TCR_Public/971203.MBX   T R O U B L E D   C O M P A N Y   R E P O R T E R        
      Wednesday, December 3, 1997, Vol. 1, No. 71

BIG RIVERS: Brief of Pik-Coal Company
CAJUN ELECTRIC: CLECO Signs Power Supply Memorandum
FOXMEYER: Trustee Seeks Forensic Accountants
KOENIG SPORTING: Court Sets Bar Date
LIL' THINGS: Shuts Down Business
MERRY-GO-ROUND: Trustee Sues Ernst & Young International
MONTGOMERY WARD: Bar Date Established
WESTERN PACIFIC: Frontier Bid Puzzles Western Pacific Boss
WESTERN PACIFIC: Judge Approves $3 Million Bailout for MAX
WESTERN PACIFIC: Sunrock Aircraft Objects to DIP
WESTMORELAND COAL: Seeks to Employ Actuarial Consultants


BIG RIVERS: Brief of Pik-Coal Company
A brief was filed on behalf of Pik-Coal Company in
opposition to the objection filed by Big Rivers Electric
Corporation.  The objection seeks to disqualify the claim
as a matter of law and in the alternative, to value the
claims.  The basis of this claim is a very complicated
factual scenario of varying price bids for coal supply and
alleged fraudulent activities on the part of Big Rivers in
achieving a cheaper coal supply source.  

And specifically, that William Thorpe, General Manger of
Big Rivers Electric Corporation engaged in certain acts
which amounted to fraud upon Pik-Coal Company.  The alleged
bribes and kickbacks paid supposedly totaled over  $2
million, and for the purpose of concealing the payments
they were characterized as consultant fees, or coal broker

Pik-Coal states that its claim was filed prior to the
expiration of any pertinent statute of limitations.  Pik-
Coal also states that it has a cause of action for fraud
against Big Rivers. The injury sustained by the plaintiff
is the loss of the commissions that were due it under a
coal supply contract.  Pik-Coal Company seeks a period of
time for discovery to resolve the valuation of its claim.

CAJUN ELECTRIC: CLECO Signs Power Supply Memorandum
Central Louisiana Electric Co. Inc. (NYSE: CNL) has signed
a memorandum of understanding regarding power supply with
Southwestern Electric Power Co. in the Cajun Electric Power
Cooperative bankruptcy.  CLECO recently acquired Teche
Electric Cooperative, one of the 12 distribution
cooperatives in existence at the time of the Cajun
bankruptcy filing in December 1994.  CLECO has agreed to
enter into a power supply agreement with SWEPCO to supply
the electrical requirements of the former Teche system, if
SWEPCO's reorganization plan is confirmed by the U.S.
Bankruptcy Court.

"We are pleased to reach this agreement with CLECO and to
have the opportunity to provide wholesale power if our
reorganization plan is confirmed," said SWEPCO President
Michael D. Smith.  "We now have agreements to supply power
to eight of the 11 existing cooperatives and CLECO.  With
the lowest rates, the most flexible wholesale power supply
options and a fair price for Cajun's non-nuclear assets, we
continue to demonstrate the strengths of our plan to the
bankruptcy court."

CLECO President and Chief Executive Officer Gregory L.
Nesbitt said, "We believe this transaction, in the event of
confirmation of SWEPCO's plan, would benefit CLECO's
customers and shareholders."

The SWEPCO reorganization plan is offered jointly by
SWEPCO, the Committee of Certain Members consisting of
seven Cajun distribution cooperatives, and Entergy Gulf
States.  The seven cooperatives are Beauregard Electric
Cooperative, Dixie Electric Membership Corp., Jefferson
Davis Electric Cooperative, Northeast Louisiana Power
Cooperative, South Louisiana Electric Cooperative
Association, Valley Electric Membership Corp. and
Washington-St. Tammany Electric Cooperative.  The SWEPCO
plan also is supported by an eighth co-op, Claiborne
Electric Cooperative.

