T R O U B L E D C O M P A N Y R E P O R T E R Friday, August 9, 2002, Vol. 6, No. 157 Headlines 3TEC ENERGY: Working Capital Deficit Narrows to $4 Million ANC RENTAL: Signing up Brusniak Harrison as Special Tax Counsel ACCRUE SOFTWARE: Explores Strategic Options to Raise New Capital ADELPHIA BUSINESS: BellSouth & Sprint Want Adequate Assurance ADELPHIA COMMS: Look for Century's Schedules on Sept. 23, 2002 AGRIFOS FERTILIZER: Wants to Reimburse Pegasus' $250K Expenses AMCAST INDUSTRIAL: Posts Improved Results for Fiscal 2002 Q3 AMRESCO INC: Plan of Liquidation Declared Effective Aug. 6, 2002 AQUILA INC: Will Seek Buyer for Midlands Electricity in UK BCE INC: Expects to Sell $2BB of Equity to Finance Bell Buyback BUDGET GROUP: Wants to Honor & Pay Prepetition Tax Obligations CMS ENERGY: 2nd Quarter Results Swing-Down to Net Loss of $75MM CANFIBRE: Raises US$250,000 via Non-Brokered Private Placement CAPITAL LEASE: Fitch Affirms Low Ratings on Classes E, F & G CAROLINA RE: Court Says Deloitte Must Comply with Subpoenas CHESAPEAKE ENERGY: Moody's Assigns B1 Rating to $250MM Sr. Notes CHESAPEAKE ENERGY: Fitch Rates $250M Senior Note Offering at BB- CHESAPEAKE ENERGY: Commences Private Offering of $250MM 9% Notes COEUR D'ALENE: Posts $11 Million Net Loss for Second Quarter CONSECO INC: Fitch Downgrades All Related Corporate Ratings CORRECTIONS CORP: Second Quarter Net Loss Widens to $31 Million DADE BEHRING: Seeks Okay to Hire Kirkland & Ellis as Attorneys ENRON: Court Okays Protocol for Sharing Examiner's Documents FAIRPOINT COMMS: June 30 Balance Sheet Upside-Down by $135 Mill. FLEMING COS.: Declares Quarterly Dividend Payable on December 10 FOAMEX INT'L: Will Host Investor Conference Call on Tuesday FRUIT OF THE LOOM: Trust Wants to Auction 6 Non-Operating Assets GENSYM CORP: Laurence Lytton Discloses 6.8% Equity Stake GLENOIT CORP: Court Sets Disclosure Statement Hearing for Aug 27 HAYES LEMMERZ: Wants to Bring-In Deloitte & Touche as Consultant HOLLYWOOD CASINO: Penn National to Acquire Assets for $780 Mill. ICG COMMS: Supplemental Disclosure Statement to 2nd Amended Plan ITC DELTACOM: Signs Up Hogan & Hartson as Special Corp. Counsel INACOM CORP: Taps McDonald Hopkins as Substitute Special Counsel INTEGRATED HEALTH: Selling 3 Florida Facilities for $4 Million KMART CORP: Court Approves Route 66 License Agreement Assumption KMART CORP: Court OKs Traub Bonacquist as Equity Panel's Counsel LASERSIGHT INC: Commences Trading on Nasdaq SmallCap Today METALS USA: Reliance Steel to Acquire Assets of Two Businesses MICROFORUM: CCAA Plan Declared Effective MICROSTRATEGY INC: Completes Preferred Share Restructuring MIKOHN GAMING: Initiates Strategic Cost-Reduction Measures MOSAIC GROUP: Working Capital Deficiency Tops $24MM at June 30 MOSAIC GROUP: Renews Normal Course Issuer Bid Through TSE NEON COMMS: Disclosure Statement Hearing Convenes on Aug. 20 NEW POWER: Seeks Nod to Hire Arnold & Porter as Special Counsel NORTHERN NATURAL GAS: Fitch Ups Junk Sr. Unsec. Debt Rating to B NYACK HOSPITAL: Fitch Maintains Watch on B+ Revenue Bonds Rating PMA CAPITAL: S&P Assigns Low-B Ratings to Sub. Debt & Preferreds PALADYNE CORP: Independent Auditors Issue Going Concern Opinion PINNACLE: Provides Update on Contemplated New Credit Facility SAFETY-KLEEN: SK Systems Wants to Lease Texas Building as New HQ SPIRET TRUST: S&P Junks Series 2002-1 Certificates Rating TANDYCRAFTS: Says Committee's Objections are Wasteful Strategy TRANSTECHNOLOGY: Completes Senior Debt Refinancing Transaction TRENWICK GROUP: Reports Improved Second Quarter Fin'l Results US INDUSTRIES: Fitch Rates $375 Mill. Senior Secured Notes at B- US PLASTIC LUMBER: Soliciting Approvals of Clean Earth Sale UNITED AIRLINES: Revenue Passenger Miles Drop 12.3% in July UNIVERSAL ACCESS: Shows $14MM Working Capital Deficit at June 30 W.R. GRACE: Sealed Air Transaction Trial Set for September 30 WESTPOINT STEVENS: S.A.C. Capital Discloses 6% Equity Stake WORLDCOM INC: Proposes Uniform Interim Compensation Procedures WORLDCOM: Court Confirms Thornburgh's Appointment as Examiner WORLDCOM: Uncovers Additional $3.3BB Improperly Reported EBITDA XO COMMS: Carl Icahn Extends Tender Offer until August 14 ZIFF DAVIS: Noteholders Accept Terms of Fin'l Restructuring Plan * BOOK REVIEW: The ITT Wars: An Insider's View of Hostile Takeovers ********* 3TEC ENERGY: Working Capital Deficit Narrows to $4 Million ---------------------------------------------------------- 3TEC Energy Corporation (Nasdaq: TTEN) announced record second quarter production. However, lower prices for oil and gas caused net earnings to fall below year ago levels. Second Quarter 2002 Results 3TEC Energy Corporation reported net income to common for the second quarter of 2002 of $2.4 million, excluding special items, compared to net income to common, of $8.8 million for the prior year period, excluding special items. For the quarter ended June 30, 2002, 3TEC reported cash flow from operations of $14.5 million, excluding special items, compared to $20.0 million in the same period in 2001. During the second quarter of 2002, 3TEC produced 6.5 Bcf of gas and 212 Mbbls of oil for an average daily production rate of 71.4 Mmcf of gas and 2.3 Mbls of oil or a combined 85.2 Mmcfe per day. These daily volumes represent an increase of 15% and a decrease of 19%, respectively, over the comparable year ago period. On a gas equivalent basis, 3TEC produced 7.7 Bcfe in the second quarter of 2002, an increase of 8% over the second quarter of 2001. The period-to-period increases were largely due to development drilling in East Texas and recent exploratory successes in the Gulf Coast. Including the effect of derivatives ($4.7 million of cash settlements paid and $2.4 million of put proceeds attributable to the second quarter), the price received on gas sold in the second quarter of 2002 was $3.13 per Mcf, compared to $4.66 per Mcf received in the second quarter of 2001. Oil prices in the second quarter of 2002 were $23.44 per barrel, compared to $24.99 per barrel in the second quarter of 2001. The primary reason for the lower operating results was a weaker hydrocarbon price environment, which was partially offset by higher average daily production volumes. Comparing the second quarter of 2002 to the first quarter of 2002, the average equivalent price, net of derivatives, realized in the second quarter was up $0.71 per Mcfe. On a per Mcfe basis, total production costs also rose during the second quarter primarily due to an increase in production taxes. Lease operating expenses decreased to $0.48 per Mcfe from $0.50 per Mcfe while production taxes increased to $0.29 per Mcfe from $0.17 per Mcfe. The increase in production taxes results from higher gas prices realized in the second quarter, and a higher percentage of the Company's production being subject to Louisiana production taxes. General and administrative expenses increased to $0.32 per Mcfe from $0.30 per Mcfe in the previous quarter. Average daily production for the second quarter grew to 85.2 Mmcfe as compared to 82.1 Mmcfe in the first quarter. 3TEC's bank debt at June 30, 2002 was $99 million and the total debt-to-book capital was 36%. First Half 2002 Results 3TEC reported net income to common, excluding special items, for the six months ended June 30, 2002 of $3.0 million compared to $24.8 million for the prior year period. For the six months ended June 30, 2002, 3TEC reported cash flow from operations, before changes in working capital and deferment of non-period related derivative activities of $24.7 million compared to $47.4 million in the same period in 2001. During the first six months of 2002, 3TEC produced 12.8 Bcf of gas and 395 Mbbls of oil. On a gas equivalent basis, 3TEC produced 15.1 Bcfe in the first half of 2002, an increase of 7% over the first six months of 2001. Average daily production for 2002 grew to 83.6 Mmcfe as compared to 78.0 Mmcfe the prior year. The increases were primarily due to production from development drilling and exploratory successes. Including the effect of derivatives ($3.6 million of cash settlements paid and $2.4 million of put proceeds attributable to the second quarter), the price received on gas sold in the six months ended June 30, 2002 was $2.80 per Mcf, compared to $5.79 per Mcf received in the six months ended June 30, 2001. Oil prices in the first six months of 2002 were $21.17 per barrel, compared to the $26.03 per barrel received in the first six months of 2001. At June 30, 2002, the Company's balance sheet shows that its total current liabilities exceeded its total current assets by about $4 million, as compared to $14 million recorded six months ago. Reconciliation of Special Items For the second quarter of 2002, including special items, 3TEC reported net income to common of $5.1 million in 2002. This compares to net income to common of $13.0 million for the second quarter of 2001. For the six months ended June 30, 2002, including the effects of special items, 3TEC reported a net loss to common of $3.7 million. This compares to net income to common of $29.0 million in the prior year period. 3TEC adopted SFAS No. 133 on January 1, 2001. 3TEC elected not to treat its current open derivatives as hedges for accounting purposes, and instead, recognized the change in fair value of the open positions as well as the actual cash realizations for the period. For the second quarter of 2002, the Company recorded a non-cash derivative fair value gain on open positions of $9.0 million, offset by cash payments of $4.7 million. Additionally, the Company realized a $5.7 million gain from the liquidation of April to October 2002 put options monetized in the first quarter of 2002 and, for purposes of describing the impact of special items only, is allocating these gains to each of the respective production periods. As such, none was attributed to the first quarter, $2.4 million was attributed to the second quarter, and $3.3 million will be attributed over the third and fourth quarters, all pre-tax. 3TEC recorded a non-cash charge to the value of its oil and gas properties of $1.3 million in the second quarter of 2002. 3TEC also recorded a non-cash charge of $0.6 million for abandoned acreage related to its exploratory dry hole in South Texas. Operational Update 3TEC participated in the drilling of 13 wells in the second quarter, seven of which had been completed as producers and five were waiting on pipeline hook-up or completion rigs at quarter- end. Since June 30, 2002, one of those wells has been completed as a producer. Development activity in East Texas has continued to be slower than originally projected due to unfavorable drilling economics caused by lower natural gas prices and high drilling and completion costs. However, 3TEC has continued to enjoy exploratory drilling success in South Louisiana. As previously announced, the Company drilled the #1 Bailey Minerals in St. Mary Parish (the "#1 Bailey") in the first quarter of 2002. Electric logs revealed 100 feet of net pay in the MA-1E sand at 16,122 feet total vertical depth (TVD) and ten feet of net pay in the MA-1D sand at 15,892 feet TVD. The Company has perforated the MA-1E sand, and tested the well at a rate of 10.4 Mmcf and 800 bbls per day using a 14/64 inch choke, with a flowing tubing pressure of 9,586 pounds per square inch (psi) and with a shut-in tubing pressure of 3,390 psi. Pipeline construction has delayed production on the #1 Bailey. The Company now expects initial production from this well to begin during the third quarter. Based on 3D seismic analysis, the Company has identified additional locations in the area with fault blocks similar to the one found at the #1 Bailey. During the third quarter to date, 3TEC has participated in the drilling of four wells. Currently all four are in various stages of completion operations. The Company believes that one of these wells (which is awaiting pipeline hook-up) is an additional exploratory success in South Louisiana. This well, the #1 State Lease 14122 VUA in Chandeleur Sound Block 68, was drilled to a depth of 9,800 feet. 3TEC has logged 39 feet of net pay in the Tex W sand. The well was tested at a daily rate of 10.5 Mmcf on a 26/64 inch choke with a flowing tubing pressure of 2,677 psi, and a shut-in tubing pressure of 10,071 psi. The Company currently projects to have this well online early in the fourth quarter, and is actively evaluating other similar fault blocks in the area. At the end of July 2002, the company conducted an internal review of its reserves. The reserves were evaluated using a three-year NYMEX strip pricing case for oil and gas escalated 3% thereafter starting in 2005. This analysis indicated total proved oil and gas reserves of approximately 300 Bcfe as of July 31, 2002. As of that date, the Company estimates its reserves to be 77% proved developed and 86% natural gas. Based on the results of the internal review, the Company believes that its drilling success through the first seven months of 2002 has improved its reserve position. Through July 31, the Company spent $11.5 million on exploratory drilling and completion costs and estimates it added 27 Bcfe to its proved reserves. This produced a favorable finding and development cost of $0.43 per Mcfe. Based on this success, the Company's Board recently approved increasing the exploratory component of its drilling budget for 2002 from $16 million to $20 million. During the second half of 2002, the Company plans to drill up to five additional exploratory wells South Louisiana in the same general areas where other successful wells have been drilled. Management Comments Floyd C. Wilson, Chairman and Chief Executive Officer of 3TEC, stated, "3TEC Energy Corporation posted solid results for the first half of 2002. Our internal evaluation of net proved reserves of approximately 300 Bcfe at July 31, 2002 indicates that our Company has the ability to grow reserves even in a very unfavorable acquisition environment. We are very encouraged by our drilling results to date and we continue to believe in our ability to add to our inventory of quality drilling sites." 