' equity adjustments, primarily proceeds from the equity offering and stock option exercises. Business Outlook We expect that Aerospace and Defense revenue growth will continue over the long-term, however, margins will be under slight pressure in the near-term due to our projected 2005 program mix. Real Estate prospects remain positive with current levels of leasing activities continuing to provide a stable income base going forward. Our primary near-term focus in this segment will be to concentrate on securing the entitlements of the 5,800 acres that are currently in process. We expect to incur approximately $48 million in non-cash expense from employee retirement benefit plans evenly throughout 2005. About the Company GenCorp Inc. -- http://www.GenCorp.com/-- is a leading technology-based manufacturer of aerospace and defense products and systems with a real estate business segment that includes activities related to the development, sale and leasing of the Company's real estate assets. * * * As reported in the Troubled Company Reporter on Nov. 11, 2004, Moody's Investors Service assigned a Caa2 rating to GenCorp, Inc.'s proposed $50 million convertible subordinated notes, due 2024, and a B1 rating to the company's new $175 million senior secured credit facilities, consisting of a $75 million revolving credit due 2009 and a $100 million term loan due 2010. The proceeds from the new notes and facilities, along with about $100 million expected from a recently-announced 7.5 million public share offering as well as cash provided by the recent sale of the GDX automotive division in August 2004, will be used to re- purchase part of the company's existing 5-3/4% note (due 2007) and certain other debt securities, as well as to re-finance its existing senior secured credit facilities. All other ratings of the company have been affirmed: * Senior implied rating of B2 * Unsecured issuer rating of B3 * $150 million 9.5% senior subordinated notes, due 2013, of Caa1 * $150 million 5.75% convertible subordinated notes, due 2007, of Caa2 * $125 million 4% convertible subordinated notes, due 2024, of Caa2 The ratings outlook is stable. GENOIL INC: Issues Stock to Complete Proposed Debt Settlement ------------------------------------------------------------- Genoil, Inc., (TSX VENTURE:GNO) (OTCBB:GNOLF.OB) has issued 358,259 common shares at a deemed price of $0.26 per share to conclude part of a previously announced definitive shares for debt settlement agreement with a related party for prior cash advances. The total amount of indebtedness settled in this regard is $93,147.30. The shares issued in connection with the settlement of this debt are subject to a four-month hold period from their date of issuance. Genoil, Inc. -- http://www.genoil.net/-- is an international technology development company providing solutions to the oil and gas industries through the use of proprietary technologies, which represent significant breakthroughs in commercial applications. The company's flagship product, the Genoil Hydroconversion Upgrader -- GHUTM, combines hydrogen with carbon in order to convert bitumen, heavy oil and refinery residue into light, sweet synthetic oil with higher yields of transportation fuels. The GHUTM also eliminates a majority of contaminants such as sulfur and nitrogen from the feed, and can either be easily integrated into existing refinery infrastructures or be built as a stand- alone unit. Genoil believes that by upgrading the 13 million bbls/d of refinery residuals into lighter distillates, the dependency of the world on Middle Eastern light oil can be significantly decreased. The company is headquartered in Alberta, Canada with offices in New York, Mexico, Columbia, Ecuador, Peru, Russia, Saudi Arabia, and Bahrain, with coverage in numerous other countries. * * * Going Concern Doubt The Company's latest filings with the Securities and Exchange Commission indicate that it hasn't attained commercial operations from its various patents and technology rights and continues to incur losses. At September 30, 2004, the Company had a working capital deficiency of $5,121,092, including a note payable and accrued interest in the amount of $2,959,332 due in January 2005. The future of the Company is dependent upon its ability to maintain the continued financial support of the note holder, and obtain adequate additional financing to fund the development of commercial operations. Those factors caused Genoil's auditors to express doubt about the company's ability to continue as a going concern. GLOBAL LEARNING: Plan Confirmation Hearing Set for Mar. 3 --------------------------------------------------------- The Honorable Paul Mannes of the U.S. Bankruptcy Court for the District of Maryland will convene a confirmation hearing on March 3, 2005, at 10:00 a.m. to consider the merits of the Amended Plan of Reorganization proposed by GlobalLearning Systems.com, Inc., and Keystone Learning System. Judge Mannes approved the Debtors' Amended Disclosure Statement on Jan. 7, 2005. About the Plan The Plan provides for the substantive consolidation of the Debtors for distribution purposes. Upon confirmation, Keystone Learning will become a division of Global Learning. The Plan provides, among others: -- Full payment to: * administrative claims; * priority claims; and * secured claims on the Effective Date. -- Priority tax claims will be paid over a six-year period with a 7% interest; -- Wage claim holders will receive 50% of their claims on the Effective Date, with the balance paid over a four- month period; -- Wachovia Bank will receive a $500,000 note and 1/3 of the stock in the Reorganized Global Learning; -- General Unsecured creditors are expected to recover 10% of their claims plus a pro rata share from the Makau litigation. About the Makau Litigation Keystone and Global Learning seek injunctive and monetary relief against the Makau Corporation, et. al, based upon their misappropriation of Keystone trade secrets, copyright infringement, civil conspiracy, tortious interference with contract, tortious interference with prospective economic relations and conversion. In addition, Keystone and Global assert numerous bankruptcy causes of action against the Defendants. Expected monetary damages is at least $1,000,000. Based in Frederick, Maryland GlobalLearning Systems.COM offers a library of over 1,200 courses through its Keystone subsidiary in VHS, CDROM, DVD and server format to home and business computer users, software developers and network professionals. Keystone provides training products to more than 420 of the Fortune 500 companies. GLS.COM also develops customized learning content, enterprise knowledge management software and comprehensive training support services for corporate and government clients through GLS. On June 6, 2003 GLS and Keystone filed a petition for relief under chapter 11 of Title 11 of the United States Code in the Bankruptcy Court for the District of Maryland, Greenbelt Division (Bankr. D. Md. Case No. 03-30218). GLS and Keystone are debtors-in- possession, and therefore have retained control of their businesses and assets. Both companies expect to emerge as dominate players in the rapidly expanding computer and Web-based training arena. When Global filed for protection, it estimated assets of more than $50,000,000 and estimated debts of $50,000,000. GLOBAL LEARNING: Dismissal Hearing Continued to March 3 ------------------------------------------------------- After more than seven months since the U.S. Trustee for Region 4 asked the U.S. Bankruptcy Court for the District of Maryland to dismiss the chapter 11 cases of Global Learning Systems, Inc., and its debtor-affiliate, the Court has yet to rule on the request. The Court says it'll revisit the U.S. Trustee's request at a hearing on March 3, 2005 -- if the company can't obtain confirmation of its proposed chapter 11 plan. The U.S. Trustee asked the Court, on June 3, 2004, to dismiss the chapter 11 cases or convert them to chapter 7 proceedings when the Debtors failed to file monthly operating reports. The U.S. Trustee also alleged that the Debtors failed to pay their 2003 fourth quarter unemployment taxes. Although the U.S. Trustee believed the failure to file MORs casts doubt on the Debtors' ability to file an adequate Disclosure Statement, the Court approved the Debtors' Amended Disclosure Statement on Jan. 7, 2005. Headquartered in Frederick, Maryland, Global Learning Systems, Inc., is improvement solutions company. The Company and its debtor-affiliates filed for chapter 11 protection June 6, 2003 (Bankr. Md. Case No. 03-30218). Brent C. Strickland, Esq., at Whiteford, Taylor & Preston LLP, represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed assets of over a million and debts of more than $10 million. HEALTH NET: Names Stephen Lynch Pres. of Largest Health Plan Unit ----------------------------------------------------------------- Health Net, Inc. (NYSE:HNT) appointed Stephen Lynch as president of Regional Health Plans and Health Net of California, the company's largest health plan subsidiary. Mr. Lynch now assumes day-to-day control of the company's Western Division, incorporating both its California and Oregon health plans. He was named chief operating officer, Western Region in June 2004. Mr. Lynch joined the company in August 2001 as president of Health Net of Oregon. In his new role he will report to Jay Gellert, president and chief executive officer of Health Net. "Steve did an outstanding job in Oregon and he's had a very real impact on California in just a few short months. We are pleased he now has the reins and look forward to further operating improvements in both California and Oregon under his capable leadership," Mr. Gellert said. Health Net, Inc. -- http://www.healthnet.com/-- is among the nation's largest publicly traded managed health care companies. Its mission is to help people be healthy, secure and comfortable. The company's HMO, POS, insured PPO and government contracts subsidiaries provide health benefits to approximately 6.5 million individuals in 27 states and the District of Columbia through group, individual, Medicare, Medicaid and TRICARE programs. Health Net's subsidiaries also offer managed health care products related to behavioral health and prescription drugs, and offer managed health care product coordination for multi-region employers and administrative services for medical groups and self- funded benefits programs. * * * As reported in the Troubled Company Reporter on Nov. 4, 2004, Standard & Poor's Ratings Services lowered its counterparty credit rating on Health Net, Inc., to 'BB+' from 'BBB-' and removed it from CreditWatch. Standard & Poor's affirmed or lowered its counterparty credit and financial strength ratings on Health Net's various operating subsidiaries and removed them from CreditWatch. The outlook on all these companies is negative. HIGH VOLTAGE: Wants to Hire Akin Gump as Bankruptcy Counsel ----------------------------------------------------------- High Voltage Engineering Corporation and its debtor-affiliates ask the U.S. Bankruptcy Court for the District of Massachusetts for permission to employ Akin Gump Strauss Hauer & Feld LLP, as their general bankruptcy counsel. Akin Gump is expected to: a. render legal advice with respect to the powers and duties of the Debtors as debtors in possession in the continued operation of their business and management of their properties; b. negotiate, prepare and file a plan of reorganization and disclosure statement in connection with that plan, and promote the financial rehabilitation of the Debtors; c. take all necessary action to protect and preserve the Debtors' estates, including: (i) the prosecution of actions on the Debtors' behalf and the defense of any actions commenced against the Debtors, (ii) negotiations concerning all litigation in which the Debtors are or become involved, and (iii) the evaluation and objection to claims filed against the estates; d. prepare, on behalf of the Debtors, all necessary applications, motions, answers, orders, reports and papers in connection with the administration of the Debtors' estates, the sale of the Debtors' assets, and appear on behalf of the Debtors at all Court hearings in connection with the Debtors' chapter 11 cases; e. represent the Debtors as may be necessary in proceedings that may arise in foreign jurisdictions; f. attend meetings and negotiate with representatives of secured creditors, committees, the Office of the U.S. Trustee and other parties-in-interest and respond to creditor inquiries and advise and consult the Debtors on the conduct of the cases, including all of the legal and administrative requirements of operating in chapter 11; h. perform all other necessary legal services to the Debtors in connection with their chapter 11 cases. S. Margie Venus, Esq., a Partner at Akin Gump, is the lead attorney for the Debtors. Ms. Venus discloses that the Firm received a $500,000 retainer. Ms. Venus will bill the Debtor $625 per hour for her services. Ms. Venus reports Akin Gump professionals bill: Designation Hourly Rate ----------- ----------- Partners and Counsel $285 - $775 Associates $160 - $450 Paralegals $95 - $195 Akin Gump assures the Court that it does not represent any interest adverse to the Debtors or their estates. Headquartered in New Kensington, Pennsylvania, High Voltage Engineering Corporation -- http://www.asirobicon.com/-- owns and operates several affiliated companies specializing in generators and motors. The Company's chief subsidiary ASIRobicon, manufactures variable frequency drives that reduce energy use in industrial electric motors, motors, generators, power conversion products, and electronic controls for heavy-duty vehicles. The Company and its debtor-affiliates filed for chapter 11 protection on February 8, 2005 (Bankr. D. Mass. Case No. 05-10787). When the Debtors filed for protection from their creditors, they listed total assets of $457,970,00 and total debts of $360,124,000. HIGH VOLTAGE: Look for Bankruptcy Schedules by Mar. 25 ------------------------------------------------------ High Voltage Engineering Corporation and its debtor-affiliates ask the U.S. Bankruptcy Court for the District of Massachusetts for more time to file their Schedules of Assets and Liabilities, Statements of Financial Affairs, Schedules of Executory Contracts and Unexpired Leases and Lists of Equity Security Holders. The Debtors want until March 25, 2005 to file those documents. The Debtors explain that in order to prepare the Schedules and Statements, the Debtors must gather information from books, records, and documents relating to claims, contracts, leases, independent contractor agreements, and holders of equity securities. Consequently, collection of the information necessary to complete the Schedules and Statements will require an expenditure of substantial time and effort on the part of the Debtors' employees. The Debtors add that in view of the amount of work involved, and the simultaneous demands on their employees to assist in efforts to stabilize their business operations during the initial post petition period, the Debtors are unlikely to complete and file the Schedules and Statements within the 15-day deadline after the Petition Date. The Debtors assure the Court that the requested extension will give them more time to mobilize their employees in working diligently to prepare and complete the Schedules and Statements on or before the requested extension deadline. Headquartered in New Kensington, Pennsylvania, High Voltage Engineering Corporation -- http://www.asirobicon.com/-- owns and operates several affiliated companies specializing in generators and motors. The Company's chief subsidiary ASIRobicon, manufactures variable frequency drives that reduce energy use in industrial electric motors, motors, generators, power conversion products, and electronic controls for heavy-duty vehicles. The Company and its debtor-affiliates filed for chapter 11 protection on February 8, 2005 (Bankr. D. Mass. Case No. 05-10787). S. Margie Venus, Esq., at Akin Gump Strauss Hauer & Feld LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed total assets of $457,970,00 and total debts of $360,124,000. HOLLY ENERGY: Moody's Puts Ba3 Rating on $150MM Sr. Unsec. Notes ---------------------------------------------------------------- Moody's assigned first-time public ratings for Holly Energy Partners, L.P., a Ba3 senior implied rating, a Ba3 rating for a pending $150 million of 10-year senior unsecured notes, and an SGL-3 liquidity rating. Holly Energy is a public master limited partnership that operates an integrated system of refined petroleum product pipelines and distribution terminals formerly owned by unrated Holly Corporation. The system operates primarily in West Texas, New Mexico, Utah, and Arizona. Holly Corp. indirectly holds 51% of Holly Energy's equity, consisting of 49% of Holly Energy's limited partnership units plus Holly Energy's 2% general partner interest. The rating outlook is stable. However, to avoid a future prompt notching down of the note rating to one level below the then prevailing senior implied rating, Holly Energy needs to: 1) avoid senior secured revolver borrowings exceeding $25 million, 2) reduce such borrowings to no more than $10 million for a consecutive 30 days annually and, 3) if higher levels of senior secured debt are incurred to fund acquisitions, Holly Energy needs to refinance that debt within roughly 30 days with equity and or senior unsecured debt ranking no more than pari passu with the rated notes. The secured debt carveouts language in the note indenture permits up to $110 million of senior secured debt. However, Holly Energy's current clearance under its entire proposed indenture covenants currently permits as much as $200 million of senior secured debt. Note proceeds will fund Holly Energy's pending $150 million acquisition of four refined products pipelines from Alon USA, Inc. (rated B2 senior implied; stable outlook) aggregating approximately 500 miles, plus an associated tank farm and two refined products terminals with total storage capacity in the range of 347,000 barrels. Holly Energy estimates that the Alon USA assets will generate approximately $16.5 million of annual EBITDA. Compensation to Alon includes $120 million in cash and issuance of 937,500 Holly Energy subordinated Class B limited partnership units. Moody's also anticipates that in the near-term, Holly Energy will acquire two 65 mile intermediate product pipelines connecting the two main units of Holly Corp.'s main Navajo refinery in New Mexico. Navajo consists of one unit in Artesia and one in Lovington, New Mexico. The ratings are supported by the expected comparative stability of Holly Energy's pro-forma cash flow (95% of revenue is generated on long-term contracts); minimum contracted revenues to mitigate scheduled and unscheduled shipper refinery downtimes; a degree of risk diversification in that cash flow to product markets, pipeline operating risks, and exposure to two main shippers; and acceptable financial leverage relative to cash flow and the balance sheet. The ratings also reflect the vital nature of ' Holly Energy's assets to two adequately long-term competitive southwestern refineries in moving their production to market; Holly Corp.'s highly profitable history and currently very strong and liquid balance sheet; the tight historical logistical fit of the combined pipeline and terminal system in serving refiners and consumers in the region; a potential expansion of Holly Corp.'s main refinery (the main shipper on Holly Energy's lines); and a solid growth outlook for refined product in the region. The ratings are restrained by: 1) the fact that, as an MLP, Holly Energy will routinely payout virtually all free cash flow to unit holders; 2) acquisition and funding risks associated with Holly Energy's growth effort; 3) reliance on Holly Corp. for 54% and Alon USA for 34% of Holly Energy EBITDA; 4) the risk of curtailed pipeline throughput due to unscheduled refinery downtime at Holly Corp. or Alon USA; 5) the looming risk of volume competition in the El Paso and Arizona markets from the Longhorn pipeline; 6) the risk of reduced refining margins, profitability and credit strength at Holly Corp. and Alon due to volume competition from Longhorn; and 7) the fact that Holly Corp. is exposed to a $150 million civil lawsuit by Frontier Oil (Ba3 senior implied) whom Holly Corp. has counter-sued for $145 million. Effectively, Holly Energy conducts most of the lowest business risk functions of Holly Corp. and Alon USA(transporting relatively durable production volumes for a fee), leaving the highest risk refining activities and margin exposures with HOC and Alon. Absent force majeure or serious damage to the economic viability of either HOC's Navajo complex (75,000 barrels/day; 10.0 Nelson Complexity Index rating) or Alon USA's Big Spring refinery (65,000 barrels/day; 10.4 Nelson Complexity Index), Holly Energy benefits from Holly Corp.'s and Alon's minimum revenue and volume commitments, and Holly Energy's expected higher levels of throughput would generally not be very sensitive to volatile crack spreads and refining margins at either refinery. Holly Energy's pro-forma EBITDA will be generated 42% by contracted throughput from Holly Corp., 34% from contracted throughput of Alon USA (70% of Alon's total production), 9% from BP, 12% from intermediate product pipelines, and 3% from other activity. Approximately 85% of total EBITDA would be generated on minimum throughput guarantee or capacity payments. Further important ratings restraints reside in the overlap of the regional competitive situation with the contract-out terms granted to Holly Corp. and Alon USA. With 12 months notice, Holly Corp. could abrogate its minimum revenue commitments under their shipper contracts if they decided to close the Navajo or Big Spring refinery, respectively. This is a very significant contract-out for Holly Corp. and Alon USA in the event of a catastrophic event at either refinery or if Longhorn Pipeline ended up damaging either refineries viability. However, this risk currently appears to be adequately reflected in the Ba3 ratings. Holly Energy and its shippers have sufficient staying power over the intermediate term and also appear to have cost structures that make them more regionally competitive than at least one of the region's least competitive refineries. This is indicated by a number of considerations, some of which include: 1) the already currently negative spread between refined product prices in West Texas and prices along the Gulf Coast adjusted for pipeline tariffs to move Gulf Coast production through Longhorn Pipeline from its Gulf Coast origination point to its El Paso, Texas terminus, 2) the fact that the Navajo and Big Spring refineries have degrees of flexibility to move meaningful amounts of their production away from West Texas, 3) the near-term difficulty Longhorn is having finding product takers on the El Paso, Texas end of its pipeline, and 4) and the fact that 9% of HEP EBITDA is generated under a long-term contract with BP. In Moody's view, Longhorn eventually will connect with expanded pipelines into the Southwest and become more of a margin force in the region. However, it appears that at this point, this would suppress margins regionally but not drive them to levels imperiling the Navajo refinery. To a somewhat lesser degree, Moody's believes that to be the case for the Big Spring refinery too. It appears to be more likely that Holly Energy could incur a degree of throughput decline to the Southwest, some of which would then eventually be diverted on Holly Energy 's lines to the north into Colorado and northeast into the MidContinent region, and that the Alon and Holly Corp. refineries would incur a survivable downward adjustment in normalized regional margins. The ratings are also supported by a generally supportive near-term outlook for refining margins, the balance sheet benefits of Alon USA's solid up-cycle performance, the credit strength of BP, and the diversified markets across the Southwest, lower Rocky Mountain, and northern Mexico regions served by Holly Energy's system. The Holly Energy system is also strategically positioned to carry product volumes produced by more distant refineries seeking to distribute product to the region's markets. Holly Corp. is generating very strong up-cycle margins and holds more than $200 million in cash balances. Alon is in an up-cycle strengthening mode, though it (as well as Holly Corp.) also remains acquisitive. Holly Corp. also has the flexibility to run nearly 100% sour crude oil, which substantially enhances its margins when crude quality price differentials are, as now, particularly wide. Pro-forma Debt/EBITDA appears to be in the 3.0x range and EBITDA/Interest appears to be in the 4.5x to 6x range (depending on final note coupon and EBITDA performance). Using Holly Energy's higher EBITDA estimate, interest coverage could be in the 6x range. Including only the Alon USA acquisition, pro-forma debt at January 31, 2005 would be $150 million and equity would approximate $87 million. Pro-forma for the pending acquisition from Alon, annual EBITDA would appear to be in the range of $50 million. During the nine months ended September 30, 2004, Holly Energy generated EBITDA (pro-forma only for the spin-off of assets from Holly Corp. to Holly Energy) of approximately $26 million, or an annualized $34.6 million. If Holly Energy completes an approximately $60 million acquisition of intermediate product pipelines from HOC, EBITDA would increase approximately by another $6 million to $7 million. HEP states it would finance the potential acquisition of the Holly Corp. lines 50% with equity units and 50% with debt in the form of an add-on to the senior unsecured notes. The SGL-3 liquidity rating indicates that over the next four quarters Moody's expects adequate liquidity coverage of all budgeted outlays. We see adequate coverage by roughly $50 million of EBITDA and $13 million in pro-forma cash balances, of interest expense in the range of $10 million, less than $5 million of maintenance capital spending, roughly $39 million in cash distributions, and less than $5 million of other outlays. However, the SGL-3 rating also reflects expected very good back-up liquidity coverage under an initially largely undrawn $100 million secured bank revolver and adequate bank covenant coverage. Bank covenant coverage may improve once pending amendments are executed as discussed below. Alternative liquidity coverage is deemed to be weak since all assets are pledged to the bank revolver. Holly Energy's $100 million senior secured revolver (3.5 years remaining to maturity) contains three main financial covenants. Coverage of interest expense by EBITDA must exceed 3.5x, though a pending amendment would relax that to 3.0x. Debt cannot exceed 3.5x EBITDA, though a pending amendment would relax that to 4.0x. Minimum tangible net worth must exceed $45 million plus 50% of equity proceeds, though a pending amendment will relax that test to accommodate a substantial expected reduction in HEP's book equity if it acquires the Navajo intermediates pipelines from HOC. That acquisition would be treated as a drop down of assets between related entities. Holly Corporation, Holly Energy's sponsor and General Partner, carries a strong balance sheet after $112 million of 2003 and $193 million of 2004 EBITDA that amply covered capital spending, working capital needs, and negligible interest expense. As of year-end 2004, Holly Corp. appears to carry just under $200 million in cash and equivalents, only $25 million in debt, and $350 million in book equity. Moody's does expect capital spending needs to rise in 2005 and 2006 to roughly $90 million and $65 million, respectively, as HOC completes is low sulfur fuels spending and pursues value adding projects. Holly Energy Partners, L.P., is headquartered in Dallas, Texas. INTERSTATE BAKERIES: Amends DIP Financing Agreement with JPMorgan ----------------------------------------------------------------- In a regulatory filing with the Securities and Exchange Commission, Interstate Bakeries Corporation and its debtor- affiliates disclose that they entered into a Second Amendment to the DIP Agreement with JPMorgan Chase Bank, as Agent, on Jan. 28, 2005. The parties have amended the DIP Agreement to provide that the Debtors will have until May 28, 2005, to deliver to the Lenders a projected operating budget that details on a monthly and quarterly basis the Debtors' anticipated cash receipts and disbursements from that date until the maturity date of the DIP Agreement. The Debtors also will have until Oct. 4, 2005, to deliver updated quarterly budgets to the Lenders, beginning with the fiscal quarter ended Aug. 20, 2005. The Second Amendment sets forth specified limitations on the Debtors' ability to make capital expenditures in the fiscal quarters ended March 5, 2005, and May 28, 2005: Fiscal Quarter Ending Maximum Capital Expenditures --------------------- ---------------------------- March 5, 2005 $12,500,000 May 28, 2005 9,400,000 Furthermore, the Second Amendment specifies minimum Cumulative Consolidated EBITDA amounts for monthly periods beginning February 5, 2005, and ending on May 28, 2005: Cumulative Consolidated Fiscal Period Ending EBITDA -------------------- ----------------------- 02/05/2005 $500,000 03/05/2005 500,000 04/02/2005 (2,500,000) 04/30/2005 (5,500,000) 05/28/2005 (500,000) Deadline to Challenge Obligations Extended The Debtors, the Official Committee of Unsecured Creditors, the Official Committee of Equity Security Holders, JPMorgan, and U.S. Bank National Association, as Indenture Trustee on behalf of the holders of 6.0% Senior Subordinated Convertible Notes due August 15, 2014, agree to extend the deadline for the Debtors, any Committee, the Indenture Trustee and each of the Noteholders to challenge the validity, enforceability, or priority of the Debtors' prepetition obligations to April 22, 2005. The March 2, 2005, deadline for all other parties-in-interest remains unchanged. 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. 