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/raid1/www/Hosts/bankrupt/TCR_Public/040806.mbx T R O U B L E D C O M P A N Y R E P O R T E R Friday, August 6, 2004, Vol. 8, No. 164 Headlines ACCLAIM ENTERTAINMENT: GMAC Extends Credit Facility to Aug. 20 ADELPHIA BUSINESS: Level 3 Settlement Gets Court Approval ADVANCED X-RAY: Section 341(a) Meeting Slated for August 12 AIR CANADA: Jazz Wants to Make Pilot Pension Plan Contributions AIRGAS INC: Richard Ill Succeeds Frank Roster as Director AIRNET COMMS: Receives $1.1M Expansion Purchase Orders From Tecore ALLEGHENY ENERGY: Selling W. Va. Natural Gas Facility for $228MM ALLEGHENY ENERGY: Names Edward Dudzinski VP Human Resources AMERICAN HOMEPATIENT: Reports $32.2MM Equity Deficit at June 30 AMERICAN MOTOR: Case Summary & 19 Largest Unsecured Creditors AMERIDEBT: Wants to Hire Gross Mendelsohn as Accountants ANTOINE DU CHEZ: Case Summary & 20 Largest Unsecured Creditors ARMSTRONG HOLDINGS: Brings Dist. Ct. Judge Rebreno Up to Speed BELL CANADA: Inks Pact to Monetize Some Non-Capital Tax Losses BELL CANADA: Reports $4.8 Million Net Loss for 2004 Second Quarter BELL CANADA: Apellate Court Dismisses Two Class Action Lawsuits BIOVAIL CORPORATION: Several Changes to Executive Management Team BLACK WARRIOR: Subordinated Noteholders Consent to Multi-Shot Sale BOWER PARTNERSHIP: Voluntary Chapter 11 Case Summary BUCYRUS INTERNATIONAL: Moody's Withdraws Junk Ratings after IPO CATHOLIC CHURCH: Court Bars Sussman Shank from Specific Matters DIVERSIFIED CORPORATE: Hires Advisor & Lender Agrees to Forbear DP 8 L.L.C.: Voluntary Chapter 11 Case Summary ELANTIC TELECOM: U.S. Trustee Names 6-Member Creditors' Committee ENDEAVOUR GOLD: US$1.1 Mil. Phase 1 Exploration Program Underway ENDURANCE SPECIALTY: Appoints Norman Barham to Board of Directors ENRON: Wants Solicitation Period Preserved Until Appeals Resolved ENTERPRISE PRODS: Launches Tender Offers for GulfTerra Sr. Notes FC CBO III: S&P Cuts Rating on Class B Notes to 'CCC' FLEMING COMPANIES: Agrees to Transfer $55M to Trust to Pacify CHEP FLOTEK INDUSTRIES: Says $1.97 Mil. Sales in July is Highest Ever GE CAPITAL: Fitch Gives Low B-Ratings to 2 Mortgage-Backed Classes HOLLINGER INT'L: Moody's Outlook Positive After Debt Repayment INFRASOURCE SERVICES: Inks EnStructure & Utili-Trax Acquisitions J.P. MORGAN: Moody's Downgrades & Junks Certain Mortgage Notes JACUZZI BRANDS: Fitch Affirms Single-B Senior Secured Debt Rating JUGOBANKA A.D.: Bank Regulators Want N.Y. Court Ruling Reversed KENDRICK ENGG: Voluntary Chapter 11 Case Summary KILROY REALTY: Closes $144 Mil. Unsecured Debt Private Placement LANTIS EYEWEAR: Committee Signs-Up Arent Fox as Attorneys LINDSAY MORDEN: Karen Murphy Resigns as President and CEO MICROFINANCIAL INC: Senior Credit Facility Cut to $16.6 Million MIRANT: U.S. Trustee Amends Equity Security Holders' Committee MORGAN STANLEY: Fitch Retains Junk Ratings & Affirms Low-B Classes MORGAN STANLEY: S&P Affirms Junk Ratings on Mortgage-Backed Notes MRO ACQUISITION: Moody's Assigns Low-B Ratings to Loan Facilities NATIONAL CENTURY: JPMorgan Chase Bills $975,062 for Services NEW WEATHERVANE: Panel Wants to Hire BDO Seidman as Accountants NEXPAK CORP: U.S. Trustee Appoints 5-Member Creditors' Committee NOVEON INC: Fitch Withdraws BB- Senior Debt Ratings OWENS CORNING: Debtors & Asbestos Committees Back Wolin's Advisors PACIFIC GAS: Presents Long-Term Energy Resource Plan to Commission PEGASUS SATELLITE: Committee Taps Greenhill as Financial Advisor PILLOWTEX: Revises Bidding Protocol for Hanover, Pa. Property Sale PPM AMERICA: Fitch Places Junk A-3 Note Rating on Watch Negative RAPTOR INVESTMENTS: Structures Program to Continue Debt Reduction RCN CORP: Subsidiary Files for Chapter 11 Protection in New York RCN CABLE TV: Case Summary & 11 Largest Unsecured Creditors RCN: Gets Final Okay to Hire AP Services as Crisis Managers RELIANCE: Committees Wants to Ensure Viability of Tax Benefits RUSSEL METALS: Senior Executives Exercise Stock Options SOLUTIA INC: Settles Mundy's $529,326 Claim with Contract Award SPECTRASCIENCE: Gets Court Confirmation on Reorganization Plan SPIEGEL GROUP: New Hampton Property Auction Set for Sept. 15 SUN HEALTHCARE: June 30 Balance Sheet Insolvent by $108.2 Million URS CORPORATION: Wins USACE's Multiple Award Remediation Contract VOEGELE MECHANICAL: Case Summary & Largest Unsecured Creditors WEIRTON STEEL: State Balks at Disallowing Frontier Insurance Claim WESTPOINT STEVENS: Renews Modified Headquarters Lease WILLIS LEASE: Renews $126 Million Revolving Credit Facility WORLDSPAN LP: Moody's Low-B & Junk Ratings XEROX CORP: Expects $400 Million from Senior Debt Offering * BOOK REVIEW: Merchants of Debt ********* ACCLAIM ENTERTAINMENT: GMAC Extends Credit Facility to Aug. 20 -------------------------------------------------------------- Acclaim Entertainment, Inc.'s (Nasdaq: AKLM), primary lender, GMAC Commercial Finance LLC, agreed to extend GMAC's previously announced termination of the Company's credit facility while the Company continues discussions with a proposed new lender until August 20, 2004. The Company also announced that it is working with a new lender for a proposed Senior Secured Credit Facility of up to $65,000,000, which would be secured by the Company's assets, to replace the GMAC loan facility and to finance the Company's working capital needs. The proposed Senior Secured Credit Facility would be subject to, among other things, the completion of satisfactory due diligence by the new lender, the execution and delivery of definitive legal documentation by both the Company and the new lender and customary closing conditions for similar loan transactions. The Company contemplates that the closing of the proposed Senior Secured Credit Facility would occur on or about the August 20, 2004 expiration date of the GMAC facility. In June, Acclaim paid $150,000 to GMAC for waivers of covenant defaults and a 45-day extension of the credit agreement through Aug. 4. Acclaim advised GMAC in early May that it breached seven financial covenants buried in the loan documents providing up to $22,000,000 of financing. Copies of the May and June Waiver and Extension Agreements are available at no charge at: http://www.sec.gov/Archives/edgar/data/804888/000119312504107146/dex1048.htm and http://www.sec.gov/Archives/edgar/data/804888/000119312504107146/dex1048.htm About Acclaim Entertainment Based in Glen Cove, New York, Acclaim Entertainment, Inc., is a worldwide developer, publisher and mass marketer of software for use with interactive entertainment game consoles including those manufactured by Nintendo, Sony Computer Entertainment and Microsoft Corporation as well as personal computer hardware systems. Acclaim owns and operates five studios located in the United States and the United Kingdom, and publishes and distributes its software through its subsidiaries in North America, the United Kingdom, Australia, Germany, France and Spain. The Company uses regional distributors worldwide. Acclaim also distributes entertainment software for other publishers worldwide, publishes software gaming strategy guides and issues "special edition" comic magazines periodically. Acclaim's corporate headquarters are in Glen Cove, New York and Acclaim's common stock is publicly traded on NASDAQ.SC under the symbol AKLM. For more information please visit our website at http://www.acclaim.com/ At March 31, 2004, Acclaim Entertainment's balance sheet reflects a $97,983,000 stockholders' deficit, compared to a $55,088,000 deficit at March 31, 2003. ADELPHIA BUSINESS: Level 3 Settlement Gets Court Approval --------------------------------------------------------- In December 1999, Adelphia Business Solutions, Inc., executed three agreements with Level 3 Communications, LLC: * Cost Sharing Metro IRU Agreement * Cost Sharing Intercity IRU Agreement * Master Joint Build Agreement Matthew Borger, Esq., at Klehr Harrison Harvey Branzburg & Ellers, in Wilmington, Delaware, relates that under the Metro and Intercity Agreements, ABIZ acquired a 20-year exclusive indefeasible right of use in certain of Level 3's conduit facilities. ABIZ had the right to assign the rights and interests in the Metro and Intercity Agreements to an affiliate. On December 31, 2000, ABIZ sold its assets and properties in 9 CLEC markets to a debtor affiliate of Adelphia Communications Corporation, ACC Operations, Inc., including the Denver, Los Angeles and San Diego markets. ACC Operations agreed to assume ABIZ's liabilities existing as of the date of the agreement and arising after the closing under the agreements, licenses, permits and other instruments related to the acquired system. ABIZ continued to manage the properties under a separate management agreement. Subsequently, ACC Operations assigned its rights and obligations relating to the 9 CLEC markets to Adelphia Communications debtor- affiliate, ACC Telecommunications Holdings, LLC, which further assigned those rights and obligations to another debtor-affiliate ACC Telecommunications, LLC. Disputes Under the Metro Agreement Various disputes arose between ABIZ and Level 3 with regards to the Metro Agreement. To resolve their disputes, ABIZ and Level 3 entered into a settlement agreement releasing each other from any amounts owed under the Metro Agreement up to and including January 1, 2003. The settlement also modified the Metro Agreement to reflect that the conduit rights in the Denver, Los Angeles and San Diego Local Segments were previously transferred to Adelphia as part of the sale of all substantially all of ABIZ's assets, provided that Adelphia agreed in writing to be bound by the terms in the Metro Agreement with respect to the conduit it purchased. Consequently, disputes arose between Level 3 and Adelphia regarding their rights and obligations under the Metro Agreement. Adelphia and Level 3 negotiated a business transaction whereby Level 3 and Adelphia intend to enter into a mutually acceptable framework agreement for the provision of Intercity and Metropolitan Dark Fiber in North America. Pending the negotiation and execution of the Definitive Agreement, the Parties entered into interim agreements. Adelphia & Level 3 Interim Agreements A. March 16, 2004 Letter Agreement The ACOM Debtors disclaim, forfeit and surrender to Level 3 all rights, titles or interests in or to the Relevant Conduit or Conduit Fiber, which the ACOM Debtors may have, or claims within the Local Segments in Denver, Los Angeles and San Diego, including any right, title or interest in and to that Relevant Conduit and Conduit Fibers. The ACOM Debtors also release Level 3 from all liabilities, claims, or causes of action related to the Denver, Los Angeles and San Diego Local Segments under the Metro Agreement. B. March 17, 2004 Letter Agreement The Parties agree to complete the Definitive Agreement. Level 3 will provide Adelphia with metropolitan dark fiber in Denver, Colorado, and Miami, Florida segments under these terms: -- The design, planning, engineering and IRU fee are waived; -- The recurring charge will be reduced to $200 per route mile per year; and -- Adelphia will not be responsible for reimbursing Level 3 for costs associated with relocation or maintenance. C. Intercity and Metro IRU Agreements Adelphia may obtain the right to use high fiber count fiber optic cable in the Level 3 System pursuant to a framework established in the Intercity and Metro IRU Agreement. The IRU Agreements also set out the nature of rights to be granted and the rights and responsibilities of the grantor and grantee. Mr. Borger notes that the Settlement provides Adelphia immediate access to dark fiber as well as a business framework where it can acquire indefeasible right to use fibers and other facilities within the Level 3 system. Furthermore, the Settlement will eliminate litigation costs and expenses in the Metro Agreement dispute. Judge Gerber promptly approves the Settlement. Headquartered in Coudersport, Pennsylvania, Adelphia Business Solutions, Inc., now known as TelCove -- http://www.adelphia- abs.com/ -- is a leading provider of facilities-based integrated communications services to businesses, governmental customers, educational end users and other communications services providers throughout the United States. The Company filed for Chapter 11 protection on March March 27, 2002 (Bankr. S.D.N.Y. Case No. 02- 11389) and emerged under a chapter 11 plan on April 7, 2004. Harvey R. Miller, Esq., Judy G.Z. Liu, Esq., Weil, Gotshal & Manges LLP represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $ 2,126,334,000 in assets and $1,654,343,000 in debts. Adelphia Communications Corporation and its more than 200 affiliates filed for Chapter 11 protection in the Southern District of New York on June 25, 2002. Those cases are jointly administered under case number 02-41729. Willkie Farr & Gallagher represents the ACOM Debtors. (Adelphia Bankruptcy News, Issue No. 65; Bankruptcy Creditors' Service, Inc., 215/945-7000) ADVANCED X-RAY: Section 341(a) Meeting Slated for August 12 ----------------------------------------------------------- The United States Trustee will convene a meeting of Advanced X-Ray, Inc.'s creditors at 10:00 a.m., on August 12, 2004, in Room 365 at the Russell Federal Building located at 75 Spring Street S.W. in Atlanta, Georgia. This is the first meeting of creditors required under 11 U.S.C. Sec. 341(a) in all bankruptcy cases. All creditors are invited, but not required, to attend. This Meeting of Creditors offers the one opportunity in a bankruptcy proceeding for creditors to question a responsible office of the Debtor under oath about the company's financial affairs and operations that would be of interest to the general body of creditors. Headquartered in Buford, Georgia, Advanced X-Ray -- www.advancedx-ray.com/ -- offers a full line of X-ray systems, enclosures, and material handling systems to provide a complete, integrated inspection solution. The Company filed for chapter 11 protection on July 13, 2004 (Bankr. N.D. Ga. Case No. 04-71349). Frank B. Wilensky, Esq., at Macey, Wilensky, Cohen, Wittner & Kessler, LLP, represents the Debtor in its restructuring. When the Debtor filed for protection from its creditors, it listed less than $1 million in assets, and more than $1 million in debts. AIR CANADA: Jazz Wants to Make Pilot Pension Plan Contributions --------------------------------------------------------------- Air Canada asks Mr. Justice Farley to amend the Initial CCAA Order to permit Jazz Air, Inc., to make contributions to the Jazz Air, Inc., Defined Benefit Pension Plan for Pilots. Jazz Air intends to pay: (1) the amortization of the post-service unfunded liability identified in the January 1, 2001 actuarial valuation report with respect to the Pension Plan for the period from March 1, 2003 to December 1, 2003; and (2) the current service cost -- less employee contributions and the amounts remitted or to be remitted pursuant to the Court orders dated April 27, 2004 and June 23, 2004 -- and special payments related to the amortization of the past service unfunded liability identified in the January 1, 2004 actuarial valuation report with respect to the Plan for the period from January 1, 2004 to June 30, 2004. Currently, the Initial CCAA Order does not permit Jazz Air to make employer contributions to the Pension Plan without Court approval. Colin Copp, labor relations director at Jazz Air, relates that under the January 1, 2001 actuarial valuation report, Jazz Air's required employer contributions were equal to 62.03% of the employee contributions with respect to the current service plus a $2,450 monthly special payment with respect to a past service unfunded liability. On the Petition Date, all required employer contributions for periods up to February 28, 2003 had been remitted. On December 10, 2003, the Court amended the Initial CCAA Order to authorize Jazz Air to remit the outstanding 2003 employer current service contributions for the period from March 1, 2003 to December 31, 2003 to the Pension Plan. The amendment did not authorize Jazz Air to remit outstanding contributions related to the amortization of the past service unfunded liability. According to Mr. Copp, $24,500 in contributions for the period from March 1, 2003 to December 31, 2003 related to the amortization of the past service unfunded liability remains outstanding. No contributions have been made in 2004 to amortize the past service unfunded liability identified in the 2001 valuation report. On June 29, 2004, Jazz Air filed a triennial report on the actuarial valuation of the Pension Plan as at January 1, 2004 with the Office of the Superintendent of Financial Institutions. The 2004 report requires: -- the employer current service contributions to be equal to 105.35% of the employee contributions; and -- the monthly contribution required to amortize the past service unfunded liability to be $45,700. The minimum contribution requirements outlined in the 2004 report are retroactive to January 1, 2004. The amount outstanding related to the increase in employer current service contributions for the period from January 1, 2004 to June 30, 2004 is $724,650. The amount outstanding related to the amortization of the past service unfunded liability for the period from January 1, 2004 to June 30, 2004 is $274,200. After the current service contributions authorized by the June 2004 amendment to the Initial CCAA Order, the total outstanding contributions for the period from March 1, 2003 to June 30, 2004 is $1,023,350. Headquartered in Saint-Laurent, Quebec Canada, Air Canada -- http://www.aircanada.ca/-- represents Canada's only major domestic and international network airline, providing scheduled and charter air transportation for passengers and cargo. The Company filed for CCAA protection on April 1, 2003 (Ontario Superior Court of Justice, Case No. 03-4932) and Section 304 petition with the U.S. Bankruptcy Court for the Southern District of New York (Case No. 03-11971). Matthew A. Feldman, Esq., and Elizabeth Crispino, Esq., at Willkie Farr & Gallagher serve as the Debtors' U.S. Counsel. When the Debtors filed for protection from its creditors, they listed C$7,816,000,000 in assets and C$9,704,000,000 in liabilities. (Air Canada Bankruptcy News, Issue No. 43; Bankruptcy Creditors' Service, Inc., 215/945-7000) AIRGAS INC: Richard Ill Succeeds Frank Roster as Director --------------------------------------------------------- Airgas, Inc. (NYSE:ARG) reported the election of Richard C. Ill to a three-year term on its Board of Directors to fill the position previously held by Frank B. Foster, III, who has reached the mandatory retirement age. Mr. Ill's term began with the completion of Wednesday's Annual Meeting and will expire after the 2007 Annual Meeting. "Rick Ill will offer another strong independent voice on our board and I look forward to his contributions in the coming years," said Airgas Chairman and Chief Executive Officer Peter McCausland. "I also want to thank Frank Foster for his 18 years of service to Airgas. He has been a valued voice on our Board." Mr. Foster has been chairman of DBH Associates, a venture capital/consulting firm, since 1987. He was president and CEO of Diamond-Bathurst, Inc., a publicly held manufacturer of glass containers, from 1975 until he founded DBH. He also has served as a director of FinCom Corporation, 1838 Investment Advisors Funds, OAO Technology Solutions, Inc., and National Welders Supply Company, Inc., Mr. Foster has been a director of the Company since 1986. "Frank's experience as an executive and a board member has been tremendously helpful over the years. I am personally grateful to Frank for his support and encouragement," Mr. McCausland said. Mr. Ill has been president and chief executive officer of Triumph Group, Inc., a company that designs, manufactures, repairs and overhauls aircraft and industrial gas turbine components, since 1993. In addition to serving as a director of Triumph, he also serves as a director of P.H. Glatfelter Company and is a member of the board of governors of The Aerospace Industry Association and the advisory board of Outward Bound, USA. Mr. McCausland commented, "Rick deals with CEO challenges every day and will be a great resource for Airgas and me personally. His acquisition experience will also be very helpful. We welcome Rick to the Airgas Board of Directors." About Airgas, Inc. Airgas, Inc. (NYSE: ARG) (S&P, BB Corporate Credit Rating, Positive) is the largest U.S. distributor of industrial, medical and specialty gases, welding, safety and related products. Its integrated network