2002 Outlook The following table presents management's estimates for daily production in Mmcfe and expenses per Mcfe for the third and fourth quarters of 2002. Production volume estimates below are based on proved reserves only and do include future exploration or acquisition success. The Company will continue to fund (i) exploratory and developmental drilling from cash flow; and (ii) acquisitions from cash flow, property divestitures, and debt (if needed). For 2002, 3TEC has budgeted approximately $64 million for drilling and completion activities. 3TEC Energy Corporation is engaged in the acquisition, development, production and exploration of oil and natural gas, with properties geographically concentrated in East and South Texas and the Gulf Coast region. ANC RENTAL: Signing up Brusniak Harrison as Special Tax Counsel --------------------------------------------------------------- ANC Rental Corporation, and its debtor-affiliates seek the Court's authority to employ Brusniak Harrison & McCool P.C., as special counsel on property tax protests, administrative appeals, adversary proceedings and related proceedings involving their taxable properties in various states. Bonnie Glantz Fatell, Esq., at Blank Rome Comisky & McCauley LLP, in Wilmington, Delaware, informs the Court that Brusniak will be working with National Tax Resource Group (NTRG) to address and resolve the Debtors' existing and contemplated property tax disputes. Since Brusniak previously worked with NTRG on other matters similar in nature, the Debtors believe that the firm is well qualified and uniquely able to represent them as special counsel in an efficient and timely manner. Ms. Fatell explains that Brusniak will render legal opinions to the Debtors and the NTRG, prepare any necessary documents, and take any other action with respect to the Property Tax Disputes, as well as perform other necessary or desirable legal services for the Debtors. Although the Debtors will separately retain Brusniak, Ms. Fatell says, the firm will look solely to NTRG for payment of its fees in connection with representation at hand. Joseph M. Harrison IV, Esq., a member of the Brusniak Harrison & McCool P.C., assures the Court that none of the firm's attorneys and accountants represent any party-in-interest in the Debtors' Chapter 11 cases. "Brusniak has not represented and will not represent any entities in relation to the Debtors' cases," Mr. Harrison asserts. (ANC Rental Bankruptcy News, Issue No. 17; Bankruptcy Creditors' Service, Inc., 609/392-0900) ACCRUE SOFTWARE: Explores Strategic Options to Raise New Capital ---------------------------------------------------------------- Accrue Software(R), Inc., (Nasdaq:ACRU) has implemented additional cost restructuring programs, including a temporary unpaid leave program for a number of its employees, to conserve working capital and improve liquidity. "The unpaid leave program affects approximately 30 employees in all areas of the company's operations, but does not materially impact Accrue's customer support and services organizations. Most of the affected employees are taking vacation as a result of the program. The Company is continuing to reduce discretionary spending, as it aligns its expenses with revenue," said Jonathan Becher, interim President and Chief Executive Officer of Accrue. The Company also said that management and the Board of Directors continue to actively pursue strategic alternatives for the Company, including sale of all or a portion of the company's operations and the sale of a significant portion of the Company's equity to generate additional capital. Further details of the restructuring programs will be available in the Company's upcoming 10Q for the first quarter of fiscal 2003 ended June 30, 2002. Accrue Software(R), Inc., (NASDAQ: ACRU) is a leading provider of Internet analytics solutions that help companies worldwide understand, influence, and respond to Internet customer behavior. Accrue's products enable companies to increase the effectiveness of Internet marketing and merchandising initiatives, better manage customer interactions across multiple channels, and streamline business operations. With Accrue's solutions, companies transform volumes of complex Internet data into actionable information that executives and managers use to drive key business decisions and improve the return on their Internet investment. Accrue's customers include industry leaders such as Citicorp, Dow Jones & Company, Eastman Kodak, Lands' End, Macy's, Lycos Europe, and Deutsche Telekom. Accrue Software was founded in 1996 and is headquartered in Fremont, California, with regional sales offices throughout the U.S. and international headquarters in Cologne, Germany. Accrue has strategic application and platform partnerships with leading technology companies such as IBM, Oracle, Sun Microsystems, BroadVision, ATG and Vignette. Accrue Software can be reached at 1-888-4ACCRUE or 510-580-4500 and at http://www.accrue.com ADELPHIA BUSINESS: BellSouth & Sprint Want Adequate Assurance ------------------------------------------------------------- Paul M. Rosenblatt, Esq., at Kilpatrick & Stockton LLP, in Atlanta, Georgia, relates that BellSouth provides various telecommunications services to Adelphia Business Solutions, Inc., and its debtor-affiliates. As of the Petition Dates, the ABIZ Debtors owed BellSouth $2,858,434 while the ACOM Debtors owed BellSouth $1,411,290. Mr. Rosenblatt explains that BellSouth purchases various telecommunications services from the Adelphia Debtors, known as "reciprocal compensation". As of the Petition Dates, BellSouth owed to the Adelphia Debtors between $1,000,000 and $2,000,000 in undisputed reciprocal compensation. BellSouth has not paid this amount to the Adelphia Debtors because BellSouth believes that it has a right to offset these amounts against the prepetition amounts the Adelphia Debtors owe to BellSouth. The Adelphia Debtors allege that BellSouth owes over $10,000,000 on account of reciprocal compensation charges. Mr. Rosenblatt doubts if these reciprocal compensation charges have any validity because these charges: -- were covered by a prior settlement, -- contain improper "tandem" switching charges, -- were calculated based upon improper jurisdictions, or -- are for unverifiable minutes of usage. BellSouth is unable to determine if it has adequate assurance in light of the Debtors' new business plan because the Debtors have not yet released the details of their new business plan to BellSouth in the context of this Section 366 adequate assurance determination. Pending a review of the Debtors' revised business plan, BellSouth reserves its rights on all issues related to adequate assurance. Mr. Rosenblatt notes that during the months of May and June 2002, the Adelphia Debtors operated at a loss in $11,744,065 and $7,378,420. Mr. Rosenblatt makes these additional observations: * The provision in the ABIZ adequate assurance motion requiring the Debtors to provide to BellSouth weekly flash reports of the Adelphia Debtors' available cash and postpetition financing availability should also reflect accrued and unpaid administrative expenses. At the recent hearing on the Beal debtor-in-possession financing, it was stated that there currently exists $4 million in accrued and unpaid professional fees. The amount of accrued and unpaid administrative expenses is a crucial factor in determining the true amount of available cash. * The Beal debtor-in-possession financing includes a waiver of the provisions of Section 506(c). In the event that there is a liquidation, BellSouth should not be forced to provide service to the Adelphia Debtors without receiving prepayment for the services. In the event the liquidation value fails to exceed the amount of the outstanding debt owed to Beal, BellSouth will have provided services to the estate for the benefit of Beal but the Debtors will be prohibited from seeking to surcharge the value of the collateral to pay BellSouth for the services it provided for the sole benefit of Beal, and the Debtors will lack the resources to pay BellSouth for these services. (2) Sprint Gary I. Selinger, Esq., at Solomon Green & Ostrow P.C., in New York, states that contrary to the ABIZ Debtors' representations, the ABIZ Debtors have not timely paid the undisputed charges for postpetition service. Sprint delivered a notice of nonpayment on July 12, 2002. To date, no payment has been received. Mr. Selinger notes that the ABIZ Debtors are presently past due in payment to the Sprint Entities, for more than $1,800,000 in long distance service and almost $800,000 in local exchange service. All of these long distance and local services, roughly $2,600,000 worth, has been rendered to the ABIZ Debtors since their Chapter 11 filings. Sprint's experience with the ABIZ Debtors will be repeated if this Court does not require the ABIZ Debtors to provide more security, in the form of deposits or prepayments. In addition, based on the evidence at the hearing on the ABIZ Debtors' motion for approval of postpetition financing on July 17, 2002, the ABIZ Debtors are in dire financial condition that "adequate assurance of payment" for either group of ABIZ Debtors requires no less than deposits or prepayments. Mere promises to pay timely in the future are simply inadequate to this task. Similarly, Mr. Selinger observes that the consolidated Monthly Operating Statements filed in these cases indicate continued losses and financial deterioration. The Sprint Entities contend that the ABIZ Debtors should be required to provide adequate assurance of payment in the form of deposits or prepayments. In the alternative, if the ABIZ Debtors fail to immediately provide adequate assurance of payment, the Sprint Entities assert that cause exists to modify the automatic stay to permit the Sprint Entities to immediately cease providing the Services, and to terminate the Agreements. Accordingly, the Sprint Entities seek additional assurance of payment in the form of: * an immediate cash deposit in the amount of the amount presently due for postpetition service, together with payments thereafter pursuant to the terms of the Agreements, or, in the alternative, weekly prepayments by wire transfer to the Sprint Entities of the expected weekly usage on Wednesday of each week for the following week of Services; both alternatives subject to modification in light of post- petition actual usage and without reduction in payments due to disputes asserted by ABIZ Debtors prior to written agreement by the Sprint Entities or a final order of the Court sustaining these disputes; * immediate payment by wire transfer to the Sprint Entities of the greater of all post-petition amounts charged by the Sprint Entities, if any, which have not yet been paid; or an amount equal to the weekly prepayment, for the period from the Petition Date to the commencement of the weekly prepayments; * the entry of an order directing that if the ABIZ Debtors fail to timely make any payments due under the order entered by this Court, or to perform any of the other terms and conditions set forth in the Agreements, the Sprint Entities shall have the right to terminate service to the ABIZ Debtors immediately and without further order of the Court, and to the extent necessary, modifying the automatic stay of Section 362 of the Bankruptcy Code to permit the Sprint Entities to exercise the rights and remedies under the Agreements, including termination of the same; and * the entry of an order, lifting the automatic stay to permit the Sprint Entities to offset all prepetition amounts owing to ABIZ Debtors by the Sprint Entities, if any, against all pre-petition amounts owing by ABIZ Debtors to the Sprint Entities. (Adelphia Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 609/392-0900) ADELPHIA COMMS: Look for Century's Schedules on Sept. 23, 2002 -------------------------------------------------------------- Anthony