12; Bankruptcy Creditors' Service, Inc., 215/945-7000) JARDEN CORP: Moody's Pares Rating on Sr. Sub. Notes to B3 from B2 ----------------------------------------------------------------- Moody's Investors Service downgraded the rating on Jarden Corporation's senior subordinated notes to B3 and assigned a definitive rating of B1 on its $1,050 million loan facility. The ratings on the refinanced bank facilities have been withdrawn. The outlook for the ratings is stable. This concludes the review for possible downgrade that commenced on September 27, 2004. Moody's initiated the review and assigned a prospective rating of B1 on the new loan facility at the time the acquisition of American Household, Inc., and new the financing, were announced. The acquisition of American Household has been completed under substantially the same terms. The downgrade reflects the risks associated with the large, primarily debt financed, acquisition in terms of integration challenges and weaker credit metrics. American Household has been a distressed company and turning around the performance of its brands will be a challenging task for Jarden Corp. The American Household transaction is the Company's most ambitious to date as combined annual revenues will be approximately $2.7 billion, roughly triple Jarden's pre-acquisition annualized revenues of about $900 million. The company's present products tend to have large, or even dominant, market shares, while some of American Household's products are more disparate and face greater competition. The ratings also recognize the lack of coverage on a tangible asset basis and the potential for enterprise value to erode in a distress scenario. The proforma debt / EBITDA was approximately 3.5 times at closing. The ultimate de-leveraging of the company to the targeted level of under 3.0 X is dependent on operating margin improvement, as well as on sales growth. Moody's believes that American Household's recent relatively low EBIT margins can be improved upon, but it is noted that this improvement may be slower than management anticipates given the large number of products involved. Jarden Corp.'s planned cost synergies are projected to produce rapid EBIT margin improvement back to historical levels in a 3 to 5 year period. The ratings and the stable outlook are supported by the highly recognized brands, those already owned by Jarden Corp. as well as those being acquired, management's proven track record in integrating previous acquisitions, the new $350 million equity capital invested by Warburg Pincus and Catterton, the limited cyclicality inherent in these brands, and the increased product diversification. A ratings upgrade could occur once a successful integration of American Household's operations is evidenced, operating margin improves to at least 10%, free cash flow / debt increases to at least 10%, and debt / EBITDA declines to below 3.0 times. However, negative rating action could ensue if Jarden Corp. engages in additional material leveraged transactions, experiences a prolonged slump in operating margins, or encounters integration problems. The B1 rating on the new $1,050 million senior secured bank facilities recognizes that these facilities are senior, are guaranteed by domestic and foreign subsidiaries, and are secured by all of the assets and properties of the borrower and guarantors. The credit agreement includes covenants concerning maximum total leverage, maximum senior debt leverage, minimum fixed charge coverage, and maximum capital expenditures which have been set at levels that Moody's finds prudent, while providing sufficient flexibility. The ratings downgraded are: * Senior implied rating to B1 from Ba3; * $180 million 9-_% senior subordinated notes, due 2012, to B3 from B2; * Issuer rating to B2 from B1 The ratings assigned definitively are: * $850 million senior secured term loan facility, due 2012 -- B1; * $200 million senior secured revolving credit facility, due 2010 -- B1 The ratings withdrawn are: * $50 million senior secured term loan A, due 2007 of Ba3; * $150 million senior secured term loan B, due 2008 of Ba3; * $100 million senior secured add-on term loan B, due 2008 of Ba3; * $70 million senior secured revolving credit facility, due 2007 of Ba3; The outlook is stable. Headquartered in Rye, New York, Jarden Corporation is a global provider of market leading branded consumer products used in and around the home marketed under well-known brands including Ball(R) Bee(R), Bicycle(R), Campingaz(R), Coleman(R), Crawford(R), Diamond(R), First Alert(R), FoodSaver(R), Forster(R), Health o meter(R), Hoyle(R), Kerr(R), Lehigh(R), Leslie-Locke(R), Loew- Cornell(R), Mr. Coffee(R), Oster(R), Sunbeam(R) and VillaWare(R). Jarden operates through four business segments: Branded Consumables, Consumer Solutions, Outdoor Solutions and Other. Jarden Corp., has over 9,000 employees worldwide. KMART CORP: ESL Companies Swap Kmart Options for Sears Options -------------------------------------------------------------- James F. Gooch, Vice President and Controller of Kmart Holding Corporation informs the Securities and Exchange Commission that on January 31, 2005, Kmart entered into an agreement with Sears Holdings Corporation, and the ESL Companies composed of ESL Partners, L.P., ESL Investors, L.L.C., ESL Institutional Partners, L.P. and CRK Partners II, L.P. The ESL Companies are controlled, directly or indirectly, by ESL Investments, Inc., which in turn is controlled by Edward S. Lampert, the Chairman of Kmart. Pursuant to the Agreement, the ESL Companies converted, in accordance with the terms of the notes, all of Kmart's outstanding 9% convertible subordinated notes into an aggregate of 6,269,998 shares of Kmart common stock, plus cash in lieu of fractional shares. In consideration of this conversion, the ESL Companies received an aggregate payment from Kmart of $3.3 million in cash. This cash payment is approximately equivalent to the discounted, after-tax cost of the future interest payments that would have otherwise been paid by Kmart to the ESL Companies in the absence of the conversion. The conversion is calculated by multiplying the present value of the interest payments by one less an assumed effective tax rate for Kmart. The Agreement also provides that the options to acquire shares of common stock of Kmart, which were issued pursuant to an investment agreement, dated as of January 24, 2003, as amended, among ESL Investments, Inc., and Third Avenue Trust, on behalf of its investment series, will be exchanged for options to acquire the same number of shares of common stock of Holdings at the same exercise price upon consummation of the mergers involving Kmart and Sears, Roebuck and Co. The Holdings Options will have the same terms and conditions as the Investment Options and will expire, in accordance with their terms, on May 6, 2005. Kmart's Audit Committee approved the Agreement, as contemplated by the rules of the NASDAQ Stock Market for related party transactions, as well as by Kmart's Board of Directors. A full-text copy of the Agreement is available for free at: http://www.sec.gov/Archives/edgar/data/1229206/000095012305001219/y05213kexv99w1.htm Sears' Registration Statement Sears Holdings Corporation has filed a Registration Statement on Form S-4 with the Securities and Exchange Commission, containing a preliminary joint proxy statement-prospectus regarding the proposed transaction. Stockholders are urged to read the definitive joint proxy statement-prospectus regarding the proposed transaction when it becomes available, because it will contain important information. Stockholders will be able to obtain a free copy of the definitive joint proxy statement-prospectus, as well as other filings containing information about Sears Holdings Corporation, Kmart and Sears, without charge, at the SEC's Internet site http://www.sec.gov/ Copies of the definitive joint proxy statement-prospectus and the SEC filings that will be incorporated by reference in the definitive joint proxy statement- prospectus can also be obtained, without charge, by directing a request to: Kmart Holding Corporation 3100 West, Big Beaver Road Troy, Michigan, 48084 Attention: Office of the Secretary -- or -- Sears, Roebuck and Co. 3333 Beverly Road Hoffman Estates, Illinois, 60179 Attention: Office of the Secretary Information regarding Sears Holdings' proposed directors and executive officers, Kmart's and Sears' directors and executive officers and other participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, is available in the preliminary joint proxy statement-prospectus contained in the Registration Statement on Form S-4. A full-text copy of Sears' Registration Statement is available for free at: http://sec.gov/Archives/edgar/data/1310067/000104746905001969/a2149339zs-4a.htm 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. 89; Bankruptcy Creditors' Service, Inc., 215/945-7000) LEHMAN BROTHERS: S&P Slices Rating on Class L Certificates to BB+ ----------------------------------------------------------------- Standard & Poor's Ratings Services raised its ratings on seven classes of Lehman Brothers Floating Rate Commercial Mortgage Trust's multiclass pass-through certificates from series 2003-LLF C2. Concurrently, the rating on one class is lowered, and ratings are affirmed on the eight remaining classes from the same transaction. The raised and affirmed ratings reflect previous and expected paydowns of the transaction's certificate balance. The lowered rating primarily reflects the operating performance decline in the largest loan from Standard & Poor's adjusted net cash flow -- NCF -- levels at issuance. The current in-trust principal balance of the pool is $795.6 million, compared to $1.2 billion at issuance, which represents a principal reduction of 34%. The 11 loans are all one-month LIBOR-based adjustable loans, down from 17 loans at issuance. Additionally, four of the remaining loans have A/B note structures with B notes held outside the trust totaling $34.1 million. Finally, three other loans have mezzanine debt totaling $146.6 million. The master servicer, Midland Loan Services L.P., provided Dec. 31, 2003, NCF debt service coverage -- DSC -- figures for the 11 loans. Based on this information, Standard & Poor's calculated a weighted average DSC for the pool of 4.27x, down from 4.92x at issuance. To date, the trust has experienced no losses and all of the loans are current. The property type and geographic concentration is similar to issuance levels. Property types accounting for more than 10% of the pool balance are: * lodging (50%), * office (29%), and * retail (19%) while the trust collateral is located across 13 states with Florida (37%) and Illinois (26%) accounting for more than 10% of the pool balance. Per Midland, four loans ($176.2 million, 22%) are expected to pay off in the near term, which will leave a pool of seven loans ($619.4 million). Additionally, only one loan, which is discussed below, will have mezzanine debt outstanding after the payoffs occur. The anticipated loan payoffs were factored into the revised ratings. The largest loan, comprising the cross-defaulted and cross-collateralized Walt Disney World Swan and Dolphin mortgages, has a current in-trust and whole loan balance of $295.1 million (37%). The collateral properties are two, full-service resort convention hotels located within the Epcot Resorts Area of Walt Disney World, with 2,267 total rooms and 329,000 square feet (sq. ft.) of interior meeting, banquet, and convention space. The renovation of the guestrooms in both hotels has been completed, while property renovations scheduled for completion in 2005 include the presidential suites, the corridors, and the addition of an 11,000-sq.-ft. spa. Because of the lodging market's general decline and the assets' reliance on vacation travelers to Walt Disney World, property performance has declined substantially from Standard & Poor's adjusted NCF at issuance. Although property performance has improved in 2004, it is still significantly lower than Standard & Poor's adjusted NCF at issuance. Standard & Poor's assumed occupancy and revenue per available room -- RevPAR -- at issuance was 75% and $141.00, respectively. For the trailing 12 months ending Nov. 30, 2004, occupancy and RevPAR were 72% and $121.19, respectively. NCF during the period fell 32% as compared to Standard & Poor's adjusted NCF at issuance. Based primarily on recent performance, advanced bookings, and budget projections, occupancy and RevPAR of 75% and $130.95, respectively, are expected by Standard & Poor's along with an adjusted NCF that is 18% below issuance levels. Further downgrades in the transaction may be necessary if projected performance improvements in 2005 are not achieved. The loan is scheduled to mature Sept. 13, 2005, with various extensions limited to 43 months unless any casualty extensions are exercised, at which time the loan can be extended by 60 months. The One IBM Plaza loan is the second-largest loan with a current in-trust and whole loan balance of $130.2 million (16%). In addition to the mortgage, there is mezzanine debt of $64.8 million outstanding. The collateral property is a 1.4 million sq. ft., 52-story office building and adjoining 11-story, 902-space parking garage. The collateral spans one city block located at 330 North Wabash Avenue in Chicago, Ill. along the north bank of the Chicago River. The occupancy, as of Sept. 30, 2004, was 88%. However, IBM stated it would not renew its lease on 280,670-sq.-ft. (21%) at its lease expiration on Aug. 31, 2006. According to REIS, market vacancy is 18%, with an average net lease rate of approximately $15 per sq. ft. IBM's space is leased at below market levels. Annualized NCF for the nine months ending Sept. 30, 2004, increased by 18% compared to Standard & Poor's adjusted NCF at issuance. The loan matures March 9, 2006 with two, one-year extensions available. The Bingham Office Center loan is the seventh-largest loan, and currently has an in-trust balance of $24.4 million (3%) and a whole loan balance of $29 million. The collateral property is a 522,346-sq.-ft. suburban office building in Bingham Farms, Mich., which is approximately 20 miles northwest of Detroit. The occupancy, as of Sept. 30, 2004, was 68%, which is well below market occupancy of 81% per REIS. The borrower cited poor market conditions as the source of the property's poor performance. Despite the deteriorating performance, annualized NCF for the same period was relatively flat at 6% over Standard & Poor's adjusted NCF at issuance. The loan matures Sept. 10, 2005, with two, one-year extensions available. Standard & Poor's performed a stabilized analysis in order to revalue the loans. The revised ratings reflect the resultant valuations. Ratings Raised Lehman Brothers Floating Rate Commercial Mortgage Trust Multiclass Pass-Thru Certs Series 2003-LLF C2 Rating Credit Enhancement Class To From (pooled interests) ----- -- ---- ------------------- B AAA AA+ 33.91% C AAA AA 30.10% D AAA AA 27.05% E AAA AA 24.38% F AA+ AA- 20.96% G AA A+ 17.15% H AA- A 13.72% Rating Lowered Lehman Brothers Floating Rate Commercial Mortgage Trust Multiclass Pass-Thru Certs Series 2003-LLF C2 Rating Credit Enhancement Class To From (pooled interests) ----- -- ---- ------------------- L BB+ BBB- 0.00% Ratings Affirmed Lehman Brothers Floating Rate Commercial Mortgage Trust Multiclass Pass-Thru Certs Series 2003-LLF C2 Credit Enhancement Class Rating (pooled interests) ----- ------ ------------------ A-1 AAA 37.34% A-2 AAA 37.34% J A- 9.53% K-1 BBB 6.84% K-2 BBB 4.95% X-1 AAA N/A X-2 AAA N/A X-FLP AAA N/A N/A - Not applicable. LEUCADIA NATIONAL: Fitch Lowers Long-Term Issuer Rating to BB+ -------------------------------------------------------------- Fitch Ratings has lowered the long-term issuer rating on Leucadia National Corporation (Leucadia) to 'BB+' from 'BBB-'. Additionally, Fitch has lowered the ratings on these obligations of Leucadia: -- Senior notes due 2013 to 'BB+' from 'BBB-'; -- Senior subordinated notes due 2006 to 'BB' from 'BB+'; -- Senior subordinated convertible notes due 2014 to 'BB' from 'BB+'; -- Junior subordinated deferrable interest debentures due 2027 to 'BB-'. The Rating Outlook is revised to Negative from Stable. Fitch believes that the acquisition of AT&T by SBC Communications will adversely affect the financial condition of WilTel, Leucadia's largest subsidiary, and that of Leucadia, as well. Fitch would expect significant economic impairment to result should SBC utilize AT&T as its preferred provider rather than WilTel. SBC, as WilTel's primary customer, would be difficult to replace given the capacity excess that exists in the industry. A reduction in Leucadia's equity is a likely consequence in Fitch's view. Any such writedown of the WilTel investment coupled with the recent debt increases by the parent make long-term financial commitments more vulnerable. Leucadia's parent-company-only debt to capital ratio was approximately 30% at Sept. 30, 2004. The ratings changes incorporate not only Fitch's expectation of a lower investment value of the telecommunication operations but also the reduced possibility of favorable cashflow and earnings contributions by the subsidiary to the consolidated group over time. LIFESTREAM TECH: Sells Interactive's IP Rights to LifeNexus ----------------------------------------------------------- Lifestream Technologies, Inc. (OTCBB:LFTC) has assigned the intellectual property of its subsidiary, Secured Interactive Technologies, to LifeNexus, Inc. "We are pleased to have this opportunity to receive a benefit from the transfer of our smart card technology since our current resources are being focused on our core business," stated Christopher Maus, Lifestream's CEO. "This technology, which has no material value to the Company, has not been commercialized as market conditions were not conducive to support the costs related to an effective rollout. With national attention focused on revamping the healthcare information system, we believe this sale provides the most favorable opportunity for Lifestream and its shareholders. LifeNexus has proposed an innovative approach, a portable medical record in concert with powerful healthcare financial services, to create a viable opportunity for commercializing this technology. We look forward to profiting from its success." "I look forward to working directly with LifeNexus to make this proposition successful. It brings considerable value to consumers as it is a universal solution for the portability of medical records," said Mr. Maus. Lifestream has entered into an agreement whereby, upon completion of LifeNexus' financing, Lifestream will receive a 49% equity position in LifeNexus and rights to the technology will transfer to LifeNexus. Mr. Maus is required by LifeNexus to facilitate the early phase of product development and it has, therefore, entered into an independent agreement wherein Mr. Maus will receive compensation as a member of the board of directors of LifeNexus. No changes are foreseen in his responsibilities at Lifestream. About LifeNexus LifeNexus, Inc., is a recently organized, privately-held company focused on the development and marketing of personal healthcare on a smart card platform incorporating emergency medical information, emergency medical insurance, accidental life and other financial products. About Lifestream Technologies Lifestream Technologies, Inc., developed and currently markets a line of cholesterol monitors to consumers and healthcare professionals that provide test results in three minutes. The Company's product line aids the health conscious consumer in monitoring their risk of heart disease. By regularly testing cholesterol at home, individuals can monitor the benefits of their diet, exercise and/or drug therapy programs. Monitoring these benefits can support the physician and the individual's efforts to improve compliance. Lifestream's products also integrate a smart card reader further supporting compliance by storing test results on an individual's personal health card for future retrieval, trend analysis and assessment. As of September 30, 2004, Lifestream's stockholders' deficit widened to $3,763,081, compared to a $2,063,527 deficit at June 30, 2004. MADISON RIVER: Earns $7.9 Million of Net Income in Fourth Quarter ----------------------------------------------------------------- Madison River Capital, LLC (Bond Ticker: MADRIV) released its unaudited financial and operating results for the fourth quarter and the year ended Dec. 31, 2004. 2004 Fourth Quarter Financial & Operating Results For the fourth quarter ended Dec. 31, 2004, the Company reported net operating income of $13.7 million, an increase of $4.6 million, or 50.4%, when compared to net operating income of $9.1 million in the fourth quarter of 2003. Revenues in the fourth quarter of 2004 were $47.5 million, a decrease of $1.3 million, or 2.8%, from revenues of $48.8 million in the fourth quarter of 2003. Also, the Company reported net income of $7.9 million in the fourth quarter of 2004 compared to a net loss of $2.9 million in the fourth quarter of 2003. Adjusted Operating Income, previously referred to as Adjusted EBITDA, is net operating income (loss) before depreciation, amortization and non-cash long-term incentive plan expenses. For the fourth quarter ended December 31, 2004, the Company reported Adjusted Operating Income of $25.5 million, computed by taking net operating income of $13.7 million, adding depreciation and amortization expenses of $12.0 million and subtracting the benefit from reversal of long-term incentive plan expenses of $0.2 million. Adjusted Operating Income in the fourth quarter of 2003 was $23.2 million, and includes a $0.3 million benefit from adjustments made to a restructuring accrual to reflect actual results. The increase in Adjusted Operating Income in the fourth quarter of 2004 was $2.3 million, or 10.2% compared to the fourth quarter of 2003. As announced previously, the Company incurred damages in September 2004 from Hurricane Ivan at its Alabama rural local exchange carrier. The most significant storm-related damages affected certain outside plant facilities, primarily its transmission and distribution plant, in the coastal areas. The Company accrued $1.7 million in the third quarter of 2004 for storm-related expenses. In the fourth quarter of 2004, the Company made approximately $2.6 million in capital expenditures, primarily to replace the damaged and destroyed transmission and distribution facilities. The Company received authorization from the Alabama Public Service Commission to accelerate depreciation on its storm- related capital expenditures completely in the fourth quarter of 2004, and accordingly, the Company recognized an additional $2.6 million in depreciation expense for these capital expenditures. The Company reported that substantially all anticipated repairs and replacements were completed by December 31, 2004. At December 31, 2004, voice access lines disconnected as a result of the storm were approximately 2,840 lines. This is an increase of disconnects of approximately 1,840 voice access lines from September 30, 2004. Substantially all of these voice access lines disconnected are due to damage at the customer premises making the location unusable or uninhabitable until repairs or rebuilding, if necessary, can be completed. The Company believes that these voice access lines should return to service as repairs and restorations in this area are completed. Revenues in the Company's RLEC operations in the fourth quarter of 2004 were $44.7 million compared to $45.5 million in the fourth quarter of 2003, a decrease of $0.8 million, or 1.8%. The decrease is attributed primarily to a $2.1 million decrease in local service revenues partially offset by a $1.2 million increase in Internet and enhanced data services revenues and a $0.1 million increase in miscellaneous telecommunications revenues. Long distance revenues were $3.7 million in each comparable period. The decrease of $2.1 million in local service revenues is attributable primarily to non-recurring revenues recognized in the fourth quarter of 2003 from wireless settlements and other carrier access revenues as well as revenues for updated cost study filings. The increase in Internet and enhanced data services revenues is attributed to the growth in the number of DSL connections in service. At December 31, 2004, the RLECs served 39,562 DSL subscribers compared to 24,181 DSL subscribers at December 31, 2003, an increase of 15,381 connections, or 63.6%. We believe the growth in DSL connections reflects the strong market acceptance of the Company's No Limits bundled offering. Net operating income reported by the RLECs for the fourth quarter of 2004 was $15.8 million compared to net operating income for the fourth quarter of 2003 of $12.2 million, an increase of $3.6 million, or 29.7%. The increase in net operating income is attributable to a decrease in operating expenses of $4.5 million, partially offset by the decrease in revenues as discussed above. Within operating expenses, cost of services in the RLEC operations increased approximately $0.6 million in the fourth quarter of 2004 compared to the fourth quarter of 2003. The increase in cost of services is attributable to general expense increases including a $0.1 million increase in costs to terminate long distance calls primarily from an increase in access minutes of use related to the No Limits package. Selling, general and administrative expenses in the fourth quarter of 2004 were approximately $5.0 million less when compared to the fourth quarter of 2003. The decrease is attributable primarily to the nonrecurring accruals in the fourth quarter of 2003 that resulted in $1.9 million in higher short-term incentive awards and $1.3 million in potential sales tax liabilities for which no similar accruals were made in the fourth quarter of 2004. In addition, long-term incentive plan expenses were $1.4 million less in the fourth quarter of 2004 compared to the fourth quarter of 2003. Depreciation and amortization expenses were $9.2 million in the fourth quarter of 2004 and $9.3 million in the fourth quarter of 2003, a change of $0.1 million. However, depreciation expense in the fourth quarter of 2004 include a one-time, $2.6 million depreciation charge for capital expenditures made to repair and replace certain damaged facilities as a result of the hurricane. As discussed previously, the Company received authorization from the Alabama Public Service Commission to accelerate the depreciation on these capital expenditures completely in the fourth quarter of 2004. Excluding this one-time depreciation charge, depreciation and amortization expenses would have decreased $2.7 million in the fourth quarter of 2004 when compared to the fourth quarter of 2003 largely due to certain classes of assets becoming fully depreciated during 2004. Interest expense in the RLEC operations decreased $0.8 million, or 9.4%, to $7.8 million in the fourth quarter of 2004 from $8.6 million in the fourth quarter of 2003. The decrease is attributable primarily to a lower weighted average balance of long-term debt outstanding in the fourth quarter of 2004 compared to the fourth quarter of 2003 as well as a lower weighted average interest rate. During the fourth quarter of 2004, the Company recognized an income tax benefit of $6.6 million. The income tax benefit was largely due to the reversal of the Company's valuation allowance established to reflect the Company's deferred income tax assets at their net realizable value. In the fourth quarter of 2003, the Company recognized an income tax benefit of $2.0 million largely due to the recognition of income tax benefit of $2.7 million for two refunds received in a prior year. The Company recognized the income tax benefit after being advised that the statute of limitations for audit adjustments had expired related to these refunds. In 2004, these refunds were the subject of two erroneous refund lawsuits filed by the Department of Justice on behalf of the Internal Revenue Service as discussed below. Net income in the RLEC operations in the fourth quarter of 2004 increased $9.2 million, or 129.2%, to $16.3 million from $7.1 million in the fourth quarter of 2003. The increase in net income reflects the higher net operating income of $3.6 million combined with a decrease in interest expense of $0.8 million and a $4.7 million increase in the income tax benefit recognized. For the fourth quarter of 2004, the RLEC operations reported Adjusted Operating Income of $25.0 million and an Adjusted Operating Income margin of 56.0%. The Adjusted Operating Income margin, previously referred to as "Adjusted EBITDA margin", is computed by dividing the RLEC's Adjusted Operating Income of $25.0 million by the RLEC's revenues of $44.7 million. For the same quarter of 2003, the RLEC operations reported Adjusted Operating Income of $22.9 million and an Adjusted Operating Income margin of 50.2%. Adjusted Operating Income in the fourth quarter of 2004 was $2.1 million, or 9.5%, higher than the fourth quarter of 2003. Please refer to Footnote 1 - "Non-GAAP Financial Measures" for a reconciliation of Adjusted Operating Income and Adjusted Operating Income margin to net operating income (loss) and net operating income margin, respectively. As of December 31, 2004, the RLEC operations had 220,774 voice access and DSL connections in service. This represents an increase of 10,690 connections, or 5.1%, from the total number of connections in service at December 31, 2003. The change consisted of an increase in DSL connections of 15,381, offset by a decrease in voice access lines of 4,691, or 2.5%. After adjusting for voice access lines lost due to damages from Hurricane Ivan, the decrease in RLEC voice access lines was approximately 1,850 lines, or 1.0%. DSL connections at December 31, 2004 increased 63.6% compared to DSL connections at December 31, 2003. The Company's penetration rate for its DSL service as a percentage of primary residential access lines reached 32.2% at December 31, 2004 compared to 18.5% at December 31, 2003. At December 31, 2004, the RLEC operations had 181,212 voice access lines in service compared to 185,903 voice access lines in service at December 31, 2003, a decrease of 4,691 lines that is attributable to the impact of Hurricane Ivan, the loss of primary voice access lines at Gallatin River Communications and a decrease in second lines. Hurricane-related damages resulted in a decrease of approximately 2,840 voice access lines at December 31, 2004. The 2,840 voice access lines were approximately one-half of the Company's estimate of 5,700 voice access lines that potentially could be disconnected as a result of the hurricane as reported for the third quarter ended September 30, 2004. The Company believes that these voice access lines should return to service as repairs and restorations in this area are completed. Primary voice access lines served by Gallatin River Communications, the Company's Illinois RLEC, decreased by 2,587 lines in 2004 as this region continues to deal with weak economic conditions that have persisted in recent years. Finally, second lines decreased by 1,097 lines from 8,200 second lines in service at December 31, 2003 to 7,103 second lines in service at December 31, 2004. The decrease in second lines is attributed primarily to customers who remove second lines when upgrading to the Company's DSL service. On a sequential quarter basis, voice access and DSL connections in the RLECs decreased by 250 connections, or 0.1% in the fourth quarter of 2004. The decrease is attributed to a decrease of approximately 1,840 voice access lines related to hurricane damages in the fourth quarter. Of the 220,774 total connections at December 31, 2004, 120,649 are residential voice access lines, 60,563 are business voice access lines and 39,562 are DSL connections. The RLEC operations also served 101,469 long distance accounts at December 31, 2004 for a penetration rate over total RLEC access lines of 56.0%. In addition, the RLEC operations had 15,593 dial-up Internet accounts at December 31, 2004. RLEC access minutes of use increased 10.4% in 2004 compared to 2003. In the fourth quarter of 2004, revenues from edge-out services were $2.8 million, a decrease of $0.5 million, or 15.5%, from revenues of $3.3 million in the fourth quarter of 2003. The decrease is attributed primarily to a decrease in the number of connections served in the edge-out markets. On a sequential quarter basis, revenues declined $0.1 million. The Company's edge- out services incurred a net operating loss of $2.1 million in the fourth quarter of 2004, an improvement of $1.0 million, or 31.3%, from a net operating loss of $3.1 million in the same quarter of 2003. The improvement is attributed to a $1.5 million decrease in operating expenses which includes a $0.6 million decrease in depreciation and amortization expenses and a $0.1 million decrease in long-term incentive plan expenses in the fourth quarter of 2004 compared to the fourth quarter of 2003. In addition, operating expenses in the fourth quarter of 2003 reflect a benefit of $0.3 million for an adjustment made to restructuring accruals where no comparable adjustment was made in the fourth quarter of 2004. The net loss in edge-out services was $8.4 million in the fourth quarter of 2004 and $10.0 million in the fourth quarter of 2003. Adjusted Operating Income in the edge-out services for the fourth quarter of 2004 was $0.5 million which is an increase of $0.2 million from the $0.3 million in Adjusted Operating Income reported in the fourth quarter of 2003. Please refer to Footnote 1 - "Non-GAAP Financial Measures" for a reconciliation of Adjusted Operating Income to net income (loss). As of December 31, 2004, the Company's edge-out services served 11,880 voice access lines and 653 high-speed data connections compared to 14,462 voice access lines and 682 high-speed data connections as of December 31, 2003. This represents a decrease of 2,582 voice access lines, or 17.9%, and 29 high-speed data connections, or 4.3%. On a sequential quarter basis for the edge- out services, voice access lines decreased by 639 lines and high- speed data connections decreased by 8 connections. 