of nearly 800 locations includes branches, retail stores, gas fill plants, specialty gas labs, production facilities and distribution centers. Airgas also distributes its products and services through eBusiness, catalog and telesales channels. Its national scale and strong local presence offer a competitive edge to its diversified customer base. For more information, visit http://www.airgas.com/ AIRNET COMMS: Receives $1.1M Expansion Purchase Orders From Tecore ------------------------------------------------------------------ AirNet Communications Corporation (Nasdaq:ANCC), the technology leader in software defined base station products for wireless communications, has received approximately $1.1 million in expansion purchase orders from TECORE Wireless Systems for deployment in the Afghan Wireless mobile network. These orders are for the purchase of AirNet's latest AdaptaCell(R) 4000 base station and services. "With the assistance of AirNet's world-class customer service, we have recently optimized and enhanced our network performance and expanded our subscriber base," said Tom Bosley, chief operating officer of Telephone Systems International, Inc., Afghan Wireless' largest stockholder. "In the GSM world, the voice quality of AirNet's product is remarkable. This purchase is enabling Afghan Wireless to provide our customers with high caliber services." "Our solid execution, quality products and strong local support have resulted in Afghan Wireless entrusting us with their business," said Jay Salkini, Chairman and CEO for TECORE Wireless Systems. "Together with AirNet, we've been with Afghan Wireless since the beginning in 2002 and supported Afghanistan's growing demand for mobile wireless service." "AirNet is very proud to have contributed to the success of the Afghan Wireless network," said Glenn Ehley, president and CEO for AirNet. "We have repeatedly demonstrated our ability to deliver innovative solutions in a complex environment. Our newest product line, the AdaptaCell 4000, has proven to be a robust and competitive product in the GSM marketplace." Afghan Wireless is Afghanistan's largest provider of telecommunications services, with GSM mobile networks in fifteen Afghan cities: Kabul, Jalalabad, Mazar-i-sharif, Kandahar, Herat, Kunduz, Baglan, Puli Kumri, Talaqan, Logar, Puli Aman, Bagram, Charikar, Jabal Saraj and Serobir. The company launched Afghanistan's first wireless communications service in April 2002. Afghan Wireless is licensed to provide GSM service nationally until 2018. It is a joint venture between Telephone Systems International, Inc., and the Ministry of Communications. About Tecore TECORE Wireless Systems is a global supplier of turn-key wireless mobility networks for regional and country-wide deployments and solutions for migrating existing networks to advanced digital wireless technologies while expanding coverage and capacity. The company's turn-key solutions include its AirCore(R) Mobile Switching System at the core of the network in conjunction with GSM/GPRS, CDMA and TDMA base station solutions to deliver fully- integrated feature-rich services. As a provider of worldwide scalable networks, TECORE has achieved certification to the prestigious ISO 9001:2000 Quality Standard. Named one of the "20 Firms for the Next Generation," TECORE is a global leader in converging wireless and IP networks and wireless enterprise systems solutions. For more information, visit the TECORE website at http://www.tecore.com/ About AirNet AirNet Communications Corporation is a leader in wireless base stations and other telecommunications equipment that allow service operators to cost effectively and simultaneously offer high-speed data and voice services to mobile subscribers. AirNet's patented broadband, software-defined AdaptaCell(R) base station solution provides a high capacity base station with a software upgrade path to high-speed data. The Company's Digital AirSite(R) Backhaul Free base station carries wireless voice and data signals back to the wireline network, eliminating the need for a physical backhaul link, thus reducing operating costs. AirNet has 69 patents issued or pending. More information about AirNet may be obtained by visiting the AirNet Web site at http://www.airnetcom.com/ * * * As reported in the Troubled Company Reporter's March 10, 2004 edition, Deloitte & Touche LLP expressed doubt about AirNet Communications Corporation's ability to continue as a going concern following a review of the company's financial statements for the year ended December 31, 2003. Deloitte expressed similar doubts in fiscal years 2001 and 2002. ALLEGHENY ENERGY: Selling W. Va. Natural Gas Facility for $228MM ---------------------------------------------------------------- Monongahela Power Company, a subsidiary of Allegheny Energy, Inc. (NYSE: AYE), has signed a definitive agreement to sell its natural gas operations in West Virginia to a partnership composed of IGS Utilities LLC, IGS Holdings LLC and affiliates of ArcLight Capital Partners, LLC for $141 million in cash and $87 million in assumed long-term debt, subject to certain closing adjustments. In addition, the buyer will settle certain inter-company accounts over a three-year period. The current estimate of these amounts is approximately $16 million. Proceeds from the sale will be used to reduce debt. "The sale of our West Virginia natural gas operations is another milestone in our financial recovery plan," stated Paul J. Evanson, Chairman and CEO of Allegheny Energy. "By selling this business, we can now focus better on our core electric generation and delivery business." Allegheny expects to record a loss on the sale of approximately $40 million ($25 million, net of income taxes) in the third quarter of 2004. The agreement is subject to certain closing conditions, third party consents, and state and federal regulatory approvals, including approval of a rate adjustment from the Public Service Commission of West Virginia. Closing of the sale is expected to be completed in early 2005. J.P. Morgan Securities Inc. acted as financial advisor to Allegheny Energy in the transaction. The sale includes Mountaineer Gas Company, a subsidiary of Monongahela Power, and the West Virginia Power Gas Services assets, both of which do business in West Virginia as Allegheny Power; and Mountaineer Gas Services, a subsidiary of Mountaineer Gas. As part of the transaction, the employees assigned to the natural gas business will be transferred to Mountaineer Gas Company, and the Company will continue to honor all collective bargaining agreements. In addition, Allegheny will provide certain transition services. The Buyer The buyer is a partnership formed by IGS Utilities LLC, IGS Holdings LLC and affiliates of ArcLight Capital Partners LLC. The principals of the IGS Entities, privately held West Virginia limited liability companies, have been involved in all facets of the natural gas industry since the mid-1980s. ArcLight Capital Partners LLC is one of the world's leading energy infrastructure investing firms. ArcLight invests throughout the energy industry value chain in hard assets that produce current income as well as capital appreciation. Allegheny Energy Headquartered in Greensburg, Pennsylvania, Allegheny Energy is an integrated energy company with a portfolio of businesses, including Allegheny Energy Supply, which owns and operates electric generating facilities, and Allegheny Power, which delivers low-cost, reliable electric and natural gas service to about four million people in Pennsylvania, West Virginia, Maryland, Virginia and Ohio. More information about Allegheny Energy is available at http://www.alleghenyenergy.com/ * * * As reported in the Troubled Company Reporter's March 18, 2004, edition, Fitch Ratings affirmed and removed from Rating Watch Negative the ratings of Allegheny Energy, Inc. and the utility subsidiaries: Allegheny Energy, Inc. -- Senior unsecured debt 'BB-'; -- 11-7/8% notes due 2008 'B+'. Allegheny Capital Trust I -- Trust preferred stock 'B+'. West Penn Power Company -- Medium-term notes and senior unsecured 'BBB-'. Potomac Edison Company -- First mortgage bonds 'BBB'; -- Senior unsecured notes 'BBB-'. Monongahela Power Company -- First mortgage bonds 'BBB'; -- Medium-term notes 'BBB-'; -- Pollution control revenue bonds (unsecured) 'BBB-'; -- Preferred stock 'BB+'. The Rating Outlook is Stable, Fitch says. Fitch withdrew its 'BB-' rating of Allegheny Energy, Inc.'s former bank credit facility maturing in January 2005 as that bank credit facility has been terminated and replaced. ALLEGHENY ENERGY: Names Edward Dudzinski VP Human Resources ----------------------------------------------------------- Allegheny Energy, Inc. (NYSE: AYE) named Edward Dudzinski, formerly DuPont's Vice President, Human Resources for the Agriculture and Nutrition Platform and Pioneer Hi-Bred International, Inc., as Vice President of Human Resources, effective August 9, 2004. He will report to Paul J. Evanson, Chairman, President and CEO. "Ed brings a wealth of knowledge to Allegheny and is a strong addition to our senior leadership team. As we steadily build a high performance organization, his business acumen and experience in aligning a people strategy and performance management to business results will be critical to our success," said Mr. Evanson. Mr. Dudzinski spent 14 years with DuPont in various human resources positions in the United States and Europe, which included significant experience in strategy development, labor relations, and business leadership. Prior to DuPont, he was with Consolidation Coal Company for 15 years. Mr. Dudzinski received his Bachelor of Science degree in Biology from California State University. Consistent with the New York Stock Exchange listing standards, Allegheny Energy stated that Mr. Dudzinski will receive an inducement award of 25,000 stock units on August 9, 2004. One- fifth of the units vest on each August 9 beginning in 2005 through 2009. Payment of the units will be made in shares of Allegheny Energy stock. Allegheny Energy Headquartered in Greensburg, Pennsylvania, Allegheny Energy is an integrated energy company with a portfolio of businesses, including Allegheny Energy Supply, which owns and operates electric generating facilities, and Allegheny Power, which delivers low-cost, reliable electric and natural gas service to about four million people in Pennsylvania, West Virginia, Maryland, Virginia and Ohio. More information about Allegheny Energy is available at http://www.alleghenyenergy.com/ * * * As reported in the Troubled Company Reporter's March 18, 2004 edition, Fitch Ratings affirmed and removed from Rating Watch Negative the ratings of Allegheny Energy, Inc. and the utility subsidiaries: Allegheny Energy, Inc. -- Senior unsecured debt 'BB-'; -- 11-7/8% notes due 2008 'B+'. Allegheny Capital Trust I -- Trust preferred stock 'B+'. West Penn Power Company -- Medium-term notes and senior unsecured 'BBB-'. Potomac Edison Company -- First mortgage bonds 'BBB'; -- Senior unsecured notes 'BBB-'. Monongahela Power Company -- First mortgage bonds 'BBB'; -- Medium-term notes 'BBB-'; -- Pollution control revenue bonds (unsecured) 'BBB-'; -- Preferred stock 'BB+'. The Rating Outlook is Stable, Fitch says. Fitch withdrew its 'BB-' rating of Allegheny Energy, Inc.'s former bank credit facility maturing in January 2005 as that bank credit facility has been terminated and replaced. AMERICAN HOMEPATIENT: Reports $32.2MM Equity Deficit at June 30 --------------------------------------------------------------- American HomePatient, Inc. (OTCBB:AHOM) reported net income of $1.0 million and revenues of $83.3 million for the second quarter ended June 30, 2004. For the six months ended June 30, 2004, the Company reported net income of $2.0 million and revenues of $168.1 million. The Company's net income of $1.0 million for the second quarter of 2004 compares to net income of $4.5 million for the second quarter of 2003. Net income for the current quarter includes approximately $0.1 million of reorganization items. Net income for the second quarter of 2003 included approximately $2.0 million of reorganization items and excluded approximately $5.0 million in non-default interest expense that would have been paid had the Company not sought bankruptcy protection. The Company's net income of $2.0 million for the first six months of 2004 compares to net income of $8.9 million for the first six months of 2003. Net income for the first six months of 2004 includes approximately $0.1 million of reorganization items. Net income for the first six months of 2003 included approximately $2.9 million of reorganization items and excluded approximately $10.0 million in non-default interest expense that would have been paid had the Company not sought bankruptcy protection. The Company's revenues of $83.3 million for the second quarter of 2004 represent an increase of $0.4 million, or 0.5%, over the second quarter of 2003. The Company's revenues of $168.1 million for the first six months of 2004 represent an increase of $2.7 million, or 1.6%, over the first six months of 2003. Revenues in the current quarter and first six months of 2004 were reduced by approximately $1.8 million, or 2.2%, and $3.7 million, or 2.2%, respectively, as a result of an approximate 15.8 % reduction in the Medicare reimbursement rates for inhalation drugs effective January 1, 2004. The sale of inhalation drugs comprised approximately 12% of the Company's total revenues for the second quarter and first six months of 2004. Earnings before interest, taxes, depreciation, and amortization is a non-GAAP financial measurement that is calculated as net income excluding interest, taxes, depreciation and amortization. EBITDA for the second quarter of 2004 and for the second quarter of 2003 was $12.6 million and $10.6 million, respectively. For the second quarter of 2004, adjusted EBITDA (calculated as EBITDA excluding reorganization items and other income/expense) was $12.6 million or 15.2% of revenues. For the second quarter of 2003, adjusted EBITDA was $12.6 million or 15.2% of revenues. EBITDA for the first six months of 2004 and for the first six months of 2003 was $24.7 million and $20.6 million, respectively. For the first six months of 2004, adjusted EBITDA was $24.7 million or 14.6% or revenues. For the first six months of 2003, adjusted EBITDA was $23.6 million or 14.2% of revenues. Bad debt expense for the second quarter and first six months of 2004 increased by approximately $1.5 million and $1.2 million, respectively, compared to the same periods of 2003. Bad debt expense in the current year has been impacted by disruptions in cash collections resulting from the inability of certain third- party payors to effectively process electronic claims due to the implementation of the new HIPAA Transaction and Code Sets. Also impacting bad debt expense has been payment delays associated with certain state Medicaid programs changing the intermediary contracted by the state to process claims submitted by the providers. Despite the increase in bad debt expense, total operating expenses were essentially flat in the second quarter of 2004 compared to the second quarter of 2003 and decreased by approximately $0.2 million in the first six months of 2004 compared to the same period in 2003. Reductions in personnel- related expenses, travel expenses, and other miscellaneous operating expenses have offset the higher bad debt expense in the second quarter and first six months of 2004. At June 30, 2004, American HomePatient, Inc.'s balance sheet showed a $32,209,000 stockholders' deficit, compared to a $34,249,000 deficit at December 31, 2003. About the Company American HomePatient, Inc. is one of the nation's largest home health care providers with 283 centers in 35 states. Its product and service offerings include respiratory services, infusion therapy, parenteral and enteral nutrition, and medical equipment for patients in their home. American HomePatient, Inc.'s common stock is currently traded in the over-the-counter market or, on application by broker-dealers, in the NASD's Electronic Bulletin Board under the symbol AHOM or AHOM.OB AMERICAN MOTOR: Case Summary & 19 Largest Unsecured Creditors ------------------------------------------------------------- Debtor: American Motor Inn Partnership dba Days Inn East 11639 East Colonial Drive Orlando, Florida 32817 Bankruptcy Case No.: 04-08787 Type of Business: The Debtor owns a hotel. Chapter 11 Petition Date: August 2, 2004 Court: Middle District of Florida (Orlando) Judge: Arthur B. Briskman Debtor's Counsel: R. Scott Shuker, Esq. Gronek & Latham, LLP P.O. Box 3353 Orlando, FL 32802 Tel: 407-481-5800 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 19 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Days Inn Worldwide Inc. Royalties/Fees $11,500 Guest Distribution Trade debt $2,480 Progress Energy Corp. Utilities $1,930 Ecolab Trade debt $1,250 US Lec Trade debt $1,245 Orange County Utilities Utilities $1,188 TECO People Gas Utilities $475 Heritage Propane Trade debt $247 Bellsouth Telephone $75 US Today Trade debt $42 Academy Pool Svc. & Supplies Trade debt Unknown Bright House Networks Cable service Unknown Certified HR Services Employee Lease Unknown Keene & Company Accounting Services Unknown Neoguard Trade debt Unknown No Am Office Supply Trade debt Unknown Onity Trade debt Unknown Orange City Bd. of Trade debt Unknown City Comm. Secure Research Trade debt Unknown AMERIDEBT: Wants to Hire Gross Mendelsohn as Accountants -------------------------------------------------------- AmeriDebt, Inc., asks the U.S. Bankruptcy Court for the District of Maryland for permission to retain Gross Mendelsohn & Associates, PA, as its accountants. AmeriDebt expects Gross Mendelsohn to: a) provide general accounting assistance; b) assist in the preparation of required Court filings, including monthly operating reports; c) audit year-end financial statements; d) prepare tax returns; e) provide accounting support required by AmeriDebt in connection with the formulation of a plan of reorganization; f) provide expert testimony; and g) provide tax and other accounting-related professional advice. Lawrence E. McCanna informs the Debtor that Gross Mendelsohn professional rates range from $90 per hour for junior accountants to $250 per hour for partners of the firm. Headquartered in Germantown, Maryland, AmeriDebt, Inc. -- http://ameridebt.org/-- is a credit counseling company. The Company filed for chapter 11 protection on June 5, 2004 (Bankr. Md. Case No. 04-23649). Stephen W. Nichols, Esq., at Deckelbaum Ogens & Raftery, Chartered, represents the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed $8,387,748 in total assets and $12,362,695 in total debts. ANTOINE DU CHEZ: Case Summary & 20 Largest Unsecured Creditors -------------------------------------------------------------- Debtor: Antoine du Chez, Inc. dba Antoine du Chez Salon & Day Spa 300 Josephine Street, Suite 210 Denver, Colorado 80206 Bankruptcy Case No.: 04-26715 Type of Business: The Debtor cuts hair, sells hair products, and offers day spa, facial and nail services. Chapter 11 Petition Date: August 3, 2004 Court: District of Colorado (Denver) Judge: Howard R Tallman Debtor's Counsel: David M. Miller, Esq. Kutner Miller Kearns, P.C. 303 East 17th Avenue, Suite 500 Denver, Colorado 80203 Tel: 303-832-2400 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Flatiron Holding, LLC $95,727 Denver Pavillions $89,306 Greenwood 7939 Loan $58,508 G&I IV Belleview, LLC $41,874 CSG $36,145 Stylelines $31,466 Dex Media East, LLC $24,607 G.S. Centennial/Developers $24,396 Diversified Kirkpatrick & Bertrand $20,858 Wells Fargo Bank $14,058 Semple Brown $11,185 Xcel Energy $8,234 Hamilton Linens $7,125 Reptech $6,470 Extended Technologies $5,939 Peel's Salon Services $5,744 Maris Paris $5,652 State Beauty Supply $5,502 Maverick Press $5,469 Avaya $4,502 ARMSTRONG HOLDINGS: Brings Dist. Ct. Judge Rebreno Up to Speed -------------------------------------------------------------- Armstrong World Industries, Inc., its Official Committee of Asbestos Claimants, and Dean M. Trafelet, the Legal Representative for Future Asbestos Personal Injury Claimants, step the Honorable Eduardo C. Robreno of the United States District Court for the Eastern District of Pennsylvania through the events highlighting the Chapter 11 cases of Armstrong Holdings, Inc. and its debtor- affiliates and subsidiaries. AWI's Involvement with Asbestos-Containing Products AWI's involvement in asbestos personal injury litigation relates primarily to its involvement in the high