Vasallo, Esq., at Willkie Farr & Gallagher in New York, advises that Century's chapter 11 cases has been consolidated under Adelphia Communications' chapter 11 case. Accordingly, Century will file its schedules of assets and liabilities and statements of financial affairs on September 23, 2002. (Adelphia Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 609/392-0900) Adelphia Communications' 9.375% bonds due 2009 (ADEL09USR2), DebtTraders reports, are trading at 42 cents-on-the-dollar. See http://www.debttraders.com/price.cfm?dt_sec_ticker=ADEL09USR2 for real-time bond pricing. AGRIFOS FERTILIZER: Wants to Reimburse Pegasus' $250K Expenses -------------------------------------------------------------- Agrifos Fertilizer LP and its debtor-affiliates ask the U.S. Bankruptcy Court for the Southern District of Texas for authority to reimburse Pegasus Capital Advisors, LP's due diligence expenses. The Debtors filed their respective plans of reorganization with the Court. Agrifos Fertilizer LP, Agrifos Fertilizer GP LLC, and Agrifos Fertilizer LP LLC filed a joint plan of reorganization. The Fertilizer Debtors point out that they have been making significant progress towards finalizing deals with potential plan participants. Pegasus Capital Advisors, LP has been very useful in performing initial review of the Fertilizer Debtors' business, in connection to the Fertilizer Debtors' primary objective to secure a commitment for new capital. Pegasus indicated that it intends to go forward with its evaluation, provided the Fertilizer Debtors will provide Pegasus with an expense reimbursement of up to $250,000. The Fertilizer Debtors assert that the Expense Reimbursement is reasonable and necessary to allow Pegasus the ability to undertake its due diligence and secure the required capital infusion for the Fertilizer Debtors. The Debtors wants the Court to grant them authority to reimburse Pegasus for up to $250,000 of its actual expenses incurred in connection with its evaluation of its potential participation as an equity investor in the Fertilizer Debtors. The Debtors are producers of phosphate fertilizers that operate a 600,000 thousand ton per year phosphate fertilizer processing plant in Pasadena, Texas and a 1.2 million ton per year phosphate rock mine located in Nichols, Florida. They filed for chapter 11 protection on May 8, 2001. Christopher Adams, Esq., and H. Rey Stroube, III, Esq., at Akin, Gump, Strauss, Hauer & Feld, LLP represent the Debtors in their restructuring efforts. AMCAST INDUSTRIAL: Posts Improved Results for Fiscal 2002 Q3 ------------------------------------------------------------ Amcast Industrial Corporation is a leading manufacturer of technology-intensive metal products. Its two business segments are Flow Control Products, a leading supplier of copper and brass fittings for the industrial, commercial, and residential construction markets, and Engineered Components, a leading supplier of aluminum wheels and aluminum components for automotive original equipment manufacturers in North America as well as a leading supplier of light-alloy wheels for automotive original equipment manufacturers and aftermarket applications in Europe. Consolidated net sales of $151.4 million in the fiscal 2002 third quarter increased by $15.2 million, or 11.2%, from $136.2 million in the fiscal 2001 third quarter. The volume increase was driven by the Company's Engineered Component segment. Aluminum components and global wheels sales accounted for the increase related to volume over the prior year-quarter. This volume increase offset the decline in the Flow Control Products volume due to competitive market pressures. Price and product mix negatively affected sales in the fiscal 2002 third quarter compared with the third quarter of fiscal 2001. Flow Control Products continue to experience a decline in price due to competitive market pressure and product mix. For Engineered Components, there was a decrease in raw material costs which was passed through by contract to the customer. Consolidated sales also increased because Casting Technology Company is now reported in the Company's consolidated figures; whereas in the fiscal 2001 third quarter, CTC's activity was accounted for by the equity method. If CTC were consolidated in the prior year, sales would have increased by 4.8%. By segment, Engineered Components sales increased by 17.7% and Flow Control sales decreased by 4.9% compared with the third quarter of fiscal 2001. If CTC were consolidated in the third quarter of fiscal 2001, Engineered Components sales would have increased by 8.5%. For the first nine months of fiscal 2002, consolidated net sales increased by 6.7% to $423.6 million compared with $397.1 million in the first nine months of fiscal 2001. For the first nine months of fiscal 2002, overall volume, price, and product mix increased over the same period a year ago. This increase was reflective of higher and more profitable sales in the Engineered Component segment. As stated above, CTC is now reported in the Company's consolidated figures; whereas in the first nine months of fiscal 2001, CTC's activity was accounted for using the equity method. By segment, Engineered Components sales increased by 13.3% compared with the first nine months of fiscal 2001. If CTC were consolidated in the first nine months of fiscal 2001, Engineered Components sales would have increased by 3.6%. Flow Control Products sales decreased by 9.7%. Flow Control Products volume declined due to increased market competition and weakness in commercial and industrial construction markets. A decline in Flow Control Products sales due to pricing, primarily due to lower copper prices and also to competitive market pressures, was offset by improved volume and product mix in the Engineered Components products. Gross profit for the fiscal 2002 third quarter increased by 2.7 times to $16.3 million, or 10.8% of sales, compared with $6.1 million, or 4.5% of sales, for the same period a year ago. For the first nine months of fiscal 2002, gross profit increased by 17.1% to $37.9 million, or 8.9% of sales, compared with $32.3 million, or 8.1% of sales, for the first nine months of fiscal 2001. Excluding unusual items recorded in fiscal 2001, gross profit for the fiscal 2002 third quarter increased by 50.7%, or $5.5 million, and gross profit for the first nine months of fiscal 2002 increased by 2.2%, or $0.8 million, compared with the same periods a year ago. The gross profit increase is due to U.S. automotive sales of new aluminum components and wheel products and improved manufacturing efficiency in the U.S. automotive operations, partly offset by new product launch costs at the Richmond facility. Wheel manufacturing, operating at near capacity, benefited from higher sales volume with an improved price and product mix. The Amcast Production System, a streamlined, more efficient manufacturing approach, increased gross profit by reducing manufacturing costs. APS should continue to benefit gross profit as more of the Amcast workforce becomes certified. Selling, general and administrative expenses for the third quarter of fiscal 2002 were $13.4 million, or 8.9% of sales, compared with $24.4 million, or 17.9% of sales, in the third quarter of fiscal 2001. For the first nine months of fiscal 2002, SG&A expenses were $40.8 million, or 9.6% of sales, compared with $52.4 million, or 13.2% of sales, for the same period a year ago. The decrease in SG&A is primarily due to expenses recorded of $10.8 million in the third quarter and $13.8 million the first nine months of fiscal 2001 for unusual items. These unusual items consisted of legal and other professional fees for debt refinancing due to the Company's default on non-monetary debt covenants and a strategic alternative review, various asset reserves and write-downs, severance expenses for senior management changes, and increased workers compensation and other reserves for previously-closed facilities. Excluding unusual items, fiscal 2001 third quarter SG&A was 10.0% of sales and fiscal 2001 nine month SG&A was 9.7% of sales. Increased SG&A in the fiscal 2002 third quarter for ERP implementation costs, a lower pension benefit, and $0.4 million by consolidating CTC, was partly offset by a continuing cost reduction program. During the fiscal 2002 third quarter, the Company revaluated its employee vacation practice and reduced its vacation liability by $1.6 million to properly reflect the pay-as-you-go vacation policy. Also during the quarter, the Company amended its postretirement benefits and terminated postretirement life insurance for all retirees, except for those under contractual agreements. This amendment decreased the Company's postretirement obligation by $0.9 million. The benefits of these SG&A adjustments were largely offset by new product launch costs at the Richmond plant; thus, the combined effect did not have a significant impact on the Company's fiscal 2002 third quarter operating income. Effective June 5, 2001, the Company purchased the remaining 40% interest in CTC, its joint venture with Izumi Industries, bringing total ownership to 100%. The purchase price was approximately $4.0 million of which $1.6 million is payable in annual installments over the next four years. The Company paid $0.4 million in the fiscal 2002 third quarter. The acquisition was accounted for by the purchase method; accordingly, the cost of the acquisition was allocated on the basis of the estimated fair market value of the assets acquired and liabilities assumed. No goodwill resulted from the transaction. The pro forma effect of the acquisition on the results of operations is not material. Interest expense was $4.2 million and $13.2 million for the third quarter and first nine months of fiscal 2002, compared with $4.6 million and $11.1 million, respectively, for the same periods of fiscal 2001. The quarterly decrease in interest expense is due to lower average interest rates and reduced debt levels. The increase in interest expense for the first nine months of fiscal 2002 is primarily due to higher debt levels, receivables financing, and including CTC's interest expense in the Company's consolidated totals. The Company's effective tax rate is impacted by operations in various domestic and foreign tax jurisdictions. For fiscal 2002 and 2001, the income tax benefit due to pre-tax losses was offset by additional tax expense at the Company's Italian operation. Italian tax law requires the Company add back certain items resulting in a tax profit even though the operation is in a loss position for book purposes. The tax rate for the fiscal 2002 third quarter was 36.0% plus an Italian tax expense of $0.6 million, compared with a tax rate of 37.0% plus an Italian tax expense of $1.2 million in the fiscal 2001 third quarter. The tax rate for the first nine months of fiscal 2002 was 36.0% plus an Italian tax expense of $2.2 million, compared with a tax rate of 37.9% plus an Italian tax expense of $1.9 million for the same period a year ago. The tax rate also includes a valuation allowance that partially reserves against deferred tax assets related to tax loss carryforwards of the Company's Italian operations. Flow Control Products - Net sales for the Flow Control Products segment decreased by 4.9% to $37.4 million for the fiscal 2002 third quarter, compared with $39.3 million for the same period of fiscal 2001. For the first nine months of fiscal 2002, sales decreased by 9.7% to $103.3 million, compared with $114.4 million for the first nine months of fiscal 2001. Sales volume decreased by 2.8% for the fiscal 2002 third quarter, and by 8.0% for the first nine months of fiscal 2002. Price and mix together declined by 4.1% for the fiscal 2002 third quarter, and by 3.7% for the first nine months of fiscal 2002. Operating income in the fiscal 2002 third quarter was $2.5 million, compared with a loss $3.3 million (income of $2.0 million excluding unusual items) for the same period of fiscal 2001. For the first nine months of fiscal 2002, operating income was $5.1 million, compared with $4.1 million ($9.6 million excluding unusual items) for the same period of fiscal 2001. Excluding unusual items in 2001, the operating income decrease was primarily due to lower sales volume, competitive market pricing, and the cost to implement an ERP system. The reduced vacation liability to properly reflect the pay-as-you-go vacation policy contributed $0.6 million to fiscal 2002 third quarter segment income. Engineered Components - Net sales for the Engineered Components segment increased by 17.7% to $114.1 million for the fiscal 2002 third quarter, compared with $96.9 million for the same period of fiscal 2001. For the first nine months of fiscal 2002 sales increased by 13.3% to $320.2 million, compared with $282.7 million for the first nine months of fiscal 2001. Sales volume increased by 12.0% for the third quarter of fiscal 2002, and 3.9% for the first nine months of fiscal 2002. Product mix decreased sales by 0.7% for