2004 Year-End Financial and Operating Results For the year ended December 31, 2004, revenues were $194.4 million, an increase of $8.0 million, or 4.2%, compared to revenues of $186.4 million in the year ended December 31, 2003. The RLEC operations reported revenues of $182.5 million and the edge-out services reported revenues of $11.9 million. RLEC revenues increased approximately $10.0 million in 2004 compared to RLEC revenues in 2003. The increase in RLEC revenues is primarily attributed to a $4.5 million increase in Internet and enhanced data service revenues, a $3.7 million increase in local service revenues and a $2.5 million increase in miscellaneous telecommunication revenues. The increase in Internet and enhanced data service revenues is attributable to the increase in the number of DSL connections served in 2004 compared to 2003. We believe the significant growth in DSL connections in 2004 is the result of the strong market acceptance of the Company's No Limits bundle that was introduced in the Company's three largest markets in the fourth quarter of 2003. The increase in local service revenues is attributable to an increase in network access revenues from certain one-time wireless settlements and other carrier access revenues and settlements for updated cost study filings. The increase in miscellaneous telecommunication revenues is attributed to revenues from a special construction project and two equipment installation projects and lower bad debt expenses. These increases in revenues were partially offset by a $0.7 million decrease in long distance revenues. Long distance revenues decreased primarily as a result of more customers selecting the No Limits bundle which provides a flat rate charge for long distance services compared to the higher usage-based charges for these customers in the prior year. For the year ended December 31, 2004, revenues from edge-out services decreased $2.0 million, or 14.6%, compared to the same period in 2003. The decrease is attributed primarily to the decrease in the number of voice access lines and high-speed data connections in service during the year. Net operating income for 2004 was $54.3 million, an increase of $11.8 million, or 27.6%, from net operating income of $42.5 million in 2003. Net operating income in the RLEC operations was $64.1 million and $54.5 million in 2004 and 2003, respectively, representing an increase of $9.6 million or 17.6%. The increase in net operating income for the RLECs is attributed to the $10.0 million increase in RLEC revenues partially offset by a $0.4 million increase in operating expenses. In the RLEC operations, depreciation and amortization expense in 2004 was $3.7 million lower than 2003. Included in depreciation and amortization expenses for 2004 is the one-time depreciation charge of $2.6 million from storm-related capital expenditures. Excluding this charge, depreciation and amortization expenses would have decreased by approximately $6.3 million. Cost of services in the RLEC operations increased approximately $8.3 million in 2004 compared to 2003. The increase in cost of services includes approximately $1.7 million in expenses related to storm-related repairs and restoration. Expenses for DSL modems used in the RLEC operations were approximately $0.5 million higher in 2004 when compared to 2003 as DSL modems were capitalized in the first six months of 2003. In addition, costs to terminate long distance calls attributable primarily to an increase in access minutes of use related to the No Limits package increased approximately $1.5 million and costs for a one-time construction and special projects were $1.3 million higher in 2004 compared to 2003. Finally, cost of services for the RLECs in 2003 reflect $0.6 million for a non- cash gain from a pension curtailment for which no comparable gain was recognized in 2004. Selling, general and administrative expenses in the RLECs decreased $4.3 million in 2004 compared to 2003. The decrease is attributed primarily to higher short-term incentive accruals of $2.8 million and a $1.3 million accrual for potential sales tax liabilities made in 2003 for which no comparable accruals were made in 2004. In addition, long-term incentive plan expenses in the RLEC's selling, general and administrative expenses were $2.6 million lower in 2004 compared to 2003. Partially offsetting these higher selling, general and administrative expenses in the RLECs in 2003 was $1.5 million for a non-cash pension curtailment gain recognized in 2003 for which no comparable gain was recognized in 2004. Net operating loss in the edge-out services was $9.8 million in 2004, an improvement of $2.2 million from a net operating loss of $12.0 million in 2003. The improvement is attributed to a decrease in operating expenses of $4.2 million partially offset by the decrease in revenues of $2.0 million. The decrease in operating expenses is attributed primarily to a $3.4 million decrease in depreciation and amortization expenses largely due to certain assets becoming fully depreciated in 2004. In addition, the edge- out services recognized a benefit of $0.7 million in 2003 for certain adjustments to restructuring accruals for which no comparable adjustments were recognized in 2004. Interest expense in 2004 was $59.3 million in 2004 compared to $62.6 million in 2003, a decrease of $3.3 million or 5.4%. The decrease is attributed to a lower weighted average balance of long-term debt outstanding and lower weighted average interest rates in 2004 compared to 2003. Other income increased $0.4 million to $4.0 million in 2004 from $3.6 million in 2003 primarily as a result of higher dividend income on the Company's Rural Telephone Bank stock. For 2004, the Company recognized an income tax benefit of $6.4 million. The income tax benefit was largely due to the reversal of the Company's valuation allowance established to reflect the Company's deferred income tax assets at their net realizable value.. During the fourth quarter of 2003, the Company recognized an income tax benefit of $2.7 million for refunds received in 2002 from amendments to its 1998 income tax returns when the Company was advised that the statute of limitations for review by the Internal Revenue Service had expired. However, in June 2004, the Department of Justice filed suit against two of the Company's subsidiaries, Gulf Coast Services, Inc. and Coastal Utilities, Inc., claiming that the refunds were erroneous refunds in the amount of approximately $2.9 million. Approximately $0.9 million of this claim was paid in the first quarter of 2004 as part of a separate year income tax audit adjustment. As a result, the Company accrued approximately $2.1 million in income tax expense and $0.4 million in interest expense during the second quarter of 2004. Based on discussions with its tax advisors, the Company believes that its position taken in the amended income tax returns was appropriate under current tax laws and the Company intends to vigorously defend against these claims. For 2004, the Company reported net income of $5.4 million compared to a net loss of $14.7 million in 2003, an improvement of $20.1 million. The improvement is attributed primarily to the $11.8 million increase in net operating income, the $3.4 million decrease in interest expense and a $4.6 million increase in the income tax benefit reported. The RLEC operations reported net income of $41.3 million in 2004 and $24.2 million in 2003. The edge-out services reported net losses of $35.9 million and $38.9 million in 2004 and 2003, respectively. Adjusted Operating Income improved by $1.8 million, or 1.8%, to $101.8 million in 2004 compared to $100.0 million in 2003. The RLECs reported Adjusted Operating Income of $99.8 million in 2004 compared to $96.8 million in 2003. Adjusted Operating Income from the edge-out services was $2.0 million in 2004 compared to Adjusted Operating Income of $3.2 million in 2003. The RLECs had an Adjusted Operating Income margin of 54.7% for 2004 and 56.1% for 2003. Please refer to Footnote 1 - "Non-GAAP Financial Measures" for a reconciliation of Adjusted Operating Income to net income (loss). As of December 31, 2004, the Company had approximately $75.5 million in liquidity consisting of $34.5 million in cash on hand and $41.0 million fully available under two lines of credit with the Rural Telephone Finance Cooperative. The lines of credit are scheduled to mature in March 2005. The Company has been notified by the RTFC that a 180-day extension of these revolving credit facilities has been granted to complete the documentation for a new secured line of credit in the amount of $41.0 million for a term ending in March 2010. Completion of the extension and, if necessary, the new line of credit is subject to satisfactory completion of documentation for the new agreements and all conditions precedent to closing being satisfied. Based on its 2004 financial results, the Company is not required to make a mandatory prepayment of principal to the RTFC under the terms of its loan agreement, as amended. Capital expenditures for 2004 were approximately $14.6 million, which includes approximately $2.6 million in capital expenditures related to hurricane damages. The Company announced that the 3rd Infantry Division, stationed at Fort Stewart and Hunter Army Airfield in Hinesville, Georgia, is in the final stages of its deployment to Iraq. According to military officials, the deployment could last up to 14 months. Coastal Utilities, Inc., an RLEC owned by Madison River Communications, provides services to customers in Hinesville including Fort Stewart and Hunter Army Airfield. The Company is unsure at this time what effect the deployment will have on its operations and cash flows. The Company also announced an agreement with the National Rural Telecommunications Cooperative that will allow the Company to offer DIRECTV satellite television service to its customers. The Company anticipates that introduction of this product offering will commence by the second quarter of 2005. Earnings Release Conference Call Because the Company is in a quiet period due to the recent filing of a Form S-1 Registration Statement by Madison River Communications Corp. with the Securities and Exchange Commission, the Company will not have its regularly scheduled earnings call discussing its financial and operating results. About the Company Madison River Capital LLC is a rural local exchange carrier headquartered in Mebane, North Carolina. * * * As reported in the Troubled Company Reporter on Feb. 9, 2005, Moody's Investors Service has assigned a B1 rating to Madison River Capital, LLC's, proposed senior secured credit facilities and has upgraded the senior implied rating to B1 from B2, and the rating for the Company's $200 million 13-1/4% senior unsecured notes to B3 from Caa1. The ratings assigned are: * $400 Million Senior Secured Term B Loan (matures 7 years from closing) -- B1 * $50 Million Senior Secured Term C Loan (matures 7 years from closing) -- B1 * $5.6 Million Senior Secured Term D Loan (matures 7 years from closing) -- B1 * Senior Secured Revolving Credit Facility (matures 7 years from closing) -- B1 The ratings upgraded are: * Senior Implied rating -- to B1 from B2 * Senior Unsecured Issuer rating -- to B3 from Caa1 * $200 million 13.25% Senior Notes due 2010 -- to B3 from Caa1 (rating to be withdrawn at closing) The rating outlook remains stable. MCDERMOTT INTERNATIONAL: Names Roger Brown to Board of Directors ---------------------------------------------------------------- McDermott International, Inc. (NYSE:MDR) has appointed Roger A. Brown to McDermott's board of directors, effective Feb. 24, 2005. Mr. Brown will be a member of the compensation committee and the governance committee. Mr. Brown, 60, currently serves as president of Smith Technologies, a business unit of Smith International Inc. (NYSE:SII). Mr. Brown has served in this role since July 1998. Before his current position, Mr. Brown was president of Smith Diamond Technology since April 1995. Earlier in his career, Brown served in a variety of leadership positions at Camco International prior to its acquisition by Schlumberger, including vice president of Reda Pump Company, president of Hycalog, and as Camco's general counsel and corporate secretary. Mr. Brown earned his bachelor's of science and doctorate of jurisprudence degrees from The University of Oklahoma. "Roger Brown is a seasoned oilfield services executive with over 30 years of experience to draw upon," said Bruce W. Wilkinson, chairman and chief executive officer of McDermott. "We welcome Roger to McDermott's board of directors and look forward to his many contributions." About the Company McDermott International, Inc. is a leading worldwide energy services company. The Company's subsidiaries provide engineering, fabrication, installation, procurement, research, manufacturing, environmental systems, project management and facility management services to a variety of customers in the energy and power industries, including the U.S. Department of Energy. At Sept. 30, 2004, McDermott International's balance sheet showed a $338,421,000 stockholders' deficit, compared to a $363,177,000 deficit at Dec. 31, 2003. MEGO FINANCIAL: Sells Real Property to Case Int'l for $565,000 -------------------------------------------------------------- Mego Financial Corp. and its debtor-affiliates sought and obtained authority from the United States Bankruptcy Court for the District of Nevada to sell a real estate property in Colorado. Case International Company, Inc., offered the highest and best bid to purchase the property for $565,000. The Debtors explained that they don't have interest to develop the property and are no longer in the business of selling time-share interests in certain properties and selling certain undeveloped lots of real estate. The property consists of undeveloped lots of land and water in Colorado. Finova Capital Corporation and Textron Financial Corporation, two entities with security interests on the property, will receive $450,000 for water rights and $115,000 for real estate portion respectively. Headquartered in Henderson, Nevada, Mego Financial Corp. -- http://www.leisureindustries.com/-- is in the business of vacation time share resorts sales and management industry. The Company and its affiliates filed for chapter 11 protection on July 9, 2003 (Bankr. Nev. Case Nos. 03-52300 through 03-2304). Stephen R Harris, Esq., at Belding, Harris & Petroni, Ltd., represents the Debtors in their restructuring efforts. When the Company filed for protection from their creditors, they listed more than $1 million in assets and $39,319,861 in liabilities. MEYER'S BAKERIES: U.S. Trustee Will Meet Creditors on Mar. 18 ------------------------------------------------------------- The United States Trustee for Region 13 will convene a meeting of Meyer's Bakeries, Inc. and its debtor-affiliate's creditors at 1:00 p.m., on March 18, 2005, at the U.S. Post Office & Courthouse, located in 500 State Line Avenue, Room B-8 in Texarkana, Arkansas. This is the first meeting of creditors required under 11 U.S.C. Sec. 341(a) in all bankruptcy cases. All creditors are invited, but not required, to attend. This Meeting of Creditors offers the one opportunity in a bankruptcy proceeding for creditors to question a responsible office of the Debtor under oath about the company's financial affairs and operations that would be of interest to the general body of creditors. Headquartered in Hope, Arkansas, Meyer's Bakeries, Inc., produces English muffins, bagels, bread sticks, energy bars, and hearth baked specialty breads and rolls at its facilities in Hope and Wichita. The Company and its affiliate filed for chapter 11 protection on Feb. 6, 2005 (Bankr. W.D. Ark. Case No. 05-70837). Charles T. Coleman, Esq., at Wright, Lindsey & Jennings LLP represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed total assets of $44,226,139 and total debts of $48,699,754. MIRANT CORP: Reject Consumers Energy Contract to Save Costs ----------------------------------------------------------- Mirant Corporation and its debtor-affiliates seek the authority of the U.S. Bankruptcy Court for the Northern District of Texas to reject a Contract for Standby Electric Service between Mirant Zeeland, LLC, and Consumers Energy. Under the Standby Service Contract, dated March 1, 2001, Mirant Zeeland purchased 8,500 kW of standby capacity from Consumers Energy to service Mirant Zeeland's power plant located in Zeeland, Michigan. In exchange, Mirant Zeeland pays Consumers Energy charges based on Consumers Energy's tariff: (1) A fixed $100 monthly customer charge; and (2) Other charges based on the Plant's actual usage, assessed on a per kWh basis. The tariff, which is on file with the Michigan Public Service Commission, specifies the minimum charge under the Standby Service Contract. The Standby Service Contract expires one year after entry, and automatically renews unless written notice of termination is provided 30 days before March 1 of any given year. Section 365(a) of the Bankruptcy Code provides that a debtor-in- possession, "subject to the court's approval, may assume or reject any executory contract or unexpired lease of the debtor." Robin Phelan, Esq., at Haynes and Boone, LLP, in Dallas, Texas, states that Standby Service Contract is clearly executory, as it requires: (a) Consumers Energy to provide standby capacity to service the Plant; and (b) Mirant Zeeland to pay for the capacity. Mr. Phelan also notes that in In re Stewart Title Guaranty Co. v. Old Republic National Title Insurance Co., 83 F.3d 735, 741 (5th Cir. 1996), "Section 365 allows a [debtor] to relieve the bankruptcy estate of burdensome agreements which have not been completely performed." The Debtors find that the Standby Service Contract is burdensome to their estates and, accordingly, should be rejected. Furthermore, the Debtors tell the Court that self-supplying the Plant, rather than entering into contracts for station service, will result in substantial savings. 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, represents the Debtors in their restructuring efforts. When the Debtors 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. 53; Bankruptcy Creditors' Service, Inc., 215/945-7000) MORGAN STANLEY: Fitch Junks $22.6 Million Class H Series 1997-XL1 ----------------------------------------------------------------- Fitch Ratings downgrades Morgan Stanley Capital I Inc., series 1997-XL1: -- $22.6 million class H to 'CC' from 'CCC'. In addition, Fitch affirms these classes: -- $16.6 million class A-1 at 'AAA'; -- $64 million class A-2 at 'AAA'; -- $226.2 million class A-3 at 'AAA'; -- Interest-only (IO) class X at 'AAA'; -- $22.6 million class B at 'AAA'; -- $22.6 million class C at 'AAA'; -- $45.3 million class D at 'AA'; -- $45.3 million class E at 'BBB+'; -- $41.5 million class F at 'BBB-'; -- $26.4 million class G at 'B'. The downgrade is the due to anticipated losses resulting from the discounted payoff - DPO -- of the Westgate Mall loan which is expected in February 2005. The DPO at $25.5 million will result in an approximate loss of $14 million to the trust. MORGAN STANLEY: S&P Puts Low-B Ratings on Six Certificate Classes ----------------------------------------------------------------- Standard & Poor's Ratings Services assigned its preliminary ratings to Morgan Stanley Capital I Trust 2005-IQ9's $1.532 billion commercial mortgage pass-through certificates series 2005-IQ9. The preliminary ratings are based on information as of Feb. 9, 2005. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. The preliminary ratings reflect: (1) the credit support provided by the subordinate classes of certificates, (2) the liquidity provided by the trustee, (3) the economics of the underlying loans, and (4) the geographic and property type diversity of the loans. Classes A-1, A-2, A-3, A-4, A-AB, A-5, A-1A, A-J, B, C, and D are being offered publicly. Standard & Poor's analysis determined that, on a weighted average basis, the pool (not including the co-op loans) has a debt service coverage (DSC) of 1.45x, a beginning LTV of 89.0%, and an ending LTV of 75.7%. The residential cooperative portion of the pool (11.0% of the pool balance) has a beginning LTV of 28.5% and an ending LTV of 24.4%. Overall, the collateral pool has a DSC of 1.92x, a beginning LTV of 83.2%, and an ending LTV of 70.8%. A copy of Standard & Poor's complete presale report for this transaction can be found on RatingsDirect, Standard & Poor's Web- based credit analysis system, at http://www.ratingsdirect.com/ The presale can also be found on the Standard & Poor's Web site at http://www.standardandpoors.com/ Select Credit Ratings, and then find the article under Presale Credit Reports. Preliminary Ratings Assigned Morgan Stanley Capital I Trust 2005-IQ9 Class Rating Preliminary amount ($) A-1 AAA 62,100,000 A-2 AAA 112,600,000 A-3 AAA 194,700,000 A-4 AAA 94,400,000 A-AB AAA 43,800,000 A-5 AAA 446,242,000 A-1A AAA 271,561,000 A-J AAA 130,199,000 B AA 32,550,000 C AA- 11,488,000 D A 26,806,000 E A- 15,317,000 F BBB+ 15,318,000 G BBB 11,488,000 H BBB- 17,232,000 J BB+ 5,744,000 K BB 7,659,000 L BB- 5,744,000 M B+ 5,744,000 N B 3,830,000 O B- 5,744,000 P N.R 11,488,421 X-1* AAA 1,531,754,421** X-2* AAA 1,491,944,000** X-Y* AAA 168,257,608** * Interest-only class ** Notional amount NATIONSLINK FUNDING: S&P Junks Class J Certificates --------------------------------------------------- Standard & Poor's Ratings Services raised its ratings on five classes of certificates from NationsLink Funding Corp.'s commercial mortgage pass-through certificates series 1998-2. Concurrently, the ratings on six other classes from the same transaction are affirmed. The raised and affirmed ratings reflect credit support levels that adequately support the ratings under various stress scenarios. As of Jan. 20, 2005, the trust collateral consisted of 349 loans with an aggregate outstanding principal balance of $1.3 billion, down from 376 loans totaling $1.6 billion at issuance. The master servicer, Midland Loan Services L.P., provided recent net operating income data for 91.1% of the pool. Based on this information, Standard & Poor's calculated a weighted-average debt service coverage -- DSC -- of 1.55x, up from 1.47x at issuance. These DSC figures exclude loans with an aggregate balance of $66.7 million that are now defeased. The largest defeased loan has an outstanding principal balance of $22.0 million. Excluding this loan, the top 10 assets have an aggregate unpaid principal balance of $270.1 million (21.5% of the pool). The weighted average DSC of these assets is 1.49x, up from 1.36x at issuance. The 1.49x figure excludes the ninth-largest asset, for which recent financial data is unavailable. Standard & Poor's reviewed recent property inspections for the top 10 assets, and all of the properties were characterized as "excellent" or "good." None of the top 10 assets are on Midland's watchlist, but the eighth-largest asset is in special servicing. The trust has experienced five losses to date amounting to $19.2 million (1.2%). There are six assets with an aggregate balance of $47.8 million (3.8%) that are with the special servicer, Lennar Partners, Inc. With the exception of one loan, all of the specially serviced assets are expected to generate losses. The eighth-largest asset has an unpaid principal balance of $24.7 million and a total exposure figure of $26.3 million. This REO asset is cross-collateralized and cross-defaulted with another REO property with a principal balance of $12.3 million and $1.0 million in advances. These assets are industrial properties located in the Research Triangle area of North Carolina in the city of Durham. The larger of the two assets has an occupancy of approximately 25.0%, and Standard & Poor's anticipates the trust will incur a substantial loss upon the liquidation of this asset. The other asset reports an occupancy level of 81.0%, slightly below the market occupancy level. The two 90-plus day delinquent loans have balances of $4.5 million and $2.0 million and are secured by a multifamily property in Indianapolis, Ind. and a healthcare facility in Ridgefield, Wash., respectively. Losses are also expected upon the resolution of a $2.3-million loan secured by a lodging property in Mobile, Ala. that was reported late as of the January 2005 remittance report. The loan, which has been with Lennar since February 2002, has now been brought current. Standard & Poor's does not anticipate a loss on the remaining $2.0 million loan in special servicing. Midland's watchlist consists of 52 loans with an aggregate balance of $148.6 million (11.8%). The largest loan on the watchlist has an outstanding balance of $11.7 million (0.9%) and has occupancy issues. The largest tenant leased more than 34.0% of the space and vacated the property before its March 2005 lease expiry. Another tenant recently signed a lease and moved into approximately half of this vacated space. Consequently, the building's occupancy as of December 2004 was only 63.9%. The second-largest loan on the watchlist is secured by a multifamily property in Atlanta, Ga. with an outstanding balance of $11.2 million (0.9%). This property reported a 2003 DSC of 1.01x, a figure that has improved to 1.06x through the first half of 2004. The third-largest loan on the watchlist is secured by a retail property in West Palm Beach, Fla. with an unpaid principal balance of $10.7 million (0.9%). This property generated a DSC of 1.22x for the year-to-date ending June 30, 2004 and appears on the watchlist due to property damage suffered as a result of a recent hurricane. The borrower has repaired the damages to the property and subsequently filed an insurance claim. The insurance proceeds are being held by Midland pending a review of the repairs. The remaining loans on the watchlist all have balances of less than $7.5 million, and these loans appear on the watchlist primarily due to DSC or occupancy issues. The trust collateral is located across 33 