Two competing plans are offered by (1) the Cajun Electric
trustee, who backs Louisiana Generating LLC, a partnership
of NRG Energy, Zeigler Coal Holding Co. (NYSE: ZEI) and
Southern Electric International, and (2) Enron
Capital & Trade Resources and the Official Unsecured
Creditors Committee.

FOXMEYER: Trustee Seeks Forensic Accountants
Bart A. Brown, the Trustee in the Chapter 7 case of
FoxMeyer Corporation, et al. is seeking court authority to
employ Peterson Consulting LLC to serve as forensic
accountants and litigation consultants to the Trustee.

The professional services that Peterson will render to the
Trustee include among other things, reconstructing and
analyzing transactions from the debtors' accounting
records, investigating the facts underlying the debtors'
operation, analyzing certain technology litigation,
testifying as an expert witness, and analyzing the facts
underlying the financial condition of the debtors.

Peterson will be compensated at its customary hourly rates
which range from $350 per hour for a Vice President to $50
per hour for an information specialist.

KOENIG SPORTING: Court Sets Bar Date
In the case of Koenig Sporting Goods, Inc., the court
entered an order providing that all creditors or interested
parties with claims against or interest in the debtor which
arose prior to the commencement of the Chapter 11
bankruptcy case must file a proof of claim on or before
January 30, 1998. (The "Bar Date")

LIL' THINGS: Shuts Down Business
The Dallas Morning News reported on November 26, 1997 that
the Arlington-based chain of children's superstores, LiL'
Things Inc., asked the bankruptcy court for permission to
shut down the business after a liquidation sale is
completed at its 13 stores. At its peak in 1995, LiL'
Things operated 20 stores.

LiL' Things Inc., which has been operating in bankruptcy
since June, has decided to go out of business rather than
reorganizing around a small group of stores. LiL' Things
filed a motion in U.S. Bankruptcy Court in Dallas asking
that it be allowed to liquidate its operations after trying
to turn around the business, which has been unprofitable
for some time. The company said in its motion that it can't
purchase additional merchandise, and both its bank and
suppliers have agreed with its decision to liquidate.

"In order to take full advantage of Christmas, the debtor's
best sales season, a going-out-of-business sale must be
initiated immediately ... in order to maximize the net
recovery," the company said in the court filing.  LiL'
Things was founded in 1993 by former Tandy Corp. executive
Ron Stegall. Mr. Stegall was trying to reproduce the
success of BizMart, an office superstore that he founded
and expanded to a chain of 57 stores with annual sales of
$300 million before it was acquired by Office Max.

LiL' Things' failure was an expensive loss to local
investors. The company raised $11.5 million in venture
capital in 1994 on top of $14 million raised in 1993. Three
Dallas-area venture capital firms that invested in both
rounds of financing included Capital Southwest Corp., Perot
Investments and Phillips-Smith Specialty Retail Group.

Last summer, when the company filed under Chapter 11, Daryl
Lansdale, president and chief executive officer, blamed
LiL' Things' losses on high-cost, long-term leases that
were entered into during the company's expansion. However,
analysts say, competition was fierce from the beginning.
For example, in the Dallas area, Baby Superstores, which
was acquired a year ago by Toys "R" Us and renamed Babies
"R" Us, came into the market just as LiL' Things was

Last week, when Toys "R" Us reported third-quarter results,
the retailer said its Babies "R" Us division experienced a
same-store sales decline in the three months ended Nov. 1.  
"There's nothing wrong with the baby superstore concept,"
said Dorothy Lakner, a retail analyst at CIBC Oppenheimer
in New York. "The transition is taking a little longer. I'm
optimistic that Toys "R" Us can make Babies "R" Us a strong

MERRY-GO-ROUND: Trustee sues Ernst & Young International
The Baltimore Sun reported yesterday that the bankruptcy
trustee for Merry-Go-Round Enterprises Inc. sued Ernst &
Young International Inc. yesterday for negligence and
fraud, charging that the accounting and consulting firm's
handling of the Maryland clothing retailer's turnaround led
to its collapse.