the fiscal 2002 third quarter and increased sales by 2.7% for the first nine months of fiscal 2002. Consolidating CTC in the second quarter and first nine months of fiscal 2002 increased sales by 6.2% and 5.2% respectively. Operating income in the fiscal 2002 third quarter was $1.3 million, compared with a loss of $8.5 million ($2.5 million loss excluding unusual items) for the same period of fiscal 2001. For the first nine months of fiscal 2002, the operating loss was $3.0 million, compared with a loss of $11.2 million ($5.3 million loss excluding unusual items) for the same period of fiscal 2001. Excluding unusual items in 2001, the increase in operating income was primarily due to the Company's U.S. operations due to improved operating efficiencies, higher sales volume, and a favorable price and product mix. The reduced vacation liability to properly reflect the pay-as-you-go vacation policy contributed $1.0 million to fiscal 2002 third quarter segment income. * * * As reported in Troubled Company Reporter's July 19, 2002, edition, Amcast Industrial Corporation, (NYSE:AIZ) successfully negotiated a restructuring of its credit facilities with its bank-lending group and senior note holders. As restructured, the bank credit facilities have been continued through September 14, 2003, and a required $12.5 million prepayment under the senior notes has been deferred until maturity in November 2003. After restructuring, long-term debt at the end of the fiscal third quarter was $160.4 million. This reduced short-term debt to $25.4 million, or 13.7% of total obligations. AMRESCO INC: Plan of Liquidation Declared Effective Aug. 6, 2002 ---------------------------------------------------------------- AMRESCO, Inc., (OTC Pink Sheets: AMMBQ) announced that the First Amended Joint Plan of Liquidation of the Company and several of the Company's subsidiaries became effective on August 6, 2002. The Plan was confirmed by the United States Bankruptcy Court for the Northern District of Texas, Dallas Division, on July 23, 2002 in connection with AMRESCO's bankruptcy proceedings under Chapter 11 of Title 11 of the United States Code (Case no. 01- 35327-SAF-11). On August 7, 2002, the Company, along with its subsidiaries involved in the bankruptcy proceedings, transferred all right, title and interest in any and all assets that they have or may have (including the Company's ownership interests in its subsidiaries) to a trust established on behalf of the Company's creditors. The trust will liquidate and distribute these assets to the creditors of the Company and its subsidiaries in accordance with the provisions of the Plan. J. Gregg Pritchard has been named as the initial trustee of the trust. Mr. Pritchard has also been appointed to serve as the President and as the sole member of the board of directors of the Company and its subsidiaries. All shares of the Company's common stock, and all other options, warrants and other rights and interests related to the Company's common stock were automatically cancelled upon the effective date of the Plan. Accordingly, all certificates formerly representing shares of common stock or other equity interests in the Company are null, void and of no effect. Similarly, all series of the Company's senior subordinated notes were automatically cancelled. In exchange, holders of these notes will be issued non-transferable beneficial interests in the liquidating trust, which will represent the right to receive certain payments in accordance with the terms of the trust. AMRESCO will not continue its business operations upon the conclusion of its bankruptcy proceedings. Accordingly, the Company and its subsidiaries will be dissolved as soon as is reasonably practicable, and their separate corporate existence will be terminated. AQUILA INC: Will Seek Buyer for Midlands Electricity in UK ---------------------------------------------------------- Aquila, Inc., (NYSE: ILA) announced that it would seek a buyer for its 79.9 percent of the shares of Avon Energy Partners Holding Company, the holding company for Midlands Electricity plc, operating as Aquila Networks in the United Kingdom. Aquila acquired majority interest in Avon Energy Partners Holding Company from FirstEnergy Corp., (NYSE: FE) in May and has been managing Midlands since that time. FirstEnergy, owner of the remaining 20.1 percent interest in Avon Energy Partners Holding Company, already has announced its intent to sell its position in the utility. "Since announcing our intent to sell $1 billion in assets, we've had inquiries related to our entire asset portfolio. In the case of Midlands Electricity, we've received a sufficient number of serious inquiries that have led us to initiate a bid process," said Robert K. Green, president and chief executive officer of Aquila. "To date we have made significant progress in our efforts to sell $1 billion in assets. The sale of Midlands would take Aquila well beyond our $1 billion target." The company expects the bidding process for Midlands to be concluded in October, with a decision on the bids by mid- October. Midlands Electricity serves 2.3 million customers in the city of Birmingham and parts of Staffordshire, Gloucestershire, Shropshire, Hereford and Worcester. For the year ended March 2001, Midlands Electricity sales totaled approximately $570 million and its earnings before interest and taxes totaled about $275 million. Based in Kansas City, Missouri, Aquila operates electricity and natural gas distribution networks serving more than six million customers in seven states and in Canada, the United Kingdom, New Zealand and Australia. The company also owns and operates power generation and mid-stream natural gas assets. At March 31, 2002, Aquila had total assets of $12.3 billion. More information is available at http://www.aquila.com * * * As reported in Troubled Company Reporter's Wednesday edition, Aquila Inc.'s current liquidity position is sufficient relative to scheduled upcoming payments. Cash on hand was approximately $207 million as of the first quarter 2002, and Aquila has about $570 million of available capacity under its bank lines. Aquila's credit facilities consist of a 364-day $325 million tranche that expires in April 2003, and a three-year $325 million tranche that expires in April 2005. Aquila recently completed a $280 million equity issuance and a $500 million senior unsecured note offering, the proceeds of which were used to refinance $675 million of 2002 maturing debt. Other near-term uses of funds include the $150 million repayment of a bridge loan related to the acquisition of Midlands, due in December 2002, and $63 million of common stock dividends, to be paid in September and December 2002. Fitch will continue to monitor Aquila's progress in winding down its energy market exposures, reducing staff and operating expenses, and monetizing non-core assets. Aquila's future credit profile will depend upon which ILA assets or businesses are sold, which are retained, and the amount of debt leverage remaining after the dispositions. Fitch currently rates Aquila as follows: senior unsecured 'BBB-', preferred stock 'BB+', and commercial paper 'F3'. The Rating Outlook is Stable. BCE INC: Expects to Sell $2BB of Equity to Finance Bell Buyback --------------------------------------------------------------- BCE Inc., (TSX, NYSE: BCE) announced that, further to its August 1st, 2002 shelf prospectus filing, it has signed an underwriting agreement in connection with a public offering of BCE common shares, at a price of $24.45 per share, for total gross proceeds of approximately $2 billion assuming full exercise of the over- allotment option. A major portion of the offer was subscribed by the accounts managed by certain of the Capital Group International, Inc. investment management companies and funds managed by Capital Research and Management Company. The net proceeds resulting from the sale of the common share offering will be used to pay part of the acquisition price of SBC Communications Inc.'s indirect minority interest in Bell Canada. The closing of the offering is scheduled to occur on August 12, 2002, and is subject to certain conditions set forth in the underwriting agreement. The common equity offering was placed by a syndicate of underwriters with RBC Capital Markets acting as lead manager and global book runner, Scotia Capital, co-lead and Canadian co-book runner, Credit Suisse First Boston, co-lead and US co-book runner and BMO Nesbitt Burns, co-lead manager. Common shares offered outside the United States to non-US persons will not be registered under the US Securities Act. The portion of the common shares to be sold in the United States or in circumstances where registration of the common shares is required has been registered under a registration statement filed with the US Securities and Exchange Commission. A copy of the prospectus and related prospectus supplement may be obtained from RBC Capital Markets, 1 Place Ville Marie, Suite 300, Montreal, Quebec H3B 4R8. BCE is Canada's largest communications company. It has 24 million customer connections through the wireline, wireless, data/Internet and satellite services it provides, largely under the Bell brand. * * * As reported in the April 24, 2002 edition of Troubled Company Reporter, Bell Canada International Inc.'s December 31, 2001 balance sheet shows that the company has a working capital deficit of about C$900 million. BUDGET GROUP: Wants to Honor & Pay Prepetition Tax Obligations -------------------------------------------------------------- Budget Group Inc., and its debtor-affiliates ask the Court to authorize, but not direct, them to pay the relevant taxing authorities the accrued and unpaid sales taxes, use Taxes and surcharges, real and personal property taxes, franchise taxes, foreign taxes, and any other taxes that the Debtors' directors, officers or employees may be personally liable. Edward J. Kosmowski, Esq., at Young Conaway Stargatt & Taylor LLP, in Wilmington, Delaware, informs the Court the Debtors have outstanding obligations for all the taxes. As of the Petition Date, the Debtors owe the taxing authorities: Sales Taxes, Use Taxes and Surcharges $16,163,000 Real and Personal Property Taxes 885,100 Franchise Taxes 115,000 Foreign Taxes 132,141 Mr. Kosmowski assures the Court that none of the Debtors' creditors will be prejudiced by the payment of these taxes to the relevant authorities at this time since the taxes and surcharges are entitled to priority status pursuant to Section 507(a)(8) of the Bankruptcy Code. Besides, these taxes must be paid in full under any Reorganization Plan. The timing of payment would even be beneficial to the Debtors' estates since it will avoid the accrual of interest or penalty charges on the claims, Mr. Kosmowski adds. Mr. Kosmowski fears that non-payment of taxes could cause the authorities to impose sanctions on, or engage, the Debtors in costly actions. Sales Taxes constitute so-called "trust fund" taxes that are required to be collected from third parties and held in trust for payment to the taxing authorities. In many cases, sales and use taxes are administered by the same taxing authorities, and are collected and enforced in the same manner. Although only few of the states expressly treat Use Taxes as Trust Taxes, many of the taxing authorities assert various penalties and enforcement actions as if use taxes constituted sales taxes. Nevertheless, Mr. Kosmowski tells the Court that given the large number of sales and use tax filings the Debtors prepare each year, it would be extremely costly for the Debtors' estates to resolve any disputes and defend any actions arising from the issue on whether use taxes are entitled to be treated the same way as sales taxes. The Debtors have been informed that certain taxing authorities may cause the Debtors to be audited or suspend the Debtors' authority to conduct business or take other corporate actions if the franchise taxes are not paid. The Debtors submit over 250 different franchise tax filings each year. Mr. Kosmowski notes that the Debtors' handling of these audits or suspensions would be extremely disruptive to their business operations and unnecessarily divert the attention away from the reorganization process. Mr. Kosmowski adds that some of these States might attempt to hold the Debtors' officers, directors and employees personally liable for nonpayment. The potential lawsuits, Mr. Kosmowski says, would prove to be extremely distracting to: -- the Debtors, -- the named individuals, whose attention to the Debtors' Chapter 11 cases is required, and -- the Court, which might be asked to entertain various motions seeking injunctions with respect to the potential State Court actions. The Debtors must also pay the taxes assessed on their real property leases in England. Mr. Kosmowski informs the Court that the English taxing authorities there may cause a local bailiff to confiscate the Debtors' assets equal to the amount of tax due, or if no assets are available