states, and California (29.0%) is the only state with more than 10.0% of the trust's exposure. Property concentrations are found in multifamily (32.2%), retail (29.4%), and office (13.3%) assets. Standard & Poor's stressed the specially serviced loans, loans on the watchlist, and other loans for which recent financial data is still unavailable in its analysis. The resulting credit enhancement levels appropriately support the raised and affirmed ratings. Ratings Raised NationsLink Funding Corp. Commercial Mortgage Pass-Through Certs Series 1998-2 Rating Class To From Credit Enhancement ----- -- ---- ------------------ C AAA AA+ 22.5% D AA- A 15.9% E A- BBB+ 13.0% F BB+ BB 6.1% G BB BB- 5.1% Ratings Affirmed NationsLink Funding Corp. Commercial Mortgage Pass-Through Certs Series 1998-2 Class Rating Credit Enhancement ----- ------ ------------------ A-1 AAA 36.3% A-2 AAA 36.3% B AAA 30.0% H B- 2.6% J CCC+ 2.0% X AAA - NNRG ENERGY: Tacoma City Seeks Summary Judgment on Four Issues -------------------------------------------------------------- On Oct. 26, 2000, the City of Tacoma, Washington, and NRG Energy, Inc.'s subsidiary, Tacoma Energy Recovery Company, entered into a Power Plant Services Agreement to modify and operate a refuse derived fuel power plant in Tacoma. NRG unconditionally guaranteed TERC's obligations and performance. After the Service Agreement was executed, the Project began to run into permitting delays. Nonetheless, in March 2002, the Parties negotiated Amendment No. l to reallocate funding responsibility during the delayed permitting process. Under the reallocation, TERC agreed to reimburse the City for all Net Power Plant Losses in 2003 and subsequent years. The Parties projected that TERC's responsibility for the 2003 Net Power Plant Losses would be $1.2 million. The City actually spent less than this projection, incurring only $956,817 in Net Power Plant Losses during 2003. Mark S. Indelicato, Esq., at Hahn & Hessen, LLP, in Tacoma, Washington, relates that notwithstanding the Service Agreement and Amendment No. 1, TERC began to have second thoughts about its obligations. Only eight months after the parties executed Amendment No. 1, TERC undertook a calculated course of conduct to scuttle the Project and to stonewall the City. Through its representatives on the Management Committee, TERC proposed a zero-dollar 2003/2004 Biennial Budget and a zero-dollar Five Year Plan for the Project. TERC and NRG clearly intended to spend nothing on the Project, Mr. Indelicato remarks. TERC also refused to reimburse the $956,817 of 2003 Net Power Plant Losses that the City incurred in keeping the project on hold. Despite timely demand by the City, TERC did not reimburse the losses that both parties clearly anticipated TERC would be liable for when they executed Amendment No. 1. Accordingly, the City of Tacoma seeks a summary judgment on four issues: (a) TERC breached the Service Agreement by forcing a zero- dollar budget for the Project. Without a budget, the Project is effectively terminated, yet the Management Committee does not have the power to terminate or starve the Project; (b) TERC breached the Service Agreement by failing to reimburse the City's 2003 Net Power Plant Losses as bargained for in Amendment No. 1. Even though the parties specifically negotiated Amendment No. 1 for the purpose of putting the Project on hold and reallocating funding responsibility during the delayed permitting process, TERC nonetheless refused to honor its obligations; (c) TERC has anticipatorily breached and repudiated the Service Agreement. Anticipatory repudiation is "an express or implied assertion of intent not to perform a party's obligations under the contract prior to the time of performance." TERC's conduct demonstrates that it does not intend to perform under the Service Agreement; and (d) NRG breached the Unconditional Guaranty that it provided to the City for the purpose of guarantying TERC's performance and obligations. Mr. Indelicato argues that the Unconditional Guaranty unequivocally provides for NRG's guarantee of payment and performance of all of TERC's obligations under the Service Agreement. It was not limited in duration. The Unconditional Guaranty was a material component of the Service Agreement and must be read to cover TERC's performance throughout the 20-year term. The Unconditional Guaranty should be enforced and the Court should find that NRG breached when it rejected the Unconditional Guaranty in its Reorganization Plan. Mr. Indelicato tells Judge Beatty that NRG's interpretation of the Service Agreement is unreasonable as a matter of law and should be rejected. The Management Committee did not exercise reasonable discretion as required in the Agreement. "The Management Committee's refusal to approve any Power Plant Expenses means it effectively demanded that parties, among other things, not pay taxes on the Project, refuse to pay salaries and benefits, and relinquish the lease for the real property underlying the Project," Mr. Indelicato says. Moreover, the Management Committee does not have the power to effectively terminate or starve the Project pursuant to the Service Agreement. Courts recognize that it is bad faith to attempt to get out of an agreement because the contract is not as favorable as wished. TERC cannot run from its obligations simply because the Service Agreement is not profitable as TERC wants. Mr. Indelicato adds that TERC cannot import its financial projections into the Agreement. Under the Service Agreement, TERC's financial projections are inadmissible because they were not incorporated into the Service Agreement. In addition, there were no representations, warranties or termination mechanisms suggesting that the Project should be terminated if it was not permitted and operable by late 2000. Mr. Indelicato says that the business judgment rule is inapplicable in this matter because the City did not sue TERC's representatives on the Management Committee in their individual capacity. As NRG's own cases demonstrate, the defense only applies to corporate management -- not the corporation. About the Company NRG Energy, Inc., owns and operates a diverse portfolio of power-generating facilities, primarily in the United States. Its operations include baseload, intermediate, peaking, and cogeneration facilities, thermal energy production and energy resource recovery facilities. The company, along with its affiliates, filed for chapter 11 protection (Bankr. S.D.N.Y. Case No. 03-13024) on May 14, 2003. The Company emerged from chapter 11 on December 5, 2003, under the terms of its confirmed Second Amended Plan. James H.M. Sprayregen, Esq., Matthew A. Cantor, Esq., and Robbin L. Itkin, Esq., at Kirkland & Ellis, represented NRG Energy in its $10 billion restructuring. * * * As reported in the Troubled Company Reporter on Dec. 14, 2004, Standard & Poor's Ratings Services assigned its 'CCC+' rating to NRG Energy Inc.'s (NRG; B+/Stable/--) proposed $400 million convertible perpetual preferred stock. The outlook is stable. NTELOS INC: S&P Junks $225 Million Second-Lien Term Loan -------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B' corporate credit rating to, NTELOS Inc. The outlook is negative. Simultaneously, a 'B' bank loan rating was assigned to NTELOS' $435 million first-lien credit facility, which consists of a $400 million term loan facility due 2011 and a $35 million secured revolving credit facility maturing 2010. The first-lien facility also was assigned a recovery rating of '2', denoting the expectation of a substantial recovery of principal (80%-100%) in the event of a payment default or bankruptcy. (These ratings are based on preliminary bank loan documentation.) In addition, a 'CCC+' rating was assigned to NTELOS' $225 million second-lien term loan maturing in 2012. The second-lien loan is rated two notches below the corporate credit rating due to the significant amount of first-priority secured debt and other priority obligations that are senior to it. This facility was assigned a recovery rating of '5', denoting negligible recovery of principal (0%-25%) in the event of a payment default or bankruptcy. Proceeds from the new term loans, an equity contribution of about $130 million from the new sponsors, asset sales and tax recovery of about $25 million, and cash on hand will be used to buy out existing shareholders, retire existing debt, and pay related transaction costs. Upon receipt of regulatory approvals, the company will be owned 100% by Quadrangle and CVC (private equity sponsors). Pro forma for the transaction, total debt outstanding was about $626 million at Dec. 31, 2004. "The rating reflects NTELOS' aggressive capital structure, the highly competitive environment of its wireless segment (which is its primary cash growth producer), geographic concentration, and the company's overall small size," said Standard & Poor's credit analyst Rosemarie Kalinowski. "These factors dominate the credit profile despite the relatively stable cash flow of the incumbent local exchange carrier -- ILEC -- business and the potential for higher wireless revenue growth due to new data products. In addition, the company's wholesale relationship with Sprint PCS enables it to offer nationwide wireless plans without making major capital commitments." OMNOVA SOLUTIONS: Consolidates Chemical Business Leadership ----------------------------------------------------------- OMNOVA Solutions Inc. (NYSE: OMN) has consolidated leadership of its Performance Chemicals businesses and appointed James J. Hohman as President, Performance Chemicals. Mr. Hohman will lead all efforts for the Company's chemical product lines, which serve the paper, carpet, nonwovens, floor care, textiles, construction, coatings and adhesives markets. Sales for Performance Chemicals in 2004 were $373 million. "Opportunities for greater synergy across all of our chemical businesses, and the desire to reduce costs, led us to conclude that OMNOVA Solutions and our customers are best served under a more streamlined leadership structure," said Kevin McMullen, Chairman and Chief Executive Officer of OMNOVA Solutions. "Under Jim Hohman's leadership, our paper and carpet chemical teams have brought innovative solutions to customers by leveraging value- added new products and technology and utilizing creative and effective business models, such as our successful RohmNova joint venture in paper coatings. Jim will bring that same focus to the specialty chemical product lines." Mr. Hohman has been a Vice President of OMNOVA Solutions since November 2001, and President, Paper & Carpet Chemicals since December 2000. Since joining the Company's chemicals segment in 1996, he has held several roles in general management and strategic business development, including vice president of the specialty chemical product lines in 2000. Previously, he held key positions in business and marketing management at BP Chemicals. About the Company OMNOVA Solutions Inc. is a technology-based company with 2004 sales of $746 million and 2,000 employees worldwide. OMNOVA is an innovator of emulsion polymers, specialty chemicals, and decorative and functional surfaces for a variety of commercial, industrial and residential end uses. * * * As reported in the Troubled Company Reporter on Jan. 31, 2005, Fitch Ratings has affirmed OMNOVA Solutions Inc.'s (Omnova) credit ratings: -- $165 million senior secured notes 'B+'; -- $100 million senior secured credit facility 'BB-'; -- Rating Outlook Negative. Omnova's continued weak financial performance and small company size support the ratings affirmation. The company has been able to withstand the pressure from rapidly rising raw material costs, including costs for styrene, butadiene and PVC resin, by raising product prices. However, these cost increases have not yet been fully offset, so operating margins remain weak. Omnova is experiencing some delay in fully recouping raw material cost increases in part due to its position as a downstream chemical producer and converter. For the trailing 12 months ended Nov. 30, 2004, EBITDA-to-interest incurred was 1.3 times versus 1.9x at year-end 2003. Total debt-to-EBITDA was to 7x for year-end 2004 compared to 6.5x at year-end 2003. The Negative Rating Outlook reflects the current operating weakness and the liquidity impact of the December 2004 credit facility amendment. The December 2004 credit facility This amendment eliminated the fixed charge coverage financial covenant and increased the revolver's minimum availability to $20 million. As a result, revolver borrowing availability has been reduced during a period of weak operating cash flow generation. Fitch expects that Omnova's operating margins will improve in 2005 as product price increases outpace raw material cost increases. Moreover, Fitch expects demand to remain good in the performance chemicals and building products segments; the timing for improvement in the decorative products segment remains uncertain. OWENS CORNING: Parties File Asbestos Estimation Post-Trial Briefs ----------------------------------------------------------------- Owens Corning and its debtor-affiliates, the Official Committee of Asbestos Claimants, the Legal Representative for Future Asbestos Claimants, Credit Suisse of First Boston -- as agent for the bank lenders under the prepetition Credit Agreement -- and the bondholders submitted their post-trial briefs with regards to the hearing to estimate the Debtors' asbestos liability for plan evaluation and voting purposes. A. Debtors The Debtors emphasize three points in their post-trial brief: (1) Owens Corning's historical experience provides an ample basis on which to make a reasonable forecast of its asbestos liability. The Debtors' database contains information on the more than 562,000 prepetition asbestos personal injury claims, as well as the Debtors' experience in resolving some 330,000 of those claims, which arose in all 50 states and involved the full spectrum of asbestos- related diseases; (2) The $7.8 billion valuation of Owens Corning's asbestos liability and the $3.9 billion valuation of Fibreboard's asbestos liability implicit in the plan of reorganization are within the range of reasonable estimates of the Debtors' liability; and (3) Dr. Frederick Dunbar's estimation on behalf of the Bank Debt Holders is below the range of reasonable estimates of the Debtors' asbestos liability. According to Roger E. Podesta, Esq., at Debevoise & Plimpton LLP, Dr. Dunbar rejects as "zero-pays" approximately 84.5% to 86.5% of the 128,000 pending claims, by: -- using an unrealistically high historical no pay rate derived from his incomplete and faulty analysis of non- National Settlement Program dismissals; and -- after excluding a high percentage of claims on the basis for supposed historical dismissal rates, making zero-pay adjustments to both the nonmalignant and lung cancer and other cancer claims: (a) As to nonmalignant claims, Dr. Dunbar rejected claims that he presumed would not meet medical criteria, that happened to be more stringent than any substantive state law. (b) As to lung cancer and other cancer claims, Dr. Dunbar assigned 11% no value because he believed they would ultimately have no disease. Not only is this double counting of his original dismissals, it is derived from data based on claims filed against the Manville Trust, not on anything in Owens Corning's historical experience. (c) As for the future claims, Dr. Dunbar's estimate of the number of compensable claims is only about one-twelfth the nearest estimate of any other expert. This discrepancy is largely attributable to Dr. Dunbar's use of an ad hoc methodology for forecasting the future incidence of asbestos-related nonmalignant disease -- a methodology, which was presented for the first time in the estimation proceeding, and which has never been peer reviewed. Under Dr. Dunbar's ad hoc methodology, he estimates that there will only be approximately 40,000 compensable future non-malignant claims against Owens Corning. Furthermore, Dr. Dunbar adds to the unrealistic estimate of the number of claims, values on the stronger cases that even he regards as compensable, that are derived from the settlement values of the weaker cases to which he assigned no value. Mr. Podesta contends that Dr. Dunbar's estimate does not withstand the "sanity check" provided by the Court-approved estimates of asbestos liability in other recent bankruptcy cases. In the event that Dr. Dunbar's preferred estimate is accepted, Owens Corning's liability would be less than one-half that of Armstrong World Industries and one-quarter that of Babcock & Wilcox, a result wholly inconsistent with the relative liability experience of the three companies during 20 years of actual litigation in the tort system. A full-text copy of the Debtors' post-trial brief is available at no charge at: http://bankrupt.com/misc/OWCTab46.pdf B. Asbestos Constituencies The Official Committee of Asbestos Claimants and the Legal Representative for Future Asbestos Claimants begin their 74-page Post-Trial brief with a quotation from Judge Perlman's decision in In re Eagle-Picher Indus., Inc., 189 B.R. 681, 686 (Bankr. S.D. Ohio 1995): If you want to estimate the value of something, you must look to the most comparable item you can find where the value is known. This commonsense rule holds just as true for valuing asbestos claims as it does in everyday life. Accordingly, Elihu Inselbuch, Esq., at Caplin & Drysdale, Chartered, tells Judge Fullam that the best and the only valid basis from which to value Owens Corning's 180,000 pending asbestos personal injury and death claims, including the hundreds of thousands of claims that will be filed in the future is by reference to the values established by Owens Corning's prepetition resolution of over 300,000 similar individual Asbestos Claims. The 300,000 Asbestos Claims were litigated in both state and federal courts, and were resolved either through trials or at values that the company and the claimants agreed were acceptable for a consensual resolution of the cases. The cases ranged in severity and value from claims for mesothelioma where both disease and exposure could not be disputed, to claims for non-malignant asbestos disease where the diagnosis was supported only by x-ray evidence, the strength of which was questioned by Owens Corning, with minimal or no economic damages. According to Mr. Inselbuch, Owens Corning tried a variety of strategies to deal with the claims and resolved the 300,000 prior cases through settlement criteria and at values that in all instances were designed to -- and did -- minimize its liability to asbestos personal injury claimants. The approach advocated by the Bank Debt Holders, on the other hand, would disallow 90% of the present and future asbestos personal injury claims without any review or trial and then arbitrarily value the 10% remaining at drastically reduced values from their historical averages. "[The Bank Debt Holders'] approach is based on nothing more than a wish list of how the Bank Debt Holders would prefer the claims to be resolved in a system of their own design," Mr. Inselbuch asserts. "However characterized, the Bank Debt Holders' approach is nothing more than an attempt to re-write the substantive legal rules of the 50 states." Dr. Dunbar's Estimate Results Not Credible The Asbestos Committee and the Futures Representative supports the Debtors' objections to Dr. Dunbar's estimates. Mr. Inselbuch reiterates that, incredibly, Dr. Dunbar's estimate rejects Owens Corning's actual claims resolution history and ignores the substantive law, which governs the compensability and value of asbestos personal injury claims. Although Dr. Dunbar's analyses presented at trial were decidedly opaque, he produced a "Reconciliation of NERA Forecast to Peterson Forecast," which shows his calculation of the individual and cumulative effect of his various assumptions. Dr. Dunbar's forecast treats as "allowable" claims only 17,076 pending and 50,695 future claims. However, the claims that survived all of Dr. Dunbar's "allowability criteria" would not be "average" asbestos claims; they would be gold standard cases where liability and injury were not subject to dispute. The metric for valuing those claims cannot be the values assigned to "average" settlements, prompting questions concerning "why a claimant with an indisputably valid mesothelioma claim against Owens Corningaccept an average settlement of $150,000 or $200,000 when if he took the case to trial he would recover $1,900,000?" Instead, the 67,771 "allowable" claims would have to be valued by reference to the Owens Corning jury verdict history, which averaged $297,842 for all claims that Owens Corning took to trial. Simple arithmetic shows that if Dr. Dunbar's allowability criteria were actually implemented, Owens Corning's liability for the pending "allowable" claims alone would be over $5 billion (17,076 x $297,842 = $5,085,949,992), and future claim would add an additional $15 billion -- in nominal dollars -- onto that. Estimates Will Ultimately Decide Plan's Confirmability If the Bank Debt Holders reject the Plan, as they have repeatedly said they would, the Court must determine whether Owens Corning's and Fibreboard's present and future asbestos personal injury and death claimants will each receive under the plan of reorganization a percentage recovery on the value of their claim that is no greater than that received by the Bank Debt Holders and other unsecured creditor constituencies. Mr. Inselbuch reminds the Court that for the Plan to be confirmed: * the estimate of Owens Corning's liability to present and future asbestos personal injury claimants must be equal to or greater than $7.8 billion net present value; and * the estimate of Fibreboard's liability to present and future asbestos personal injury claimants must be equal to or greater than $3.9 billion net present value. The Asbestos Committee and the Futures Representative's evidence of Fibreboard's asbestos liability adduced at the Estimation Hearing, consisting of the estimates of Drs. Peterson and Rabinovitz, was unchallenged by the Bank Debt Holders and clearly supports an estimate of Fibreboard's asbestos liability in excess of $3.9 billion net present value. Under Dr. Peterson's preferred estimate, the net present value of Fibreboard's liability for present and future asbestos claims is $7.5 billion. Best Estimates of Owens Corning's Liability Mr. Inselbuch emphasizes that Dr. Peterson's preferred forecast of $11.1 billion net present value, and Dr. Rabinovitz's 2- or 5-year calibration period forecasts of $8.2 billion net present value, are "eminently reasonable and consistent" with estimates that courts have recently adopted in Armstrong World Industries and Babcock & Wilcox cases. In contrast, Owens Corning has a much greater tort exposure than Armstrong and Babcock & Wilcox. Based on all credible evidence, the Asbestos Committee and the Futures Representative ask the Court to estimate the present value of Owens Corning's liability for present and future asbestos claims at $11.1 billion, and Fibreboard's liability at $7.5 billion. A full-text copy of the Asbestos Constituencies' Post-Trial Brief is available at no charge at: http://bankrupt.com/misc/OWCTab44.pdf C. Credit Suisse First Boston Ralph I. Miller, Esq., at Weil, Gotshal & Manges LLP, points out two fundamental threshold issues concerning the basic purpose of and standard for performing an estimation of future liabilities which, once resolved, would simplify the Court's task and drive the outcome of Owens Corning's case: (1) The purpose of a forecast is to estimate what the liability for future claims will be in the future -- not the past; and (2) The real world in which the post-bankruptcy claims will now be resolved, and which must be compared to the pre- bankruptcy history, is the federal judicial system. Mr. Miller explains that while one can use historical claims values as a starting point, the future liability can be forecast by extrapolating from them. However, those past values should reflect the setting in which the future claims will be resolved. As Dr. Peterson stressed in his report to Judge Weinstein in the Manville proceedings, and reconfirmed on cross-examination at trial: "The extrapolations are problematic if the bases for settling claims have or will change. The extrapolations would then provide little information about what defendants will actually pay, but would at most indicate what defendants' expected payments would have been if past practices had continued into the future." Dr. Peterson also asserted in his Expert Report that in order to do a proper forecast, a forecast expert "cannot merely do a numeric analysis of statistics." Rather, it is necessary to do a "systematic study," of the prior litigation and settlement process that generated those statistics in order to determine if the "bases for settling claims have or will change." In reference to the second threshold point, Mr. Miller states that with Owens Corning having been driven to seek protection in the federal bankruptcy system, the future claims will not be resolved in the state court tort system, particularly as it existed back in the 1990s. Mr. Miller notes that neither Dr. Peterson nor Dr. Rabinovitz attempted to present any analysis of the pre-bankruptcy litigation to determine whether there had been changes between then and now. Moreover, neither expert had attempted to estimate what Owens Corning's liability would be in the federal judicial system in which the claims would be resolved. Instead, they had blindly extrapolated from the pre-bankruptcy claims values to determine what Owens Corning's liability would have been if nothing had changed -- exactly what Dr. Peterson had warned Judge Weinstein should not be done in forecasting future liabilities. As the Court noted during closing arguments, there was no question that there had been changes -- indeed, some of the litigation tactics that inflated the value of the pre-bankruptcy nonmalignant claims have now been banned in the very states that were previously the "hotbed" of litigation against Owens Corning. Mr. Miller states that other changes had occurred and would continue to occur by virtue of the fact that the population exposed to Owens Corning's products before 1975 had continued to age since the 1990s. The question in Owens Corning's case was no longer whether there had been changes, but whether and how the historic claims values should therefore be adjusted to arrive at an appropriate forecast of the amount of Owens Corning's liability for the legitimate claims that should be allowed by the Court. Accordingly, CSFB asks the Court to conclude that the present value of all pending and future asbestos claims against Owens Corning, including settled but not paid contract claims, is $2,046,000,000. A full-text copy of Credit Suisse's post-hearing brief is available at no charge at: http://bankrupt.com/misc/OWCTab45.pdf Additionally, Credit Suisse delivered to the Court a compendium of unreported cases in support of its post-hearing brief. A full-text copy of that Compendium of Cases is also available at no charge at: http://bankrupt.com/misc/CSFBCompendiumofUnreportedCases.pdf D. Bondholders King Street Capital Management, LLC, D. E. Shaw Laminar Portfolios, LLC, Harbert Distressed Master Fund, Ltd., Canyon Capital Advisors, LLC, and Lehman Brothers, Inc., adopt the arguments made by Credit Suisse First Boston. However, the Bondholders believe that Dr. Dunbar's estimates -- $2.046 billion or, under his alternative forecast, $3.151 billion -- are the most appropriate of the estimates presented to the Court because only Dr. Dunbar adequately took into account the "real world" in which the claims will be determined. Alternatively, the Bondholders believe that the estimate offered by Dr. Vasquez is reasonable -- although not preferable -- because Dr. Vasquez, to some extent, considered the changed circumstances on which Owens Corning's asbestos personal injury liabilities will now be determined. On the extreme, the Bondholders insist that the estimates of Drs. Peterson and Rabinovitz should be rejected, because both reflexively applied what they claimed to be the "historical" experience of Owens Corning, without regard to whether that history is at all relevant to the resolution of claims in the future. A full-text copy of the Bondholders' brief is available at no charge at: http://bankrupt.com/misc/OWCTab47.pdf 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 Sept. 30, 2004, the Company's balance sheet shows $7.5 billion in assets and a $4.2 billion stockholders' deficit. The company reported $132 million of net income in the nine-month period ending Sept. 30, 2004. (Owens Corning Bankruptcy News, Issue No. 98; Bankruptcy Creditors' Service, Inc., 215/945-7000) PACIFIC COAST: S&P Places Ratings on CreditWatch Negative --------------------------------------------------------- Standard & Poor's Ratings Services placed its ratings on the class B, C-1, and C-2 notes issued by Pacific Coast CDO Ltd., an arbitrage CDO of ABS transaction, on CreditWatch with negative implications. At the same time, the rating on the class A notes is affirmed based on the credit enhancement available to support the notes. The CreditWatch placements reflect factors that have negatively affected the credit enhancement available to support the notes since the last rating action in June 2004. These factors include a negative migration in the credit quality of the performing assets in the pool. Since the June 2004 rating action, the overcollateralization ratios have deteriorated. According to the Jan. 19, 2005 monthly report, the class A/B overcollateralization ratio was 97.55%, compared to 105.89% at the time of the last rating action, and the class C overcollateralization ratio was 91.93%, compared to 99.93% at the time of the last rating action. The paydown of $44.103 million to the class A notes after the Jan. 25, 2005 payment date was not sufficient enough to offset deterioration in the credit quality of the portfolio for the ratings of the class B and C notes. Ratings Placed on CreditWatch Negative Pacific Coast CDO Ltd. Rating Class To From ----- -- ---- B BBB+/Watch Neg BBB+ C-1 B/Watch Neg B C-2 B/Watch Neg B Rating Affirmed Pacific Coast CDO Ltd. Class Rating ----- ------ A AAA PARMALAT: Tuscan Wants $57.5M Claim Allowed for Voting Purposes --------------------------------------------------------------- J. Gregory Milmoe, Esq., at Skadden, Arps, Slate, Meagher & Flom, LLP, in New York, relates that Parmalat USA Corp. and Farmland Dairies, LLC, had previously sought to preclude Tuscan/Lehigh Dairies, Inc., from voting over $57.5 million in claims on their Plans of Liquidation and Reorganization, in the hope of obtaining sufficient acceptances to confirm those plans. Tuscan's claims, evidenced by timely filed proofs of claim in both Parmalat USA's and Farmland's cases, are substantial, Mr. Milmoe asserts. Mostly, those claims reflect damages arising from the U.S. Debtors' rejection of a long-term supply contract, and represent over 7% of the total liquidated claims filed against Parmalat USA and Farmland, and, if allowed, those claims would triple the Debtors' estimate of total allowed claims in each case. Farmland has objected to Tuscan's claims, therefore, preventing them from being deemed allowed and automatically entitled to vote on Farmland's Plan under Sections 502(a) and 1126(a) of the Bankruptcy Code. Parmalat USA has not objected to Tuscan's claims, but, together with Farmland, has: (i) filed an adversary complaint to avoid Tuscan's rejection damage claims; and (ii) invoked Section 502(d) in an attempt to disallow Tuscan's claims pending resolution of the novel theories propounded in the complaint, even though there has been no determination whatsoever that Tuscan is an entity from which property is recoverable under Section 550 or is a transferee of a transfer avoidable under Section 544 or 548. Mr. Milmoe argues that Parmalat USA and Farmland should not be permitted to disenfranchise a major creditor like Tuscan based on unproven allegations and legal theories. Accordingly, Tuscan asks Judge Drain of the U.S. Bankruptcy Court for the Southern District of New York to: * clarify that Section 502(d) does not preclude it from voting on Parmalat USA's Plan of Liquidation; and * temporarily allow its claims for voting purposes pursuant to Rule 3018(a) of the Federal Rules of Bankruptcy Procedure on Farmland's Plan of Reorganization, and, if necessary, the Parmalat USA Plan. Mr. Milmoe tells the Court that Tuscan's Rejection Claims -- $57,052,568 against each of Parmalat USA and Farmland -- were calculated using the well-established contract principles of "cover," pursuant to which it computed the difference between what it likely will pay for Processing Services on the open market and what it would have paid under, and using the terms and volumes set forth in, the Supply Agreement. Those damages were then discounted to present value at a rate of 7%. The two Rejection Claims also seek $4 million for consequential damages arising from Tuscan's need to obtain alternative office and parking space and $250,000 which had been paid to Parmalat USA for future capital improvements to Farmland's Sunnydale milk processing plant in Brooklyn, New York. Tuscan believes that the Debtors never made improvements. Since Tuscan's claims are based on well-established methods of calculating damages, Mr. Milmoe asserts that the Court should determine that Tuscan will succeed on the merits of its claims, and allow it to vote their full amount. In addition, Tuscan timely filed Claim No. 656 against Farmland and Claim No. 658 against Parmalat USA, each for $469,985 for goods sold under the Supply Agreement. The Parmalat USA Rejection Claim and the Parmalat USA Trade Claim are not the subject of an objection and are, therefore, entitled to vote. The Farmland Rejection Claim and the Farmland Trade Claim should be temporarily allowed for voting purposes under Bankruptcy Rule 3018, Mr. Milmoe asserts. 