temperature insulation contracting business. Throughout the early 1900s, AWI -- then known as Armstrong Cork Company -- manufactured, installed, and serviced low temperature primarily cork-based products for cold storage insulation and pipe covering applications. As an adjunct to these cold storage contracting activities, from around 1910 to 1933, AWI manufactured various high temperature insulation products, including some that contained asbestos. These products have not been the subject of significant claims. Starting 1939, AWI expanded its low temperature insulation contracting business into high temperature contracting services. Some of the high temperature products furnished and installed in the contracting operations contained asbestos. As part of the overall organizational changes that took place in the late 1950s, AWI separated the insulation contracting business from the remainder of the company with the formation of a separate, independent subsidiary, Armstrong Contracting and Supply Corporation. From January 1958 through July 1969, ACandS operated as an independent subsidiary in the insulation contracting business. In addition, from 1964 through 1969, another independent subsidiary of AWI, National Cork Company, operated an insulation contracting business. Other than two specific products, AWI did not manufacture or sell any asbestos-containing thermal insulation materials during this period. In August 1969, a group of ACandS management employees formed a holding company and purchased the stock of ACandS from AWI. In connection with the sale, AWI assigned certain trade names to ACandS, but ACandS was not licensed to use, and did not use, AWI's trademark or the trade style "Armstrong." ACandS continues to exist today and is now known as ACandS, Inc. On September 19, 2002, ACandS filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. AWI manufactured only two asbestos-containing insulation materials between 1939 and 1968, LT Cork Covering and Armaspray. AWI, ACandS, or NCC may have used other asbestos-containing high temperature insulation products manufactured by other manufacturers in the course of their contract insulation installation activities, depending on the requirements of the particular contract involved. It is impossible to state with certainty what other specific asbestos-containing products might have been called for by these contracts. From 1932 until 1982, AWI manufactured various forms of resilient floor tiles, some of which contained encapsulated chrysotile asbestos. From 1954 until 1983, some of the sheet vinyl resilient floor coverings that AWI manufactured and sold were on an asbestos-containing backing material, which was designated as "Hydrocord." From the early 1950s until the late 1980s, AWI manufactured and sold gasket materials primarily intended for mechanical applications, including internal combustion engines. Some of these gasket materials contained encapsulated asbestos fiber. During the period between the mid-1930s and mid-1980s, some of the related adhesive products AWI manufactured and sold for use in the installation of resilient floor tile or acoustical ceiling tile contained encapsulated chrysotile asbestos. Prepetition Asbestos-Related PI Litigation Prior to the Petition Date, AWI was named as a defendant in personal injury and wrongful death actions seeking recovery for damages allegedly caused by the presence of, or exposure to, asbestos or asbestos-containing products. Nearly all of the asbestos-related personal injury and wrongful death actions against AWI related to individuals who claim they were exposed to the asbestos-containing high temperature thermal insulation products used by AWI in its insulation contracting activities prior to 1958, or used by ACandS, including in connection with ACandS's use of AWI's licensed trade name of trademarks, after 1958. Many of these claims have involved allegations of negligence, strict liability, and breach of warranty, and some have alleged conspiracy or other claims that seek to make AWI responsible for the activities of ACandS. In some instances, asbestos-related personal injury claims have been asserted against AWI on account of its asbestos-containing gaskets or flooring materials. During the three-year period immediately prior to the Petition Date, AWI paid over $500 million in settlement payments on account of asbestos-related personal injury and wrongful death claims. As of September 30, 2000, approximately 173,000 asbestos-related personal injury and wrongful death claims were pending against AWI within the tort system in a multitude of jurisdictions. Prepetition Asbestos-Related Property Damage Litigation Prior to the bankruptcy petition date, AWI also was named as a defendant in 273 cases seeking recovery for damages allegedly caused by the presence of asbestos-containing materials in the plaintiffs' premises. These claims generally were not the result of AWI's insulation installation contracting activities. Instead, those that were actively pursued against AWI concerned primarily of resilient floor covering products manufactured and sold by AWI prior to 1983. AWI's Bankruptcy Petition In October 2000, Owens Corning filed for Chapter 11 protection to address its asbestos liabilities. Following the Owens Corning filing, AWI was unable to obtain a replacement credit facility with acceptable terms for its then-existing $450 million credit facility due to expire on October 19, 2000. Owens Corning's Chapter 11 filing raised additional concerns about the possibility of increased settlement demands of asbestos plaintiffs given that, prior to its filing, Owens Corning had been a major defendant in asbestos litigation. On October 25, 2000, both Standard & Poors and Moody's Investors Services downgraded AWI's long-term debt rating, citing the reduction in committed credit facilities, prospects for weaker operating performance, and continued uncertainty surrounding AWI's asbestos personal injury liability as a result of Owens Corning's Chapter 11 filing. After October 25, 2000, AWI was unable to issue commercial paper and, instead, borrowed from its remaining $450 million credit facility. As of December 6, 2000, approximately $50 million of commercial paper was outstanding, and the entire $450 million credit facility had been drawn and was outstanding. On December 6, 2000, AWI and two of its wholly owned direct and indirect subsidiaries, Nitram Liquidators, Inc., and Desseaux Corporation of North America, each commenced a case under Chapter 11 in the United States Bankruptcy Court for the District of Delaware. AWI's Chapter 11 cases were originally assigned to Judge Joseph Farnan, Jr., a U.S. District Court Judge for the District of Delaware. During the fourth quarter of 2001, the U.S. Court of Appeals for the Third Circuit assigned U.S. District Court Judge Alfred Wolin of New Jersey to preside over the Chapter 11 case in the District of Delaware. The Third Circuit also assigned Judge Wolin to preside over four other asbestos-related Chapter 11 cases pending in the District of Delaware to expedite the emergence of the debtors from Chapter 11. Plan Negotiation Since the Petition Date and promptly after achieving stabilization of its business operations, AWI engaged in extensive and continuing negotiations with the various constituents in the Chapter 11 case to formulate a long-term business plan, and, ultimately, to formulate, negotiate and propose a reorganization plan. On August 29, 2002, AWI and the representatives of the Unsecured Creditors Committee and the Asbestos Claimants Committee appeared at a status conference before the District Court. At the status conference, the District Court asked AWI to file a plan within 45 days. Following the status conference, AWI focused its efforts, together with the Committees, on negotiating and working out the details of a comprehensive reorganization plan. These efforts involved substantial time and effort on the part of AWI, the Committees, and their professionals. The parties reached agreement on the terms of a plan that had the support of all the Committees. As a result of the agreement, on November 4, 2002, AWI filed a Plan of Reorganization with the Bankruptcy Court. On December 20, 2002, AWI filed its proposed disclosure statement. Subsequent to the filing of the Original Plan and proposed disclosure statement, AWI, the Committees and other parties-in- interest engaged in further negotiations in an effort to resolve a number of objections that arose in connection with approval of the disclosure statement, which resulted in AWI filing amended plans. With each Amended Plan, each of the Committee continued to support the Plan. Hearings to consider the adequacy of the Disclosure Statement were conducted by the Bankruptcy Court on February 28, 2003, April 4, 2003, May 5, 2003, and May 30, 2003. On May 23, 2003, AWI filed its Fourth Amended Plan and Disclosure Statement, to, inter alia, address the comments made by the Bankruptcy Court at the Disclosure Statement Hearing and to make other agreed changes. The Fourth Amended Plan had the express support and endorsement of all Committees, including the Unsecured Creditors Committee. AWI will distribute under the plan a combination of: (a) New Common Stock -- equal to 100% of the stock in Reorganized AWI, subject to dilution for management equity-based plans; (b) Available Cash -- estimated to total $350 million; and (c) Plan Notes -- totaling an estimated $775 million. AWI also has agreed to use reasonable efforts to effect a 144A Offering, in which case the net proceeds of that offering will be used to reduce the Plan Notes on a dollar for dollar basis. A key feature of the Plan is the establishment of the Asbestos PI Trust, into which all present Asbestos Personal Injury Claims and future Demands against AWI will be "channeled." To protect AWI and certain other PI Protected Parties from Asbestos Personal Injury Claims and demands being asserted against them in the future, the Plan provides for the issuance of the Asbestos PI Permanent Channeling Injunction. To obtain the benefit of the Asbestos PI Permanent Channeling Injunction, Section 524(g) of the Bankruptcy Code requires that the Asbestos Personal Injury Claims and Demands be channeled to a trust that meets certain requirements. The Asbestos PI Trust will be funded with the Asbestos PI Insurance Asset and additional consideration, pursuant to the formula set forth in the Plan, consisting of New Common Stock, Available Cash, and Plan Notes or 144A Offering Proceeds. On the consummation of the Plan, the Asbestos PI Trust will own approximately two-thirds of the issued and outstanding New Common Stock. The Disclosure Statement estimates the total value of the consideration going to the Asbestos PI Trust to be approximately $1.8 billion. AWI also has claims that have been asserted against it with respect to liabilities unrelated to asbestos. These claims are "unsecured claims" under the Plan and the holders of these claims are represented by the Creditors Committee. The Plan provides that each holder of an Allowed Unsecured Claim in Class 6 of the Plan will receive its Pro Rata Share of a combination of New Common Stock, Available Cash, and the Plan Notes and 144A Offering Proceeds. Based on AWI's estimate that the Allowed Unsecured Claims in Class 6 will total $1.651 billion, AWI estimated at the time of the Disclosure Statement that each holder will receive a combination of New Common Stock, Available Cash, and Plan Notes or 144A Offering proceeds having a value of approximately 59.5% of the amount of the Allowed Unsecured Claim. Based on AWI's assumptions and estimates, that means, for example, that a holder of an Allowed Unsecured Claim for $100,000 would receive approximately $59,500 of Reorganization Consideration consisting of approximately $35,300 in value in Common Stock, $8,000 in cash, and $16,200 in either Plan Notes or cash. The Plan also establishes a convenience class -- Class 3 -- for Unsecured Claims equal to or less than $10,000, or reduced to $10,000 by the election of the Unsecured Claimholder. Holders of Convenience Claims in Class 3 will be paid 75% of the Allowed Amount of their Allowed Convenience Claims, in cash, on the later of the effective date or as soon as practicable after the Convenience Claim becomes allowed. Objections to Plan Confirmation By the Plan Objection Deadline, objections to the confirmation of the Plan were filed by: * ACE U.S.A. Insurers * California Franchise Tax Board * Center for Claims Resolution * Amchem Products, Certainteed Corp., Dana Corp., and other CCR Members * Directly Affiliated Local Union 461 * E.F.P. Floor Products Fussboeden GbmH, St. Johann in Tirol (Austria) * Georgia Department of Natural Resources * John Crane, Inc. * Liberty Property Holdings, L.P. * Unsecured Creditors' Committee * Safeco Insurance Company of America * Solutia, Inc. * Travelers Indemnity Company and Travelers Casualty and Surety Company * United States * United States Department of Labor * United States Gypsum Co. * U.S. Trustee After the Objection Deadline, objections were filed by Liberty Mutual Insurance Company and Bank One Trust Company, N.A., as indenture trustee. In addition, after the Objection Deadline, the Creditors Committee filed a Memorandum of Law in opposition to the confirmation of the Plan. In response to a countermotion by AWI, the Court entered an order striking certain objections contained in the Creditors Committee's Objection. AWI then filed a response to the Creditors Committee's remaining Objections and Bank One's Objections. These Objections were overruled by the Court at the Confirmation Hearing. The objections by the other parties were withdrawn. Plan Confirmation AWI asked the District Court and the Bankruptcy Court to preside jointly over the Plan Confirmation Hearing because that would provide the most expeditious means for AWI to emerge from Chapter 11. Accordingly, the Confirmation Hearing was scheduled to commence on November 17, 2003 in the District Court, with both Judge Wolin and Judge Newsome jointly presiding. However, other debtors of other asbestos-related bankruptcy cases commenced recusal proceedings against Judge Wolin. On November 5, 2003, the District Court issued an order staying all matters pending before the Bankruptcy Court. The Bankruptcy Court agreed to go forward with the previously scheduled Confirmation Hearing absent the participation of the District Court. On December 19, 2003, the Bankruptcy Court issued Proposed Findings of Fact and Conclusions of Law on Confirmation of the Plan and a Proposed Confirmation Order. Because of the statutory conditions for issuance of the Asbestos PI Permanent Channeling Injunction that forms the core of the Plan, confirmation of the Plan is subject to the entry of a final Confirmation Order by the District Court. On December 29, 2003, the Creditors Committee filed with the District Court its Objections to the Proposed Findings and Conclusions. On February 13, 2004, AWI, together with the Asbestos Committee and the Futures Representative, filed a response to the Creditors Committee's Objection. The Objections and the Response remain pending in the District Court. Reassignment and Resolution of Recusal Issues Judge Newsome's term as a visiting judge expired on December 31, 2003 and AWI's Chapter 11 cases were reassigned to Judge Judith Fitzgerald. In addition, on February 2, 2004, the District Court denied motions relating to Judge Wolin's recusal. The Order was appealed to the U.S. Court of Appeals for the Third Circuit, which subsequently issued an opinion granting the recusal motions. Following the issuance of the Third Circuit's opinion, Judge Wolin announced his retirement. Pending Adversary Proceedings and Contested Matters * Century Indemnity Company v. Armstrong World Industries, Inc., et al. Prior to the Petition Date, AWI entered into a settlement agreement with Century Indemnity Company settling disputes and coverage issues with respect to asbestos personal injury claims. The Century Settlement Agreement permits Century to stretch out payments due to an established trust. AWI agreed to indemnify Century against certain claims that would have been covered under the Century Policies. Century failed to make a substantial payment that was due on January 5, 2001. Century then filed a motion seeking to compel AWI to assume the Century Settlement Agreement, which motion AWI objected to. AWI also asked the Court to direct Century to make the outstanding 2001 Installment Payment and continue to make all future payments due to the Century Trust. The Bankruptcy Court denied the Motion to Compel, but did not rule on the dispute between the parties as to whether the Century Settlement Agreement is an executory contract. In January 2002, Century commenced a proceeding against AWI, the CCR and the Chase Bank of Texas, N.A., pursuant to which Century sought a declaration that: (i) Century need not make further payments due under the Century Settlement Agreement; (ii) AWI must indemnify Century for certain claims asserted against Century in an action pending in federal district court; and (iii) Century may offset any indemnification claim against AWI against payments required to be made by Century to the Century Trust. AWI sought to dismiss the Century action, which the Bankruptcy Court denied. AWI filed affirmative defenses and a counterclaim to the Complaint on June 27, 2002. Century then sought to dismiss AWI's counterclaim. The Bankruptcy Court granted the joint motion of AWI and JPMorgan Chase Bank for summary judgment with respect to: (a) Century's request for a declaratory judgment that the Settlement Agreement is an executory contract and an injunction requiring AWI to assume it; (b) Century's contention that AWI is solely liable under the Settlement Agreement; (c) Century's request for preliminary and permanent injunction. Century appealed the Bankruptcy Court's Order. AWI, Century, and the ACE U.S.A. Insurers entered into a settlement to resolve Century's Complaint and the ACE Insurer's confirmation objections. The Settlement requires both Bankruptcy Court and District Court approval. The Bankruptcy Court approved the Settlement on November 17, 2003. The Settlement is now before the District Court. Century's action remains pending in the Bankruptcy Court and although it is inactive, the Settlement provides that it can be unwound in the event the Plan is confirmed without providing Century the protection of PI Protected Party status in connection with the Asbestos PI Permanent Channeling Injunction. Carlino and Wagman Appeal Carlino Arcadia Associates, L.P., as successor to Carlino Development Group, Inc., and Wagman Construction, Inc., asked the Court to compel AWI to assume certain executory contracts to sell and develop land. Judge Newsome treated the motion as one to reject the contracts and, on May 31, 2002, ruled that AWI's decisions to reject the contracts constituted a sound exercise of its business judgment. Carlino and Wagman filed claims seeking recovery of their alleged damages, and AWI objected to these claims. On August 29, 2003, Judge Newsome ruled that Carlino and Wagman were not entitled to a recovery of lost profits but could seek recovery of certain claims as administrative expenses on a proper showing of their entitlement. Carlino and Wagman have appealed from Judge Newsome's ruling. AWI moved to dismiss the appeal for lack of subject matter jurisdiction on the grounds that the appeal is of an interlocutory order. The parties entered into a stipulation staying all briefing relating to the appeal pending the District Court's resolution of the Motion to Dismiss. The Motion to Dismiss and the appeal are both currently pending sub judice. Strategy to Facilitate Completion of Proceedings To facilitate AWI's emergence from Chapter 11, the Debtors, the Asbestos Committee and the Futures Representative ask the Court to schedule oral argument with respect to the Unsecured Creditors' Objection and the Joint Response. They also ask the District Court to act on the Century Settlement and the Carlino and Wagman Appeal. Alternatively, the Court may wish to schedule a status conference in connection with these matters. Headquartered in Lancaster, Pennsylvania, Armstrong World Industries, Inc. -- http://www.armstrong.com/-- the major operating subsidiary of Armstrong Holdings, Inc., designs, manufactures and sells interior finishings, most notably floor coverings and ceiling systems, around the world. The Company filed for chapter 11 protection on December 6, 2000 (Bankr. Del. Case