In the lawsuit, filed in Baltimore Circuit Court, trustee
Deborah Hunt Devan seeks $1 billion in compensatory damages
and $3 billion in punitive damages, plus costs and
interest.  "We have not yet seen a copy of the complaint.
We have no comment beyond that," said Patrice Ingrassia, a
spokeswoman at Ernst & Young's New York headquarters.

Randal Picker, who teaches bankruptcy law at the University
of Chicago, said it was unusual for a bankruptcy trustee to
sue a turnaround expert, but added that similar suits could
become more common.  "I'm not aware of any other case in
which that has happened," he said. "As you have more and
more companies providing these specialized turnaround
services, presumably they'll become targets of suits just
like companies providing other services. This will be an
interesting case to see if it becomes part of a pattern."

The suit portrays Merry-Go-Round as an eminently
salvageable company, stating that in early 1994, just after
its Chapter 11 bankruptcy filing, Merry-Go-Round had $113
million in cash, $18 million in refundable taxes, $71
million worth of inventory, and negligible secured debt.
"E&Y's untimely and incompetent performance of its
duties was a direct and proximate cause of the failure of
Merry-Go-Round to be reorganized and restructured
successfully and a direct and proximate cause of the 1996
demise and liquidation of Merry-Go-Round," the suit
alleges.  Devan, a Baltimore attorney, began serving as
Merry-Go-Round's bankruptcy trustee in March 1996 after the
Chapter 11 reorganization case was converted into a Chapter
7 liquidation.

The chain was a Baltimore success story, founded in 1968 by
Leonard "Boogie" Weinglass and the late Harold Goldsmith.
At its peak it had nearly 1,500 stores and 14,000
employees. When it went out of business in February 1996,
it had fewer than 600 stores and 6,000 workers, including
630 at its Joppa headquarters.

According to Devan's suit, the retailer hired Ernst & Young
on the advice of its law firm, Washington-based Swidler &
Berlin, in December 1993 to set up a turnaround strategy.
The company's sales and earnings had sagged as the result
of a merchandising bet on "hip-hop" fashions, which failed
to attract the youthful buyers it depended on.  But Ernst &
Young, the lawsuit contends, committed fraud in concealing
that Swidler & Berlin was defending it in a West Virginia
fraud case and in fact "affirmatively represented" to
Merry-Go-Round that it had no ties with any of Merry-Go-
Round's lawyers.

That relationship was discovered this year, although the
attorneys representing Devan -- Stephen L. Snyder, Arnold
M. Weiner and Robert J. Weltchek of Pikesville -- declined
to discuss how. "By knowingly concealing from MGRE its pre-
existing relationship with the Swidler & Berlin law firm,
E&Y was able to eliminate an otherwise rigorous and
competitive selection process," the suit states. " had full
disclosure been made to MGRE, E&Y would not have been

The suit further alleges that when Merry-Go-Round filed for
Chapter 11 reorganization in January 1994 on Ernst &
Young's advice, Ernst & Young partner Warren Petraglia
made a sworn declaration in the application to the
Bankruptcy Court that the firm had no connection with
Merry-Go-Round's attorneys.  Swidler & Berlin's managing
partner, Barry Direnfeld, refused to comment. Petraglia
could not be reached for comment. Ernst & Young then
mishandled the reorganization, Devan's suit charges, by
assigning inexperienced people to the case and moving too
slowly to stem the bleeding of cash and capital.

For example, the suit claims that Ernst & Young's strategic
plan for Merry-Go-Round came out in November 1994, eight
to nine months later than it should have and too late to
affect the all-important 1994 back-to-school and Christmas
shopping seasons. And when Ernst & Young undertook a cost
reduction program at the behest of creditors in the fourth
quarter of fiscal year 1995, its tentative plan -- never
fully enacted --would have shaved "only" $11 million, the
suit says. "This reduction was insignificant in light of
Merry-Go-Round's $186 million loss at the close of its 1995
fiscal year," the complaint states.