for confiscation, cause the bailiff to cut-off the Debtors' access to the buildings. But Mr. Kosmowski makes it clear that this Motion is not meant to impair the Debtors' ability to contest the taxes or surcharges owing to the various taxing authorities. Accordingly, the Debtors also ask the Court to direct banks and financial institutions to process and pay all of the Debtors' deposits, wire transfers and checks that were not cleared prior to the Petition Date involving the payment of the taxes. The Debtors further seek the Court's permission to reissue any check, which was drawn in payment of any prepetition tax that was not cleared by a bank or financial institution. (Budget Group Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 609/392-0900) Budget Group Inc.'s 9.125% bonds due 2006 (BD06USR1) are trading at 14 cents-on-the-dollar, DebtTraders reports. See http://www.debttraders.com/price.cfm?dt_sec_ticker=BD06USR1for real-time bond pricing. CMS ENERGY: 2nd Quarter Results Swing-Down to Net Loss of $75MM --------------------------------------------------------------- CMS Energy Corporation (NYSE: CMS) announced a second quarter consolidated net loss of $75 million compared to second quarter 2001 consolidated net income of $53 million. Operating net income for the second quarter was $59 million compared to $35 million in the second quarter of 2001. Operating net income excludes the effects of non-recurring events such as gains on asset sales ($21 million), losses on discontinued operations of CMS Oil and Gas and CMS Viron ($141 million), restructuring costs and expenses related to early debt retirement. Operating net income reflects strong results from Consumers Energy's electric and gas utility businesses including reduced power supply costs due to an extended refueling outage in 2001 at the Palisades nuclear plant, favorable weather effects on natural gas and electric deliveries, improved earnings at CMS Energy's independent power plants and the benefits from mark- to-market accounting of long-term natural gas fuel supply contracts at the Midland Cogeneration Venture. "Based on the second quarter results and the current outlook for the remainder of year, we are reaffirming our $1.50 to $1.55 per share guidance for operating net income for the full year," said Ken Whipple, CMS Energy chairman and chief executive officer. Second quarter operating revenue totaled $2.4 billion, versus $2.2 billion in the second quarter of 2001. For the first six months of 2002, consolidated net income was $314 million, compared to $162 million in 2001. Operating net income for the same period was $134 million compared to $143 million, respectively. Operating net income excludes the effects of non-recurring events such as gains on asset sales ($35 million), income from discontinued operations ($169 million), restructuring costs ($7 million), expenses related to early debt retirement ($8 million) and a goodwill accounting change write-off ($9 million). Operating revenue for the first six months of 2002 totaled $4.8 billion compared to $5.0 billion in the first half of 2001. Operating net income of CMS Energy's utility business, Consumers Energy, was $58 million for the second quarter, up 100 percent from $29 million in the second quarter of 2001. Cool temperatures in May, the tenth coldest May on record in Michigan, helped to increase natural gas deliveries by 8.3 billion cubic feet during the quarter versus the second quarter of 2001. Natural gas deliveries were 65.3 billion cubic feet, up 14.7 percent from the same period last year. Warmer-than- normal temperatures during June helped total electric deliveries for the quarter to increase by 133 gigawatt-hours versus the second quarter of last year. Electric deliveries were 9,410 gigawatt-hours, up 1.4 percent from the second quarter of 2001. Second quarter operating net income of the natural gas transmission business was $13 million, down seven percent from $14 million in the same period last year, due to lower earnings from liquefied natural gas operations reflecting fixed contract rates compared to higher spot rates in the second quarter last year, as well as expropriation and devaluation issues in Argentina. These were partially offset by lower fixed costs reflecting debt retirement and lower operating costs. Independent power production operating net income in the second quarter totaled $48 million, up 167 percent from $18 million in the same period last year, due to improved plant performance and increased earnings from the Midland Cogeneration Venture reflecting mark-to-market accounting for long- term natural gas fuel supply contracts, lower steam costs at the Dearborn Industrial Generation plant and higher earnings from international plants. These were partially offset by expropriation and devaluation issues in Argentina. Marketing, services and trading reported an operating net loss in the second quarter of $18 million, as compared to operating net income of $33 million in the same period last year, primarily reflecting credit constraints which adversely affected sales contract origination and power and gas trading margins. Significant second quarter developments in the CMS Energy asset sale program included: * Closing of the sale of Consumers Energy's electric transmission system for approximately $290 million to Washington, D.C.-based Trans-Elect, the first transaction of its kind in the U.S.; * Closing of the sale of CMS Oil and Gas Company's coal bed methane holdings in the Powder River Basin of Wyoming and Montana for $101 million to XTO Energy of Fort Worth, TX,; * Closing of the sale of CMS Generation's 47.5 percent equity interest in Toledo Power Co. in the Philippines for $10 million to Mirant, and; * Announcement of a definitive agreement and letter of intent, which together provide for the sale of CMS Oil and Gas for approximately $232 million. CMS Energy also announced it is exploring the sale of its domestic pipeline and field services businesses in order to accelerate balance sheet improvement and enhance financial flexibility. The assets being considered for sale include the Panhandle and Trunkline interstate natural gas pipelines, the LNG receiving terminal at Lake Charles, La., CMS Field Services' gas gathering and processing assets and CMS Energy's one-third ownership interest in Guardian Pipeline. These are in addition to CMS Energy's previously announced plans to sell its one-third ownership interest in Centennial Pipeline LLP, an interstate refined petroleum products pipeline. CMS Energy Corporation is an integrated energy company, which has as its primary business operations an electric and natural gas utility, natural gas pipeline systems, independent power generation, and energy marketing, services and trading. For more information on CMS Energy, please visit its Web site at http://www.cmsenergy.com * * * As reported in Troubled Company Reporter's July 17, 2002, edition, Fitch downgraded the ratings of CMS Energy and its subsidiaries Consumers Energy Co., and CMS Panhandle Eastern Pipe Line Co. The senior unsecured debt rating of CMS has been lowered to 'BB-' from 'BB+'. The downgrades of Consumers and PEPL reflect Fitch's notching criteria with respect to parent and subsidiary ratings. CMS, Consumers and PEPL will remain on Rating Watch Negative, where they were originally placed on June 11, 2002 due to concerns surrounding CMS' weak liquidity position, high parent debt levels, and limited financial flexibility. CMS' market access continues to be constrained by the company's need to restate its 2000 and 2001 financial statements to eliminate the effects of 'wash trades' with other energy companies. While Consumers and PEPL are fundamentally sound, the companies' financial condition and credit ratings may be adversely affected by the financial stress of their parent. The Negative Rating Watch will remain in place pending a meeting with CMS management within the next several weeks to review the company's updated business plan. Ratings lowered and maintained on Rating Watch Negative CMS Energy --Senior unsecured debt to 'BB-' from 'BB+'; --Preferred stock/trust preferred securities to 'B-' from 'BB-'. Consumers Energy --Senior secured debt to 'BBB' from 'BBB+'; --Senior unsecured debt to 'BB+' from 'BBB'; --Preferred stock/trust preferred securities to 'BB-' from 'BB+'. Consumers Power Financing Trust I --Trust preferred securities to 'BB-' from 'BB+'. PEPL --Senior unsecured debt to 'BB+' from 'BBB'. CANFIBRE: Raises US$250,000 via Non-Brokered Private Placement -------------------------------------------------------------- The CanFibre Group Ltd., (TSX Venture Exchange: YCF), a producer of high-quality, high-margin specialty Medium Density Fibreboard products, has completed a non-brokered private placement of 1,771,129 common shares at a price of US$0.142 (Cdn $0.22) per common share for gross proceeds to CanFibre of US$251,386 (Cdn $389,648). The capital will be used primarily for working capital purposes in the Company's CanFibre of Lackawanna LLC operations. Four members of CanFibre's management team were investors in the private placement including Christopher Carl investing US$50,000 and three other officers of the company also investing a total of US$50,000. The securities will be subject to a standard 4 month hold period as prescribed by the TSX. The securities offered will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements. Operations in Lackawanna continue to improve dramatically with respect to total output, quality of product, average selling prices and improvements in working capital. CanFibre of Lackawanna continues to work with its secured creditors to negotiate terms that will result in new capital being invested in to the facility in return for an agreement to reduce certain requirements of the debt. CanFibre has also been successful in improving its working capital by arranging with a large number of customers to remit payment within 48 hours. This replaces the need to generate cash under the more expensive Santarosa agreement announced June 18, 2002 and accordingly, no cash has been funded under that agreement. "While the private placement is not large compared to the value of the Lackawanna facility, the fact that operations have improved sufficiently to attract new investors, including management, is significant," says Chris Carl, President of CanFibre. "We still have a lot of work to do to bring Lackawanna back to the level of operation originally intended for the facility but the advancements made in recent weeks and months have been excellent. The effort put forth by CanFibre's management and employees has been nothing short of extraordinary and our confidence that such efforts will result in the long term success of the company is growing every day." The private placement was approved by CanFibre's Board of Directors. It should be noted that David Carbonaro resigned as a Director effective July 3, 2002 to avoid potential conflict of interest as Mr. Carbonaro is now assisting CanFibre directly in some of its financing efforts. Mr. Carbonaro continues to act as corporate counsel for CanFibre. The CanFibre Group Ltd., is engaged in the worldwide development and operation of manufacturing plants to produce high quality wood panel products such as medium density fibreboard from environmentally sensitive wood sources including the use of 100% recycled dry waste wood normally destined for landfill. CanFibre's ALLGREEN(R) MDF is North America's first 100% "green" panel board. The CanFibre Group derives competitive advantage by locating in urban areas close to the waste wood fibre supply and close to end use customers as well as through the use of patented pressing technology that allows CanFibre to produce a series of specialty products that can not be produced economically by conventional producers. ALLGREEN(R) MDF and CanFibre MDF are marketed through wholesale distributors, manufacturers and retailers throughout North America. Visit http://www.canfibre.comfor more information about the company. * * * As reported in Troubled Company Reporter's June 20, 2002, edition, CanFibre of Lackawanna is currently in default of its bonds because it has not made interest payments that were due December 1, 2001 and June 1, 2002. Provided that CanFibre continues to meet its ongoing working capital requirements, no action is expected by the bondholders that would result in any kind of acceleration of the bonds. In addition, CanFibre and its bondholders are engaged in good-faith discussions to determine ways to cure the default. CAPITAL LEASE: Fitch Affirms Low Ratings on Classes E, F & G ------------------------------------------------------------ Capital Lease Funding Securitization LP corporate credit-backed pass-through certificates, series 1997-CTL-1 $2.9 million class A-1, $40.4 million class A-2, $17.8 million class A-3 and the interest only class IO are affirmed at 'AAA' by Fitch Ratings. In addition, Fitch affirms the following classes: $15.5 million