No. 00-04469). Stephen Karotkin, Esq., Weil, Gotshal & Manges LLP and Russell C. Silberglied, Esq., at Richards, Layton & Finger, P.A., represent the Debtors in in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $4,032,200,000 in total assets and $3,296,900,000 in liabilities. (Armstrong Bankruptcy News, Issue No. 65; Bankruptcy Creditors' Service, Inc., 215/945-7000) BELL CANADA: Inks Pact to Monetize Some Non-Capital Tax Losses -------------------------------------------------------------- Bell Canada International entered into an agreement to monetize a portion of its non-capital tax losses, which is expected to result in a compensatory cash payment to Bell Canada of at least $42 million. The Loss Monetization Plan, which is the subject of an advance income tax ruling received from the Canada Revenue Agency, is conditional on the approval of the Ontario Superior Court of Justice pursuant to Bell Canada's Plan of Arrangement. If all required approvals are obtained, Bell Canada expects to receive the proceeds of the Loss Monetization Plan in the first quarter of 2007, although at Bell Canada's request and subject to the consent of BCE, the proceeds may be received in 2006 at a reduced amount based on a discount rate to be mutually agreed at that time. At December 31, 2003, the Corporation reported non-capital tax loss carry forwards of approximately $415 million. Subsequently, the 2003 tax return was filed and the amount of the non-capital loss carry forwards increased to approximately $436 million. In connection with the Loss Monetization Plan, Bell Canada has requested CRA to audit its tax returns for years up to December 31, 2003 for the purpose of making a final determination of its losses. While the Corporation's tax returns were filed using tax positions that were believed at the time to be appropriate, based on recent discussions with CRA and the Federal Department of Finance, the Corporation believes that the maximum amount available for use under the Loss Monetization Plan will be less than the amounts filed. It is not expected that the CRA audit will have been completed by the time the Loss Monetization Plan is anticipated to be implemented in January of 2005. As a result, the Loss Monetization Plan will be initially based on the monetization of $200 million of losses (and a $42 million compensatory payment in 2007) and the amount of losses to be monetized may be increased during 2005 if the CRA audit determines that additional losses are available. Further, if confirmation is obtained that Bell Canada's losses can be used to reduce taxable income in jurisdictions in Canada other than those where Bell Canada carries on business, the $42 million compensatory payment (assuming $200 million of losses) may increase to as much as $58 million. At this time there can be no assurance of the actual amount of losses that will result from the CRA audit, or that the compensatory amount will be greater or less than $42 million. As the Loss Monetization Plan is to be implemented between Bell Canada and related parties, an Independent Committee of the Board of Directors of Bell Canada was appointed to consider the transaction. The Independent Committee recommended that the Board approve the Loss Monetization Plan based in part on an opinion received from its financial advisors that the transaction is fair, from a financial point of view, to Bell Canada and Bell Canada's shareholders other than BCE. After receiving the recommendation of the Independent Committee, the Bell Canada Board approved the Loss Monetization Plan. In addition, because the Loss Monetization Plan is to be entered into with Bell Canada's majority shareholder BCE Inc., and Bell Canada (or their affiliates), the transaction will require the approval of a majority of Bell Canada's shareholders other than BCE unless an exemption from such requirement is granted to BCI by securities regulators. Bell Canada is operating under a court supervised Plan of Arrangement, pursuant to which it intends to monetize its assets in an orderly fashion and resolve outstanding claims against it in an expeditious manner with the ultimate objective of distributing the net proceeds to its shareholders and dissolving the company. Bell Canada is listed on the Toronto Stock Exchange under the symbol BI. Visit its Web site at http://www.bci.ca/ BELL CANADA: Reports $4.8 Million Net Loss for 2004 Second Quarter ------------------------------------------------------------------ As a result of the adoption on July 17, 2002 of Plan of Arrangement of Bell Canada International, its unaudited consolidated financial statements for the second quarter of 2004 reflect only the activities of Bell Canada as a holding company. Bell Canada's 75.6% interest in Canbras Communications Corporation is recorded under Investments on the balance sheet at $15 million, being the lower of its carrying value and estimated net realizable value. As at June 30, 2004, Bell Canada's shareholders' equity was $217.0 million, down by $4.8 million from March 31, 2004. This decrease was mainly as a result of interest expense of $4.6 million on the BCI 11% senior unsecured notes and administrative expenses of $2.1 million, partially offset by interest income of $2.0 million. Bell Canada's cash and temporary investments as at June 30, 2004 were $381.1 million representing approximately 96% of the company's total assets. The yield on the average investment portfolio in the quarter was approximately 2.1%. Total liabilities of $181.0 million include Bell Canada's 11% senior unsecured notes due September 29, 2004 in the amount of $160 million. Accrued liabilities were $21.0 million at the end of the second quarter of 2004, up $4.9 million from March 31, 2004 mainly as a result of the accrual of interest on Bell Canada's 11% notes. The loss for the second quarter was $4.8 million, or $0.12 per share. Estimated Future Net Assets Bell Canada previously believed that an initial distribution to shareholders could be made as early as the second half of 2004. However, due to delays in resolving claims against it, the Corporation now believes that no such initial distribution will be made until at least the first half of 2005. Furthermore, in view of Bell Canada's Loss Monetization Plan, which is intended to increase its net asset value of, Bell Canada's Plan of Arrangement is unlikely to be completed, and final distributions made to shareholders, until at least the first quarter of 2006 (or in 2007, if no early compensatory payment to BCI is made with respect to the Loss Monetization Plan). Bell Canada's estimated future net assets at March 31, 2006 are $253.4 million. The differences between shareholders' equity on the consolidated balance sheet at June 30, 2004 and the estimated future net assets at March 31, 2006 are: (i) the deduction of future net costs from July 1, 2004 to March 31, 2006; (ii) the inclusion of the expected discounted benefit from the Loss Monetization Plan; (iii) the inclusion of the expected gain on the Canbras investment; and (iv) the inclusion of the gain on the sale of Bell Canada's remaining 1.5% interest in Axtel S.A. de C.V. The future net costs are estimated at approximately $10.3 million comprising interest expense until September 29, 2004 on the 11% senior unsecured notes of approximately $4.5 million (assuming Court approval is obtained to pay the 11% senior unsecured notes on September 29, 2004), administrative expenses of approximately $14.4 million and interest income of approximately $8.6 million. The expected discounted benefit from an early payment being made under the Loss Monetization Plan is estimated to be approximately $38 million, being the $42 million payment discussed, discounted for one year at an assumed discount rate of 9%. The expected gain on the Canbras investment of approximately $6 million represents the excess over current carrying value that BCI expects to receive on its investment in Canbras. The gain on the sale, on July 14, 2004, of the remaining 1.5% interest in Axtel was $2.6 million (US$2 million). The future net costs exclude any amounts that may be required to settle contingent liabilities such as lawsuits. To the extent Bell Canada has not completed its Plan of Arrangement by March 31, 2006, interest income thereafter may not be sufficient to cover operating expenses estimated at approximately $1.5 million to $2 million per quarter. The extent of any shortfall would be dependent on a number of factors, including the level of interest rates and Bell Canada's cash balances at the time. Bell Canada's currently estimated future net assets at March 31, 2006 of $253.4 million have increased by $36.3 million from the estimate of future net assets at December 31, 2004 prepared at May 6, 2004 in connection with BCI's first quarter results. The increase in estimated net assets of BCI at March 31, 2006 is a result of the inclusion of the expected discounted benefit of approximately $38 million to be realized from the Loss Monetization Plan and the gain on the sale of the remaining 1.5% interest in Axtel of $2.6 million offset by additional net costs of $4.3 million from January 1, 2005 to March 31, 2006. These additional net costs are expected to be incurred by the Corporation as a result of the delay in the timing of the expected final distribution to shareholders and the approval process associated with the Loss Monetization Plan (including the potential requirement to hold a special shareholders' meeting to approve the Loss Monetization Plan). Update on Remaining Investments On July 14, 2004, Bell Canada sold its remaining 1.5% equity interest in Axtel in a series of transactions with certain of Axtel's other current shareholders. Bell Canada, which had previously written-off entirely its remaining interest in Axtel, received cash consideration in an aggregate amount of $2.6 million (US$2 million) for the sale. Pursuant to the sale of all of Canbras' operations to a third party in December 2003, Canbras received gross proceeds of $32.6 million, comprised of $22.2 million in cash and a one-year promissory note bearing interest at 10% in the original principal amount of $10.4 million (subject to reduction in the event indemnification obligations of Canbras arise under the terms of the sale transaction). On July 29, 2004, Canbras announced that it had declared an initial distribution, in the amount of $0.21 per share, of net proceeds from the sale transaction, payable to shareholders on August 23, 2004. As a result, Bell Canada will receive approximately $8.7 million on such date. Bell Canada expects to receive a total of $21 million from the total net proceeds to be distributed by Canbras to its shareholders, assuming the full amount of the one-year note is paid to Canbras. Canbras expects to make final distributions to shareholders in one or more instalments by year-end 2005. Bell Canada is operating under a court supervised Plan of Arrangement, pursuant to which it intends to monetize its assets in an orderly fashion and resolve outstanding claims against it in an expeditious manner with the ultimate objective of distributing the net proceeds to its shareholders and dissolving the company. Bell Canada is listed on the Toronto Stock Exchange under the symbol BI. Visit its Web site at http://www.bci.ca/ BELL CANADA: Apellate Court Dismisses Two Class Action Lawsuits --------------------------------------------------------------- On July 23, 2004, the Ontario Court of Appeal dismissed the two proposed class action lawsuits brought by Mr. Wilfred Shaw and Mr. Cameron Gillespie on behalf of Bell Canada International common shareholders and seeking $1 billion in damages against Bell Canada and BCE. The Court of Appeal upheld the decision of the lower court dismissing the lawsuits as failing to disclose a reasonable cause of action. Any further appeals, which would go to the Supreme Court of Canada, requires the permission of the Supreme Court. Plaintiffs have until September 30, 2004 to seek leave to appeal. Bell Canada is operating under a court supervised Plan of Arrangement, pursuant to which it intends to monetize its assets in an orderly fashion and resolve outstanding claims against it in an expeditious manner with the ultimate objective of distributing the net proceeds to its shareholders and dissolving the company. Bell Canada is listed on the Toronto Stock Exchange under the symbol BI. Visit its Web site at http://www.bci.ca/ BIOVAIL CORPORATION: Several Changes to Executive Management Team ----------------------------------------------------------------- Biovail Corporation (NYSE:BVF)(TSX:BVF) reported several changes to its executive management group, including the hiring of Charles Rowland as Senior Vice-President and Chief Financial Officer of Biovail Corporation, succeeding Brian Crombie, who has been appointed Senior Vice-President, Strategic Development. The company also announced the promotion of David (Rick) Keefer to Senior Vice-President, Commercial Operations. He replaces Kristine Peterson, who will be joining a leading multi-national pharmaceutical company in a senior capacity. Ms. Peterson will transfer her responsibilities to Mr. Keefer to ensure a smooth transition. Leadership for the Next Phase of Development Eugene Melnyk, Biovail's Chairman and Chief Executive Officer, said that the changes emphasize the company's commitment to penetrating the U.S. market, and further strengthening its operational expertise. "Charles Rowland brings a wealth of experience that will be very beneficial as Biovail has reached the point in its evolution where focusing on improving operational efficiencies, management information and financial systems is paramount," said Mr. Melnyk. "It was important for Biovail to locate its Chief Financial Officer in New Jersey, where Biovail's greatest growth and expenses will occur. Mr. Rowland's core competencies, combined with his more than 20 years of operational experience, will enable Charlie to continue to build on the foundation developed by Brian Crombie. "Mr. Crombie, who has a wealth of experience in acquisitions, business investments and strategic transactions, will focus on enhancing the value of Biovail's current and future strategic investments. "Kris Peterson has made numerous contributions to Biovail during the past 15 months, and played a pivotal role in helping to establish our U.S. organization. As a result, Biovail is fortunate to have tremendous operational depth as part of its management team which, in turn, has allowed us to promote Rick Keefer from within." Extensive Financial, Operational Expertise Mr. Rowland, who joins Biovail effective August 9, and who will be located at the company's U.S. headquarters in Bridgewater, is an executive with extensive financial and operational experience as a senior member of industry-leading pharmaceutical management teams. Most notably, he spent four years with Pharmacia Corporation, where he was Vice-President, Finance and Global Supply. Before joining Pharmacia, he spent five years with Novartis Pharmaceuticals Corporation, where he held a series of progressively senior positions, including Vice-President, Planning and Decision Support. Prior to 1993, Mr. Rowland spent nine years with Bristol-Myers Squibb Company, where he held a series of senior finance positions. He holds a Master of Business Administration degree from Rutgers University and Bachelor of Science degree in Accounting from the Saint Joseph's University. Brian Crombie, Biovail's CFO since joining the company in May 2000, will take on the important job of Senior Vice-President, Strategic Development. In this role, Mr. Crombie's primary responsibilities will include managing the numerous investments Biovail has made in several development companies as well as identifying opportunities to maximize the value of current and future investments. Mr. Crombie has played an important part in the evolution of Biovail into a integrated specialty pharmaceutical company and Canada's largest publicly traded drug maker. He came to Biovail from The Jim Pattison Group, one of Canada's largest private holding companies. During his tenure there, he served as Managing Director, Corporate Finance, where he was responsible for corporate development and treasury. From 1990-1997, Mr. Crombie held a series of progressively senior finance and general management positions with The Molson Companies; as Senior Vice- President, Corporate Finance and Treasurer, he was responsible for planning, accounting and control, corporate development, treasury and investor relations. Previously, Mr. Crombie worked for the Walt Disney Company. He also has an MBA from The Harvard School of Business. David (Rick) Keefer, located at Biovail's U.S. headquarters in Bridgewater, is a 25-year pharmaceutical industry veteran. He has been Group Vice-President, U.S. Sales Operations, since coming to Biovail in May 2003 from Pharmacia Corporation, where he was Vice- President, Sales. Mr. Keefer also spent 12 years at Wyeth Laboratories, where he held a number of increasingly responsible senior positions in both the company's institutional and primary- care divisions, with responsibility for sales, marketing, managed markets, personnel, operating budgets and customer development programs for the company's entire portfolio of pharmaceutical products that generated more than $1 billion in annual revenues. Most notably, from 1995-2001, he served as Vice-President, Business Unit Director for the Southern Business Unit. Previously, he spent 15 years with A.H. Robins Company of Richmond, Virginia. Mr. Keefer earned a Bachelor of Science degree in Marketing/Accounting from West Virginia State College. About Biovail Corporation Biovail Corporation is an international full-service pharmaceutical company, engaged in the formulation, clinical testing, registration, manufacture, sale and promotion of pharmaceutical products utilizing advanced drug-delivery technologies. For more information about Biovail, visit the company's Web site at http://www.biovail.com/ * * * As reported in the Troubled Company Reporter's March 11, 2004, edition, Standard & Poor's Ratings Services revised its outlook on the pharmaceutical company to negative from stable. At the same time, S&P affirmed its ratings on Mississauga, Ontario-based Biovail, including the 'BB+' long-term corporate credit rating. The action was in response to the company's lower 2004 earnings guidance. BLACK WARRIOR: Subordinated Noteholders Consent to Multi-Shot Sale ------------------------------------------------------------------ Black Warrior Wireline Corporation received the requisite consents from the holders of its subordinated debt for the completion of the previously announced sale of the assets of its Multi-Shot business. These assets relate to Black Warrior's directional drilling, downhole surveying, measurement while drilling, steering tools and motor rental business. Black Warrior also has been advised that Multi-Shot, LLC, the buyer of the Multi-Shot business, has obtained the financing required to complete the transaction. Subject to the fulfillment of the remaining closing conditions under the Asset Purchase Agreement, the parties expect to complete the transaction on or about August 6, 2004. About the Company Black Warrior is an oil and gas service company providing wireline services to oil and gas well operators primarily in the United States and in the Gulf of Mexico. It is headquartered in Columbus, Mississippi. Additional information may be obtained by contacting Ron Whitter at (936) 441-6655. At March 31, 2003, Black Warrior Wireline's balance sheet shows a stockholders' deficit of $26,495,475, compared to a deficit of $23,503,994 at December 31, 2003. Black Warrior is a highly leveraged company. The Company's outstanding indebtedness includes primarily senior indebtedness aggregating approximately $15.2 million at March 31, 2004, other indebtedness of approximately $2.6 million and approximately $40.0 million (including approximately $15.6 million of accrued interest) owing to St. James Merchant Bankers, L.P. and St. James Capital Partners, L.P., and its affiliates and directors, who are related parties. The Company's debt and accrued interest owed to related parties is convertible into common stock and is subordinate to its Senior Credit Facility with General Electric Capital Corporation. In addition, no repayments of the related party debt or accrued interest can be made until the Senior Credit Facility is completely extinguished. BOWER PARTNERSHIP: Voluntary Chapter 11 Case Summary ---------------------------------------------------- Debtor: Bower Partnership, Inc. 101 Lake Forest Boulevard Gaithersburg, Maryland 20877 Bankruptcy Case No.: 04-28219 Chapter 11 Petition Date: August 3, 2004 Court: District of Maryland (Greenbelt) Judge: Paul Mannes Debtor's Counsel: Cheryl E. Rose, Esq. Rose & Associates, LLC 50 West Edmonston Drive Suite 600 Rockville, MD 20852 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million The Debtor did not file a list of its 20-largest creditors. BUCYRUS INTERNATIONAL: Moody's Withdraws Junk Ratings after IPO --------------------------------------------------------------- Moody's Investors Service assigned a Ba3 rating to Bucyrus International, Inc.'s $150 million senior secured credit facilities and raised the company's senior implied rating to Ba3 from B3. The rating actions follow the completion of Bucyrus' initial public offering, which raised $130 million in net proceeds and significantly reduced leverage. The IPO proceeds, plus borrowings under the term loan portion of the new credit facilities, were used to retire the company's 9.75% senior unsecured notes due 2007, pay accrued interest and management fees to owner American Industrial Partners (AIP), repay bank debt under the company's previous credit facility, and pay related transaction fees. The rating outlook is stable. The following rating actions were taken: Ratings assigned: -- Ba3 to the: -- senior secured $50 million revolving credit facility due 2009 and -- $100 million senior secured term loan due 2010. Ratings upgraded: -- Senior implied rating raised to Ba3 from B3, -- Senior unsecured issuer rating raised to B1 from Caa1. Ratings withdrawn: -- The Caa1 rating for Bucyrus' $150 million of 9.75% senior unsecured notes due September 15, 2007 was withdrawn. Moody's upgrade of Bucyrus reflects the improved debt protection measures brought about by the company's IPO and debt reduction, as well as the more robust fundamentals supporting sales of surface mining equipment and services. Pro forma for the IPO and related transactions, Bucyrus' leverage will drop to approximately 2.1 LTM EBITDA from around 4.3x and EBITDA to interest will rise to 10x from 3x. Pro forma interest expense is expected to be approximately $5 million, compared to $18 million in 2003. The new credit facilities extend the maturity of Bucyrus' debt and provide greater liquidity. In addition, higher metal and commodity prices are fueling increased orders for mining equipment, aftermarket parts and services, which should improve manufacturing capacity utilization, cost absorption, and cash flow. More generally, Bucyrus' ratings positively reflect its strong market position as a leading manufacturer of large surface mining equipment, its large installed base of equipment, and the high proportion of its sales derived from relatively stable aftermarket parts and services. Its ratings are constrained by the highly cyclical nature of the mining equipment business, which is impacted by volatile commodity prices and, during downturns, reduced mineral production and capital investment on the part of the mining industry. Bucyrus' stable rating outlook reflects its improved balance sheet capitalization, with pro forma debt to total capital of approximately 45%, good liquidity, and the favorable near-term outlook for OEM sales. Given the company's small size, limited range of products, and the volatility of its end-markets, it has limited potential for rating upgrades at this time. Upgrades would require significant further debt reduction, continued expansion of aftermarket sales and gross margin percentages, and a ratio of cash from operating activities to debt consistently above 35%, with some allowances made for severe downturns in the mining industry. Bucyrus' ratings could be lowered if cash flow to leverage ratios decreases, market share declines, or the company makes debt-funded acquisitions or pays large common dividends. In addition to the balance sheet and liquidity improvements made possible by Bucyrus' IPO and debt refinancing, a number of factors buttress Moody's higher ratings. Over the last two years, which have been very difficult for sales of new mining equipment, Bucyrus maintained positive free cash flow (defined as cash from operating activities minus capex) and EBITDA of about $30 million, which would have comfortably covered the reduced interest and approximately $6 million per year of capex Moody's expects the company to spend. Bucyrus' recent historical results benefited from strong aftermarket sales and services. Since 2000, aftermarket sales have grown 9% per year and aftermarket gross profit margin percentage has grown but there is still room for improvement. In addition to this stable income stream, over at least the near term Bucyrus should enjoy much stronger original equipment sales. New equipment orders are up in 2004, and higher coal, copper and iron ore prices support continued strong OEM sales. New equipment sales have a favorable impact on working capital investment as OEM upfront and progress payments are generally well-matched with purchases. However, gross margins on new equipment sales are modest. The new credit facilities are secured by all of the company's assets and a pledge of the stock of its US and Canadian subsidiaries and 65% of the stock of its foreign subsidiaries. Availability under the revolving credit facility is governed by a borrowing base formula that is based on eligible North American receivables and inventory. The facilities' financial covenants are fairly tight and contemplate a steady reduction in leverage. However, as long as Bucyrus is in compliance with the covenants and has undrawn availability of at least $15 million, it can pay dividends up to $10 million per year. Repayments for the term loan will be $7.5 million per year after the first year. Bucyrus International is a leading manufacturer of electric mining shovels, walking draglines and rotary blasthole drills and provides aftermarket replacement parts and services for these machines. For the twelve months ended June 30, 2004, its sales were $404 million. Bucyrus is headquartered in South Milwaukee, Wisconsin. CATHOLIC CHURCH: Court Bars Sussman Shank from Specific Matters --------------------------------------------------------------- Thomas Stilley, Esq., at Sussman Shank, LLP, in connection with a request for permission from the U.S. Bankruptcy Court for the District of Oregon to continue serving as counsel to the Archdiocese of Portland in Oregon in tort litigation matters, makes a number of disclosures to the Bankruptcy Court about connections between the Firm and some of the Archdiocese's creditors. More than a year ago, Mr. Stilley relates, Sussman Shank represented the Oregon Catholic Press, an unaffiliated entity, in a matter having nothing to do with the Archdiocese's bankruptcy filing. The Oregon Catholic Press is not currently a creditor of the Archdiocese of Portland in Oregon nor a current client of Sussman Shank. For several years, Mr. Stilley continues, Sussman Shank represented quite a few Oregon counties, especially in bankruptcy proceedings, to collect real and personal property taxes, including, among others, Multnomah, Washington, and Clackamas Counties. The Debtor owns real property in at least some western Oregon counties, which may be taxable. Almost all of the real property is owned in trust for the benefit of parishes and schools, which pay the taxes. Sussman Shank presently represents Marion County in the case styled In re Ogden New York Services, Inc., et al., pending in the United States Bankruptcy Court for the Southern District of New York. One of the Ogden Debtors, known as Covanta, operates the waste -- garbage -- incinerator north of Salem, Oregon, near the Brooks exit on Interstate Highway 1-5. Covanta is obligated by contract with Marion County to take substantially all waste from Marion County. Sussman Shank's work in the matter is substantially finished, but the firm is still monitoring developments in the matter for Marion County. Mr. Stilley reports that St. Vincent de Paul-St. Matthew Conference obtained a community development grant from Washington County, which administers some grants for the federal government with federal funds. St. Vincent de Paul-St. Matthew is likely not directly related to the Debtor. St. Vincent de Paul-St. Matthew wanted to construct a building to be used as a food bank on the land of St. Matthew Parish in Hillsboro, Oregon, which land is held in record title by the Debtor. St. Vincent de Paul-St. Matthew signed a promissory note for $61,950 involved in the grant. To secure repayment, the Debtor signed and delivered a trust deed to Washington County covering the building and some land immediately adjacent to the building to provide access to the building. The loan is not in default. St. Vincent de Paul-Tigard Conference, according to Mr. Stilley, obtained a similar community developmental grant from Washington County to construct a building to be used as a food bank on the land used by St. Anthony Parish in Tigard, Oregon. Record title to the land is likely held by the Debtor. St. Vincent de Paul- Tigard is not likely directly related to the Debtor. Washington County expected St. Vincent de Paul-Tigard to (i) sign a promissory note for $120,600, and (ii) have that loan secured by another trust deed signed by the Debtor, and covering again the land under the building and, at least, the land needed to provide access to the building. Washington County has put that loan "on hold" while awaiting St. Vincent de Paul-Tigard to obtain assurance that the Debtor can provide the trust deed in light of the Debtor's bankruptcy petition. Sussman Shank understands that Washington County and St. Vincent de Paul-Tigard are anxious to obtain that assurance from the Debtor so that the loan can be made and the building constructed. Sussman Shank has not been involved at all for Washington County or the Debtor in those two matters. If St. Anthony Parish and the Debtor want to go forward with the project, Sussman Shank anticipates that the firm or some other firm will seek the Court's authorization. Mr. Stilley also notes that some of the attorneys in Sussman Shank are Catholic or have children who attend Catholic schools. * * * Judge Perris authorizes the Debtor to employ Sussman Shank, LLP, as its bankruptcy counsel effective as of July 6, 2004. However, Sussman Shank is precluded from working on those matters involving the counties of Marion and Washington, or on any other matters involving negotiations with Multnomah, Washington, Clackamas, and the Marion counties. The Archdiocese of Portland in Oregon filed for chapter 11 protection (Bankr. Ore. Case No. 04-37154) on July 6, 2004. Thomas W. Stilley, Esq. and William N. Stiles, Esq., at Sussman Shank LLP represent the debtor in its restructuring efforts. When the debtor filed for chapter 11 protection, it listed estimated assets of $10,000,000 to $50,000,000 and estimated debts of $25,000,000 to $50,000,000. (Catholic Church Bankruptcy News, Issue No. 3; Bankruptcy Creditors' Service, Inc., 215/945-7000) DIVERSIFIED CORPORATE: Hires Advisor & Lender Agrees to Forbear --------------------------------------------------------------- Diversified Corporate Resources, Inc. (Amex: HIR) has undertaken several major restructuring initiatives over the past thirty days. Under a plan approved by the Board, management began implementing the cost reduction phase of the plan. The Company started closing under-performing operating units, reducing headcount, implementing changes in field management, and consolidating several agencies. During this same period, the Company has also experienced an improvement in direct placement and temp revenues, compared to the prior thirty-day period. In future phases of the plan, the Company anticipates implementing new marketing programs, further restructuring management responsibilities, and reviewing other strategies to increase shareholder value. Management believes that these changes are key to the long-term success and competitiveness of the Company. Hires Restructuring Advisor In conjunction with the restructuring, the Company has engaged DSJ Consulting to supervise efforts to facilitate strategic restructuring and assist the Company in the review of all strategic alternatives available to maximize shareholder value. Lender Agrees to Forbear The Company has also entered into a forbearance agreement with Greenfield Commercial Credit, Inc., its lender. Under the forbearance agreement, the Company has agreed to either pay all past due Section 941 taxes or enter into a formal payment plan with the IRS within 90 days. The Company is working diligently toward resolving the IRS tax issue, reported by the Company on June 8, 2004, and completing the financial reports necessary to resume the trading of its common stock. Diversified Corporate Resources, Inc. is a national employment services and consulting firm, servicing Fortune 500 and larger regional companies with permanent recruiting and staff augmentation in the fields of Engineering, Information Technology, Healthcare, BioPharm and Finance and Accounting. The Company currently operates a nationwide network of nine regional offices. * * * As reported in the Troubled Company Reporter's June 10, 2004 edition, Diversified Corporate Resources, Inc. retained a specialized tax consultant to initiate discussions with the Internal Revenue Service regarding the payment of $2.5 million in unpaid Section 941 taxes owed by the Company for periods during the first and second quarters of 2004. At that time, the Company had $600,000 in a restricted cash account reserved for payment against this balance reducing the amount of required funds to approximately $1.9 million. DP 8 L.L.C.: Voluntary Chapter 11 Case Summary ---------------------------------------------- Debtor: DP 8 L.L.C. c/o Southwest Properties, Inc. 3850 E. Baseline Road, #123 Mesa, Arizona 85206 Bankruptcy Case No.: 04-13428 Type of Business: The Debtor is a real estate developer. Chapter 11 Petition Date: July 30, 2004 Court: District of Arizona (Phoenix) Judge: George B. Nielsen Jr. Debtor's Counsel: Dale C. Schian, Esq. Schian Walker P.L.C. 3550 North Central Avenue #1500 Phoenix, Arizona 85012-2188 Tel: 602-285-4550 Fax : 602-297-9633 Total Assets: $13,626,000 Total Debts: $3,663,678 The Debtor did not file a list of its 20-largest creditors. ELANTIC TELECOM: U.S. Trustee Names 6-Member Creditors' Committee ----------------------------------------------------------------- The United States Trustee for Region 4 appointed six creditors to serve on an Official Committee of Unsecured Creditors in Elantic Telecom, Inc.'s Chapter 11 case: 1. Adelphia Communications Corp. Attn: Stephen Martin, Vice President-Law 5619 DTC Parkway, Suite 800 Greenwood Village, Colorado 80111 Tel: 303 268-6433 Fax: 303 268-5222 Email: Stephen.martin@philadelphia.com 2. Cox Communications Attn: Clarke Armentout, Business Manager 225 Clearfield Avenue Virginia Beach, Virginia 23462 Fax: 757 222-8588 Fax: 757 369-4500 Email: Clarke.armentrout@cox.com 3. De-Tech, Inc. Attn: Edward W. Phaup, Jr. 3404 Hermitage Road Richmond, Virginia 23227 Tel: 804 262-0500 Fax: 804 262-3043 Email: edphaup@de-techinc.com 4. Level 3 Communications Attn: Risa Lynn Wolf-Smith, Bankruptcy Counsel P.O. Box 8749 Denver, Colorado 80201-8749 Tel: 303 295-8011 Fax: 303 295-8261 Email: rwolf@hollanhart.com 5. Telcove, Inc. (fka Adelphia Business Solutions) Attn: Jum Means, Secretary 121 Champion Way Canonsburg, Pennsylvania 15317 Tel: 724 743-9566 Fax: 724 743-9791 Email: jim.means@telecove.com 6. Colo Properties Atlanta, LLC Successor to Marietta Street Partners, LLC Attn: Todd Raymond, General Counsel and Controller c/o The Telx Group, Inc. 17 State Street, 33rd Floor New York, New York 10004 Tel: 212 480-3300 Fax: 212 480-8384 Official creditors' committees have the right to employ legal and accounting professionals and financial advisors, at the Debtors' expense. They may investigate the Debtors' business and financial affairs. Importantly, official committees serve as fiduciaries to the general population of creditors they represent. Those committees will also attempt to negotiate the terms of a consensual chapter 11 plan -- almost always subject to the terms of strict confidentiality agreements with the Debtors and other core parties-in-interest. If negotiations break down, the Committee may ask the Bankruptcy Court to replace management with an independent trustee. If the Committee concludes reorganization of the Debtors is impossible, the Committee will urge the Bankruptcy Court to convert the Chapter 11 cases to a liquidation proceeding. Headquartered in Richmond, Virginia, Elantic Telecom, Inc. -- http://www.elantictelecom.com/-- provides wholesale fiber bandwidth and carrier services to long-distance, international wireless carriers and competitive local exchange carriers across its fiber optic network. The Company filed for chapter 11 protection on July 19, 2004 (Bankr. E.D. Va. Case No. 04-36897). Lynn L. Tavenner, Esq., and Paula S. Beran, Esq., at Tavenner & Beran, PLC, represent the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed $19,844,000 in total assets and $24,372,000 in total debts. ENDEAVOUR GOLD: US$1.1 Mil. Phase 1 Exploration Program Underway ---------------------------------------------------------------- Endeavour Gold Corporation (EDR : TSX-V) discloses that a US$1.1 million Phase 1 exploration program is now underway at the Company's recently optioned Santa Cruz silver mine in Durango, Mexico. Two prospective ore zones, North Porvenir and San Guillermo, will be explored by underground ramps and diamond drilling in 2004. The objective is to outline mineable resources in each zone and prepare them for production before year-end. The North Porvenir prospect was discovered last year when 3 drill holes returned ore grades over mineable widths within the Santa Cruz vein about 1 km northwest of the Santa Cruz mine shaft. A total of approximately 2800 m of underground development, including 1000 m of ramp access plus related crosscuts, sublevels and raises will be completed in order to explore and equip the North Porvenir mine for production. Endeavour advanced a US $350,000 loan to Minera Santa Cruz y Garibaldi S.A. de C.V. after closing the final option agreements in May 2004 in order to commence work on the ramp. The North Porvenir ramp was collared in mid-June 2004, using the neighbouring El Porvenir mine workings to gain access to the vein. To date, approximately 180 m of ramp development has been completed, principally along the vein footwall on the neighbouring El Porvenir property. This ramp should cross the property boundary onto the Santa Cruz mine property and encounter the prospective North Porvenir ore zone shortly. To complement the underground exploration program, a 6000 m surface drilling program is also planned to commence in mid-August 2004 at North Porvenir. Drilling will focus on outlining the mineralization on 50 m centres so as to better guide the underground development program once it reaches the prospective ore zone. The San Guillermo prospect was outlined in the 1980's when drilling and drifting returned high grade silver values over good widths in the Santa Cruz vein about 600 m southeast of the Santa Cruz mine shaft. At San Guillermo, mining activities in 2003/2004 have exhausted the ore reserves above Mine Level 6. Therefore, about 100 m of underground development, including a ramp and related crosscuts, was completed in July 2004 below Level 6. A small underground drilling program is also being considered for this area. Minera Santa Cruz funded this work out of operating cash flow. Two prospective ore shoots were previously identified at San Guillermo so the ramp splits to the north and south, in order to explore both target zones. Mineralization has been intersected in the south ramp and sampling is now underway. Underground mapping and surveying of the mine workings in the Santa Cruz mine is also underway to better assess the remaining ore reserves in the mine. A large area of high grade, mixed oxide- sulfide mineralization appears not to have been mined at Santa Cruz because it caused metallurgical recovery problems in the plant. In addition to the drilling and ramp programs, Endeavour is also carrying out metallurgical testing and mill optimization programs at the Guanacevi process plant in order to improve the recoveries of silver and gold. RDI Resource Development Inc., metallurgical consultants, recently completed a millsite tour and concluded that: 1) The mill and process