What's more, the suit claims, the cost-cutting program was
poorly timed, including the closing of 230 stores in the
fourth quarter of fiscal year 1995. The suit says that
closing deprived the company of much-needed Christmas sales
and wasted already-purchased seasonal goods. The plaintiff
claims that these and other miscues doomed Merry-Go-Round,
but benefited Ernst & Young. "E&Y, but not MGRE, benefited
from its lax and drawn-out performance by increasing the
fees which it generated from this engagement," the suit
charges. It states that Ernst & Young billed Merry-Go-Round
almost $4.5 million from December 1993 to March 1996, and
was paid about $2 million in 1995 alone.

Weiner, a member of the legal team that filed the suit,
said yesterday that Ernst & Young had received a total of
about $3.4 million.  Devan's attorneys said there are $200
million in unsecured creditors' claims in the Merry-Go-
Round liquidation. Fidelity Investments of Boston bought
$90 million of Merry-Go-Round's unsecured debt in 1994 for
85 cents on the dollar. A Fidelity spokesman said the
company had no comment on the lawsuit.

In addition, there are $60 million in outstanding claims
related to the costs of filing for bankruptcy and running
the company.  "The different named entities who are being
represented by the Chapter 7 trustee can look forward with
great anticipation to a potential recovery of lost assets,"
said Snyder, who helped prepare the suit.

MONTGOMERY WARD: Bar Date Established
On November 7, 1997 the US Bankruptcy Court for the
District of Delaware entered an order establishing March 2,
1998 as the general claims bar date in the Chapter 11 case
of Montgomery Ward Holding Corp., et al.

PAYLESS CASHWAYS: Now the True Test Will Begin
The Kansas City Business Journal reported on November 21,
1997 that the bankruptcy proceedings are over, the
reorganization has been approved, the new board has been
named. And the big question for Payless Cashways: What
happens now?

The home improvement retailer emerges from Chapter 11
proceedings in less than a month, but it still faces
intense competition from big box retailers armed only with
a "dual-path" strategy that has yet to be tested. "Home
Depot hasn't gone away. Lowe's hasn't gone away," said John
Kultgen, an analyst with Perkins Smart & Boyd. "Nothing has
really changed for Payless."

Payless executives admit that the hard work is now
beginning. But they insist that the reorganization gives
them the flexibility they need to update existing stores
and fully implement dual path, a plan that calls for
Payless to compete on the consumer and professional sides
of the business.

"Our job now is to get back to it," Payless CEO David
Stanley said.  "One of the things the new board has to
address is the details of dual path and the pace (of its
rollout)."  The new board's task will not only be to decide
the fate of the current executives, including Stanley and
Stanton, but also the fate of Payless' much-touted dual-
path strategy.

"It is hard to tell right now how viable that strategy is,"
said John Caulfield, executive editor of National Home
Center News, a New York-based trade publication. "Payless
is attempting to sell into two different customer segments
at a time when the industry is becoming polarized. "There
is always a question whether Payless can serve two

Caulfield also said Payless' ability to compete against the
industry leaders - Home Depot, Lowe's and Menard's - will
be tested over the next few years. Those companies have
aggressive growth plans, especially in the Midwest, that
will force Payless to "weather a storm in the first one to
two years of its reorganization."

For its part, Payless seems optimistic about its ability to
compete. Sales projections outlined in its reorganization
plans call for net sales to climb steadily from $2.3
billion in 1998 to $2.456 billion in 1999 to $2.644
billion in 2000.

"I just don't see how they're going to get those numbers,"
Kultgen said. "Especially looking at how sales have been in
recent months."  The most recent sales figures, released
earlier this week, show same-store sales falling 14.1
percent for the month of October with net sales at $155.5
million for the month. Stanley stood by the projections,
"We wouldn't have put the figures in the plan if they
weren't realistic."