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. When the U.S. Debtors filed for bankruptcy protection, they reported more than $200 million in assets and debts. (Parmalat Bankruptcy News, Issue No. 43; Bankruptcy Creditors' Service, Inc., 215/945-7000) PEGASUS SATELLITE: Court Approves Amended Disclosure Statement -------------------------------------------------------------- Judge Haines approves the First Amended Disclosure Statement, as it may be modified to reflect changes made or ordered on the record at the Disclosure Statement Hearing. Judge Haines finds that the Disclosure Statement contains adequate information within the meaning of Section 1125 of the Bankruptcy Code. The United States Bankruptcy Court for the District of Maine will convene a hearing to consider confirmation of the Pegasus Satellite Communications, Inc. and its debtor-affiliates' Chapter 11 Plan on March 24, 2005, commencing at 10:30 a.m. prevailing Eastern Time. Objections, if any, to the confirmation of the Plan must be served and filed by March 17, 2005 at 4:00 p.m., prevailing Eastern Time. The Confirmation Hearing may be adjourned from time to time by the Court without further notice except for the announcement of the adjournment date made at the Confirmation Hearing or at any subsequent adjourned Confirmation Hearing. Objections These parties had objected to the approval of the Disclosure Statement: (1) United States Trustee Phoebe Morse, the United States Trustee for Region 1, believes that the information contained in the Debtors' First Amended Disclosure Statement generally complies with Section 1125(a) of the Bankruptcy Code. However, the U.S. Trustee objects to the suggestion that the Debtors and their successors, including the liquidating trustee, can contractually relieve themselves of their obligation to file post-confirmation disbursement reports and pay post-confirmation quarterly fees, based on disbursements. The U.S. Trustee argues that Section 1930(a)(6) of the Judiciary Code mandates payment of post-confirmation fees until the Debtors cases are closed or dismissed. Thus, such provision in the Amended Disclosure Statement and any parallel provision in the Plan should be stricken. The U.S. Trustee wants the Debtors to redact the Amended Disclosure Statement, the Plan and the Order to require that the Liquidating Trustee be covered by a bond in an amount sufficient to cover the aggregate Plan disbursements that the Liquidating Trustee is likely to hold at any time post-confirmation, pending distribution. Doing so will lessen the risk of loss due to defalcation. The U.S. Trustee reserves all rights to object to confirmation of the Plan for any reason under Section 1129(a), including, without limitation, on grounds that it impermissibly releases non-debtor third parties. (2) Par Capital and HSBC Par Capital Management, Inc. and Par Investment Partners, L.P. and HSBC Bank USA, National Association, as Indenture Trustee, have identified several potential claims against certain Non-Debtor Affiliates and Releasees which the Plan and the Third Party Release provision under the Plan would purport to eliminate. HSBC is the successor Indenture Trustee of Pegasus Satellite Communications, Inc.'s 13.5% Senior Subordinated Notes due March 2007, pursuant to which about $193,100,000 in aggregate principal amount were issued. Par Capital is the holder of $41,200,000 of the Sub Debt. According to Daniel L. Cummings, Esq., at Norman, Hanson & De Troy, LLC, in Portland, Maine, the claims that the Plan would purport to eliminate include: (A) Breach of fiduciary duty by PSC's directors and controlling shareholder, Pegasus Communications Corporation, based on transfers made as part of a series of transactions that included the issuance of the Sub Debt, including: (1) the exchange of Golden Sky DBS Inc.'s notes for PSC's Sub Debt notes, which benefited PCC and the officers and directors common to each of PCC and PSC; and (2) payment of dividends and distributions made in 2001 and 2002, which benefited PCC and the officers and directors common to each of PCC and PSC. Distributions and dividends made by PSC to PCC were unlawful due to PSC's impaired financial condition and avoidable by PSC under relevant state law. They constitute breaches of duty to the Sub Debt because they were both unlawful distributions and fraudulent transfers; (B) Breach of fiduciary duty by PSC's directors and controlling shareholder, PCC, to the Sub Debt based on these additional fraudulent transfers: (1) payment of dividends in 2002; (2) transfer of stock of Pegasus Real Estate Company on May 8, 2004 to PCC; and (3) transfer of 7% of the equity of Pegasus Communications Holdings, Inc. on April 11, 2002 to PCC; and (C) Possible additional claims for misrepresentation or other violation of the securities laws. Mr. Cummings argues that pursuant to the release provision of the Debtors' Plan, the Debtor is effectively forcing the Sub Debt holders to release all claims against the Releasees while providing no recovery for the Sub Debt holders under the Plan. The Third Party Release under the Plan does not depend on actual consent of holders of Sub Debt, is not in exchange for any consideration to those holders, and does not satisfy the "exceptional circumstances" requirements for granting of the a release. Thus, Mr. Cummings asserts, the Third Party Release is improper, not permitted by law and render the Plan patently unconfirmable. Mr. Cummings contends that the Plan does not meet the basic standard for the validity of non-debtor releases. The Plan does not provide for repayment in full of all creditors, there is no substantial contribution by the Releasees to the Plan funding, and the Third Party Releases are not an essential part of the Plan. Furthermore, the Plan is a liquidating plan. Bankruptcy courts have found that third party injunctions are inappropriate under liquidating Chapter 11 plans. The requirements of contribution of assets to the reorganization and that the injunction be essential to reorganization are not met when a debtor is liquidating and there is no ongoing business. Allowing the Debtors' Third Party Release provision would be unwarranted and no extraordinary circumstances exist to merit it. Debtors Respond to Objections The Debtors contend that the issues raised by the U.S. Trustee, Par Capital and HSBC are matters that are not necessary for the Court to decide in connection with Disclosure Statement approval, but should properly be considered only at the Confirmation Hearing. Nevertheless, the Debtors agree to revise the Amended Plan and Disclosure Statement to clarify that the Liquidating Trustee will send copies of the quarterly reports to the U.S. Trustee. Furthermore, the Debtors will revise the Plan and Disclosure Statement to provide that the U.S. Trustee Fees will be paid pursuant to Section 1930(a)(6) through the closing of the Chapter 11 Cases. The Debtors will also revise the release provisions in the Plan and Disclosure Statement to clarify that any Holder of a Claim or Interest that is not receiving Distributions under the Plan will not be deemed to have released the Debtors' officers and directors or, to the extent PCC becomes a successor-in-interest to one or more of the Debtors, PCC. However, the Debtors assert that the U.S. Trustee's request that the Liquidating Trustee "be covered by a bond in an amount sufficient to cover the aggregate Plan disbursements that he/she is likely to hold at any time post-confirmation, pending distribution[,]" is not an issue that the Court needs to consider in connection with approval of the Amended Disclosure Statement. The issue should be deferred until the Confirmation Hearing, and in any event is completely unsupported by either applicable law or justified by the facts of the Debtors' case. The proposed bond for the Liquidating Trustee is wholly unsupported by law, as evidenced by the U.S. Trustee's inability to cite to a single statute, rule or case supporting the requirement. Furthermore, the U.S. Trustee has not asserted any facts that warrant imposition of the requirement on the Liquidating Trustee. The Debtors see no reason to reduce the recovery of creditors through the imposition of this cost on the Liquidating Trustee. If the Court determines that the matter should be considered at the hearing to approve the First Amended Disclosure Statement, the Debtors maintain that the U.S. Trustee Objection should be overruled on its merits to the extent it relates to requesting a bond covering the Liquidating Trustee. Court Overrules Objections Judge Haines overrules with prejudice all objections to the approval of the Disclosure Statement, to the extent not previously withdrawn, waived, resolved or settled. Par Capital and HSBC have agreed on the release modifications in the Debtors' Plan and Disclosure Statement. Par Capital and HSBC's Objection is rendered moot. Headquartered in Bala Cynwyd, Pennsylvania, Pegasus Satellite Communications, Inc. -- http://www.pgtv.com/-- is a leading independent provider of direct broadcast satellite (DBS) television. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. D. Me. Case No. 04-20889) on June 2, 2004. Larry J. Nyhan, Esq., James F. Conlan, Esq., and Paul S. Caruso, Esq., at Sidley Austin Brown & Wood, LLP, and Leonard M. Gulino, Esq., and Robert J. Keach, Esq., at Bernstein, Shur, Sawyer & Nelson, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,762,883,000 in assets and $1,878,195,000 in liabilities. (Pegasus Bankruptcy News, Issue No. 19; Bankruptcy Creditors' Service, Inc., 215/945-7000) PEGASUS SATELLITE: Nixes Claim Aggregation for Voting Proposal -------------------------------------------------------------- Pegasus Satellite Television, Inc., and its debtor-affiliates withdrew a common, but illegal, provision from the uniform voting procedures they asked the U.S. Bankruptcy Court for the District of Maine to approve in connection with the company's solicitation of creditors' acceptances of their Chapter 11 Plan. Pegasus asked the Bankruptcy Court to rule, for purposes of determining under section 1126(c) of the Bankruptcy Code whether one-half in number of Claims in each Class has accepted the Plan, that separate Claims held by a single creditor in a particular Class would be aggregated as if such creditor held one Claim in such Class, and the votes related to such Claims would be treated as a single vote to accept or reject the Plan. The effect of that aggregation language on a purchaser of more than one claim against Pegasus was to limit that postpetition transferee to one vote on the company's plan. Claims and Creditors Aren't the Same Aggregation of multiple claims owned by a claim trader into one single claim for voting purposes to determine compliance with the numerosity requirement under 11 U.S.C. Sec. 1126, while commonly inserted into chapter 11 plans, defies logic. The Bankruptcy Code, the Bankruptcy Rules and applicable case law make it clear that voting rights relate to "claims" rather than "creditors." A "claim" is a "right to payment." 11 U.S.C. Sec. 101(5). A "creditor" is an "entity that has a claim against the debtor that arose at [or before] the [petition date]." 11 U.S.C. Sec. 101(10). The rules of construction for interpreting the text of the Bankruptcy Code provide that "the singular includes the plural." 11 U.S.C. Sec. 102(7). Section 1122 of the Code calls for classification of claims under a chapter 11 plan-not classification of creditors. Section 1123(a)(4) of the Code requires that any chapter 11 plan must "provide the same treatment for each claim [in a class], unless the holder . . . agrees [otherwise]." Section 1126(c) of the Code requires acceptance of a plan by "creditors . . . that hold . . . more than one-half in number of the allowed claims of such class held by creditors . . . [that have accepted a plan]." Rule 3001(e) provides for the transfer of claims-not aggregation of rights of creditors. Rule 3003(b)(1) directs that "[t]he schedule of liabilities filed pursuant to Sec. 521(1) of the Code shall constitute prima facia evidence of the validity and amount of the claims of creditors." The Bankruptcy Code and Rules distinguish claims from creditors. Pegasus' proposed voting procedures didn't make the distinction, but were modified at the eleventh-hour to reflect that important difference. A copy of Pegasus' proposed Order establishing plan solicitation and ballot tabulation procedures is available at no charge at: http://bankrupt.com/misc/919ProposedSolicitationOrder.pdf The claim aggregation proposal appears on page 9 of the draft order at item e. A copy of the Order signed by Judge Haines Wednesday afternoon excluding the aggregation language is available at no charge at: http://bankrupt.com/misc/980FinalSolicitationOrder.pdf An Assignee "Steps into the Shoes" of an Assignor A claim trader, or any other purchaser of a claim against a debtor's estate, steps into the shoes of the seller of the claim. This rule of law was true under the Bankruptcy Act, see Manufacturers Trust Co. v. Becker, 338 U.S. 304, 94 L. Ed. 107, 70 S. Ct. 127 (1949), and continues to be true under the Bankruptcy Code. See, e.g., In re Olson, 191 B.R. 991, 1004 (Bankr. D. Minn. 1996); In re Executive Office Centers, Inc., 96 B.R. 642, 648-49 (Bankr. E.D. La. 1988); In re Oaks Partners, Ltd., 141 B.R. 453 (Bankr. N.D. Ga. 1992). A claim purchaser accepts all of the rights and infirmities of a purchased claim. See Goldie v. Cox, 130 F.2d 695, 720 (8th Cir. 1942) (stating that an assignee is subject to all equitable claims against the assignor); State Bank of India v. Walter E. Heller & Co., 655 F. Supp. 326, 331 (S.D.N.Y. 1987) ("An assignee 'is subject to all the equities and burdens which attach to the property assigned because he receives no more and can do no more than his assignor.'" (quoting International Ribbon Mills, Ltd. v. Arjan Ribbons, Inc., 36 N.Y.2d 121, 365 N.Y.S.2d 808, 811, 325 N.E.2d 137 (N.Y. 1975)). See also Shropshire, Woodliff & Co. v. Bush, 204 U.S. 186, 189, 27 S.Ct. 178, 179, 51 L.Ed. 436 (1907) (priority wage claim retains priority in hands of claim purchaser); Wilson v. Brooks Supermarket, Inc. (In re Missionary Baptist Foundation of America, Inc.), 667 F.2d 1244 (5th Cir. 1982) (one who cashes a payroll check of debtor's employee retains the same priority enjoyed by the employee), citing In re Stultz Bros., 226 F. 989 (S.D.N.Y. 1915); In re Chateaugay Corporation, et al., 155 B.R. 625 (Bankr. S.D.N.Y. 1993) (Conrad, J.) ("the character of debts are fixed when incurred, and these rights remain with the claim when transferred."); In re Greer West Investment Limited Partnership, 81 F.3d 168, 1996 WL 134293 (9th Cir. 1996) (transfer of claim from insider to non-insider did not alter claim's "insider" status). In short, there is no mystical transformation in the character, nature or other rights attendant to a claim upon its transfer from one entity to another after the commencement of a chapter 11 case. Rule 3001(e) of the Federal Rules of Bankruptcy Procedure sets forth the mechanical procedures for the transfer of claims against a chapter 11 debtor. Nowhere in Rule 3001(e) does the United States Supreme Court suggest that an assignee loses any right that attaches to a claim or that multiple claims are aggregated upon their transfer to a single transferee. See Fed. R. Bankr. Proc. 3001(e). A claim purchaser that follows all of the procedures set forth in Rule 3001(e) succeeds to all of the rights and incidents which go with those claims, including, but not limited to, the right to vote each impaired claim. Case Law On Point Judge Sellers, in In re Concord Square Apartments of Wood County, Ltd., 174 B.R. 71, 74 (Bankr. S.D. Ohio 1994), explained a decade ago that "a purchaser of claims is entitled to a vote for each separate claim it holds. . . . The language [of section 1126(c)] distinguishes between claim-holders and claims. 'The formula contained in Sec. 1126(c) speaks in terms of the number of claims, not the number of creditors, that actually vote for or against the plan.' In re Gilbert, 104 B.R. 206, 210 (Bankr. W.D. Mo. 1989). Thus a [creditor] which holds multiple claims, has a voting right for each claim it holds."). "It would not make much sense to require a vote by creditors who held 'more than one-half in number of the allowed claims' while at the same time limiting a creditor who held two or more of those claims to only one vote. If allowed claims are to be counted, they must be counted regardless of whose hands they happen to be in." In re Figter Limited, 118 F.3d 635 at 640 (slip op. at 14) (9th Cir. 1997), citing Concord Square and Gilbert. The bundles of rights that are incident to individual claims are fixed upon the commencement of a chapter 11 case. Those bundles of rights do not merge or unwind during a chapter 11 proceeding, except, perhaps, at the option of a holder of multiple claims. The right to vote the claim is an incident of ownership of the claim itself. Because a claim is a separate and distinct claim on the date the bankruptcy petition is filed, carrying with it an unfettered right to be voted if placed in an impaired class, it does not lose that essential character simply because it is transferred post-petition to a party who may hold another unrelated claim. The transferee is entitled to no more and no less than precisely what the transferor had on the petition date. Any suggestion to the contrary is both illogical and contrary to the plain language contained in the Bankruptcy Code. Headquartered in Bala Cynwyd, Pennsylvania, Pegasus Satellite Communications, Inc. -- http://www.pgtv.com/--is a leading independent provider of direct broadcast satellite (DBS) television. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. D. Me. Case No. 04-20889) on June 2, 2004. Larry J. Nyhan, Esq., James F. Conlan, Esq., and Paul S. Caruso, Esq., at Sidley Austin Brown & Wood, LLP, and Leonard M. Gulino, Esq., and Robert J. Keach, Esq., at Bernstein, Shur, Sawyer & Nelson, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,762,883,000 in assets and $1,878,195,000 in liabilities. PEGASUS SATELLITE: Has Until May 1 to Decide on Leases ------------------------------------------------------ The United States Bankruptcy Court for the District of Maine gave Pegasus Satellite Communications, Inc., and its debtor-affiliates an approval to extend their deadline to assume, assume and assign, or reject non-residential real property leases through May 1, 2005. Headquartered in Bala Cynwyd, Pennsylvania, Pegasus Satellite Communications, Inc. -- http://www.pgtv.com/-- is a leading independent provider of direct broadcast satellite (DBS) television. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. D. Me. Case No. 04-20889) on June 2, 2004. Larry J. Nyhan, Esq., James F. Conlan, Esq., and Paul S. Caruso, Esq., at Sidley Austin Brown & Wood, LLP, and Leonard M. Gulino, Esq., and Robert J. Keach, Esq., at Bernstein, Shur, Sawyer & Nelson, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,762,883,000 in assets and $1,878,195,000 in liabilities. (Pegasus Bankruptcy News, Issue No. 18; Bankruptcy Creditors' Service, Inc., 215/945-7000) PILLOWTEX CORP: Court Approves Sale of Trademark Rights to GGST --------------------------------------------------------------- On Oct. 7, 2003, the U.S. Bankruptcy Court for the District of Delaware authorized Pillowtex Corporation and its debtor- affiliates to sell certain of their assets and approved procedures for the subsequent sale or assumption of the Debtors' interest in certain real property, executory contracts and unexpired leases, and the assumption of certain liabilities. The Court approved an amended and restated asset purchase agreement for GGST, LLC's purchase of certain assets of and certain designation rights relating to the personal property, real estate and leasehold interests of the Debtors, including Pillowtex Corp. and Fieldcrest Cannon, Inc. The Debtors were also authorized to sell, assign, and transfer to GGST or its designees, all trademarks owned by the Debtors. Subsequently, the Debtors sold, assigned and transferred to Official Pillowtex, all right, title and interest, including goodwill, in and to the United States and foreign trademarks, they owned. James E. O'Neill, Esq., at Pachulski, Stang, Ziehl, Young, Jones, & Weintraub, P.C., in Wilmington, Delaware, informs Judge Walsh that Official Pillowtex is having difficulty protecting its rights in the trademarks assigned by Pillowtex Corp. and Fieldcrest Cannon in certain Middle Eastern countries, including the United Arab Emirates. To assist in protecting those rights, GGST and Official Pillowtex ask the Court to confirm the sale of the Debtors' trademark rights to Official Pillowtex. * * * Judge Walsh confirms that: (a) Pillowtex Corporation and Fieldcrest Cannon are currently in bankruptcy proceedings before the U.S. Bankruptcy Court for the District of Delaware; (b) the Court approved the sale of the Debtors' trademark rights to GGST; and (c) the Debtors assigned and transferred their trademark rights to Official Pillowtex. Headquartered in Dallas, Texas, Pillowtex Corporation -- http://www.pillowtex.com/-- sold top-of-the-bed products to virtually every major retailer in the U.S. and Canada. The Company filed for Chapter 11 protection on November 14, 2000 (Bankr. Del. Case No. 00-4211), emerged from bankruptcy under a chapter 11 plan, and filed a second time on July 30, 2003 (Bankr. Del. Case No. 03-12339). The second chapter 11 filing triggered sales of substantially all of the Company's assets. David G. Heiman, Esq., at Jones Day, and William H. Sudell, Jr., Esq., at Morris Nichols Arsht & Tunnel, represent the Debtors. On July 30, 2003, the Company listed $548,003,000 in assets and $475,859,000 in debts. (Pillowtex Bankruptcy News, Issue No. 74; Bankruptcy Creditors' Service, Inc., 215/945-7000) RURAL/METRO CORP: Moody's Junks $140M Senior Subordinated Notes --------------------------------------------------------------- Moody's Investors Service assigned ratings to the proposed debt of Rural/Metro Corporation and Rural/Metro LLC, a newly created subsidiary of Rural/ Metro Corporation. The proceeds from the proposed transactions will be used to refinance the existing debt of Rural/Metro. Concurrently, Moody's upgraded Rural/Metro Corp.'s senior implied rating to B2 from B3 reflecting improved operations and its return to profitability over the past few years. The change in the ratings outlook to stable, from negative, reflects the expectation of continued enhancement of the ratio of free cash flow relative to total debt to the middle - upper single digits. A list of Moody's rating actions: -- Rural/Metro LLC B2 assigned to the proposed $155 million senior secured credit facility consisting of a $20 million Senior Secured Revolving Credit Facility, due 2010; a $15 million Senior Secured Letter of Credit Facility, due 2011; and a $120 million Senior Secured Term Loan B, due 2011 Caa1 assigned to the proposed $140 million Senior Subordinated Notes, due 2015 -- Rural/Metro Corp. Assigned Caa2 to the proposed $50 million Senior Discount Notes, due 2016 (not guaranteed) Upgraded the existing Senior Secured Revolving Credit Facility, due 2007, to B2 from B3 (to be withdrawn concurrent with the proposed transaction) Upgraded the existing Senior Implied Rating to B2 from B3 Affirmed the existing $150 million 7.875% Senior Notes, due 2008, rated B3 Lowered the Senior Unsecured Issuer Rating to Caa2 from Caa1(non-guaranteed exposure) The ratings outlook changed to stable from negative. The ratings are predicated upon review of executed documents. The upgrade in the senior implied rating to B2 reflects an improvement in the Company's core ambulance operations. Over the past few years, Rural/Metro Corp. has terminated unprofitable contracts, exited weak markets, reduced corporate overhead, used technology to enhance labor utilization and productivity, stabilized collections, and improved its payer mix. The Company has also benefited from a more favorable reimbursement environment, and continued strong demand for its ambulance transport services. As a result, revenue has grown on a compounded basis by 7.8% between 2002 and 2004, following several years of either flat or declining revenue growth. Similarly, Rural Metro Corp. has become profitable again and EBITDA margins have recently expanded to over 10% of revenue. Additional factors supporting the ratings include a stable customer base with a 100% retention rate and long-term relationships, strong geographic and customer diversification, and the absence of any acquisitions over the past few years. The ratings are constrained by a low absolute level of free cash flow on a historic basis as well as a modest level of projected free cash flow relative to sizable debt, continued high financial leverage and negative equity, potential reimbursement risk, and moderate union representation for its ambulance service workforce. The Company has a significant amount of uncollectible revenue as a result of providing uncompensated care. While uncompensated care is inherent in the mandatory provision of ambulance transport to all patients, including the uninsured, this care constrains the absolute level of operating cash flow from operations. The change in the ratings outlook to stable from negative anticipates that the Company will continue to grow revenue internally and expand operating margins through controlling costs, increasing volume from existing customers, and adding new contracts. Continued revenue growth and increased margins should translate into higher free cash flow generation and debt reduction over time, improving debt coverage statistics. Moody's is concerned with the high level of capital expenditures needed to support the ambulance business and the low level of operating margins inherent in the provision of ambulance transport services. Any unexpected adverse changes, such as greater pricing pressure and/or an increase in bad debt expense, could inhibit the company's recent progress, prevent an improvement in its credit metrics, and result in negative free cash flow, likely resulting in increased reliance on its revolving credit facility. Pro forma for the