equipment is in good working condition. A small capital investment to recondition certain equipment items should result in some improvements in mill performance; 2) The plant personnel are all highly experienced operators. Given that several ball mills, flotation cells and leach tanks are idle due to lack of ore, it should be fairly simple to boost mill output once more prospective ore zones are developed; 3) The production of silver dore bars from reprocessing of the old oxidized tailings doubled in July 2004 to 450 tpd. All that is needed to expand it by another 50% to 750 tpd is a third pump station plus the expansion of the tailings pond to facilitate the mining of old tailings and the increase in new tailings; 4) A systematic metallurgical test program is recommended for the San Guillermo and the North Porvenir ores and their mill products, as well as the old tailings feeding the oxide leach circuit, in order to boost the recoveries of gold and sillver in the plant. To conclude, if the Phase 1 exploration program is successful, Endeavour and Minera Santa Cruz plan to bring the North Porvenir and San Guillermo mines into production this year. Coupled with the recent increase in tailings reprocessing and possible improvements in gold and silver recoveries, silver production from the Santa Cruz silver mine and the Guanacevi processing plant is targeted to triple up to 1.2 million oz silver per year by June, 2005. Endeavour holds an option to acquire a 100% interest in the Santa Cruz silver mine and Guanacevi mill by paying US $7 million over a 4-year period. Endeavour can earn an initial 51% interest by January 2005 by paying US $3 million (US $1 million already paid) and spending US $1 million on mine exploration. Endeavour Gold Corp. (EDR: TSX-V) is a small-cap exploration and mining company focused on aggressively expanding its portfolio of high grade silver-gold properties, reserves and production in Mexico. Canarc Resource Corp. holds a minority shareholding in the company and helps manage the affairs of Endeavour. The Company's financial statements for the fiscal year ending February 29, 2004, and the fiscal quarter ending May 31, 2004 indicate they were prepared on a going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of business. KPMG LLP observes that Company has incurred significant operating losses and currently has no significant source of revenue. The Company has financed its activities principally by the sale of equity securities. The Company's ability to continue as a going concern is dependent on continued financial support from its shareholders and other related parties, the ability of the Company to raise equity financing, and the attainment of profitable operations to fund its operations. Failure to continue as a going concern, KPMG cautions, would require that the Company's assets and liabilities be restated on a liquidation basis, which would differ significantly from the going concern basis. ENDURANCE SPECIALTY: Appoints Norman Barham to Board of Directors ----------------------------------------------------------------- Endurance Specialty Holdings Ltd., (NYSE:ENH) a Bermuda-based provider of property and casualty insurance and reinsurance, appointed Norman Barham to its Board of Directors. Mr. Barham was Vice Chairman and President of Global Operations of Marsh, Inc., the largest diversified insurance brokerage and risk management services company in the world, from 1997 to 2000. Prior to joining Marsh, Inc., Mr. Barham held numerous senior management roles in various parts of Johnson & Higgins from 1975 to 1997, prior to the merger of Johnson & Higgins and Marsh & McLennan Companies, including President, Chief Technical Officer and Head of Global Property Insurance. Mr. Barham currently serves on the boards of Queens College, GAB Robbins, and NYC Outward Bound. Kenneth J. LeStrange, Chairman and Chief Executive Officer of Endurance Specialty Holdings, commented, "Our entire Board is delighted to welcome Norman to our Board of Directors. Norman's extensive experience in the insurance industry, along with his strong managerial background, make him an excellent addition to our Board. We look forward to working with Norman as we continue to seek opportunities to build value for our shareholders." About Endurance Specialty Holdings Endurance Specialty Holdings Ltd. is a global provider of property and casualty insurance and reinsurance. Through its operating subsidiaries, Endurance currently writes property per risk treaty reinsurance, property catastrophe reinsurance, casualty treaty reinsurance, property individual risks, casualty individual risks, and other specialty lines. Endurance's operating subsidiaries have been assigned a group rating of A from A.M. Best and A- from Standard & Poor's. Endurance's headquarters are located at Wellesley House, 90 Pitts Bay Road, Pembroke HM 08, Bermuda and its mailing address is Endurance Specialty Holdings Ltd., Suite No. 784, No. 48 Par-la-Ville Road, Hamilton HM 11, Bermuda. For more information about Endurance, please visit http://www.endurance.bm/ * * * As reported in the Troubled Company Reporter's June 18, 2004, edition, Standard & Poor's Ratings Services assigned its 'BBB' counterparty credit rating to Endurance Specialty Holdings Ltd. and its preliminary 'BBB' senior debt, 'BBB-' subordinated debt, and 'BB+' preferred stock ratings to the company's $1.8 billion universal shelf registration. "The ratings on Endurance are based on its strong competitive position, which is supported by a diversified business platform," noted Standard & Poor's credit analyst Damien Magarelli. "In addition, Endurance maintains strong capital adequacy and strong operating performance." Offsetting these positive factors are concerns about Endurance's exposure to catastrophes and minimal reinsurance protections. Endurance also is a relatively new operation, and management has not been tested through difficult market cycles. ENRON: Wants Solicitation Period Preserved Until Appeals Resolved ----------------------------------------------------------------- Pursuant to Section 1121(d) of the Bankruptcy Code, Enron Corporation and its debtor-affiliates and subsidiaries ask the United States Bankruptcy Court for the Southern District of New York to extend their exclusive period to solicit votes in favor of the Supplemental Modified Fifth Amended Plan through the 30th day after resolution of all appeals to the Confirmation Order. Brian S. Rosen, Esq., at Weil, Gotshal & Manges, LLP, in New York, relates that since the Plan's confirmation, at least five notices of appeal have been filed. Even though they believe that the Confirmation Order will not be overturned on appeal, out of abundance of caution, the Debtors seek an extension of their exclusive solicitation period. As the Appeals must address issues initially raised as objections to the Plan confirmation, if sustained, the Debtors believe that the Plan, as currently filed, can be amended to address the issues raised on appeal. The Debtors would then proceed to resolicit votes on the Plan, as amended. The Debtors acknowledge that the appellate process may take months or years. Some parties may seek to appeal the Confirmation Order beyond the District Court level. The Debtors also recognize that certain information in the Disclosure Statement may need to be modified in the event it becomes necessary for the Debtors to modify the Plan. Thus, it is likely that the Debtors also will circulate a supplement to the previously approved Disclosure Statement, in accordance with the Bankruptcy Code if the Plan is modified as a result of the appellate process. Mr. Rosen contends that the extension of the Solicitation Period will not harm or prejudice the Debtors' creditors in any cognizable way. Rather, it will afford the Debtors and all parties-in-interest an opportunity to correct any infirmities in the Plan while minimizing the need for lengthy and expensive litigation over competing plans. Allowing the Solicitation Period to expire will virtually ensure that significant estate resources will be spent on needless and protracted plan litigation rather than on the amendment of the Plan. The Court will convene a hearing on August 26, 2004 to consider the Debtors' request. (Enron Bankruptcy News, Issue No. 120; Bankruptcy Creditors' Service, Inc., 215/945-7000) ENTERPRISE PRODS: Launches Tender Offers for GulfTerra Sr. Notes ---------------------------------------------------------------- Enterprise Products Operating L.P., a principal operating subsidiary of Enterprise Products Partners L.P. (NYSE:EPD) commenced four cash tender offers to purchase any and all of the outstanding senior subordinated and senior notes of GulfTerra Energy Partners, L.P., and GulfTerra Energy Finance Corporation totaling approximately $921.5 million. In connection with the tender offers, Enterprise is soliciting consents to proposed amendments that would eliminate certain restrictive covenants and default provisions contained in the indentures governing the notes. The tender offers and consent solicitations are being made pursuant to the terms and subject to the conditions set forth in an Offer to Purchase and Consent Solicitation Statement from Enterprise dated August 4, 2004, and a letter of transmittal and consent, which have more details including a description of the terms of the tender offers and consent solicitations. Enterprise is commencing the tender offers and consent solicitations in anticipation of completing the merger with GulfTerra, and the closing of the merger is a non-waivable condition to the completion of the tender offers and consent solicitations. Other conditions include Enterprise's raising funds sufficient to pay for the tendered notes. The purpose of the tender offers is to acquire all of the outstanding GulfTerra notes, and the purpose of the consent solicitations is to eliminate substantially all of the covenants and several events of default contained in the indentures governing such notes. Enterprise is offering to purchase the following notes using fixed-spread pricing according to the following securities: Aggregate Principal Amount Reference Fixed (in 000's) Title of Securities Security Spread __________________________________________________________________ $215,915 8-1/2% Sr. Sub. Notes due 2010 3.125% due 5/15/07 0.75% $321,600 8-1/2% Sr. Sub. Notes due 2011 2.50% due 5/31/06 0.75% $134,000 10-5/8% Sr. Sub. Notes due 2012 3.00% due 11/15/07 0.75% $250,000 6-1/4% Sr. Notes due 2010 6.50% due 2/15/10 0.75% The fixed-spread pricing will result in total consideration for each $1,000 principal amount tendered equal to the present value of the principal and interest that would accrue, in the case of the senior subordinated notes, from the last interest payment date until the applicable First Call Date, or in the case of the senior notes, until maturity as determined by reference to a fixed spread over the yield to maturity of designated United States Treasury reference securities. Holders who tender their notes prior to the consent date will be eligible to receive the total consideration, which includes a consent payment equal to $30 per $1,000 of principal. Holders of GulfTerra notes who tender their notes following the consent date but prior to the expiration date will not be eligible to receive the $30 consent payment. In addition, Enterprise also will pay accrued and unpaid interest up to but not including, the settlement date on all notes accepted in the tender offers. The settlement date is expected to occur promptly after the expiration date of September 2, 2004, unless extended by Enterprise. This is the last day for holders to tender their notes in order to qualify for the payment of the purchase price on the settlement date, which would not include the consent payment. The consent date is August 13, 2004. Note holders must tender their notes by 5:00 PM New York City time that day, unless extended by Enterprise, to qualify for the payment of the total consideration on the settlement date, which includes the consent payment. Any holder who tenders its notes will be deemed to have delivered its consent to the proposed amendments to the indenture governing such notes. August 13 also is the last day for note holders to withdraw tenders of their notes and revoke related consents to the proposed amendments. Holders that tender their notes after August 13 but prior to the expiration date will be eligible to receive the total consideration less the consent payment. Enterprise has retained Lehman Brothers to serve as the Lead Dealer Manager for the Tender Offer and the Lead Solicitation Agent for the Consent Solicitation. J.P. Morgan and Wachovia Securities have been retained to serve as Co-Dealer Managers and Co-Solicitation agents, and D. F. King & Co., Inc. has been selected to serve as the Tender Agent and Information Agent for the Tender Offer and Consent Solicitation. Requests for documents may be directed to D. F. King & Co. Inc. by telephone at (800) 487-4870 or (212) 269-5550, or in writing at 48 Wall Street, 22nd Floor, New York, NY 10005. Questions regarding the tender offer may be directed to Lehman Brothers, at (800) 438-3242 or (212) 528-7581. Enterprise Products Partners L.P. is the second largest publicly traded midstream energy partnership with an enterprise value of over $7 billion. Enterprise is a leading North American provider of midstream energy services to producers and consumers of natural gas and natural gas liquids. The Company's services include natural gas transportation, processing and storage and NGL fractionation (or separation), transportation, storage and import/export terminaling. * * * As reported in the Troubled Company Reporter's May 20, 2004 edition, Standard & Poor's Rating Services lowered its corporate credit ratings on Enterprise Products Partners L.P. and Enterprise Products Operating L.P. to 'BB+' from 'BBB-' and removed the ratings from CreditWatch with negative implications. The outlook is stable. The ratings were originally placed on CreditWatch on Dec. 15, 2003 as a result of the announcement of the merger between Enterprise Products and GulfTerra Energy Partners L.P. (BB+/Watch Neg/--). The rating action is based upon an assessment that the credit rating on Enterprise Products will be 'BB+' whether or not the proposed merger with GulfTerra takes place. "On a stand-alone basis, Enterprise Products' creditworthiness has deteriorated over the past year," said Standard & Poor's credit analyst Peter Otersen. FC CBO III: S&P Cuts Rating on Class B Notes to 'CCC' ----------------------------------------------------- Standard & Poor's Ratings Services lowered its rating on the class B notes issued by FC CBO III Ltd., an arbitrage high-yield CBO transaction, and removed it from CreditWatch negative, where it was placed Dec. 11, 2003. Concurrently, the rating on the class A notes is affirmed and removed from Creditwatch negative, where it was also placed on the same date. Because of coverage test failures, FC CBO III has paid the down the balance of its class A notes significantly since the ratings assigned to the class A and B notes were placed on CreditWatch negative. As of the July 2004 trustee report, the current outstanding balance on the class A notes is $112 million, or approximately 39% of the original issuance. As a result, the rating assigned to the notes is affirmed and removed from CreditWatch negative. In addition, FC CBO III's class A overcollateralization ratio has improved to 144.16%, compared to the minimum requirement of 117.30% and a ratio of 119.88% at the time of the CreditWatch placement. However, the credit quality of the portfolio (which has an average rating of 'B') and the overhedging of the liabilities, which results in a significant payout of the available interest cash on each payment date, have negatively impacted the credit enhancement available to support the class B notes, leading to the downgrade of these notes. According to the July 2004 trustee report, the class B overcollateralization ratio stands at 106.74%, versus the minimum required ratio of 109.70%. Standard & Poor's noted that Prudential Investment Management succeeded Bank of Montreal as the new collateral manager in January 2004. Standard & Poor's will continue to monitor the performance of the transaction to ensure that the rating remain consistent with the credit quality of the underlying portfolio and the credit enhancement available to support the rated notes. Rating Lowered and Removed From Creditwatch Negative Rating Balance (mil. $) Class To From Orig. Current ----- -- ---- ----- ------- B CCC B/Watch Neg 37.75 39.41 Rating Removed From Creditwatch Negative Rating Balance (mil. $) Class To From Orig. Current ----- -- ---- ----- ------- A AA- AA-/Watch Neg 289.50 112.40 Transaction Information Issuer: FC CBO III Ltd. Co-issuer: FC CBO III Corp. Manager: Prudential Investment Management Underwriter: Goldman Sachs & Co. Trustee: Bank of New York Transaction type: High-yield arbitrage CBO Tranche Initial Last Current Information Report Action Action Date (MM/YYYY) 11/1999 12/2003 8/2004 ------------------- ------- ------------- ------- A note rating AAA AA-/Watch Neg AA- B note rating A- B/Watch Neg CCC Cl. A OC ratio 137.75% 119.88% 144.16% Cl. A OC ratio min. 117.30% 117.30% 117.30% Cl. B OC ratio 121.87% 101.92% 106.74% Cl. B OC ratio min. 109.70% 109.70% 109.70% A note bal. $289.50mm $217.50mm $112.40mm B note bal. $37.75mm $38.33mm $39.41mm Portfolio Benchmarks Current -------------------- ------- S&P Wtd. Avg. Rtg. (excl. defaulted) B S&P Default Measure (excl. defaulted) 5.43% S&P Variability Measure (excl. defaulted) 2.02% S&P Correlation Measure (excl. defaulted) 1.15 Oblig. Rtd. 'BBB-' and above 8.58% Oblig. Rtd. 'BB-' and above 60.26% Oblig. Rtd. 'B+' and above 79.82% Oblig. Rtd. 'B' and above 89.31% Oblig. Rtd. 'B-' and above 92.58 Oblig. Rtd. in 'CCC' range 7.42% Oblig. Rtd. 