class B at 'AA', $15.5 million class C at 'A', $6.1 million class D at 'BBB-', $6.8 million class E at 'BB-', $1.9 million class F at 'B-' and $1.3 million class G at 'CCC'. In conjunction with the affirmations, classes D, E and F are also removed from Rating Watch Negative. The rating affirmations follow Fitch's annual review of the transaction, which closed in January 1997. The decision to remove classes D, E and F from Rating Watch Negative is the result of Fitch's internal evaluation of Circuit City Stores, Inc. completed in June. Loans with leases guaranteed by Circuit City make up 16% of the pool by balance. The ratings of this transaction are highly sensitive to the movements of the corporate credit ratings of the underlying tenants, which Fitch closely monitors. The transaction benefits from fully amortizing loans to credit tenants, of which 65% are investment grade rated. The transaction continues to perform with no delinquencies or specially serviced loans. Other credit tenants in the pool are CVS (20%), Blue Cross/Blue Shield of Texas (16%), Rite Aid (11%), Tandy Corp., (7%) and various others. Fitch continues to have concerns with the concentration as only 30 loans in the pool. However each property is leased to a tenant on a triple net or double net basis, requiring each tenant to pay for the operating costs of the property. Fitch also has concerns that 35% of the underlying loans are guaranteed by leases to below investment grade tenants. The deterioration of the credits has been factored into the ratings assigned to each class. Fitch will continue to monitor the transaction and the ratings of the underlying credit tenants. CAROLINA RE: Court Says Deloitte Must Comply with Subpoenas ----------------------------------------------------------- The Honorable Judge Burton R. Lifland of the U.S. Bankruptcy Court for the Southern District of New York denied Deloitte & Touche LLP's motion to quash subpoenas served by Carolina Reinsurance Limited's Liquidators. Although Carolina Re is incorporated in Bermuda, it operated from North Carolina, and most of the audit work was performed in the United States. Ms. Kristan Meehan, (in Deloitte's Hartford, Connecticut office) was a manager on certain of Carolina Re's audits and Mr. John Slusarski provided actuarial services with the audits of Fortress Re and Carolina Re. Following the production of the requested documents -- pursuant to the Preliminary Injunction Order -- the Joint Liquidators subpoenaed Ms. Meehan and Mr. Slusarski for depositions. Deloitte asked the Court to quash the subpoenas issued to its employees, claiming that: (1) the depositions are being sought for an improper purpose which is to try to establish a claim against Deloitte; and (2) in the context of a 304 ancillary proceeding, United States courts cannot order discovery beyond that which would be available in the home court, and that a Bermuda court would not permit depositions under these circumstances. Judge Lifland finds that the investigation of potential claims on behalf of a debtor is not an improper use of Rule 2004 discovery. Rule 2004 provides that "courts have the authority to order examinations with respect to the financial matters of debtors as well as other matters affecting the administration of the estate." Moreover, the Court reminds that Section 304 intends to provide U.S. Courts with broad authority and flexibility to enable foreign representatives to administer assets located in the United States. The Court acknowledges that the liquidation of Carolina Re is a laborious process and the financial affairs of Carolina Re are complex. According to the Joint Liquidators, many of the documents pertaining to the financial matters are unclear and require further explanation and interpretation. Section 195 gives a Bermuda court the power to summon before it any person the court deems capable of "giving information concerning the [insolvent] company." The information and knowledge the Deloitte employees maintain are essential to this investigation, the Court contends. The Court further explains that the Joint Liquidators' action is consistent with their powers and duties entrusted by the Bermuda Court, section 304 of the Bankruptcy Code and Rule 2004 of the Federal Rules of Bankruptcy Procedure. Moreover, the Court believes that Deloitte's request for help in explaining Carolina Re's substantial losses is not oppressive, and trusts that the Bermuda Court would concede that the requirements of the Joint Liquidators outweigh any perceived oppression to the two Deloitte employees. CHESAPEAKE ENERGY: Moody's Assigns B1 Rating to $250MM Sr. Notes ---------------------------------------------------------------- Moody's Investors Service took several rating actions on Chesapeake Energy Corporation. Rating Assigned * B1 - $250 million senior unsecured notes, due 2012. Ratings Affirmed * B1 - $108 million 7.875% senior unsecured notes, due 2004, * B1 - $250 million 8.375% senior unsecured notes, due 2008, * B1 - 800 million 8.125% senior unsecured notes, due 2011, * B1 - $143 million 8.5% senior unsecured notes, due 2012, * Caa1 - $150 million 6.75% convertible preferred, * B1 - Senior Implied Rating, * B2 - Unsecured Issuer Rating. Ratings outlook is positive. Proceeds from the $250 million notes will be used to repay outstanding debts and fund three pending acquisitions. Although limited by a high financial leverage, the ratings reflect growth in Chesapeake's asset base, and its intensified focus on its core assets and reduced reliance on its noncore and short-lived assets. Chesapeake Energy Corporation, headquartered in Oklahoma City, Oklahoma, is an independent exploration and production company. CHESAPEAKE ENERGY: Fitch Rates $250M Senior Note Offering at BB- ---------------------------------------------------------------- Fitch Ratings has assigned a 'BB-' rating to Chesapeake Energy's $250 million senior note offering. Fitch maintains its 'BB+' rating on its senior secured bank facility and a 'B' rating on its convertible preferred stock. The Rating Outlook for Chesapeake is Stable. Chesapeake Energy priced $250 million of senior notes. The net proceeds from this offering will be used for funding three pending acquisitions totaling $132 million and to repay bank debt recently incurred to purchase $43 million of senior notes due in 2004 and to purchase $38 million of natural gas properties in Oklahoma. Remaining net proceeds will be used for general corporate purposes, including the funding of future acquisitions. This transaction follows the $150 million convertible preferred offering in November 2001 and the pricing of $250 million of 8.375% senior notes completed in late October. The proceeds from those two offerings were also used to fund several 'tuck-in' acquisitions. Chesapeake expects to add as much as 125 Bcfe of proved reserves consisting primarily of Mid-Continent developed natural gas reserves with initial average daily natural gas production of approximately 28,000 Mcfe. This would increase reserves by approximately 6.7% and daily production by about 6%. The valuation of the three transactions is about $1.35 per Mcfe. The ratings reflect Chesapeake's long-lived, focused natural gas reserve base, the likelihood of increased production through its recent acquisitions and its modest credit profile, which assumes equity funding to help balance past and future transactions. Chesapeake's proved reserves, pro forma for potential acquisitions are more than 2.0 Tcfe, which provide a reserve life in excess of 10 years. Additionally, approximately 90% of Chesapeake's proved reserves are natural gas and are primarily located in the very familiar Mid Continent region. In fact, Chesapeake's last six significant acquisitions have all been in the Mid-Continent region where it has a significant amount of infrastructure in place and has had proven success. Fitch expects Chesapeake to achieve synergies through its recent acquisitions and to expand upon the current production that each of its potential acquisitions is currently realizing. Chesapeake has generated credit metrics consistent with its rating over the last 12 months. Coverages, as measured by EBITDA-to-interest, are greater than 4.0 times for the latest 12-month period, and debt-to-EBITDA is approximately 3.0x. Chesapeake's present debt on both an absolute ($1.5 billion pro forma for proposed offering) and a proven barrel of oil equivalent ($4.38 per BOE pro forma for acquisitions and bond offering) basis is high for the rating. Fitch expects these measures to improve in the intermediate term from any internally generated cash flow and through an equity-related transaction in the future. Chesapeake is an Oklahoma City-based company whose primary focus is the exploration, production and development of natural gas. Chesapeake began operations in 1989 and completed its initial public offering in 1993. Its proved reserves are predominantly natural gas (91%), mostly proved developed (71%), and are based in North America. Its operations are concentrated in the Mid- Continent (86% of assets and 75% of production), the Gulf Coast and the Permian Basin. The company has been active in increasing its natural gas reserve base by making acquisitions within its core areas of operation as well as through the drillbit. CHESAPEAKE ENERGY: Commences Private Offering of $250MM 9% Notes ---------------------------------------------------------------- Chesapeake Energy Corporation (NYSE: CHK) has priced a private offering of $250 million senior notes due 2012, which will carry an interest rate coupon of 9.0%. The senior notes were priced at 98.389% to yield 9.25%. The senior notes being sold by Chesapeake will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The senior notes will be eligible for trading under Rule 144A. Closing of the senior notes offering is expected to occur on August 12, 2002, and is subject to satisfaction of customary closing conditions. The net proceeds from this offering will be used for funding three pending acquisitions totaling $132 million and to repay bank debt recently incurred to purchase $43 million of senior notes due in 2004 and to purchase $38 million of natural gas properties in Oklahoma from The Williams Companies. Remaining net proceeds will be used for general corporate purposes, including the possible funding of future acquisitions. Chesapeake Energy Corporation is one of the 10 largest independent natural gas producers in the U.S. Headquartered in Oklahoma City, the company's operations are focused on exploratory and developmental drilling and producing property acquisitions in the Mid-Continent region of the United States. The company's Internet address is http://www.chkenergy.com Chesapeake Energy Corp's 8.5% bonds due 2012 (CHK12USR1), DebtTraders says, are trading at 99 cents-on-the-dollar. See http://www.debttraders.com/price.cfm?dt_sec_ticker=CHK12USR1for real-time bond pricing. COEUR D'ALENE: Posts $11 Million Net Loss for Second Quarter ------------------------------------------------------------ Coeur d'Alene Mines Corporation (NYSE:CDE), reported results for the second quarter ended June 30, 2002: 2002 Second Quarter Highlights -- Generated positive cash flow from operating activities -- Commenced production at new, low-cost Cerro Bayo (Chile) and Martha (Argentina) mines -- Produced a record 3.3 million ounces of silver during the quarter and 6.2 million ounces of silver during the first six months of 2002 -- 28% and 19% higher than the comparable periods last year, respectively -- Achieved consolidated silver cash costs of $3.34 per ounce during the second quarter, compared to $3.75 per ounce in last year's second quarter and $3.85 per ounce during the first quarter of this year -- Increased percentage of total revenues derived from silver to 63%, up from 56% during last year's second quarter -- Retired 6% Debentures and secured $16.0 million of new financing -- Met all New York Stock Exchange listing requirements Dennis E. Wheeler, Chairman, President, and Chief Executive Officer, said, "The end of the second quarter marked the beginning of the 'New Coeur.' For the full year, we remain on track to produce a record 15.0 million ounces of silver, representing a 40% increase over last year, at a consolidated average cash cost of approximately $2.95 per ounce. Our new generation of low-cost mines, Cerro Bayo and Martha, were successfully brought on-stream by our operations group during the quarter. These mines will fuel continued decreases in our operating costs and will generate considerable positive cash flow throughout the remainder of the year. In addition, we continue to experience significant silver production and reduced cash costs at our existing operations in Nevada and Idaho. Second quarter company-wide cash costs were 13% lower than the first quarter and we expect continued reduction in our cash costs throughout the remainder of the year. Our balance sheet has been strengthened, providing us with improved