transaction, credit statistics are modest. During the intermediate term, adjusted free cash flow as a percentage of adjusted debt is expected to range in the mid to upper single digits. Financial leverage, as measured by the ratio of Debt/EBIT, is expected to decline from close to 6.3 times to slightly over 4.7 times over the next two years (4.6 times EBITDA). Similarly, the level of interest coverage (EBIT to interest) is expected to increase to 2.1 times. The Company is proposing to issue $50 million senior discount notes at Rural/Metro, $140 million in senior subordinated notes at Rural/Metro LLC, and a $155 million senior secured credit facility, at Rural/Metro LLC, consisting of a $120 million Term Loan B, $15 million Letter of Credit Facility, and a $20 million undrawn revolver. The majority of proceeds, along with approximately $7.4 million in cash, will be used to tender the company's existing 7.875% senior notes due March 2008 and repay the company's existing revolver facility. The Company will use the letter of credit as collateral for its insurance policies, and as a result, lower its overall costs for worker's compensation, auto insurance, and other insurance expenses. The transaction also reduces its overall cash expense and provides the capital to enter new markets on a selective basis. The upgrade of the rating of Rural/Metro's existing senior credit facility to B2 from B3, and the assignment of a B2 rating for the proposed senior credit facility at Rural/Metro LLC reflects the priority position in the capital structure and the expectation of asset coverage in a distressed scenario. In Moody's opinion, excess collateral coverage in a distressed scenario would not likely be ample enough to support notching above the B2 senior implied rating despite the fact that senior secured debt at the Rural/Metro LLC level ranks higher than senior debt at the parent level. Further supporting the rating is the fact the total committed bank facilities account for over 40% of total pro-forma debt. The credit facilities are secured by a first lien on the capital stock of the borrower and its subsidiaries, 65% of the capital stock of first tier non-U.S. subsidiaries, and all property and assets of the borrower and its guarantors. There is a downstream guarantee from the company's parent, Rural/Metro, as well as an upstream guarantee from the operating subsidiaries. The affirmation of the B3 rating for the existing senior notes at Rural/Metro reflects the benefit from the same guarantee as the senior credit facility. The assignment of a Caa1 rating for the proposed senior subordinated notes at Rural/Metro LLC considers the contractual subordination to any existing and future debt at the issuer as well as the absence of any security supporting this class of debt. The notes benefit from the same guarantee package as the credit facility. The assignment of a Caa2 rating for the proposed senior discount notes reflects the effective subordination to any existing and future debt at the Rural/Metro LLC level as well as the absence of any security supporting this class of debt. These notes do not benefit from any guarantee package. The overall liquidity of Rural/Metro is considered adequate as it is expected that internally generated cash flow should be sufficient to fund working capital, capital expenditures and debt service over the next year. The Company should also be able to access external liquidity through its $20 million revolving credit facility. The Company's liquidity is constrained by the modest level of free cash flow relative to required capital expenditures, and limited cash on hand. Any additional unexpected capital expenditures, could pressure free cash flow. Additionally, there is an absence of an alternate source of liquidity, since all assets will be encumbered under the credit agreement. Rural/Metro Corporation provides emergency and non-emergency medical transportation, fire protection and other safety services in 23 states and approximately 400 communities throughout the United States. Revenue for the twelve months ended December 31, 2004 was approximately $541 million. RURAL/METRO: Obtains Commitment for New Secured Credit Facilities ----------------------------------------------------------------- Rural/Metro Corporation (NASDAQSC: RURL) reported that in connection with the financing of its previously announced tender offer for and consent solicitation relating to its 7-7/8% Senior Notes due 2008, it has obtained a commitment for new senior secured credit facilities. The facilities are expected to include a $120 million term loan B maturing in 2011 and a $20 million revolving credit facility maturing in 2010. The facilities also are expected to include a $15 million letter of credit facility maturing in 2011. The borrower under the facilities is expected to be a newly formed wholly owned subsidiary of the company. The borrower also will offer $140 million in aggregate principal amount of senior subordinated notes due 2015. Rural/Metro intends to offer approximately $50 million in gross proceeds of senior discount notes due 2016. Rural/Metro expects to use the borrowings under the new senior secured facilities and the proceeds from the offerings of the notes, in addition to about $7 million of the company's cash, to finance its tender offer for and consent solicitation relating to its existing senior notes, to redeem any existing senior notes not acquired in the tender offer, to repay approximately $153 million of outstanding revolving credit facility borrowings and to pay certain fees and expenses related to the above transactions. Any issuance of senior subordinated notes or senior discount notes is expected to be through a private placement that would be resold by the initial purchasers to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended, and outside the United States pursuant to Regulation S of the Securities Act. The commitment for the credit facilities is subject to certain conditions, including the successful completion of the proposed offerings of the notes. The final terms of any new credit facilities, senior subordinated notes or senior discount notes are still subject to negotiation. Other aspects of the refinancing plan are still under discussion with financing sources and may vary significantly in light of market and other conditions existing at the time the refinancing plan is finalized. There can be no assurance that the borrower or company will successfully enter into its new senior secured facilities or complete the issuance of its senior subordinated notes or senior discount notes. Any senior subordinated notes or senior discount notes will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This press release does not constitute an offer to sell or the solicitation of an offer to buy any security in any jurisdiction in which such offer or sale would be unlawful. About the Company Rural/Metro Corporation -- http://www.ruralmetro.com/ -- provides emergency and non-emergency medical transportation, fire protection, and other safety services to approximately 400 communities in 23 states. At Sept. 30, 2004, Rural/Metro Corp.'s balance sheet showed a $187,715,000 stockholders' deficit, compared to a $192,226,000 deficit at June 30, 2004. RURAL/METRO: S&P Junks $140 Million Senior Subordinated Notes ------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B' corporate credit rating to Scottsdale, Arizona-based medical transport services provider Rural/Metro Corporation, the holding company. Standard & Poor's has also assigned its 'B' senior secured debt rating and '2' recovery rating to Rural/Metro LLC's proposed $20 million senior secured revolving credit facility maturing in 2010 and a $120 million senior secured term loan B maturing in 2011. Rural/Metro LLC is an operating company and subsidiary of Rural/Metro Corp. At the same time, Standard & Poor's assigned its 'CCC+' subordinated debt rating to Rural/Metro LLC's proposed $140 million senior subordinated notes due 2015 and to Rural/Metro Corporation's proposed $50 million paid-in-kind notes maturing in 2016. As part of this transaction, the company is also establishing a $15 million letter-of-credit facility, with a $30 million accordion feature, maturing in 2011. This facility is primarily for insurance purposes and is not rated by Standard & Poor's. The company is expected to use the proceeds from the term, subordinated, and holding company debt, in addition to about $7 million of on-hand cash, to refinance $150 million of existing senior notes, repay approximately $153 million of outstanding revolving credit facility borrowings, and fund $15 million of related transaction fees and tender premiums. Pro forma for the transaction, Rural/Metro will have $313 million of total debt outstanding (including the $50 million of holding company debt). The outlook on Rural/Metro is stable. "The low-speculative-grade ratings reflect the company's exposure to government reimbursement combined with its relatively thin operating margins, as well as concerns regarding the sustainability of price increases from its commercial payors," said Standard & Poor's credit analyst Jesse Juliano. "The ratings also reflect Rural/Metro's large debt burden. These issues are only partially offset by the company's diverse and long-standing client list, and the improvement in the Medicare reimbursement environment." Rural/Metro is the second-largest commercial provider of medical transport services, behind competitor American Medical Response, Inc. Rural/Metro mainly provides emergency and non-emergency medical transportation services to about 400 communities in 23 states. The company generally contracts with governmental entities, hospitals, nursing homes, and other health care facilities. Rural/Metro also provides fire protection services to residential and commercial property owners. Medical transport and fire protection services represent about 86% and 14% of total revenues, respectively. SMC HOLDINGS: Files for Chapter 11 Protection in Delaware --------------------------------------------------------- SMC Holdings Corporation and its subsidiaries filed for voluntary chapter 11 petitions in the United States Bankruptcy Court for the District of Delaware to complete and effect a prepackaged joint plan of reorganization. As of Jan. 31, 2005, the Debtors owed approximately $123.7 million to its secured bank claimholders, and approximately $66.9 million to its senior note claimholders. Terms of the Plan The Plan only impairs two classes of creditors and two classes of equity holders, namely: -- the secured bank claimholders; -- the senior note claimholders; -- the SMC Holdings Stockholders; and -- the EFA stockholders. Pursuant to the Plan: (i) each secured bank claimholder will receive a full satisfaction of its allowed secured bank claims, and its ratable portion of the secured bank allocation of the reorganized SC Corp. common stock; (ii) each secured bank claim holders, who also holds secured bank priming loan claims, will be paid in cash the amount equal to the claim; (iii) each senior noteholder will be receive, in full satisfaction of its allowed claim, and its ratable portion of the senior note allocation of the reorganized company common stock; and (iv) equity interest holders in SMC Holdings and EFA will not receive any distributions or retain any of such equity interests. The Debtors expect no obstacle to the confirmation and implementation of the Plan after 93% in amount and 66-2/3% in number of the secured bank claimholders, and 100% in amount and in number of the senior note claim holders have voted to accept the Plan. In April 2003, the Debtors engaged The Blackstone Group to assist them in examining options to restructure and repay the debts owed to their impaired creditors. Castle Harlan, Inc., on behalf of Castle Harlan Partners IV, LP, submitted the best and highest offer to purchase substantially all of the Debtors' assets for approximately $120 million. Although this was the highest and best offer, the amount is more than $50 million less than the Debtors' outstanding debt. As a result, the terms of the asset sale was never finalized. On Dec. 23, 2004, following the Debtors' plan solicitation, Castle Harlan delivered an unsolicited offer which increased its previous offer to approximately $135 million. Following the receipt of this latest offer, the majority of the bank claim holders and senior note claimholders indicated that they would rather go forward with the Plan than have the Debtors sell their assets to Castle Harlan for a lesser price. Headquartered in St. Paul, Minnesota, SMC Holdings and its subsidiaries provide baggage cart, locker and stroller services at airports, train stations, bus terminals, shopping centers, ski resorts and entertainment facilities across the world. The Company and its debtor-affiliates filed for chapter 11 protection on Feb. 10, 2005 (Bankr. D. Del. Case No. 05-10395). Jason M. Madron, Esq., and Mark D. Collins, Esq., at Richards, Layton & Finger, P.A., and Douglas P. Bartner, Esq., and Michael H. Torkin, Esq., at Shearman & Sterling, LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for bankruptcy, they estimated more than $100 million in assets and debts. SMC HOLDINGS CORP: Case Summary & 20 Largest Unsecured Creditors ---------------------------------------------------------------- Lead Debtor: SMC Holdings Corporation 4455 White Bear Parkway St. Paul, Minnesota 5510-7641 Bankruptcy Case No.: 05-10395 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- Smarte Carte Corporation 05-10396 Smarte Carte, Inc. 05-10397 Smarte Carte Europe, Inc. 05-10398 EFA Acquisition Corporation 05-10399 Type of Business: The Debtors provide baggage cart, locker and stroller services at airports, train stations, bus terminals, shopping centers, ski resorts and entertainment facilities across the world. See http://www.smartecarte.com/ Chapter 11 Petition Date: February 10, 2005 Court: District of Delaware (Delaware) Judge: Mary F. Walrath Debtor's Counsel: Jason M. Madron, Esq. Mark D. Collins, Esq. Richards, Layton & Finger, P.A. One Rodney Square PO Box 551 Wilmington, Delaware 19899 Tel: (302) 651-7595 Fax: (302) 651-7701 -- and -- Douglas P. Bartner, Esq. Michael H. Torkin, Esq. Shearman & Sterling, LLP 599 Lexington Avenue New York, New York 10022 Auditors and Tax Consultants: KPMG Peat Marwick LLP Secured Bank Agent And Exit Facility Agent: Black Diamond Counsel to Black Diamond: Timothy R. Pohl, Esq. Skadden, Arps, Slate, Meagher & Flom, LLP 333 West Wacker Drive Chicago, Illinois 60606 Estimated Assets: More than $100 Million Estimated Debts: More than $100 Million Consolidated List of Debtors' 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ BDCM Opportunity Fund, LP Noteholder $22,000,000 c/o Black Diamond Capital (plus accrued Management, LLC interest) One Conway Park 100 Field Drive, Suite 140 Lake Forest, IL 60045 BDC Finance LLC Noteholder $13,000,000 c/o Black Diamond Capital (plus accrued Management, LLC interest) One Conway Park 100 Field Drive, Suite 140 Lake Forest, IL 60045 General Electric Capital Noteholder $5,000,000 Corporation (plus accrued 777 Long Ridge Road interest) Building 1st Floor Stamford, CT 06927 St. Paul Travelers Contract $1,019,261 200 North LaSalle Street Suite 1200 Chicago, IL 60601 Fax: (312) 750-2830 The Blackstone Group Contract $1,000,000 345 Park Avenue, 30th Floor New York, NY 10154 Fax: (212) 583-5707 Los Angeles & Ontario Contract $393,006 International Airports City of Los Angeles Department of Airports PO Box 92216 Los Angeles, CA 90009-2216 R&R Industrial (HK) Limited Contract $383,414 23 Liangong Road Longbau Town, Bao'an District Shenzhen, China 518109 Fax: 86-755-2774-5595 New York State Department of Taxes $230,000 Taxation & Finance 1011 East Touhy Avenue, Suite 475 Des Plaines, IL 60018 State of Florida Taxes $170,000 Department of Revenue 4415 West Harrison Street Suite 448 Hillside, IL 60162 Walt Disney World Company Contract $150,832 PO Box 3232 Anaheim, CA 92803 Port Authority of New York and Contract $102,114 New Jersey 225 Park Avenue South New York, NY 10003 International Fidelity Contract $100,000 Insurance Company c/o International Bond & Marine 2 Hudson Place, 4th Floor Hoboken, NJ 07030 Siegfried Larch Contract Unknown Carrera Roureda de Sansa 38 Atic 1 Andorra la Vella Andorra Lazaro Albo Contract Unknown 2900 Southwest 4th Avenue Miami, FL 33129 Leslie Johnson Litigation Unknown c/o Andrew J. Schatkin, Esq. Attorney for Plaintiff 350 Jericho Turnpike Jericho, NY 11753 Larry Mauriello, Esq. Litigation Unknown Richard Gugliotta, Esq. Attorneys for Plaintiff 1941 Williambridge Road Bronx, NY 10461 Martin Levinson & Litigation Unknown Lilly Levinson c/o Eric B. Epstein, Esq. Attorney for Plaintiff 500 5th Avenue, Suite 1150 New York, NY 10110 Dieter Waldmannstetter & Litigation Unknown Hilly Mayr Waldmannstetter c/o Thomas G. Gorman, Esq. Schiff, Gorman & Krkljes One East Wacker Drive, 35th Floor Chicago, IL 60601 Rea Smith Litigation Unknown c/o Paul Markstein Attorney for Plaintiff 574 Route 303 Blauvelt, NY 10913 Mary Cowhead Litigation Unknown c/o Ronald Gutworth Attorney for Plaintiff 90 South Main Street Orange, NJ 07050 SOLUTIA INC: Court Approve CP Films & 3M Global Supply Agreement ---------------------------------------------------------------- Minnesota Mining and Manufacturing Corporation is CPFilms, Inc.'s second largest customer. CPFilms is one of Solutia Inc.'s debtor-affiliate. Historically, CPFilms and 3M have entered into a number of separate purchase agreements each governing a specific product and containing their own terms and conditions. CPFilms has determined that entering into one global supply agreement that sets forth uniform terms for purchases, which would then be supplemented with specific subcontracts would be beneficial to its business. In addition, 3M has indicated that the existence of a global supply agreement could grant CPFilms greater access to future sales to 3M because many of 3M's sites will only do business with a supplier that has entered into a global supply agreement. Moreover, under the terms of one or more of the specific Subcontracts, to permit CPFilms to manufacture product under the Master Agreement and the Subcontracts, 3M may license its technology to CPFilms, permit CPFilms to utilize 3M equipment at CPFilms' facilities and provide CPFilms with 3M tooling, parts and materials to be maintained at CPFilms' facilities. Therefore, CPFilms has decided to enter into a Master Agreement with 3M. The Master Agreement establishes a business relationship in which 3M may request that CPFilms produce, package, process or store certain products for 3M at agreed-on pricing and in accordance with 3M's packaging and product specifications and other written instructions. When CPFilms and 3M identify certain Products that a specific 3M business unit will purchase from CPFilms on a recurring basis, the parties will enter into an exhibit to the Master Agreement that will describe those Products, their prices, and any Subcontract variations from the Master Agreement. In addition, 3M will order Products and CPFilms will accept orders, by issuing an individual purchase order or a release from a blanket purchase order. The terms of the Master Agreement will also apply to those purchase orders. Although the specific prices for products will be as set forth in a Subcontract or purchase order, the Master Agreement provides a mechanism for price adjustments. If CPFilms and 3M cannot agree on any Product's price adjustment, an independent auditor may be hired, at 3M's expense, to review CPFilms' records and determine the appropriate price change. M. Natasha Labovitz, Esq., at Gibson, Dunn & Crutcher LLP, in New York, relates that the Master Agreement neither obligates CPFilms to sell nor obligates 3M to purchase any Products not specifically set forth in a Subcontract or purchase order. CPFilms anticipates that it will enter into number of Subcontracts and purchase orders governing the supply of Products in the ordinary course of its business. If the entry of any Subcontract or purchase order is outside of the ordinary course of its business, CPFilms will file a separate motion with the Court seeking permission to enter into the Subcontract or purchase order. CPFilms sought and obtained the approval of the U.S. Bankruptcy Court for the Southern District of New York of the Master Agreement. Headquartered in St. Louis, Missouri, Solutia, Inc. -- http://www.solutia.com/-- with its subsidiaries, make and sell a variety of high-performance chemical-based materials used in a broad range of consumer and industrial applications. The Company filed for chapter 11 protection on December 17, 2003 (Bankr. S.D.N.Y. Case No. 03-17949). When the Debtors filed for protection from their creditors, they listed $2,854,000,000 in assets and $3,223,000,000 in debts. (Solutia Bankruptcy News, Issue No. 30; Bankruptcy Creditors' Service, Inc., 215/945-7000) STANDARD COMMERCIAL: Declares $0.0875 Quarterly Cash Dividend ------------------------------------------------------------- Standard Commercial Corporation's (NYSE: STW) Board of Directors has declared a quarterly cash dividend of $0.0875 per share on the common shares of the Company, payable on March 15, 2005, to common shareholders of record at the close of business on Feb. 28, 2005. About the Company Headquartered in Wilson, North Carolina, Standard Commercial is an independent leaf tobacco dealer and operates in over thirty countries. * * * As reported in the Troubled Company Reporter on Nov. 15, 2004, Moody's Investors Service placed the ratings of Standard Commercial Corporation and Dimon Incorporated under review with direction uncertain, following the announcement by the two companies of a definitive merger agreement. The transaction remains subject to shareholders and regulatory approvals. Ratings placed under review with direction uncertain: * Standard Commercial Corporation -- Senior implied, at Ba3 -- Senior unsecured, at Ba3 -- Issuer rating, at B1 * Standard Commercial Tobacco Company -- Bank Credit facility, at Ba3 * Dimon Incorporated -- Senior guaranteed unsecured, at B1 -- Issuer rating, at B2 Dimon and Standard Commercial have announced their intent to merge. Under the terms of the agreement, Standard Commercial common shareholders would receive three shares of Dimon common stock per each share of Standard Commercial common stock, making Dimon the surviving entity. The merged company should have proforma annual revenue of approximately $1.9 billion, based on combined results for the twelve months ended June 30, 2004. The direction of the review reflects uncertainty on the final level of the senior implied rating of the new entity at conclusion of the review. Moody's does not believe that it has sufficient information at this stage to determine a higher likelihood for a Ba3 senior implied rating than for a B1. The direction of the review also reflects uncertainty about the ultimate structure of the new company, whether this new structure will create structural subordination of some debt, and whether -- as Dimon has indicated it might be a possibility -- Dimon's debt will be tendered. STAR GAS: Fitch Revises Outlook to Negative After Inergy Purchase ----------------------------------------------------------------- Fitch Ratings has revised the Rating Watch on Star Gas Partners, L.P. to Negative from Positive on this debt: -- $265 million principal amount of 10.25% senior notes due 2013 (co-issued with its special purpose financing subsidiary Star Gas Finance Company) 'B-'. The securities were placed on Rating Watch Positive on Nov. 18, 2004, following the announcement that Star Gas had agreed to sell its propane operations to Inergy, L.P. for $475 million in cash. However, the debt reduction/liquidity benefits of the sale of the propane operations have not been as great as previously believed due to poor operating results and elevated working capital needs. Today's rating action follows the release of Star Gas' results of operations for the fiscal 2005 first quarter ended Dec. 31, 2004. Of particular concern to Fitch is the continued deterioration of operating results for its heating oil business reflecting high levels of net customer attrition, price induced conservation, and margin compression. Furthermore, Star Gas is unable to give assurances that the initiatives it is undertaking to improve results and decrease the customer attrition will be effective. Fitch is also concerned with Star Gas' weakened liquidity position. In addition to its senior unsecured notes, $119 million working capital borrowings were outstanding under its secured $260 million revolving credit facility. The company also reported that $40 million of the proceeds it received from the sale of propane operations have been invested in working capital assets (heating oil). As a result, with the repayment of its affiliates' secured long-term debt including associated premiums and fees, only $103.5 million is currently available to repurchase the $265 million of outstanding senior notes. Star Gas is obligated under the indenture for the senior notes to apply the remaining net proceeds from the sale of the propane operations to reduce the senior notes or make investments in assets or capital expenditures useful to Star Gas or its subsidiaries. Star Gas disclosed it expects it may utilize a portion of the remaining proceeds to meet future working capital needs. Typically the second fiscal quarter during the peak of the heating season, January through March, is critical to annual results of operations since it accounts for 45% of heating oil volumes sold. Fitch will continue to monitor operating and financial results as they are disclosed by the company. A continuation of current operating trends could lead to further negative rating action. STATE STREET: Must File Monthly Operating Reports by February 18 ---------------------------------------------------------------- The U.S. Bankruptcy Court for the Northern District of New York directed State Street Houses, Inc., and State Street Associates, L.P., to file monthly operating reports with the Court and the U.S. Trustee for Region 2 by Feb. 18, 2005. The Debtors should file the monthly operating reports for the periods commencing May 21, 2004 -- the bankruptcy petition date -- through Dec. 31, 2004. Judge Stephen D. Gerling further ordered that in the event the Debtors fail to file the MORs by Feb. 18, their chapter 11 cases will be converted to a chapter 7 proceeding when the U.S. Trustee applies for the conversion and with no requirement to inform the Debtors or their attorneys. If a conversion happens, the Debtors must: (1) turnover to the Chapter 7 Trustee all of the Debtors' records and properties as required by Rule 1019(5) of the Federal Rules of Bankruptcy Procedure; (2) file an accounting of all receipts and disbursements made during the pendency of the chapter 11 cases no later than 30 days after the effective date of the conversion; and (3) file a schedule of all unpaid debts incurred after the bankruptcy petition date no later than 15 days after the effective date of the conversion. The Court handed down the order after Guy A. VanBaalen, the Assistant U.S. Trustee for Region 2, pointed out the Debtors' neglect in filing the MORs and requested the conversion. Headquartered in Utica, New York, State Street Houses, Inc., is a New York Corporation and legal titleholder of Kennedy Plaza Apartments in Utica, New York. State Street Houses and State Street Associates, L.P., filed for chapter 11 protection on May 21, 2004 (Bankr. N.D.N.Y. Case No: 04-63673). When the Debtors filed for bankruptcy, they reported estimated assets and debts amounting between $10 million to $50 million. STELCO INC: Algoma Steel Withdraws from Purchase Talks ------------------------------------------------------ Algoma Steel Inc. said it does not intend to submit a binding offer for Stelco Inc. Algoma has been engaged in due diligence and in discussions with Stelco and its stakeholders since mid- December. Denis Turcotte, President and Chief Executive Officer, stated, "Algoma's due diligence has confirmed that there are significant potential benefits in a combination of Algoma and Stelco, but given the risks and obligations associated with the acquisition, we have concluded that proceeding with the transaction would not be in the best interests of our shareholders." Denis Turcotte further stated, "The efforts of our people across the Company continue to contribute to strong financial performance. This has allowed us to investigate strategic options that we will continue to explore in the months ahead." Ben Duster, Algoma's Chairman, said, "We believe Algoma can continue its success in the North American steel industry, however, the Company is also mindful of the potential for value creation through either acquisitions or industry consolidation. The Board will continue to evaluate all of these opportunities on behalf of its shareholders." About Algoma Steel Algoma Steel Inc. manufactures and markets steel plates. The products of the Group include sheets and strips, plates and seamless tubular steels. Stelco, Inc. -- http://www.stelco.ca/-- which is currently undergoing CCAA restructuring proceedings, is a large, diversified steel producer. Stelco is involved in all major segments of the steel industry through its integrated steel business, mini-mills, and manufactured products businesses. Consolidated net sales in 2003 were $2.7 billion. STELCO INC: Developing Reasonable Plan to Address Pension Issues ---------------------------------------------------------------- Stelco Inc. (TSX:STE) has received a letter from Mr. James Arnett, Special Advisor on the Steel Industry to the Government of Ontario, regarding the funding of the Company's pension plans. In the letter, received on Feb. 9, Mr. Arnett states that "I have been instructed to advise you that upon emergence from CCAA, Stelco will not be entitled to the benefit of Section 5.1." The letter also states that "...the Government supports your auction process and, to that end, is prepared to be flexible in discussing a fair and reasonable