'SD' or 'D' 10.62% S&P Rated Last Current OC (ROC) Rating Action Rating Action --------- ---------------------- ------------- Class A 99.87% (AA-/Watch Neg) 108.90% (AA-) Class B 96.15% (B/Watch Neg) 99.39% (CCC) FLEMING COMPANIES: Agrees to Transfer $55M to Trust to Pacify CHEP ------------------------------------------------------------------ CHEP commenced a lawsuit against the Fleming Companies, Inc. and its debtor-affiliates and subsidiaries for conversion, unjust enrichment, and the imposition of a constructive trust based on CHEP's distribution letter agreement with Fleming regarding pallets. Fleming holds $5,452,485 in trust for CHEP. The Debtors have represented to the United States Bankruptcy Court for the District of Delaware that their cash balance would not fall below $20 million and that they will always have sufficient cash on hand to preserve CHEP's ability to trace its trust res under the "lowest intermediate balance" test. But according to the Debtors Second Amended Disclosure Statement, as of July 31, 2004, the Debtors will have only $108,837,000 in cash and equivalents. Hence, CHEP USA objected to the Plan's provision to pay Class 2 Prepetition Lenders' Secured Claims in full in cash on the Effective Date. The Plan defines cash to mean "cash and cash equivalents." The total estimated secured claims for Class 2 ranges from $200 million to $220 million as of the Effective Date. To resolve the dispute, the Debtors and CHEP stipulated and agree that: (a) If the cash balance falls below $5,452,485 any time on or after July 26, 2004, CHEP will able to trace $5,452,485 in the Debtors, the Reorganized Debtors, but not including Core-Mark Newco, or the Post-Confirmation Trust's bank accounts from that time forward without being limited by the lowest intermediate balance test or by any other tracing principle; (b) The Debtors, the Reorganized Debtors and the PCT waive any argument that the constructive trust funds can be lost if the cash balance in the bank accounts fall below $5,452,485 at any time on or after July 26, 2004; (c) The Debtors represent that the unrestricted cash and equivalents to be transferred by the Debtors to the PCT will be $55,000,000 as of July 31, 2004; and (d) Any amounts subject to CHEP's constructive trust claim under the Adversary Proceeding will be considered an obligation transferred to the PCT under the terms of the Plan and will be paid by the PCT in accordance with the terms of the Court's order on the claim. The Debtors further amended their Reorganization Plan and Disclosure to reflect the parties' settlement, among other things. Judge Walrath confirmed the Debtors' Third Amended Reorganization Plan. Headquartered in Lewisville, Texas, Fleming Companies, Inc. -- http://www.fleming.com/-- is the largest multi-tier distributor of consumer package goods in the United States. The Company filed for chapter 11 protection on April 1, 2003 (Bankr. Del. Case No. 03-10945). Richard L. Wynne, Esq., Bennett L. Spiegel, Esq., Shirley Cho, Esq., and Marjon Ghasemi, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from its creditors, they listed $4,220,500,000 in assets and $3,547,900,000 in liabilities. (Fleming Bankruptcy News, Issue No. 38 and 40; Bankruptcy Creditors' Service, Inc., 215/945-7000) FLOTEK INDUSTRIES: Says $1.97 Mil. Sales in July is Highest Ever ---------------------------------------------------------------- Flotek Industries, Inc. (OTC BB: FLTK) reported record sales in July of $1.97 million, the highest monthly sales level in the history of the Company. Flotek continues to demonstrate its ability to generate healthy results and meet the needs of customers in each of our operating units. The Company continued to see strong demand for its biodegradable "green" chemical line. Expanding applications of this line has bolstered sales and is expected to support continued future growth in the Chemical division. The Material Translogistics unit exceeded projected sales levels due to strong Gulf Coast activity. Rig count, one of the Company's key sales drivers, remained high. In the Production segment, the initiatives that Flotek undertook in the first quarter to restructure the Petrovalve management structure with greater presence in the North America and International markets, are beginning to deliver results. Flotek resumed product deliveries to our Venezuelan customers in July. The drilling product segment dipped in the 2nd quarter due to the slow down of its core customers; however Turbeco sales returned to positive growth in July. The company continues to focus on expansion through internal organic growth and through strategic vertical acquisitions. Flotek's Chairman and CEO, Jerry Dumas stated, "The continued dedication of our employees has brought our company to a position of record sales, earnings and cash flow." More detail will be available in the Company's 10-Q to be filed with the SEC. For product information and additional information on the Company, please visit Flotek's web site at http://www.flotekind.com/ Flotek is a publicly traded company involved in the engineering, manufacturing and marketing of innovative downhole production, drilling equipment and specialty chemicals for cementing and stimulation. It serves major and independent companies in the domestic and international oil industry. * * * Liquidity Concerns In its Form 10-Q for the quarterly period ended March 31, 2004, filed with the Securities and Exchange Commission, Flotek Industries, Inc. reports: "In the first three months of 2004, the Company produced net income of $233,990 and had positive cash flow from operations of $156,306. This turnaround from the same period in 2003 is a result of significant improvement in operating results for all reporting units due to increased activity and operational efficiencies. The positive cash flow from operations is a result of higher net income offset by increased net working capital requirements to grow operations in the first quarter of 2004. "As of March 31, 2004, net working capital was a negative $4,430,198, resulting in a current ratio of .52 to 1. Both accounts receivable and inventories have increased due to increased levels of activity, for the majority of reporting units, between the fourth quarter of 2003 and the first quarter of 2004. Accounts payable have also increased primarily due to increased trade payables from a higher level of business activity. "The Company made debt service payments of $187,315 and repayments to related parties of $32,660 during the first three months of 2004. The company has estimated minimum debt service payments in 2004 of $5,659,696 million. This includes minimum principal and interest payments on Related Party indebtedness, Short-Term Notes Payable, and Long-Term Debt as discussed in Notes 6, 7 and 8 of the Notes to Consolidated Financial Statements. "The Company believes its continuing operations are capable of generating sufficient cash flow to meet its debt service obligations under current market conditions. However, if a market downturn occurred it would be difficult to meet debt service obligations without increased sales. While the market we serve continues to steadily improve, as well as our cash flow position, we believe the Company will need to raise additional capital through the sale of its debt or equity securities to provide the necessary cash flow to grow the business. There can be no assurance that the Company will be able to secure such financing on acceptable terms or raise the required equity." GE CAPITAL: Fitch Gives Low B-Ratings to 2 Mortgage-Backed Classes ------------------------------------------------------------------ Fitch Ratings affirms GE Capital's commercial mortgage pass- through certificates, series 2001-1, as follows: -- $138.5 million class A-1 at 'AAA'; -- $703 million class A-2 at 'AAA'; -- Interest-only classes at 'AAA'; -- $45.2 million class B at 'AA'; -- $49.4 million class C at 'A'; -- $15.5 million class D at 'A-'; -- $15.5 million class E at 'BBB+'; -- $15.5 million class F at 'BBB'; -- $14.1 million class G at 'BBB-'; -- $25.4 million class H at 'BB+'; -- $18.3 million class I at 'BB'; -- $9.9 million class J at 'BB-'. Fitch does not rate classes K, L, M or N. The rating affirmations reflect the minimal reduction of the pool collateral balance since issuance. As of the July 2004 distribution date, the pool's aggregate certificate balance has decreased 2.96% to $1,095.5 million from $1,128.9 million. GEMSA Loan Services, L.P., the master servicer, collected year-end 2003 financials for 97% of the pool balance. Based on the information provided, the resulting YE 2003 weighted average debt service coverage ratio (DSCR) is 1.57 times (x), compared with 1.42x at issuance for the same loans. There are five loans (2.67%) in special servicing. The largest loan (0.86%) is secured by a multifamily property located in Jonesboro, GA and is currently 90 days delinquent. The second and third largest loans (1.41% combined) are secured by self-storage properties located in CA and are cross-collateralized and cross- defaulted. The loans transferred to the special servicer as a result of chronic delinquency and have been brought current. Fitch reviewed credit assessments of the 59 Maiden Lane loan (4.4%) and the Equity Inns Portfolio loan (2.9%). The Fitch- stressed DSCR for each loan is calculated using servicer provided net operating income less required reserves divided by debt service payments based on the current balance using a Fitch- stressed refinance constant. Based on their stable-to-improved performance, the 59 Maiden Lane loan maintains an investment-grade credit assessment, while the Equity Inns Portfolio remains below investment-grade. The 59 Maiden Lane loan is secured by a 1,037,002 square foot (sf) office property located in New York, New York. The property is 97.3% occupied as of Dec. 31, 2003. The stressed DSCR for YE 2003 was 3.66x, compared with 3.77x as of YE 2002 and 2.75x at issuance. The Equity Inns loan is secured by seven cross-collateralized and cross-defaulted limited service hotels totaling 859 rooms. The hotels are located in seven different states. The stressed DSCR for YE 2003 was 1.38x compared with 1.48x as of YE 2002 and 2.12x at issuance. In addition, the revenue per available room for the portfolio was $55 as of YE 2003 compared with $51 as of YE 2002 and $54 at issuance. HOLLINGER INT'L: Moody's Outlook Positive After Debt Repayment -------------------------------------------------------------- Moody's Investors Service has changed the rating outlook on Hollinger International Publishing Inc. to positive from stable and has withdrawn other ratings. Details of this rating action are as follows: Ratings withdrawn: -- $45 million Senior Secured Revolving Credit Facility, due 2008 -- Ba2 -- $210 million Term Loan "B", due 2009 -- Ba2 -- $300 million of 9% Senior Unsecured Notes, due 2010 -- B2 Ratings confirmed: -- Senior Implied rating -- Ba3 -- Issuer rating -- B2 The outlook is changed to positive. The ratings withdrawal follows the announcement by Hollinger International Inc. that it has fully repaid and retired its senior secured credit facilities and that it has completed a tender offer for substantially all of its senior unsecured notes. The change in the outlook to positive reflects Moody's view that the completion of the sale of the Telegraph Group Limited results in an immediate improvement in the financial profile of Hollinger International Publishing Inc. Management has not yet announced its plans to deploy approximately $600 million in cash proceeds which remain following the debt repayment, however it is possible that it will use a portion of the remaining cash to repurchase stock of Hollinger International Inc., including class B common stock held by Hollinger Inc. Moody's notes that Hollinger International Inc. also reported current income taxes payable of $347 million at September 30, 2003 (the date of the most recently filed uncertified financial statements). Moody's plans to meet with management to discuss the company's future financial plans. In addition, Moody's expects to refresh its ratings on Hollinger International Publishing Inc. following receipt of updated audited financial statements. On July 30, 2004, Hollinger International Inc. announced that three of its indirect subsidiaries sold their outstanding shares of the Telegraph Group Limited to Press Acquisition Limited and Holyrood Holdings Limited for the equivalent of $1,327 million in cash. Adjusting for cash acquired, the transaction resulted in a net cash price of approximately $1,210 million. Hollinger International Inc. has applied a portion of the proceeds to repay outstanding indebtedness under the company's subsidiaries' bank credit agreement. In addition, the company used a portion of the proceeds to complete its tender offer of Hollinger International Publishing Inc.'s $300 million of 9% Senior Notes due 2010. Hollinger International Publishing Inc. is headquartered in Chicago, Illinois. INFRASOURCE SERVICES: Inks EnStructure & Utili-Trax Acquisitions ---------------------------------------------------------------- InfraSource Services, Inc. (NYSE:IFS), one of the largest specialty contractors servicing utility transmission and distribution infrastructure in the United States, has signed definitive agreements to acquire substantially all of the assets and certain liabilities of EnStructure, the construction services business of SEMCO ENERGY, Inc., and Utili-Trax, the construction business of Connexus Energy, for a cash purchase price of approximately $20.8 million and $5.3 million, respectively, subject to certain purchase price adjustments. EnStructure, headquartered in Michigan, provides a wide range of construction services including pipeline integrity services, installation of underground transmission and distribution pipelines, construction of compressor and meter stations, paving and restoration, and fiber optic installation for customers within the utilities and oil & gas markets. EnStructure, which had annual revenues in 2003 of approximately $75 million and has approximately 750 employees, operates throughout the Midwestern, Southern and Southeastern regions of the United States through three operating companies: SubSurface Construction, Iowa Pipeline Associates, and Flint Construction. Utili-Trax, headquartered in Minnesota, provides underground and overhead construction services for electric cooperatives and municipal utilities throughout the upper Midwest including joint trenching, directional boring, plowing and placement and utility line, transformer and meter installation and maintenance services. Utili-Trax had annual revenues in 2003 of approximately $10 million and has approximately 100 employees. David Helwig, InfraSource President & CEO, said, "Our strategy is to capitalize on the favorable trends in the utility infrastructure markets, increase market share and pursue highly strategic acquisitions. These acquisitions reflect continued progress in pursuit of this strategy. They will strengthen our geographic presence in the Midwest, South and Southeast and provide additional service offerings for the natural gas market." Paul Daily, President & CEO of InfraSource Underground Services (IUS), said, "We are excited about the addition of EnStructure and Utili-Trax and the growth opportunities that they present in expanding our service capabilities to meet the needs of our customers. Both Steve Hicks, President of EnStructure, and Darin Peterson, President of Utili-Trax, will join our leadership team." The acquisitions are subject to customary closing conditions and are expected to close by the end of the third quarter of 2004. InfraSource expects that the acquisitions, when consummated, will be accretive to earnings in 2004. The acquisitions will be financed with the Company's available cash and/or borrowings under its senior credit facility. InfraSource management will discuss the EnStructure and Utili-Trax transactions on the Company's second quarter 2004 conference call scheduled for August 11, 2004 at 9:00AM (EDT). The conference call will be webcast live and available for replay on the investors page of its website, http://www.infrasourceinc.com/Interested parties without access to the Internet may dial (719) 457-2617 (listen-only mode). A telephone replay will be available shortly after the call. The telephone replay number is (719) 457-0820; Passcode: 323829. About SEMCO ENERGY, Inc. SEMCO ENERGY, Inc. (NYSE:SEN) distributes natural gas to more than 391,000 customers combined in Michigan, as SEMCO ENERGY GAS COMPANY, and in Alaska, as ENSTAR Natural Gas Company. It owns and operates businesses involved in propane distribution, intrastate pipelines and natural gas storage in various regions of the United States. In addition, it provides information technology and outsourcing services, specializing in the mid-range computer market. Additional information can be found at http://www.semcoenergy.com/ About Connexus Energy Connexus Energy is the largest customer-owned utility in Minnesota providing electricity and related products and services to over 110,000 homes and businesses in portions of Anoka, Chisago, Hennepin, Isanti, Ramsey, Sherburne, and Washington counties. Additional information about Connexus Energy is available online at http://www.connexusenergy.com/ About InfraSource Services, Inc. InfraSource Services, Inc. (NYSE:IFS) is one of the largest specialty contractors servicing utility transmission and distribution infrastructure in the United States. InfraSource designs, builds, and maintains transmission and distribution networks for utilities, power producers, and industrial customers. Further information can be found at http://www.infrasourceinc.com/ * * * As reported in the Troubled Company Reporter's May 11, 2004, edition, Standard & Poor's Ratings Services assigned its 'BB-' corporate credit rating to Aston, Pennsylvania-based InfraSource Services Inc. At the same time, Standard & Poor's assigned its 'BB-' senior secured bank loan rating and recovery rating of '5,' indicating negligible (less than 25%) recovery of principal in the event of a default, to the company's $157.2 million senior secured credit facility. The specialty contractor provides infrastructure services to the power, telecommunications, and general industrial markets. Its total debt (including present value of operating leases) outstanding as of Dec. 31, 2003, was about $169 million. The outlook is stable. "Niche market positions, growing geographic presence, and a highly variable cost structure temper downside risk," said Standard & Poor's credit analyst Heather Henyon. "Modest liquidity, weak end- markets, and customer concentration strain upside rating potential." J.P. MORGAN: Moody's Downgrades & Junks Certain Mortgage Notes -------------------------------------------------------------- Moody's Investors Service upgraded the ratings of two classes, downgraded the ratings of three classes and affirmed the ratings of nine classes of J.P. Morgan Commercial Mortgage Finance Corp., Commercial Mortgage Pass-Through Certificates, Series 2000-C10 as follows: -- Class A-1, $36,881,179, Fixed, affirmed at Aaa -- Class A-2, $471,331,000, Fixed, affirmed at Aaa -- Class X, Notional, affirmed at Aaa -- Class B, $31,388,000, Fixed, upgraded to Aa1 from Aa2 -- Class C, $29,541,000, Fixed, upgraded to A1 from A2 -- Class D, $9,232,000, Fixed, affirmed at A3 -- Class E, $23,079,000, Fixed, affirmed at Baa2 -- Class F, $10,155,000, Fixed, affirmed at Baa3 -- Class G, $14,771,000, Fixed, affirmed at Ba1 -- Class H, $14,771,000, Fixed, affirmed at Ba2 -- Class J, $7,385,000, Fixed, affirmed at Ba3 -- Class K, $5,539,000, Fixed, downgraded to B2 from B1 -- Class L, $7,386,000, Fixed, downgraded to B3 from B2 -- Class M, $5,539,000, Fixed, downgraded to Caa1 from B3 As of the July 15, 2004 distribution date, the transaction's aggregate balance has decreased by approximately 8.3% to $679.0 million from $740.1 million at securitization. The Certificates are collateralized by 161 mortgage loans secured by commercial and multifamily properties. The loans range in size from less than 1.0% of the pool to 7.0% of the pool, with the top 10 loan exposures representing 30.0% of the pool. Six loans representing 1.0% of the pool have defeased and are secured by U.S. Government securities. Five loans have been liquidated from the pool, resulting in aggregate realized losses of approximately $3.0 million. Six loans representing 3.3% of the pool are in special servicing. Moody's has estimated aggregate losses of approximately $6.4 million for all the specially serviced loans. Moody's was provided with full-year 2003 operating results for approximately 94.7% of the performing loans in the pool. Moody's loan to value ratio ("LTV") is 86.7%, compared to 85.8% at securitization. The upgrade of Classes B and C is due to stable pool performance and increased credit support. The downgrade of Classes K, L and M is due to realized losses, anticipated losses on the specially serviced loans and LTV dispersion. Based on Moody's analysis 9.1% of the pool has a LTV greater than 100.0%, compared to 0.6% at securitization. The top three exposures represent 13.2% of the outstanding pool balance. The largest exposure is the Abbey Portfolio Loan ($47.7 million - 7.0%) which consists of two cross-collateralized and cross-defaulted mortgage loan pools secured by 12 properties totaling 946,000 square feet. The portfolio consists of a mix of retail (six), industrial (three), office (two) and mixed use (one) properties, all of which are located in southern California. The portfolio's occupancy has declined significantly since securitization, primarily due to the early lease termination in 2002 of a 205,000 square foot tenant. As of December 31, 2003 the portfolio's overall occupancy was 62.7%, compared to 91.5% at securitization. Moody's LTV is 95.1%, compared to 82.2% at securitization. The second largest loan is the Atlantic Development II Loan ($21.3 million - 3.1%), which is secured by two industrial properties totaling 273,000 square feet. The properties are located in Warren, New Jersey and are 100.0% leased, the same as at securitization. Moody's LTV is 73.6%, compared to 87.9% at securitization. The third largest loan is the Covina Hills Mobile Home County Club Loan ($20.8 million - 3.1%) which is secured by a 500-pad mobile home park located in La Puente, California. The property is 100.0% occupied, the same as at securitization. Moody's LTV is 79.1%, compared to 86.2% at securitization. The pool's collateral is a mix of multifamily (30.8%), retail (27.6%), office (17.8%), industrial and self storage (12.1%), hotel (7.3%), healthcare (2.1%), CTL (1.3%) and U.S. Government securities (1.0%). The collateral properties are located in 33 states. The highest state concentrations are California (25.3%), Texas (8.4%), New Jersey (6.2%), Illinois (5.7%), and Florida (4.7%). All of the loans are fixed rate. JACUZZI BRANDS: Fitch Affirms Single-B Senior Secured Debt Rating ---------------------------------------------------------------- Fitch Ratings has affirmed its ratings on Jacuzzi Brands, Inc.'s $380 million 9.625% senior secured notes at 'B', $200 million asset based