financial and strategic flexibility going forward. With improving silver and gold prices, continued reductions in our operating costs, dramatic silver production growth, and substantial exploration potential near our existing operations, we remain enthusiastic about our future." Financial Summary For the second quarter, Coeur d'Alene Mines Corporation (NYSE:CDE) generated $0.1 million of positive cash flow from operations compared with negative cash flow from operations of $10.0 million in the second quarter of 2001 and negative cash flow of $5.5 million in the first quarter of 2002. For the first six months of 2002, Coeur reported negative cash flow from operations of $5.4 million compared to negative cash flow from operations of $16.0 million for the first six months of 2001. For the quarter, Coeur preliminarily reports a net loss of $10.9 million. This compares to a net loss during the second quarter of 2001 of $3.6 million. For the first six months of 2002, Coeur preliminarily reports a net loss of $22.8 million. This compares to a net loss of $11.7 million for the first six months of 2001. The above net loss amounts may be required to be adjusted prior to finalization of Coeur's financial statements as a result of a possible accounting change that may be announced by FASB. The Company has recently learned that the accounting for any conversion of convertible debt on terms other than the original conversion terms is currently being rediscussed by FASB and additional clarification is expected shortly. The result may be that the Company will have to adjust, possibly retroactively, the determination of its debt extinguishment gains and losses prior to issuing the Company's Form 10 Q for the second quarter of 2002. If an adjustment is necessary, it would likely substantially increase reported debt extinguishment expense. However, it is not expected the adjustment would materially affect Coeur's shareholders' equity. The increase in cash flow is primarily due to the following factors: -- Increased silver production -- Coeur increased its silver production 28% during the second quarter to a record 3.3 million ounces. During the quarter, silver production from Coeur Silver Valley increased 34%, while silver production from Coeur's Rochester mine increased 10% over 2001 second quarter levels. -- Lower operating costs -- Overall silver cash costs for the second quarter decreased to $3.34 per ounce, down from $3.75 per ounce during the second quarter of 2001 and a significant reduction from 2002 first quarter's cash costs of $3.85 per ounce. Rochester's cash costs were reduced 24% to $2.81 per ounce during the second quarter compared to the first quarter. The second quarter cash costs per ounce reflect the Company's adoption of the Gold Institute standard for calculating cash costs per ounce treating gold as a by-product. This calculation reduces cash costs by the revenue generated by gold as a by- product. The prior periods have been calculated to show the comparable cash costs per ounce using this method. -- Higher metals prices -- During the second quarter, Coeur sold its silver production at an average price of $4.82 per ounce compared to an average realized price during the second quarter of 2001 of $4.37 per ounce. For its gold production, Coeur realized an average price of $304 per ounce during the second quarter compared to an average gold price of $273 per ounce during the same period last year. In June 2002, Coeur secured $16.0 million of financing by issuing Series II 13.375% Convertible Senior Subordinated Notes. The proceeds were used to repay the remaining 6% Convertible Subordinated Debentures that matured on June 10, 2002 as well as for general working capital purposes. At June 30, 2002, working capital was $46.7 million, compared with $28.6 million at the end of 2001 and $26.3 million at March 31, 2002. Cash, cash equivalents, and short-term investments (excluding restricted investments) totaled $12.7 million at the end of the second quarter compared to $10.7 million at the end of the first quarter. Coeur d'Alene Mines Corporation is the country's largest silver producer, as well as a significant, low-cost producer of gold. The Company has mining interests in Nevada, Idaho, Alaska, Argentina, Chile and Bolivia. * * * As previously reported, Coeur d'Alene Mines Corporation advised the firm of Arthur Andersen LLP that Arthur Andersen LLP would no longer serve as the Company's independent accounting firm. Arthur Andersen LLP had served in that capacity since October 1999. The Company's determination reflected the fact that on June 15, 2002, the Securities and Exchange Commission announced that Arthur Andersen LLP had informed the Commission that it will cease practicing before the Commission by August 31, 2002. Arthur Andersen's report dated February 15, 2002, stated that the financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, had been prepared assuming that the Company will continue as a going concern. COHO ENERGY: Court Okays Sale of Oil & Gas Properties for $222MM ---------------------------------------------------------------- Coho Energy, Inc., (OTCBB:CHOH) announced that on August 6, 2002 the U.S. Bankruptcy Court in Dallas approved the sale of essentially all of its oil and gas properties for an aggregate sales price of $222.8 million. The sale price for Coho Energy's oil and gas properties located in Oklahoma and Red River County, Texas to Citation Oil & Gas Corp., was approved in the amount of $172.5 million, an increase of $7 million over the original bid amount. The sale of Coho Energy's oil and gas properties located in Mississippi and Navarro County, Texas to Denbury Resources, Inc., was approved at the original bid amount of $50.3 million. In connection with the sales, Coho Energy is seeking to assign certain related contracts and leases to Citation and Denbury. The property sales are scheduled to be completed on August 29, 2002, subject to completion of title and environmental reviews. The claims of creditors of Coho Energy who have liens against properties sold to Citation and Denbury will attach to the sale proceeds paid to Coho Energy at closing. Those creditors will receive payments on allowed claims in accordance with future orders of the Bankruptcy Court. Since the estimated claims of Coho Energy's creditors in its bankruptcy proceedings aggregate in excess of $335 million, it is unlikely that Coho Energy's shareholders will receive any distribution upon liquidation of the company. Coho Energy intends to file a plan of liquidation following the closing of the sales to Citation and Denbury. Creditors with allowed claims that do not attach to the sale proceeds will receive distributions pursuant to Coho Energy's plan of liquidation after approval by the Bankruptcy Court. CONSECO INC: Fitch Downgrades All Related Corporate Ratings ----------------------------------------------------------- Fitch Ratings has lowered the corporate ratings of Conseco Inc. All Conseco-related corporate ratings (including Conseco Finance Corp.) are placed on Rating Watch Negative. The downgrade of Conseco's corporate fixed income ratings reflect increased uncertainty over Conseco's ability to meet its debt repayment schedule over the next six months. The upcoming debt maturities as of March 31, 2002 are as follows: approximately $200 million optional bank repayment due September 30, 2002, approximately $300 million public debt due October 15, 2002 and approximately $300 million public debt due mid-February 2003. Conseco has executed several asset sales and reinsurance transactions over the last several months to fund debt repayments. Fitch believes the company will require additional asset sales or other cash raising transactions. These efforts will be challenging given the difficult economic environment and the company's limited financial flexibility. The Rating Watch Negative reflects these challenges as well as the potential earnings and capital impact of poorly performing investment markets. With this action, Fitch has equalized the ratings of the senior debt issued in the recent exchange offering with the existing senior debt. Although the existing debt is structurally subordinated to the exchange debt, Fitch believes there is not a material difference in credit quality given the current company fundamentals. Insurer financial strength ratings were placed on Rating Watch Negative reflecting continued downward rating pressure from problems at the holding company. However, Fitch believes the insurance companies have good capital adequacy and liquidity. Conseco Variable Insurance Company (Conseco Variable) remains on Rating Watch Evolving pending completion of its sale to inviva Inc. All ratings placed on Rating Watch Conseco Inc. --Long-term rating, lowered to 'CCC' from 'B-', Negative; --Senior debt issues lowered to 'CCC from 'B-', Negative; * 8.50% senior notes due 2003 * 6.40% senior notes due 2004 * 8.75% senior notes due 2006 * 6.80% senior notes due 2007 * 9.00% senior notes due 2008 * 10.75% senior notes due 2009 --Senior debt issues downgraded to 'CCC' from 'CCC+', Negative; * 8.50% senior notes due 2002 * 6.40% senior notes due 2003 * 8.75% senior notes due 2004 * 6.80% senior notes due 2005 * 9.00% senior notes due 2006 * 10.75% senior notes due 2008 --Preferred stock, lowered to 'CC' from 'CCC', Negative --Short-term rating, lowered to 'C' from 'B', Negative; --Commercial paper rating, lowered to 'C' from 'B', Negative;. Conseco Financing Trust I-VII --Preferred securities, lowered to 'CC' from 'CCC', Negative. Insurer Financial Strength --Bankers Life & Casualty Co., 'BB', Negative; --Conseco Annuity Assurance Co., 'BB', Negative; --Conseco Direct Life Insurance Co., 'BB', Negative; --Conseco Health Insurance Co., 'BB', Negative; --Conseco Life Insurance Co., 'BB', Negative; --Conseco Life Insurance Co. of New York, 'BB', Negative; --Conseco Medical Insurance Co., 'BB', Negative; --Conseco Senior Health Insurance Co., 'BB', Negative; --Conseco Variable Insurance Co., 'BB', Evolving; --Pioneer Life Insurance Co., 'BB', Negative. Conseco Finance Corp. --Senior debt rating 'CCC', Negative; --Short-term rating 'C', Negative. Conseco Inc.'s 10.75% bonds due 2008 (CNC08USR1), DebtTraders reports, are trading at 27. For real-time bond pricing, see http://www.debttraders.com/price.cfm?dt_sec_ticker=CNC08USR1 CORRECTIONS CORP: Second Quarter Net Loss Widens to $31 Million --------------------------------------------------------------- Corrections Corporation of America (NYSE: CXW) announced its operating results for the three and six month periods ended June 30, 2002. For the second quarter of 2002, the Company reported a net loss available to common stockholders of $31.4 million compared with a net loss available to common stockholders of $4.5 million for the second quarter of 2001. For the six months ended June 30, 2002, the Company reported a net loss available to common stockholders of $77.7 million compared with a net loss available to common stockholders of $14.6 million for the comparable prior year period. Results for the second quarter and six months ended June 30, 2002, include the effects of an extraordinary charge of $36.7 million associated with the Company's refinancing of its senior indebtedness. The per diluted share effect of this charge amounted to $1.14 for the three months ended June 30, 2002, and $1.03 for the six months ended June 30, 2002. Excluding the effect of the extraordinary charge, the Company generated net income available to common stockholders of $5.3 million for the three months ended June 30, 2002. Results for the six months ended June 30, 2002, also include the effect of a non-cash charge of $80.3 million for the cumulative effect of a change in accounting for goodwill in accordance with Statement of Financial Accounting Standards No. 142 ("SFAS 142") and a one-time cash income tax benefit of $32.2 million resulting from an income tax change that was signed into law in March. Excluding these transactions, and the effect of the aforementioned extraordinary charge, for the six months ended June 30, 2002, the Company generated net income available to common stockholders of $7.0 million. Cash flow from operations continued to improve, with the Company generating adjusted free cash flow of $18.5 million during the second quarter of 2002, compared with $16.2 million during the second quarter of 2001, representing an 11.3% increase in the adjusted free cash flow per diluted share results. The improvement in adjusted free cash flow was largely due to cash interest savings partially offset by an increase in income tax payments. The cash interest savings were due to significant repayments of debt during 2001, combined with lower interest rates primarily resulting from our successful refinancing. Income tax payments increased for taxes due in the Commonwealth of Puerto Rico. Consolidated revenues for the second quarter of 2002 amounted to $243.3 million, compared with $239.9 million for the second