At the conclusion of the confirmation hearing, U.S.
Bankruptcy Judge Arthur Federman said to Payless'
executives that he hopes that the sales goals
outlined in the plan "aren't just simple projections, but
are real numbers." He also cautioned them to not see the
confirmation of the reorganization as a reason to

"Certainly Payless has accomplished something by continuing
to operate through this troubled time in its history," he
said. "But the real work has yet to be done by Mr. Stanley
and Ms. Stanton and the employees of Payless." He
continued, "(The executives) can't rest and relax for too
long because they have a lot to do." Ben Mann, a Blackwell
Sanders Matheny Weary & Lombardi lawyer representing
Payless in its bankruptcy proceedings, said this week's
confirmation of the reorganization plan was "the first
crucial step."

WESTERN PACIFIC: Frontier Bid Puzzles Western Pacific Boss
The Omaha World-Herald reported on November 30, 1997 that  
Western Pacific Airlines Inc.'s president questioned
whether management at competing low-cost carrier Frontier
Airlines, which is mounting an unfriendly takeover bid,
could do a better job turning the bankrupt company around.

Frontier and Wexford Management of Greenwich, Conn., have
announced a proposal for Wexford to invest about $10
million in WestPac as part of a takeover plan. "Frontier
has lost money as many quarters as we have," said WestPac
President Robert Peiser during a break in a hearing in U.S.
Bankruptcy Court in Denver.

The Tulsa World reported on November 25, 1997 that Frontier
said its offer poses less risk for Western Pacific
creditors than Smith's. Frontier said a Smith-Western
Pacific combination would leave two small, struggling
companies competing against UAL Corp.'s United Airlines,
which handles about 70 percent of air traffic.

"We're the only party that's able to ensure that one
rational, affordable carrier could be created out of the
two companies," said Frontier chief executive Sam Addoms.

In a recorded message to employees, president and CEO
Robert Peiser called the Frontier bid "a sneaky move" that
is "woefully inadequate." "Frontier wants to take six or
seven aircraft away from us and liquidate the rest,"
Peiser's message said.

Both the Smith and the Frontier-Wexford bids initially
offered Western Pacific about $10 million in financing to
keep its 18 Boeing 737 jetliners flying during
reorganization. Frontier seeks to fold Western Pacific into
a single operation that's smaller than the two airlines are
separately. Terms are still being worked out. Smith would
help Colorado Springs, Colorado-based Western Pacific out
of bankruptcy in exchange for all or nearly all of the
equity in the reorganized

Yesterday,Denver-based Frontier Airlines Inc. (Nasdaq:FRNT)
and Wexford Management LLC, an investment manager based in
Greenwich, Conn., finalized an earlier announced letter of
commitment under which Frontier would receive up to $15
million from Wexford through the sale of 10 percent senior
secured notes.  Up to $3 million of the notes may be
exchanged for convertible preferred
stock issued by Frontier.

The funding of $5 million of the senior secured notes will
be used for general working capital, with the balance of
the funding to be provided upon completion of definitive

According to Frontier President and CEO Sam Addoms and
Wexford Chairman Chuck Davidson, the two companies are
cooperating on a proposal previously made to Western
Pacific Airlines and its creditors in the Western Pacific
bankruptcy case.  Addoms noted: "With Wexford's financial
backing, we have bolstered our resources to better serve
customers at our Denver hub. We now have the financial
ability to acquire a number of additional aircraft with the
related benefits of increasing our service and further
decreasing our costs."

WESTERN PACIFIC: Judge Approves $3 Million Bailout for MAX
The Colorado Springs Gazette reported that Mountain Air
Express has received a $3 million package that should pull
the Colorado Springs airline out of bankruptcy. U.S.
bankruptcy Judge Sidney Brooks, as expected, approved the

Mountain Air Express Acquisition Group, based in Phoenix,
loaned the bankrupt airline $600,000 immediately, and will
loan another $500,000 on December 1. That will allow MAX to
stay current on payments on its fleet of turboprop
planes and to pay its 300 employees wages still owed from
before the Nov. 6 bankruptcy filing.