plan for the consequent need to fund the pension deficiencies on a solvency basis". Mr. Arnett also offers his commitment "on behalf of the Government, to working constructively with the company, its employees, stakeholders and bidders to address this issue." Stelco has stated that it will actively negotiate with the Ontario Government to develop a fair and reasonable plan to address this potential change in regulation under the Pension Benefits Act. If the Government passes a regulation to simply revoke the 5.1 election, the solvency deficiency of $1.3 billion, as at Dec. 31, 2004, will have to be amortized over a five- year period. For example, if the election had been rescinded as of Jan. 1, 2004, the total 2004 cash contributions to Stelco's four main plans would have increased from $64 million to $353 million. Hap Stephen, Stelco's Chief Restructuring Officer, said, "Our goal is a reasonable and responsible solution that will serve the best interests of the Company and all its stakeholders, including the Government of Ontario, and also reflect the Company's ability to make payments to reduce the solvency deficiency." Mr. Stephen added that, "Stelco has consistently stated that the pension funding issue is front-and-centre for the Company and for the bidders. The bidders are well aware of the issue, of our view, and of the Court's stated assumption that they will keep the issue in mind in making their bids." The Ontario Government amended Regulation 909 under the Pension Benefits Act in 1992 to allow a pension plan with over $500 million in assets to elect to cease funding the plan on a solvency basis. Pension Plans that have taken the 5.1 election are exempt under the Regulation from making special payments to fund a solvency deficiency. These plans, however, must continue to be funded on a going concern basis, and pay higher Pension Benefit Guarantee Fund premiums in accordance with the Pension Benefits Act. Stelco, Inc. -- http://www.stelco.ca/ -- which is currently undergoing CCAA restructuring proceedings, is a large, diversified steel producer. Stelco is involved in all major segments of the steel industry through its integrated steel business, mini-mills, and manufactured products businesses. Consolidated net sales in 2003 were $2.7 billion. STELCO INC: Ontario Court Extends CCAA Protection Until Apr. 29 --------------------------------------------------------------- Stelco Inc. (TSX:STE) obtained an Order of the Superior Court of Justice (Ontario) extending the stay period under its Court- supervised restructuring to Apr. 29, 2005. The extension will enable the Company to continue negotiations with its stakeholders, complete the capital raising and asset sale process, complete the creditor claims procedure and develop a plan of arrangement or compromise. Courtney Pratt, Stelco President and Chief Executive Officer said, "This extension is in the best interests of all stakeholders. It provides the time and the certainty in which we can move closer to the goal of a successful restructuring." Stelco, Inc. -- http://www.stelco.ca/-- which is currently undergoing CCAA restructuring proceedings, is a large, diversified steel producer. Stelco is involved in all major segments of the steel industry through its integrated steel business, mini-mills, and manufactured products businesses. Consolidated net sales in 2003 were $2.7 billion. STERICYCLE INC: 4th Qtr. Net Income Up 3.5% to $19.1 Million ------------------------------------------------------------ Stericycle, Inc. (NASDAQ:SRCL), the United States' leading provider of medical waste management and compliance services for the healthcare community, reported financial results for the fourth quarter and full year of 2004. Fourth Quarter and Full Year Results Revenues for the quarter ended Dec. 31, 2004 were $138.9 million, up 21.2% from $114.6 million in the same quarter last year. Acquisitions less than 12 months old contributed approximately $18 million in revenues for the quarter. Gross profit was $60.5 million, up 18.4% from $51.1 million in the same quarter last year. Gross profit as a percent of revenues was 43.6% versus 44.6% in the fourth quarter of 2003. Net income for the fourth quarter of 2004, including the charges related to the redemption of our senior subordinated notes, rose 3.5% to $19.1 million, up from $18.4 million in the fourth quarter of 2003. As we had previously announced, we redeemed the remaining $50.1 million of our 12-3/8% senior subordinated notes in November 2004. The redemption premium was a cash pre-tax charge of $3.1 million, and the accelerated amortization of financing fees associated with the notes was a non-cash pretax charge of $1.1 million. On an after-tax basis, these charges totaled approximately $2.6 million, or $0.06 per diluted share. Earnings per diluted share, including this charge, for the fourth quarter of 2004 were $0.42, up 5.0% from $0.40 in the fourth quarter of 2003. Weighted shares outstanding used to determine earnings per diluted share were 45,858,482 for the fourth quarter of 2004 and 46,311,916 for the fourth quarter of 2003. For the year ended December 31, 2004, revenues increased to $516.2 million, up 13.9% from $453.2 million in the same period a year ago. Gross profit was $228.2 million, up 16.1% from $196.6 million in the same period a year ago. Gross profit as a percent of revenues increased to 44.2% for the year ended December 31, 2004 from 43.4% for the same period in 2003. Earnings per diluted share, including $0.06 in charges related to the redemption of our senior subordinated notes, increased 18.2% to $1.69 from $1.43 per diluted share in the same period a year ago. Our total debt to capitalization percentage ratio at December 31, 2004 was 29.1% versus 28.1% at December 31, 2003. Miller said, "During the year, we continued to execute our proven business model, generating strong sales growth, and record income from operations. With a strong balance sheet, the cash flow from operations of $114.6 million for the year was used to strengthen the business and funded $72.4 million in acquisitions, $33.2 million in capital spending, and $34.8 million ($24.7 million in the fourth quarter of 2004) in stock repurchases." About the Company Stericycle -- http://www.stericycle.com/-- provides medical waste collection, transportation, treatment and disposal services and safety and compliance programs. * * * As reported in the Troubled Company Reporter on Sept. 3, 2004, Moody's Investors Service upgraded the ratings of Stericycle, Inc. The affected debt includes: * $50.8 million of senior subordinated notes due 2009, upgraded to B2 from B3; * Senior Implied Rating, upgraded to Ba3 from B1; and * Issuer Rating, upgraded to B1 from B2. The rating outlook remains stable. TEXEN OIL: Inks Control Block Sale Agreement -------------------------------------------- Texen Oil and Gas, Inc., (OTCBB:TXEO) reported that an agreement has been reached for the acquisition of a control position of the Company by Texen Holdings, LLC, an entity controlled by the Company President, D. Elroy Fimrite. The sale is expected to complete within the current quarter. "The Company is positioned to accelerate development of its current asset base in conjunction with the field study being conducted by Durango Resources Corporation," stated Mr. Fimrite, "I am pleased that these developments have facilitated the negotiation of an agreement for the acquisition of the control position." The Company intends to seek additional opportunities to access high quality prospects through alignment of the Company with state of the art exploration technologies. The Company believes that obtaining access to high quality prospects in a preferential position is the most effective way to acquire new reserves and enhance Shareholder value. About the Company Texen Oil and Gas, Inc. -- http://www.texenoilandgas.com/-- is a Houston based oil and gas exploration and development company. The company leases approximately 6,000 acres of crude oil and natural gas producing properties in Victoria, DeWitt and Waller Counties, Texas. The Company trades under the stock symbol TXEO on the OTC bulletin board. Going Concern Doubt The company's auditors in its September 30, 2004, quarterly financial report have issued a going concern opinion. This means that the auditors believe there is doubt that the company can continue as an on-going business for the next twelve months unless the company can obtain additional capital to pay our bills. The company have generated limited revenues and expected revenues during the ensuing period are subject to fluctuation based on the availability of additional capital necessary in order to fully exploit the unproven potential of our Oil & Gas portfolio. Accordingly, we must raise cash from sources other than from the sale of Oil & Gas found on our properties. Our only other source for cash at this time is investments by others in our company. We must raise cash to implement our project and stay in business. TROPICAL SPORTSWEAR: Court Okays $88.5 Million Sale to Perry Ellis ------------------------------------------------------------------ Perry Ellis International, Inc. (NASDAQ:PERY) has received bankruptcy court approval for the acquisition of certain domestic operating assets as well as the outstanding capital stock of the U.K. subsidiary of Tropical Sportswear International (NASDAQ:TSIC) for $88.5 million in cash. Closing on this transaction is expected to take place on or before Feb. 26, 2005, and will be funded by proceeds from Perry Ellis International's senior credit facility. George Feldenkreis, Chairman and CEO of Perry Ellis International, said, "This acquisition should add in excess of $230 million in net sales on an annualized basis, and we expect it will be $0.05 - $0.10 accretive in the first twelve months after acquisition. The combined bottoms volume of the two companies makes us one of the largest producers of men's pants in the world. We predicted years ago that retailer consolidation would transform relationships between apparel wholesalers and their customers, and our new assets make Perry Ellis International more valuable and important to its customers." Mr. Feldenkreis continued: "This acquisition increases the significance of the bottoms category from approximately 20 percent of our total sales to over 40 percent, balancing our portfolio of tops and bottoms and further diversifying our product mix. We are now one of the most broadly diversified and balanced men's sportswear companies in the United States, with the ability to capitalize on current opportunities. We are pleased to add to our organization the very capable people at TSI's Tampa facility, and plan to maintain a significant Tampa presence." Oscar Feldenkreis, President and COO of Perry Ellis International, concluded, "This acquisition enhances our standing with our retail partners by adding many of Tropical's high profile labels to our branded portfolio, including Savane(R), Farah(R), and Banana Joe(R). We will grow these brands through Perry Ellis' core competencies, investing in their marketing and improving design. In addition, our familiarity with the bottoms business, as well as common merchandising and management systems, will facilitate our integration of Tropical. Lastly, Tropical's U.K. subsidiary will provide an excellent platform for the future expansion of Perry Ellis International brands into Europe. We feel that this acquisition will continue to create substantial value for our shareholders and build one of the premier apparel companies in the world." About Perry Ellis International Perry Ellis International, Inc., is a leading designer, distributor and licensor of a broad line of high quality men's and women's apparel, accessories, and fragrances, including dress and casual shirts, golf sportswear, sweaters, dress and casual pants and shorts, jeans wear, active wear and men's and women's swimwear to all major levels of retail distribution. The company, through its wholly owned subsidiaries, owns a portfolio of highly recognized brands including Perry Ellis(R), Jantzen(R), Cubavera(R), Munsingwear(R), John Henry(R), Original Penguin(R), Grand Slam(R), Natural Issue(R), Penguin Sport(R), the Havanera Co.(R), Axis(R), and Tricots St. Raphael(R). The company also licenses trademarks from third parties including Nike(R) and Tommy Hilfiger(R) for swimwear, PING(R) and PGA Tour(R) for golf apparel and Ocean Pacific(R) for men's sportswear. Additional information on the company is available at http://www.pery.com/ Headquartered in Tampa, Florida, Tropical Sportswear Int'l Corp. -- http://www.savane.com/-- designs, produces and markets branded branded apparel products that are sold to major retailers in all levels and channels of distribution. The Company and its debtor-affiliates filed for chapter 11 protection on Dec. 16, 2004 (Bankr. M.D. Fla. Case No. 04-24134). David E. Bane, Esq., and Denise D. Dell-Powell, Esq., at Akerman Senterfitt, represent the Debtors in their restructuring efforts. When the Debtor filed for protection from its creditors, it listed total assets of $247,129,867 and total debts of $142,082,756. TRUMP HOTELS: Amended Plan's Classification & Treatment of Claims ----------------------------------------------------------------- In their Amended Plan and Disclosure Statement, Trump Hotels & Casino Resorts, Inc., and its debtor-affiliates provided estimates of recoveries for Claim Classes 1 to 4, and cash distributions to Classes 1 to 3. The Plan now also groups claims and interests into 13 classes: Estimated Cash Distribution Class Description and Estimated Recovery ----- ----------- --------------------------- N/A Administrative Claims Paid in full in cash. Estimated recovery: 100%. N/A Priority Tax Claims Paid in full in cash. Estimated recovery: 100%. 1 TAC Notes Claims Based on an assumed Effective Date of May 1, 2005, the Debtors estimate that the TAC Cash Distribution would total $66,100,000. Estimated Recovery: 93.2% 2 TCH First Priority Based on the assumed Notes Claims Effective Date of May 1, 2005, the Debtors estimate that the TCH First Cash Distribution would aggregate around $6,900,000, which estimate excludes any scheduled interest payments to be made on December 15, 2004, and March 15, 2005 with respect to the TCH First Priority Notes during the pendency of the Debtors' Chapter 11 cases. Estimated Recovery: 100% 3 TCH Second Priority Assuming May 1, 2005, is the Notes Claims Effective Date, the Debtors estimate that the TCH Second Cash Distribution would equal around $5,200,000. Estimated Recovery: 95.4% 4 DJT Secured Estimated Recovery: 90% Notes Claim 5 Other Secured Claims Unimpaired under (a) and (e); Impaired under (b), (c), (d) and (f); Holder will receive any one or a combination of these: (a) cash equal to the Allowed Class 5 Claim; (b) deferred cash payments totaling at least its allowed amount, of a value, of at least the value of the holder's interest in the Debtors' property securing the Allowed Class 5 Claim; (c) the Debtors' property securing the claim; (d) payments or liens amounting to the indubitable equivalent of the value of the holder's interest in the Debtors' property securing the claim; (e) reinstatement of the claim; or (f) other treatment as the Debtors and the holder will have agreed upon in writing. Estimated Recovery: 100% 6 Priority Claims Unimpaired; Paid in full, in cash Estimated Recovery: 100% 7 General Unsecured Unimpaired; Paid in full, in Claims cash Estimated Recovery: 100% 8 Intercompany Claims Unimpaired; Allowed Claims will be reinstated on the Effective Date. Estimated Recovery: 100% 9 Old Equity Interests Unimpaired; Allowed Claims of Other Subsidiaries will be reinstated on the Effective Date. Estimated Recovery: 100% 10 Old THCR Holding Impaired; Holder will retain Interests existing interests subject to the terms of the New THCR Partnership Agreement. 11 Old THCR Common Impaired; Each holder will: Stock Interests (a) to the extent holder holds Old THCR Common Stock: -- retain its existing shares of Old THCR Common Stock, subject to the reverse stock split and dilution upon issuance of the New Common Stock, on a pro rata basis; and -- receive, on a pro rata basis, New Class A Warrants based on the holder's beneficial ownership of Old THCR Common Stock as of the New Class A Warrants Record Date, with the exception of Mr. Trump, who will forego receipt of his warrants regardless of the Old THCR Common Stock shares he beneficially owns; (b) to the extent the holder holds Old THCR Holdings LP Interests, retain its existing Old THCR Holdings LP Interests, subject to the terms of the New THCR Partnership Agreement; and (c) to the extent the holder holds Old THCR Class B Common Stock, retain its existing shares of Old THCR Class B Common Stock, which will be reclassified on a one-to-one basis into shares of New Class B Common Stock. The ability of holders of New Class B Common Stock to vote shares of New Common Stock issuable upon the exchange of New THCR LP Interests will be adjusted to account for the Reverse Stock Split. 12 Interests of holders Impaired; Holder will not of Old THCR Stock receive or retain any cash Rights and Claims or property on account of arising out of the the claims and interests. Old THCR Stock Rights Estimated Recovery: 0% 13 Securities Claims Impaired; Holder will not against THCR receive or retain any cash or property on account of the claims. Estimated Recovery: 0% Headquartered in Atlantic City, New Jersey, Trump Hotels & Casino Resorts, Inc. -- http://www.thcrrecap.com/-- through its subsidiaries, owns and operates four properties and manages one property under the Trump brand name. The Company and its debtor- affiliates filed for chapter 11 protection on Nov. 21, 2004 (Bankr. D. N.J. Case No. 04-46898 through 04-46925). Robert A. Klymman, Esq., Mark A. Broude, Esq., John W. Weiss, Esq., at Latham & Watkins, LLP, and Charles Stanziale, Jr., Esq., Jeffrey T. Testa, Esq., William N. Stahl, Esq., at Schwartz, Tobia, Stanziale, Sedita & Campisano, P.A., represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed more than $500 million in total assets and more than $1 billion in total debts. TRUMP HOTELS: Feb. 14 Telephonic Disclosure Statement Hearing Set ----------------------------------------------------------------- Jeffrey T. Testa, Esq., at Schwartz, Tobia, Stanziale, Sedita & Campisano, in Montclair, New Jersey, relates that Trump Hotels & Casino Resorts, Inc., and its debtor-affiliates agreed to make some slight modifications to the Disclosure Statement based on the objections heard at the February 3, 2005, Disclosure Statement Hearing. The Debtors and Equity Committee are negotiating the final terms of the Plan. The Court has scheduled a telephonic hearing for any outstanding issues with regard to the Disclosure Statement on February 14, 2005 at 3:00 p.m. EST. The Debtors will present the final terms of the Plan at the telephonic hearing. Headquartered in Atlantic City, New Jersey, Trump Hotels & Casino Resorts, Inc. -- http://www.thcrrecap.com/-- through its subsidiaries, owns and operates four properties and manages one property under the Trump brand name. The Company and its debtor- affiliates filed for chapter 11 protection on Nov. 21, 2004 (Bankr. D. N.J. Case No. 04-46898 through 04-46925). Robert A. Klymman, Esq., Mark A. Broude, Esq., John W. Weiss, Esq., at Latham & Watkins, LLP, and Charles Stanziale, Jr., Esq., Jeffrey T. Testa, Esq., William N. Stahl, Esq., at Schwartz, Tobia, Stanziale, Sedita & Campisano, P.A., represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed more than $500 million in total assets and more than $1 billion in total debts. UNISPHERE WASTE: All Five Directors Walk Away from Board -------------------------------------------------------- Unisphere Waste Conversion Ltd. disclosed the resignation of all its directors effective Feb. 9, 2005. The Directors are John Wypich, Tom Allen, Lee Barker, Oliver Lennox King and Cal Parent. The Company's wholly owned subsidiary, Unisphere Tire Recycling Inc. (formerly, Enviro Tire Technologies Inc.) has filed a Notice of Intention to Make a Proposal to its creditors under the Bankruptcy and Insolvency Act (Canada). As reported in the Troubled Company Reporter on Feb. 9, 2005, Unisphere Waste reported that a lawsuit has been filed by a 6% unsecured debenture holder against the Company for non-payment of principal and interest amounting to $1,060,000. On Feb. 1, the Company did not make interest payments due to debenture holders in the amount of $625,000 on Jan. 31, 2005, and did not make interest payments due to debenture holders in the amount of $150,000 on Feb. 2, 2005. In addition the Company did not make a principal payment due to a debenture holder of $1,000,000 on Feb. 2, 2005. As a result of the non-payment and other defaults with lenders, the Company's other indebtedness may become due and payable. The Company is unable to make its current payments and pay indebtedness. The Company has met with representatives of the 10% secured debenture holders and discussions are ongoing. A further lawsuit has been filed by a former employee, Victor Sibilia, for $5,000,000 plus other ancillary relief and damages against the four outside directors of the Company. The Company had expected that the outside directors will vigorously defend the lawsuit but anticipates that they will also claim indemnity from the Company for any damages that the court might assess against them. About the Company Unisphere Waste Conversion Ltd. is a Canadian environmental solutions company. URS CORP: Earns $26.1 Million of Net Income in Fourth Quarter ------------------------------------------------------------- URS Corporation (NYSE: URS) reported revenues of $907.4 million for the fiscal 2004 fourth quarter ended October 31, 2004, an increase of 8% from the $838.1 million in revenues reported for the fourth quarter of fiscal 2003. Net income was $26.1 million, compared to $19.5 million for the corresponding fourth quarter of fiscal 2003. Earnings per share of $0.59, fully diluted, was in line with the Company's guidance and compares with EPS of $0.57 per share, fully diluted, for the fiscal 2003 fourth quarter. For the fiscal year ended October 31, 2004, revenues increased 6% to $3.382 billion from $3.187 billion for the fiscal year ended October 31, 2003. Net income was $61.7 million, or $1.53 per share, fully diluted, compared to $58.1 million, or $1.76 per share, fully diluted, in fiscal 2003. Net income for fiscal 2004 included a previously announced pre-tax charge of $28.2 million, or $0.36 per diluted share, which was taken in the third and fourth quarters of fiscal 2004. The charge related to the Company's note redemptions of $260.0 million. Weighted-average shares outstanding for fiscal 2004 for the purposes of calculating diluted EPS were 40.4 million, compared to 32.5 million weighted-average shares outstanding for fiscal 2003. The increase was primarily due to the Company's April 2004 public stock offering and to additional shares issued pursuant to the Company's stock option and purchase plans. During fiscal 2004, the Company generated operating cash flow of $109 million and repaid $271 million of debt by using $185 million of proceeds received from its public stock offering and $86 million from its operating cash flow. As a result, the Company's debt to total capitalization ratio improved to 34% at October 31, 2004, from 52% at October 31, 2003. As of October 31, 2004, the Company's backlog was $3.823 billion, compared to $3.662 billion as of October 31, 2003. Commenting on the Company's financial results, Martin M. Koffel, Chairman and Chief Executive Officer, stated: "Our results for both the fourth quarter and the fiscal year were in line with our guidance and reflect the continued strength of the federal business, as well as our continued ability to mitigate the effect of slowdowns in the state and local government and private sector markets. Despite the continued softness in these two markets during much of 2004, we were able to generate strong cash flow, substantially reduce our leverage, and deliver consistent financial results throughout the year. We ended the year as a significantly stronger company overall and are well positioned for the future." Mr. Koffel continued: "The combination of our public stock offering and continued success in generating cash flow during the year allowed us to achieve our goal of reducing our debt to total capitalization ratio to below 40% well ahead of schedule. Looking forward, we believe our continued strong cash generation will enable us to pay down an additional $80 million during fiscal 2005." Business Segments In addition to providing consolidated financial results, URS provided separate financial information for its two segments, the URS Division and the EG&G Division: URS Division For the fourth quarter of fiscal 2004, the URS Division reported revenues of $589.9 million and operating income of $45.8 million. For the 2004 fiscal year, the URS Division reported revenues of $2.255 billion and operating income of $167.5 million. EG&G Division For the fourth quarter of 2004, the EG&G Division reported revenues of $317.9 million and operating income of $13.3 million. The EG&G Division had revenues of $1.130 billion and operating income of $54.8 million for the 2004 fiscal year. Earnings Outlook As previously announced, effective January 1, 2005, URS will begin reporting its financial results on a 52/53-week fiscal year ending on the Friday closest to December 31, with interim quarters ending on the Fridays closest to March 31, June 30 and September 30. The period from November 1, 2004 through December 31, 2004 will be treated as a separate reporting period, for which the Company expects to issue a press release and file a transition report on Form 10-Q on February 8, 2005. The Company expects that its financial results for this unique transition period will be affected by seasonal factors including winter weather and the costs associated with the holidays that fall during this period. For the fiscal year that will end on December 30, 2005, the Company expects revenues of approximately $3.6 billion. Assuming it meets this revenue expectation, the Company expects that net income will be approximately $94 million and EPS will be approximately $2.10 for fiscal 2005. In addition, the Company has indicated that it expects 2005 first quarter EPS will be between 19% and 23% of the Company's full year 2005 EPS guidance of $2.10. This EPS guidance does not include the potential impacts of Statement of Financial Accounting Standards 123 (Revised) "Share- Based Payment," which requires that the costs resulting from share-based payment transactions be recognized in the financial statements. FAS 123R becomes effective for the Company on July 1, 2005. URS Corporation -- http://www.urscorp.com/-- offers a comprehensive range of professional planning and design, systems engineering and technical assistance, program and construction management, and operations and maintenance services for surface transportation, air transportation, rail transportation, industrial process, facilities and logistics support, water/wastewater treatment, hazardous waste management and military platforms support. Headquartered in San Francisco, the Company operates in more than 20 countries with approximately 27,000 employees providing engineering and technical services to federal, state and local governmental agencies as well as private clients in the chemical, manufacturing, pharmaceutical, forest products, mining, oil and gas, and utilities industries. * * * As reported in the Troubled Company Reporter on August 20, 2004, Moody's upgraded URS Corporation's ratings to reflect the company's reduced debt balances, improved credit metrics, and expectations that revenues and margins will support further improvement in the company's cash flows. The company's rating outlook has been changed from positive to stable. Moody's has upgraded these ratings: * $225 million senior secured revolving credit facility, due 2007, upgraded to Ba2 from Ba3; * $84 million senior secured term loan A, due 2007, upgraded to Ba2 from Ba3; * $270 million senior secured term loan B, due 2008, upgraded to Ba2 from Ba3; * $130 million 11.5% senior unsecured notes, due 2009, upgraded to Ba3 from B1; * $20 million 12.25% senior subordinated notes, due 2009, upgraded to B1 from B2; * Senior Implied, upgraded to Ba2 from Ba3; * Senior Unsecured Issuer, upgraded to Ba3 from B1; * Speculative Grade Liquidity Rating, upgraded to SGL-1 from SGL-2. The ratings upgrade: (1) reflects the company's improved balance sheet; (2) strong operating performance; and (3) the expectation that the company's services will continue to enjoy stable demand. In its third fiscal quarter, URS used the net proceeds of an equity offering, cash on hand and additional borrowings under its credit facility to redeem $70 million of its 11.5% senior notes and $180 million of its 12.25% senior subordinated notes. As a result of these redemptions, the company's overall debt balance decreased by over $180 million to about $594 million. This is a significant improvement over the $955 million debt balance at October 31, 2002. The company's ratings also benefit from: (1) a stable customer base; (2) recurring revenues; (3) a $3.9 billion backlog at April 30, 2004; and (4) expected increases in defense and homeland security spending. The ratings are constrained by the challenges the company faces in growing its state and local revenues due to state budget deficits and delays in funding of state and local infrastructure projects. Revenues from the company's private clients are also under pressure due to reduced levels of capital spending and cost- cutting measures by the company's private clients. In 2002, URS purchased EG&G for $500 million for a purchase multiple that equates to just under 10 times its fiscal 2003's EBITDA. This acquisition transformed URS as EG&G represents around 32% of total revenues. Going forward, Moody's does not expect the company to make large debt-financed acquisitions as URS has publicly stated that it wants to maintain a