quarter of 2001. Consolidated EBITDA for the second quarter of 2002 was $46.6 million, compared with $48.1 million for the second quarter of 2001. Average compensated occupancy for the second quarter of 2002 was 89.2%, compared with 89.3% for the second quarter of 2001. Commenting on the second quarter results, President and CEO John Ferguson stated, "The Company generated solid operating results during our fiscal second quarter. Adjusted free cash flow per diluted share increased 11.3% over the comparable prior year period, and we generated an operating profit prior to the extraordinary charge related to our successful refinancing. As a result of the refinancing, the Company is now in a positive working capital position." Debt Refinancing As previously disclosed, the Company completed a comprehensive refinancing of its senior debt in May of 2002. The new financing consists of a senior secured bank credit facility in the aggregate amount of $715 million, which includes a revolving credit facility of up to $75 million with a term of four years, a $75 million term loan A with a maturity of four years, and a $565 million term loan B with a maturity of six years. All borrowings under the new senior secured bank credit facility initially bear interest at a base rate plus 2.5%, or LIBOR plus 3.5%, at the Company's option. The refinancing also included the purchase of substantially all of the Company's existing $100 million 12% senior notes, and the issuance of $250 million of seven-year senior notes at 9.875%. As a result of this refinancing and the related early extinguishment of the existing senior secured bank credit facility and senior notes, the Company recorded an extraordinary loss of approximately $36.7 million during the second quarter, which included the write-off of existing deferred loan costs, certain bank fees paid, premiums paid to redeem the 12% senior notes, and certain other costs associated with the refinancing. Discontinued Operations As a result of the previously announced termination of the contracts to manage the Ponce Young Adult Correctional Facility and the Ponce Adult Correctional Facility on May 4, 2002, and the sale of the Company's interest in a juvenile facility on June 28, 2002, in accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company has reported the operating results of these facilities as discontinued operations for the three and six months ended June 30, 2002 and 2001. Operating EBITDA/Liquidity EBITDA for the quarter amounted to $46.6 million, while debt service cost for the quarter, excluding non-cash items and costs associated with the refinancing, amounted to approximately $24.7 million. At June 30, 2002, the Company had cash on hand of approximately $65.8 million and $61.2 million available under a $75 million working capital line of credit. Consolidated EBITDA for the second quarter of 2002 was $46.6 million, compared with $48.1 million for the second quarter of 2001. EBITDA for the prior year included the operating results of the Company's Pamlico Correctional Facility, which was sold on June 28, 2001. The sale of this facility, which had been leased to a governmental agency, was the primary reason for the decline in EBITDA from the prior year. Operating margins increased slightly to $11.27 per compensated man-day in the second quarter of 2002 from $10.98 per compensated man-day in the prior year. The operating margin ratio remained essentially unchanged at 22.8% compared with 22.9% in the prior year. Contract Update As previously announced, on May 7, 2002, the Company received notice from the Commonwealth of Puerto Rico terminating the Company's contract to manage the 1,000-bed medium security Guayama Correctional Center. This followed a prior notice from the Commonwealth of Puerto Rico terminating our contracts to manage the Ponce Adult Correctional Facility and the Ponce Young Adult Correctional Facility. Operations of both Ponce facilities were transferred to the Commonwealth of Puerto Rico on May 4, 2002. Operations of the Guayama Correctional Center were transferred to the Commonwealth of Puerto Rico on August 6, 2002. On May 30, 2002, the Company announced a contract award from the Federal Bureau of Prisons to house 1,500 federal detainees at the Company's McRae Correctional Facility located in McRae, Georgia. The initial term of the contract is for three years and includes seven one-year renewal options. Under the provisions of the award, the Company could earn revenues of up to approximately $109 million in the first three years of the contract. The contract with the BOP guarantees at least 95% occupancy on a take-or-pay basis, and is expected to commence late in the fourth quarter of 2002. "Although we were disappointed with the loss of the contracts in Puerto Rico," Ferguson stated, "we nevertheless remain encouraged regarding the overall environment for private correctional services. While the budget difficulties that affect almost every governmental entity present short-term challenges with respect to per-diem rates, the fact remains that these governmental entities are also constrained with respect to funds available for prison construction. We expect little in the way of new prison construction while inmate populations should continue to rise. This demand should lead to higher occupancies and greater profitability for the Company going forward." The Company is the nation's largest owner and operator of privatized correctional and detention facilities and one of the largest prison operators in the United States, behind only the federal government and four states. The Company currently owns 40 correctional, detention and juvenile facilities, three of which are leased to other operators, and one additional facility which is not yet in operation. The Company currently operates 61 facilities (including the McRae, Georgia facility which is anticipated to commence full operations during the fourth quarter of 2002), including 37 company-owned facilities, with a total design capacity of approximately 60,000 beds in 21 states and the District of Columbia. The Company specializes in owning, operating and managing prisons and other correctional facilities and providing inmate residential and prisoner transportation services for governmental agencies. In addition to providing the fundamental residential services relating to inmates, the Company's facilities offer a variety of rehabilitation and educational programs, including basic education, life skills and employment training and substance abuse treatment. These services are intended to reduce recidivism and to prepare inmates for their successful re-entry into society upon their release. The Company also provides health care (including medical, dental and psychiatric services), food services and work and recreational programs. * * * As reported in Troubled Company Reporter's May 10, 2002 edition, Standard & Poor's removed the corporate credit rating on correctional services provider, Corrections Corp. of America, from CreditWatch with positive implications, and raised the rating to 'B+' from 'B'. In addition, the 'CCC+' rating on the company's 12% senior notes and 'B' rating on its $869.4 million credit facility were withdrawn. The outlook on Nashville, Tennessee-based CCA is stable. The rating actions followed the completion of CCA's refinancing, relieving the company of onerous near-term debt. The ratings on CCA reflect the company's high debt leverage, somewhat mitigated by its leading position in the correctional facility management and construction businesses and improved liquidity stemming from the terming-out of its debt maturities. DADE BEHRING: Seeks Okay to Hire Kirkland & Ellis as Attorneys -------------------------------------------------------------- Dade Behring Holdings, Inc., and its debtor-affiliates seek authority from the U.S. Bankruptcy Court for the Northern District of Illinois to retain Kirkland & Ellis as their bankruptcy attorneys, nunc pro tunc to the Petition Date. Dade Behring tells the Court that one of the reasons it chose Kirkland & Ellis is because of the firm's ability to respond to all issues that may arise in these cases -- including issues related to international insolvency law. Kirkland & Ellis will: a) advise the Debtors with respect to their powers and duties as debtors in possession in the continued management and operation of their business and properties; b) attend meetings and negotiate with representatives of creditors and other parties in interest; c) take all necessary action to protect and preserve the Debtors' estates, including the prosecution of actions on the Debtors' behalf, the defense of any action commences against the Debtors are involved, and objections to claims filed against the estates; d) prepare on behalf of the Debtors all motions, applications, answers, orders, reports, and papers necessary to the administration of the estates; e) negotiate and prepare on the Debtors' behalf a plan of reorganization, disclosure statement and all related agreements or documents, and take any necessary action on behalf of the Debtors to obtain confirmation of such plan; f) represent the Debtors in connection with obtaining post petition loans; g) advise the Debtors in connection with any potential sale of assets; h) appear before this Court, any appellate courts, and the United States Trustee and protect the interests of the Debtors' estates before such Courts and the United States Trustee; i) consult with the Debtors regarding tax matters; and j) perform all other necessary legal services and provide all other necessary legal advice to the Debtors in connection with these Chapter 11 cases. Kirkland & Ellis received approximately $4,967,621 for its prepetition services between August 1, 2001 and August 1, 2002. The Debtors will pay Kirkland & Ellis for post-petition services at the Firm's [undisclosed] customary hourly rates. The Debtors comprise the sixth largest manufacturer and distributor of in vitro diagnostic (IVD) products in the world. The Debtors primarily sell diagnostic systems that include instruments, reagents, consumables, service and date management systems. Of the total estimated $20 billion annual global IVD market, the Debtors serve a $12 billion segment targeted primarily at clinical laboratories. The Company filed for chapter 11 protection on August 1, 2002. James Sprayregen, Esq. at Kirkland & Ellis represents the Debtors in their restructuring efforts. ENRON: Court Okays Protocol for Sharing Examiner's Documents ------------------------------------------------------------ Enron Corporation, its debtor-affiliates, the Official Committee of Unsecured Creditors and Enron Corporation Examiner Neal Batson, Esq., are parties to a Court-approved Stipulation that would allow the sharing of the Examiner's documents. The Debtors and the Committee wanted to coordinate and cooperate with the Examiner as he discharges his duties, in an effort to minimize the time and cost to the Debtors' estates in the Examiner's fulfillment of his duties. The parties thus agree, among others, that: (a) Each of the Debtors and the Committee and their respective outside professionals may share with the Examiner documents, as defined in Rule 7034 of the Federal Rules of Bankruptcy Procedure, and legal opinions that may be subject to a privilege or other protection from discovery, including the attorney-client privilege or the work product doctrine. Any Shared Material that consists of documents shall be clearly designated by stamping them "Documents shared pursuant to Stipulation of July 3, 2002. Do not disclose to anyone except pursuant to the terms of the foregoing Stipulation;" (b) Each of the Debtors and the Committee and their outside professionals reserves the right to determine for the Shared Material that will be provided to the Examiner; (c) The sharing of materials is not obligatory and the provision of Shared Material is voluntary. The provision of Shared Material to the Examiner or his professionals shall not constitute grounds for any objection to the Examiner's Investigation or his selection of professionals to assist him; (d) Neither the Debtors nor the Committee, nor their respective outside professionals, intend to waive, in whole or part, the attorney-client privilege, work- product doctrine or any other privilege, right or immunity that the Debtors or the Committee may be entitled to claim or invoke; (e) Shared Material provided to the Examiner shall be held in strict confidence by the Examiner. The Examiner agrees he will not provide Shared Material to any person except as required by applicable law, regulation or legal process. The Shared Material, however, may be provided to: (i) accountants, attorneys, experts, consultants, support staff, and representatives and agents of the Examiner; and (ii) any person or entity authorized in writing to receive Shared Material by the Party producing same. Nothing in the Stipulation shall prohibit the Examiner or his professionals from using or