Another $1.9 million will be set aside should MAX need it.
In exchange for the loans, the group will take ownership of
MAX once it emerges from the bankruptcy court's protection,
probably in February.

The new investors in the airline are a blend of Phoenix
investment group SunChase Holdings, former Western Pacific
Airlines director and counsel John Lancy, and MAX founder
Ed Beauvais. Beauvais' affiliation with SunChase has raised
eyebrows. SunChase has offered to invest $3 million in
Denver-based Frontier Airlines in return for an
ownership stake. Frontier, meanwhile, is making a bid to
take over WestPac.

All the while, Beauvais remains chairman of WestPac. He was
a founder of the company, but was forced out of the chief
executive's job a year ago by the company's largest
shareholders. WestPac officials are scratching their heads
over Beauvais' intentions.  "It's too early to tell," said
spokeswoman Elise Eberwein. "We're still
unclear how these relationships tie together. But it
appears to be a conflict
of interest."

SunChase officials maintain they simply asked Beauvais to
join the MAX Acquisition Group as a minority investor to
oversee the transition to its eventual ownership of the
commuter airline. They told Brooks on Monday that
Beauvais would step aside, if necessary, to avoid a
conflict of interest.  Brooks never returned to the issue
before signing the financing plan Tuesday.

WESTERN PACIFIC: Sunrock Aircraft Objects to DIP
Sunrock Aircraft Corporation Limited objects to the motion
of Western Pacific Airlines, Inc., authorizing the debtor
to obtain post-petition financing.

Sunrock objects to two terms of the debtors' proposed post-
petition financing.  First, Sunrock states that the debtor
should not be permitted to grant security interests in its
leasehold interest under its aircraft lease with Wilmington
Trust Company (on behalf of Sunrock) because the lease
prohibits the debtor from pledging any interests under the
lease. By the terms of the proposed DIP financing, Smith
Management would have the right to foreclose on the
debtor's rights under the lease and become the lessor under
the lease with Wilmington Trust on behalf of Sunrock.

And second, the post-petition financing claims should not
be accorded priority because the post-petition funds
represent an equity investment by the debtor's proposed
lender.  If Smith is making an equity investment in the
debtor, then Smith's right to be repaid the Smith DIP
Claims should not be granted priority over all other
administrative claimants, including Wilmington Trust on
behalf of Sunrock as lessor.

WESTMORELAND COAL: Seeks to Employ Actuarial Consultant
Westmoreland Coal Company et al. filed an application
requesting that the court enter an order authorizing the
debtors' employment of Milliman & Robertson, Inc.                 
as the debtors' actuarial consultants, and approving
payment of the firm's fees as a "Class 2 professional." A
hearing is tentatively scheduled for January 23, 1998.


The Meetings, Conferences and Seminars column appears
in the TCR each Tuesday.  Submissions via e-mail to are encouraged.  

Bond pricing, appearing each Friday, is supplied by DLS     
Capital Partners, Dallas, Texas.    
   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.,
Princeton, NJ, and Beard Group, Inc., Washington DC.  
Debra Brennan and Rebecca A. Porter, Editors.   
Copyright 1997.  All rights reserved.  This material is    
copyrighted and any commercial use, resale or publication
in any form (including e-mail forwarding, electronic re-
mailing and photocopying) is strictly prohibited without
prior written permission of the publishers.  Information
contained herein is obtained from sources believed to be
reliable, but is not guaranteed.   
The TCR subscription rate is $575 for six months delivered    
via e-mail.  Additional e-mail subscriptions for members of     
the same firm for the term of the initial subscription or    
balance thereof is $25 each.  For subscription
information, contact Christopher Beard at 301/951-6400.   
             * * * End of Transmission * * *