debt to capitalization ratio below 40%. A change in policy due to an acquisition or other transaction, however, would pressure the ratings. A decrease in the company's revenues, operating margins and free cash flow generation would also pressure the rating. US AIRWAYS: Pension Benefit Takes $2.3 Billion Pension Loss ----------------------------------------------------------- The Pension Benefit Guaranty Corporation has assumed responsibility for the pensions of more than 51,000 flight attendants, machinists and other employees of US Airways, the bankrupt air carrier based in Arlington, Va. The estimated cost to the pension insurance program is $2.3 billion, in addition to the $726 million claim from the US Airways' pilots plan in 2003. The total claim of $3 billion is the second largest in the history of the pension insurance program, after Bethlehem Steel at $3.7 billion. "The PBGC will protect the pension benefits of US Airways' workers and retirees," said Executive Director Bradley Belt. "But the pension safety net is badly frayed. The Administration has put forward a comprehensive proposal that requires companies to pay for their promises, strengthens the insurance backstop, and sheds light on plan finances. We look forward to working with Congress to enact these reforms promptly." The Retirement Plan for Flight Attendants and Retirement Plan for Machinists ended as of Jan. 10, 2005, and the Retirement Plan for Certain Employees of US Airways ended as of Jan. 17, 2005. The PBGC became trustee of all three plans on February 1, 2005. According to PBGC estimates, the plans are 40 percent funded, with $1.7 billion in assets to cover $4.2 billion in liabilities. Of the $2.5 billion shortfall, the PBGC will guarantee payment of an estimated $2.3 billion. Based upon an extensive financial review, the PBGC determined that US Airways met the legal criteria to transfer its pension liabilities to the federal pension insurance program and advised the bankruptcy court of its findings. U.S. Bankruptcy Judge Stephen S. Mitchell ruled on Jan. 6, 2005, that the company could not emerge from Chapter 11 bankruptcy protection unless the plans were terminated. US Airways retirees will continue to receive their monthly benefit checks without interruption, and other workers will receive their pension when eligible to retire. Under federal pension law, the maximum guaranteed pension at age 65 for participants in plans that terminate in 2005 is $45,613 per year. The maximum guaranteed amount is lower for those who retire earlier or elect survivor benefits. In addition, certain early retirement subsidies and benefit increases made within the past five years may not be fully guaranteed. Within the next several weeks, the PBGC will send trusteeship notification letters to all participants in the US Airways pension plans. Workers and retirees with questions may consult the PBGC Web site, http://www.pbgc.gov/usairwaysor call toll-free at 1-800-400-7242. For TTY/TDD users, call the federal relay service toll-free at 1-800-877-8339 and ask for 800-400-7242. US Airways retirees who draw a benefit from the PBGC may be eligible for the federal Health Coverage Tax Credit. Further information may be found on the PBGC Web site at http://www.pbgc.gov/trade_adjustment_act_FAQ.htm 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. (US Airways Bankruptcy News, Issue No. 81; Bankruptcy Creditors' Service, Inc., 215/945-7000) US AIRWAYS: Wants to Enter into Fuel Hedging Programs ----------------------------------------------------- In the past, US Airways, Inc., and its debtor-affiliates used hedges to guard against fluctuations in jet fuel prices, including fuel options, call options, collars and swap agreements. To enter into these derivatives, the Debtors had to comply with a Master Agreement form provided by the International Swaps and Derivatives Association, Inc., which included providing a counterparty with cash collateral to secure potential obligations. Since the price of jet fuel has been high lately, the Debtors have not used fuel hedges. However, prudent risk management may compel hedging transactions in the near future. If the Debtors want to enter into hedges under a Master Agreement, they will have to grant a counterparty a first priority lien and security interest in sufficient cash collateral. Potential counterparties will not enter into fuel hedges unless they are confident that the Debtors have the necessary authority. The Debtors seek the authority of the U.S. Bankruptcy Court for the Eastern District of Virginia to enter into jet fuel hedging transactions. To the extent collateral is required, the Debtors seek permission to use their cash, including the Cash Collateral subject to the Cash Collateral Order, provided that written permission from the ATSB Lender Parties is received. The Debtors want authority to allow counterparties to close out and net their positions. Brian P. Leitch, Esq., at Arnold & Porter, in Denver, Colorado, notes that the Cash Collateral Order gives the Debtors permission to use Cash Collateral to "pay the ordinary and reasonable expenses of operating their businesses," including the "purchase of fuel" and "other expenditures as are necessary for operating their business." Given the large amount of jet fuel that the Debtors consume and the risk management benefits derived through jet fuel hedges, Mr. Leitch asserts that it is in the best interests of the estates to have the authority to enter into hedging transactions, including Master Agreements. If authorization is not granted, the Debtors will be at a competitive financial disadvantage and will be unable to utilize an industry practice to manage the costs of jet fuel. 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. (US Airways Bankruptcy News, Issue No. 80; Bankruptcy Creditors' Service, Inc., 215/945-7000) USM CORP: Judge Walsh Orders Transfer of Chapter 22 Case to Mass. ----------------------------------------------------------------- USM Corporation filed for chapter 11 protection on July 31, 2001 in the U.S Bankruptcy Court for the District of Massachusetts. Thirty-two months after the confirmation of its plan of reorganization, the Debtor filed for chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware on Feb. 1, 2005. At the behest of Teradyne, Inc., Judge Peter J. Walsh ordered the transfer of the case to the U.S. Bankruptcy Court for the District of Massachusetts on Feb. 3, 2005. Teradyne Inc., holds a judgment claim of $949,280 and is the Debtor's largest unsecured creditor. Teradyne holds a substantial claim that arises as a consequence of defaults arising under the Plan confirmed by the Massachusetts Bankruptcy Court in May 2002. Teradyne argued that the Debtor has no presence in Delaware and its only connection is that it is the state of incorporation of the Debtor. Teradyne also argued: (a) The Debtor previously filed for bankruptcy in Massachusetts. (b) The Debtor's corporate headquarters are located in Haverhills and Bridgewater, Massachusetts. (c) The Debtor's books, records, and corporate financial departments and personnel are located in Massachusetts. (d) The Creditor's Trustee appointed under the Debtor's prior Plan is located in Boston. (e) Ten of the Debtor's 20 largest unsecured creditors holding 42% of the claims are located in Massachusetts, Connecticut or Maine. (f) The Debtor's secured lender is located in Massachusetts. Headquartered in Haverhill, Massachusetts, USM Corporation -- http://www.hudsonmachinery.com/-- manufactures, sells, and distributes shoe machinery and parts to the footwear industry in North and Central America. It also manufactures, sells, and distributes industrial cutting machines and accessories. USM Corporation emerged from a chapter 11 reorganization in May 2002 (Bankr. D. Mass. Case No. 01-16082). The Company filed for chapter 11 protection on February 4, 2005 (Bankr. D. Del. Case No. 05-10272, transferred Feb. 10, 2004, to Bankr. D. Mass. Case No. 05-40541). Christopher Martin Winter, Esq., Michael R. Lastowski, Esq., and Jennifer L. Hertz, Esq., at Duane Morris, LLP, represent the Debtor in its restructuring efforts. The Debtor estimates its assets between $1 million and $10 million and debts between $1 million and $10 million. VEO: Voluntary Chapter 11 Case Summary -------------------------------------- Debtor: Veo fdba Xirlink, Inc. 2210 O'Toole Ave #150 San Jose, California 95131 Bankruptcy Case No.: 05-50680 Type of Business: The Debtor is a hardware technology company that develops quality digital imaging devices. See http://www.veo.com/ Chapter 11 Petition Date: February 9, 2005 Court: Northern District of California (San Jose) Judge: Marilyn Morgan Debtor's Counsel: David A. Boone, Esq. Law Offices of David A. Boone 1611 The Alameda San Jose, CA 95126 Tel: 408-291-6000 Estimated Assets: $10 Million to $50 Million Estimated Debts: $10 Million to $50 Million The Debtor did not file a list of its 20-largest creditors. WISTON XIV: U.S. Trustee Will Meet Creditors on Mar. 4 ------------------------------------------------------ The United States Trustee for Region 13 will convene a meeting of Wiston XIV Limited Partnership's creditors at 10:00 a.m., on March 4, 2005, at the U.S. Trustee Meeting Room, First Floor of the Roman L. Hruska United States Courthouse located in 111 South 18th Plaza in Omaha, Nebraska. This is the first meeting of creditors required under 11 U.S.C. Sec. 341(a) in all bankruptcy cases. All creditors are invited, but not required, to attend. This Meeting of Creditors offers the one opportunity in a bankruptcy proceeding for creditors to question a responsible office of the Debtor under oath about the company's financial affairs and operations that would be of interest to the general body of creditors. Headquartered in Stilwell, Kansas, Wiston XIV Limited Partnership filed for chapter 11 protection on Jan. 5, 2005 (Bankr. D. Nebr. Case No. 05-80037). Robert V. Ginn, Esq., at Brashear & Ginn, represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it estimated assets between $10 million and $50 million and estimated debts from $10 million to $50 million. YUKOS OIL: Judge Clark Approves Stipulation with U.S. Trustee ------------------------------------------------------------- Under the Cash Management System in place for the Debtor in Russia, as of January 12, 2005, a substantial amount of the proceeds from the sale of oil and gas produced both inside and outside Russia by the Debtor and its subsidiaries and affiliates flow through the Debtor's bank accounts located in the Russian Federation. The Debtor borrowed certain amounts from certain entities: Lender/Date Borrowed Amount Purpose -------------------- ------ ------- Yukos Hydrocarbons $1,000,000 to fund legal fees and Investments, Ltd. expenses of Fulbright & 12/09/04 Jaworski, its counsel Brittany Assets Limited 12/13/04 5,000,000 to fund legal fees and expenses of Fulbright & Jaworski 12/14/04 1,500,000 to purchase, on behalf of Yukos International U.K. B.V., the sum of $1,000 to buy 1,000 shares of the common stock of Yukos, USA, Inc., with the remainder to he held by Yukos USA for the Debtor's benefit 12/21/04 20,000,000 to be held by Yukos USA, for the Debtor's benefit Currently, $5 million of the Debtor's cash is located in a Fulbright & Jaworski IOLTA Trust Account at Wells Fargo Bank. Another $22 million of the Debtor's cash -- the DIP Operating Cash -- is located at Southwest Bank of Texas in the name of Yukos USA. The Debtor seeks to use its cash in order to continue its operations and the management of its properties as it established its new headquarters in the United States. The Debtor has decided not to seek, at this time, to use any cash located in its Existing Russian Bank Accounts, but to seek appropriate damages at a later date from the Russian Government concerning its various violations of the automatic stay. The U.S. Trustee has asked the Debtor to place the Fulbright Client Trust Fund Retainer Cash and the DIP Operating Cash into investments that are backed by the Full Faith and Credit of the United States Government. The Debtor agreed. Accordingly, the Debtor asks the Court to approve its proposed stipulation with the U.S. Trustee with respect to its existing bank accounts and the continued use of its cash management system. The Stipulation provides that the Debtor: (a) is authorized to maintain its Existing Russian Cash Management System and Existing Russian Bank Accounts in the names and account numbers existing immediately prior to the Petition Date; (b) will immediately place all of the DIP Operating Cash and the Fulbright Client Trust Fund Retainer Cash into investments that are backed by the Full Faith and Credit of the United States Government in compliance with U.S. Trustee Guidelines; and (c) may use the DIP Operating Cash pursuant to Section 363 of the Bankruptcy Code for transactions: -- in the ordinary course of business without Court approval; and -- outside the ordinary course of business after Court approval; provided that the Debtor may, at its discretion, seek a comfort order from the Court to approve any particular proposed Ordinary Course Transaction. * * * Judge Clark approves the Debtor's stipulation with the U.S. Trustee with respect to the Debtor's continued use of its existing bank accounts and cash management system, effective through March 3, 2005. The Debtor will place all of its operating cash and the Fulbright Client Trust Fund into investments that are backed by the Full Faith and Credit of the United States Government in compliance with U.S. Trustee Guidelines. Headquartered in Houston, Texas, Yukos Oil Company -- http://www.yukos.com/-- is an open joint stock company existing under the laws of the Russian Federation. Yukos is involved in the energy industry substantially through its ownership of its various subsidiaries, which own or are otherwise entitled to enjoy certain rights to oil and gas production, refining and marketing assets. The Company filed for chapter 11 protection on Dec. 14, 2004 (Bankr. S.D. Tex. Case No. 04-47742). Zack A. Clement, Esq., C. Mark Baker, Esq., Evelyn H. Biery, Esq., John A. Barrett, Esq., Johnathan C. Bolton, Esq., R. Andrew Black, Esq., Fulbright & Jaworski, LLP, represent the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed $12,276,000,000 in total assets and $30,790,000,000 in total debts. (Yukos Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 215/945-7000) * Cadwalader Moves New York Offices to One World Financial Center ----------------------------------------------------------------- Cadwalader, Wickersham & Taft LLP, one of the world's leading international law firms, held a Grand Opening to mark its move to new offices at One World Financial Center, the firm's international headquarters. During a ribbon-cutting ceremony at the new offices, the firm was presented with an official proclamation from the City of New York saluting Cadwalader's commitment to the City and New York's Financial District, its home since 1792. Cadwalader's One World Financial Center lease has been heralded as one of the most important, and largest, leases completed in lower Manhattan during 2004. The firm will occupy 14 floors, more than 450,000 square feet, enabling it to bring its 800 New York-based personnel together in one location. "Cadwalader has enjoyed tremendous success over the years. Our priority now is to prepare for the continued growth of the firm," said Robert O. Link, Jr., Cadwalader's Chairman. "We are proud of our heritage as one of the country's oldest law firms and of having evolved with New York's economy over three centuries. Our growth and development often paralleled economic events that shaped our city. In the process, we've earned a reputation for crafting innovative financial solutions and products to help our clients achieve their goals. Our new, state- of-the-art facilities will help us to continue this work not only in New York but around the world," Mr. Link added. In a statement proclaiming Tuesday, January 18, 2005 as 'Cadwalader, Wickersham & Taft LLP Day' in the City of New York, Michael R. Bloomberg, the Mayor of the City of New York, cited Cadwalader as, "upholding and strengthening the sanctity of the law since its founding, putting principle in action with its move to One World Financial Center." The proclamation also commended Cadwalader on its continuing legacy of innovation and excellence. Participating in the Grand Opening ceremony were Andrew M. Alper, President of the New York City Economic Development Corporation, Eileen Mildenberger, Chief Operating Officer and Executive Vice President, Empire State Development Corporation and Dennis H. Friedrich, President and Chief Operating Officer, Brookfield Properties Corporation, US Commercial Operations. In September 2003, Cadwalader announced its intention to remain in Lower Manhattan but to move to new office space at One World Financial Center. In March 2004, the firm completed the sale of its former 325,000 square foot headquarters building at 100 Maiden Lane while also finalizing lease negotiations with Brookfield Properties Corporation, owners of One World Financial Center. Cadwalader retained a team of leading consultants to assist with all aspects of this project - from acoustical, electrical, construction and structural engineers to project management, food service, audio-video, IT infrastructure, communications, furniture and move consultants - to insure that the design was attractive, efficient and functional. "Not only do our offices have some of the most commanding views of the city, but our Conference Center, comprised of 55 meeting rooms, has state-of-the art audio and video capabilities. This focus on technology will enable the firm to provide unparalleled service to our clients on a global basis," added Mr. Link. Cadwalader, Wickersham & Taft LLP -- http://www.cadwalader.com/-- established in 1792, is one of the world's leading international law firms, with offices in New York, London Charlotte, and Washington. Cadwalader serves a diverse client base, including many of the world's top financial institutions, undertaking business in more than 50 countries in six continents. The firm offers legal expertise in securitization, structured finance, mergers and acquisitions, corporate finance, real estate, environmental, insolvency, litigation, health care, banking, project finance, insurance and reinsurance, tax, and private client matters. * Jonathan Aberman & David Dutil Join Mintz Levin's D.C. Office --------------------------------------------------------------- Jonathan M. Aberman and David Dutil have joined Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.'s Washington D.C. office as Of Counsel in the Business and Finance Section. Before joining Mintz Levin, Mr. Aberman was a member of the Corporate and Securities Group of Fish & Richardson P.C. His extensive business and finance experience spans both public, private, domestic and international companies in a variety of industries, including biotechnology, computer software and Internet services, managed healthcare, pharmaceuticals, medical devices, aviation, retail and consumer products. As a recognized expert on emerging company financings and structuring, Mr. Aberman sits on the Steering Committee of the Governor's Advisory Board for the Virginia Biotechnology Initiative and is a member of the Board of Directors of VA Bio and George Mason Intellectual Properties, Inc. Mr. Aberman is also an adjunct professor at George Mason University, where he teaches Venture Capital, and is a regular contributor to local and national periodicals on various technology and emerging company topics. He is also a regular participant on panels at various venture capital and emerging company events, contributing commentary at events sponsored by the Northern Virginia Technology Counsel, the DC Technology Council, MidAtlantic Venture Capital Association, VA Bio, George Mason University and University of Maryland, College Park. "Jonathan's extensive background in corporate law and substantial experience in the areas of venture capital, private equity, technology and biotechnology complement the firm's existing, deep- rooted expertise in these areas, making him an outstanding addition to our Business and Finance team," said Neil Aronson, a Member of Mintz Levin and heads of the Business and Finance Section. "With well integrated, multi-disciplinary practices, Mintz Levin is uniquely positioned to meet the diverse requirements of today's service and technology companies and I am delighted to join this growing group of talented professionals," added Mr. Aberman. Before joining Mintz Levin, Mr. Dutil was also a member of the Corporate and Securities Group of Fish & Richardson P.C. Over the course of his career, he has represented multiple domestic and international venture capital funds, borrowers and lenders in secured and unsecured debt financings and entrepreneurial ventures in business formation and corporate governance. In addition to his legal practice, Mr. Dutil is an active participant in the Mid-AtlanticVenture Association's Capital Connection and D.C. Tech's Early Stage Capital Forum, where he coaches emerging companies and entrepreneurs on corporate financing and related issues. Mr. Aberman earned a B.A. from George Washington University, a M.Sc. from The London School of Economics, a B.A., M.A. in law from Cambridge University, Downing College and a LL.M. in corporate law from New York University. Mr. Dutil earned a B.A from the University of Vermont, and a J.D. from Fordham University School of Law. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. -- http://www.mintz.com/-- is a multidisciplinary law firm with over 450 attorneys and senior professionals in Boston, Washington D.C., Reston, VA, New York, Stamford, CT, Los Angeles and London. Mintz Levin is distinguished by its reputation for responsive client service and expertise in the areas of bankruptcy; business and finance; communications; employment; environmental; federal; health care; immigration; intellectual property; litigation; public finance; real estate; tax; and trusts and estates. Mintz Levin's international clientele range from privately held start- ups to Fortune 100 companies in a wide array of industries including biotechnology, venture capital, telecommunications, health care and high technology. Mintz Levin was one of the first law firms to develop complementary consulting capabilities to provide complete solutions to clients' problems, including investment/wealth management, and government and public affairs. * BOOK REVIEW: Health Plan: The Practical Solution -------------------------------------------------- Author: Alain C. Enthoven Publisher: Beard Books Softcover: 224 pages List Price: $34.95 Order your personal copy at http://www.amazon.com/exec/obidos/ASIN/1587981238/internetbankrupt Like most experts calling for fundamental reform in any field, Enthoven introduces his plan for reform of the field of health care by identifying the current beliefs and perspectives standing in the way of reform. These are identified in "Seven Misconceptions About Medical Care." Among these are there is only one "best" treatment for any given medical problem; medical care is a product measured by such criteria as "inpatient days," "outpatient visits," and "doctor office visits"; more medical care for any condition is always better than less; and individuals have no control over when they need to or desire to seek medical care. In one way or another, the seven misconceptions are related to two common ways of looking at health care which have led to the problems now faced by the United States health-care system and the millions of employers, employees, and their families, as well as other groups such as young single workers, the poor, and migrant workers. Likening health care to accident insurance or a public- utilities company are the two common ways of regarding it which have to be put aside if the system is to be relevant to the lives and medical problems of the myriad individuals it is meant to serve. In Enthoven's view, health care has to be able to respond to the diverse conditions of individuals' lives and the differences in their behavior and decisions rather than be based on bureaucratic or corporate guidelines and objectives. With his plan, Enthoven seeks to locate basic health-care decisions with individuals, who patently know more about their own circumstances and wishes, rather than politicians, government bureaucrats, or corporate executives. Once this premise of Enthoven's plan is grasped, the wrongfulness of the metaphors of accident insurance and public-utilities company becomes evident; and with this, the problematic and sometimes harmful consequences wrought by them. According to the accident-insurance metaphor, the health-care system is involved in individuals' lives only in moments of emergency. But this has no more to do with good health than car insurance has to do with good driving. Since good health is a central concern of every person over the course of her or his entire life, the optimum health-care plan would be accessible and responsive regarding a broad range of health issues and conditions of varying degrees and individual preferences. The health plan Enthoven proposes is such a plan. The public-utilities model for a health plan likewise fails in meeting the wider range of actual health concerns for individuals and society because this makes health care like this resource that is entirely in the hands of large utilities' companies and government regulators. Resources such as energy or phone lines controlled by a public-utility company in accordance with government regulations make a resource available to consumers in ways the company determines as allowed by the regulations. The public is left to making use of the resource according to the system designed by the public-utilities company. While one can partake of more of the resource by paying more, one cannot do this in a desirable, relevant health plan. Such a plan has to play an active part in individuals' lives and not be available only in response to their decisions; and it also has to have its full resources potentially available at any moment to respond to unanticipated health emergencies whether these be accidents or illnesses. By contrast, public-utilities companies are passive; and if one wants to make more use of their particular resource, this is ordinarily accompanied by a change in one's life or business, and it entails purchasing new equipment such as more energy-using products or additional phones. Enthoven names the optimum health plan he proposes the Consumer Choice Health Plan, CCHP for short. It is derived from a "synthesis of principles of economics, statistics, probability, and decision theory applied to the complex and uncertain problems of medical decision making." Although Enthoven designed his health plan from years of incomparable experience in the health- care field and related government agencies, his expertise in economics, and deep analyses of the broad and diverse factors of health-care (many of which the average reader would not be even aware of before reading his book), the basics of his health plan are simple and readily comprehensible. These basics are two: (a) individual choice; and (b) free-market practices. These two basics have the virtue of being ones which have proven not only to be effective in other social and economic fields, but to be fundamentals of American society. Hence, adopting Enthoven's plan would not call for arduous persuasion or education of the public, new government agencies, or the creation of new businesses. For instance, the author does not propose the elimination of HMOs, but describes practices that would make them more competitive so as to keep medical costs under control and thereby offer lower health- insurance costs to consumers. The adoption of Enthoven's plan would mean a recognition of the principles and practices beneficial in other major areas of society, and an implementation of these in the central social interest of optimum health care. First published in 1980, Enthoven's "Health Plan" presents a critique of the health-care system that has become widely accepted. His recommendations of individual choice and free- market economics, too, are recommendations that have become acknowledged as necessary to overcome problems in the health care system and render it relevant to the health needs and desires of the public. Some of the plan's recommendations have already been put into effect--such as employees of a business being able to select a health plan suitable to their circumstances from among several offered. Enthoven also recognizes that for many health matters, the individual, not a doctor, is the one making the choice about health care. For example, many persons choose to go to work with certain health conditions (e. g., a cold or a sprain) rather than seek medical attention for it. Under Enthoven's plan, such decisions would be acknowledged while not categorizing the individuals as being any less eligible for timely health care when they would seek it. Prevention, levels of risk balancing serious medical problems (e. g., cancer) with age and lifestyle, and acknowledgment that health care can never be perfect since medicine is not an exact science are other factors in the realistic, multifaceted, comprehensive plan Enthoven presents. Alain C. Enthoven has many years of experience at the top levels of government, health care, and economics. Among his numerous positions have been professor at Stanford University's Graduate School of Business, Economist with the RAND Corporation, consultant to Kaiser Permanente, and in 1997, Chairman of the California Managed Health Care Improvement Task Force. ********* 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. 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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, Dylan Carlo Gallegos, Jazel P. Laureno, Cherry Soriano-Baaclo, Marjorie Sabijon, Terence Patrick F. Casquejo and Peter A. Chapman, Editors. Copyright 2005. 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 ***