bank credit facility at 'BB' and $65 million term loan at 'BB-'. The Rating Outlook is Stable. The ratings consider the company's leading brands in its bath and plumbing segments, increased distribution of its bath products and strong operating margins of its plumbing and Rexair segments. The ratings also consider the high cost structure of the Eljer operations, the level of debt and leverage, the challenging operating environment and negative pressures on operating profit margins, particularly in the bath and plumbing segments, and sensitivity to changes in levels of consumer spending and construction activity. Jacuzzi Brands is focused on strengthening its three operating segments, bath products, plumbing products and Rexair, through brand investment, elimination of high cost manufacturing and unprofitable product lines and other cost cutting efforts. Revenues have benefited from increased distribution of bath products as well as market share gains in plumbing products. Most significantly, during 2003, Jacuzzi Brands became the principal supplier of stocked whirlpool bath products to Lowe's Companies, Inc. As a result of the Lowes business, increased market share in domestic spas and additional home center business in the UK, bath products segment revenues have increased substantially, up 21% for the first half of 2004, following revenue declines in 2000 and 2001 when the company lost inventory positions in whirlpool baths and spas at the large home improvement retailers. Nonetheless, operating margins across all segments have been challenged for several reasons. Bath segment margins in fiscal 2003 were negatively impacted by costs related to the Lowe's distribution rollout, Chino plant start-up and Southern California workers compensation. In the first half of 2004, manufacturing costs for the Eljer brand of bath products remained high given its U.S. base, however, Fitch recognizes the company's ongoing actions to rationalize these operations. In addition, Plumbing products' margins have been pressured by rising steel prices and highly competitive markets in the commercial construction market and Rexair operating margins have declined given increased costs associated with the introduction of its new vacuum cleaner model during the first half of fiscal 2004. Fitch anticipates that Jacuzzi Brands' revenues will further increase as the Lowe's distribution agreement is annualized and as the company continues to introduce new products. Operating profits should benefit from cost reductions obtained through the company's restructuring efforts to rationalize manufacturing facilities and unprofitable product lines as well as lower rollout costs as the Lowe's whirlpool bath and Rexair vacuum product launches have been completed. As a result of increased operating profits together with debt reduction from cash flow generation, credit measures are expected to strengthen over the intermediate term. For the twelve months ended March 31, 2004, leverage, measured by total debt-to-EBITDA was 4.2 times (x) and EBITDA coverage of interest was 2.1x, this was an improvement from 6.2x and 1.7x respectively in fiscal 2002. JUGOBANKA A.D.: Bank Regulators Want N.Y. Court Ruling Reversed --------------------------------------------------------------- Sage Realty Corp. says that what started as a US$4 million landlord-tenant dispute between Sage Realty Corp. and a bankrupt Yugoslavian bank, Jugobanka, has become a major target of state bank regulators in the U.S. concerned that legal actions in Yugoslavia and America threaten the practice of "ring fencing" under which state-licensed, foreign-owned banks must maintain sufficient capital to cover liabilities in case of insolvency. The Conference of State Banking Supervisors, along with the top banking regulators in New York, Connecticut, Illinois, California, Georgia, Florida and Texas have asked to intervene in the legal action currently before U.S. District Judge Jed S. Rakoff in New York. The regulators' concern is that allowing a Serbian trustee to consolidate Jugobanka's stateside assets in a Serbian court takes those assets beyond the reach of state bank regulators and threatens their obligation to properly regulate state-licensed, foreign banks in the case of an insolvency and liquidation. The case stems from a 1992 order by the first President Bush freezing assets of Yugoslav-owned banks in connection with the Balkans crisis. Jugobanka, which rented 30,000 square feet at 437 Madison Avenue in Manhattan owned by Sage Realty -- the property management arm of the William Kaufman Organization Ltd. -- eventually stopped paying rent. While Sage won a ruling in seeking about US$4 million in rent and interest in American federal courts, Jugobanka sought bankruptcy relief in Serbia. The bank regulators' key concern is a decision by Judge Rakoff that reversed Bankruptcy Court Judge Cornelius Blackshear's decision denying Jugobanka's attempt to centralize all the assets in the Serbian bankruptcy action. Judge Blackshear ruled that Jugobanka did not have standing to repatriate the assets to Serbia and that no jurisdiction here permitted that. Judge Rakoff -- who as a district judge hears appeals from Bankruptcy Court -- reversed Judge Blackshear, and said Jugobanka had the right to make that argument before Judge Blackshear. Judge Rakoff's decision caused an uproar among bank regulators. The regulators are now asking Judge Rakoff to reconsider his decision, arguing that it threatens to legitimize Jugobanka's attempt to take those assets offshore to Yugoslavia, beyond the reach of state banking laws and regulators. Serbian courts rebuffed Sage's move to collect from Jugobanka, even though a U.S. court upheld Sage's claim. That threatens not only Sage's right to collect what is owed, but by extension, U.S. state bank regulators' ability to protect creditors in just this kind of situation. Make no mistake -- Sage's primary interest is in recovery of the US$4 million in rent and interest legitimately owed by Jugobanka. But Sage principals Robert and Melvyn Kaufman acknowledge that the issue is far broader than what is owed them. Here are excerpts from bank regulators amicus briefs filed with Judge Rakoff: "Many of our member states license foreign banks to operate as agencies and branches in their jurisdictions," Conference of State Bank Supervisors president Neil Milner wrote. "Under the banking laws of these states, the states' banking regulators have the sole authority to liquidate the assets of an insolvent state-licensed foreign bank for distribution to creditors of the bank's branch or agency. We write to point out that the Court's interpretation of Section 304, as applied in this context, is unprecedented and brings the Bankruptcy Code -- which ordinarily would not apply to these institutions -- into irreconcilable conflict with state bank insolvency laws. The Court's application of Section 304 would alter fundamentally how state-licensed foreign banks are regulated. The purpose of state licensing and supervision is to protect the creditors who do business with state- licensed foreign entities. Expatriating the assets to a foreign proceeding would defeat this." Connecticut Banking Commissioner John P. Burke wrote to Judge Rakoff in a letter echoing comments from regulators in other states. "This is not simply a parochial state interest," wrote Mr. Burke. "Ring-fencing bank assets for the benefit of its creditors is how bank liquidations have always worked - - including at the federal level and in may foreign countries. Our state bank liquidation statute has co- existed with federal bankruptcy laws for several years and we are aware of no similar instance where a foreign branch or agency was subject to an asset turnover proceeding in federal court." KENDRICK ENGG: Voluntary Chapter 11 Case Summary ------------------------------------------------ Lead Debtor: Kendrick Engineering & Manufacturing Company 7908 Cotton Trail Godley, Texas 76044 Bankruptcy Case No.: 04-47515 Type of Business: The Debtor designs and manufactures plastic vacuum molded products for the automotive industry. Chapter 11 Petition Date: August 2, 2004 Court: Northern District of Texas (Ft. Worth) Judge: Barbara J. Houser Debtor's Counsel: Eric A. Liepins, Esq. Eric A. Liepins, P.C. 12770 Coit Road, Suite 1100 Dallas, Texas 75251 Tel: 972-991-5591 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million The Debtor did not submit a list of its 20-largest creditors. KILROY REALTY: Closes $144 Mil. Unsecured Debt Private Placement ---------------------------------------------------------------- Kilroy Realty Corporation (NYSE:KRC) closed a $144 million private placement of unsecured six and ten-year notes that were placed with a group of six institutional investors. The first tranche totals $61 million, matures in August 2010, and bears interest at 5.72%. The second tranche totals $83 million, matures in August 2014, and bears interest at 6.45%. The blended interest rate for the $144 million private placement is 6.14%. The company will use the proceeds to repay a $74 million 8.35% debt facility and reduce its floating rate debt. J.P. Morgan Securities Inc. acted as placement agent in the transaction. About the Company Kilroy Realty Corporation, a member of the S&P Small Cap 600 Index, is a Southern California-based real estate investment trust active in the office and industrial property sectors. For more than 50 years, the company has owned, developed, acquired, and managed real estate assets primarily in the coastal regions of California and Washington. KRC is currently active in office development and redevelopment in Los Angeles and San Diego counties. At June 30, 2004, the company owned 7.2 million square feet of commercial office space and 4.9 million square feet of industrial space. More information is available at http://www.kilroyrealty.com/ * * * Liquidity Concerns In its Form 10-Q for the quarterly period ended June 30, 2004, filed with the Securities and Exchange Commission, Kilroy Realty Corporation reports: "The Company believes that it will have sufficient capital resources to satisfy its liquidity needs over the remainder of 2004. The Company estimates it will have a range of approximately $340 million to $372 million of available sources to meet its short-term cash needs as follows: estimated availability of approximately $285 million under its Credit Facility, estimated operating cash flow ranging from $48 million to $50 million, proceeds from the disposition of non-strategic assets ranging up to an additional $30 million, and approximately $7 million from the release of restricted cash during 2004. The Company estimates it will have a range of approximately $210 million to $219 million of commitments and capital expenditures during the remainder of 2004 comprised of the following: $123 million in secured debt principal repayments; planned expenditures for in-process development, stabilized development and new development projects ranging from $30 million to $33 million; $14 million of committed costs for executed leases and capital expenditures; and budgeted capital improvements, tenant improvements and leasing costs for the Company's stabilized portfolio ranging from approximately $5 million to $11 million, depending on leasing activity. In addition, based on the Company's annualized dividends for the second quarter of 2004, the Company may distribute approximately $39 million to common and preferred stockholders and common and preferred unitholders during the remainder of 2004. There can be, however, no assurance that the Company will not exceed these estimated expenditure and distribution levels or be able to obtain additional sources of financing on commercially favorable terms, or at all. "The Company expects to meet its long-term liquidity requirements, which may include property and undeveloped land acquisitions and additional future development and redevelopment activity, through retained cash flow, borrowings under the Credit Facility, additional long-term secured and unsecured borrowings, dispositions of non-strategic assets, issuance of common or preferred units of the Operating Partnership, and the potential issuance of debt or equity securities. The Company does not intend to reserve funds to retire existing debt upon maturity. The Company will instead seek to refinance such debt at maturity or retire such debt through the issuance of equity securities, as market conditions permit." LANTIS EYEWEAR: Committee Signs-Up Arent Fox as Attorneys --------------------------------------------------------- The Official Unsecured Creditors Committee in Lantis Eyewear Corporation's chapter 11 case, asks the U.S. Bankruptcy Court for the Southern District of New York, for permission to employ Arent Fox PLLC as its counsel. Schuyler G. Carroll, Esq. will be primarily responsible for Arent Fox's representation of the Committee in Lantis' case. Arent Fox will: a) assist, advise and represent the Committee in its consultation with the Debtor relative to the administration of this chapter 11 case; b) assist, advise and represent the Committee in analyzing the Debtor's assets and liabilities, investigating the extent and validity of liens and participating in and reviewing any proposed asset sales or dispositions; c) attend meetings and negotiate with the representatives of the Debtor and secured creditors; d) assist and advise the Committee in its examination and analysis of the conduct of the Debtor's affairs; e) assist the Committee in the review, analysis and negotiation of any plan(s) of reorganization that may be filed and to assist the Committee in the review, analysis and negotiation of the disclosure statement accompanying any plan(s) of reorganization; f) assist the Committee in the review, analysis, and negotiation of any financing or funding agreements; g) take all necessary action to protect and preserve the interests of the Committee, including, without limitation, the prosecution of actions on its behalf, negotiations concerning all litigation in which the Debtor are involved, and review and analysis of all claims filed against the Debtor's estate; h) generally prepare on behalf of the Committee all necessary Revised Motions, applications, answers, orders, reports and papers in support of positions taken by the Committee; i) appear, as appropriate, before this Court, the Appellate Courts, and other Courts in which matters may be heard and to protect the interests of the Committee before said Courts and the United States Trustee; and j) perform all other necessary legal services in this case. Mr. Carroll's current billing rate is $445 per hour. Other Arent Fox professionals who will provide services bill: Designation Hourly Billing Rate ----------- ------------------- Members $340 - $590 Of Counsel 340 - 580 Associates 175 - 395 Legal Assistants 165 - 190 Headquartered in New York, New York, Lantis Eyewear Corporation -- http://lantiseyewear.com/-- is a leading designer, marketer and distributor of sunglasses, optical frames and related eyewear accessories throughout the United States. The Company filed for chapter 11 protection on May 25, 2004 (Bankr. S.D.N.Y. Case No. 04-13589). Jeffrey M. Sponder, Esq., at Riker, Danzig, Scherer, Hyland & Perretti, LLP represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed $39,052,000 in total assets and $132,072,000 in total debts. LINDSAY MORDEN: Karen Murphy Resigns as President and CEO --------------------------------------------------------- Lindsey Morden Group Inc.'s board of directors accepted the resignation of Karen Murphy as President and Chief Executive Officer of Lindsey Morden and Cunningham Lindsey U.S., Inc. The board named Jan Christiansen as new President and Chief Executive Officer of Lindsey Morden and Cunningham Lindsey U.S. Mr. Christiansen has 30 years of global experience in a variety of industries. During the last 10 years he has focused on the service industry in the role of Chief Financial Officer, first with Panalpina, an integrated international freight forwarder and later with USF Worldwide Inc., a subsidiary of USF Corporation. James Dowd, Chairman of Lindsey Morden, said, "The board has accepted Ms. Murphy's decision to resign and expresses its appreciation for her contribution to the company during the last 4 years. Ms. Murphy felt that given the recent successful completion of the previously announced sale of the third party administration business in the United States and refinancing of Lindsey Morden's short-term indebtedness, the timing of her resignation was appropriate. We wish her success in her future endeavors. We also feel fortunate that Mr. Christiansen is available to lead Lindsey Morden. His experience in global markets and the service industry is an excellent fit for us." Lindsey Morden Group Inc. (S&P, B Credit Rating/Negative Outlook) is a holding company, which, through its subsidiaries, provides a wide range of independent insurance claims services, including claims adjusting, appraisal and claims and risk management services. It has a worldwide network of branches in Canada, the United States, the United Kingdom, continental Europe, the Far East, Latin America and the Middle East. Lindsey Morden also provides claims adjusting and appraisal training courses in the United States through Vale National Training Centers, Inc. MICROFINANCIAL INC: Senior Credit Facility Cut to $16.6 Million --------------------------------------------------------------- MicroFinancial Incorporated (NYSE-MFI) continues to reduce its outstanding debt obligations in excess of the amounts required by the Company's long-term bank agreement. As of August 2, 2004, the senior credit facility has been reduced to $16.6 million, as compared to an expected $19.5 million for the same period, as stated in the bank agreement. In addition, all of the company's securitized debt obligations have been paid in full. Richard Latour, President and Chief Executive Officer stated, "I am pleased that we continue to surpass our required repayments and other financial expectations of our bank agreement. Year to date through August 2, 2004, we have reduced our total interest bearing debt by approximately $42.0 million." The Company continues to seek various financing, restructuring and strategic alternatives that will enable it to strengthen its position in the leasing market. About Microfinancial MicroFinancial Inc. (NYSE: MFI), headquartered in Woburn, MA, is a financial intermediary specializing in leasing and financing for products in the $500 to $10,000 range. The company has been in operation since 1986. Company Liquidity In its Form 10-K for the fiscal year ended December 31, 2003, filed with the Securities and Exchange Commission, MicroFinancial Inc. reports: "MicroFinancial incurred net losses of $22.1 million and $15.7 million for the years ended December 31, 2002 and 2003, respectively. The net losses incurred by the Company during the third and fourth quarters of 2002 caused the Company to be in default of certain debt covenants in its credit facility and securitization agreements. In addition, as of September 30, 2002, the Company's credit facility failed to renew and consequently, the Company was forced to suspend new origination activity as of October 11, 2002. On April 14, 2003, the Company entered into a long-term agreement with its lenders. This long-term agreement waives the covenant defaults as of December 31, 2002, and in consideration for this waiver, requires the outstanding balance of the loan to be repaid over a term of 22 months beginning in April 2003 at an interest rate of prime plus 2.0%. The Company received a waiver, which was set to expire on April 15, 2003, for the covenant violations in connection with the securitization agreement. Subsequently, the Company received a permanent waiver of the covenant defaults and the securitization agreement was amended so that going forward, the covenants are the same as those contained in the long-term agreement entered into on April 14, 2003, for the senior credit facility. To date, the Company has fulfilled all of its debt obligations, as agreed to by the bank group, in a timely manner. "MicroFinancial has taken certain steps in an effort to improve its financial position. Management continues to actively consider various financing, restructuring and strategic alternatives as well as continuing to work closely with the Company's lenders to ensure continued compliance with the terms of the long term agreement. In addition, Management has taken steps to reduce overhead and align its infrastructure with current business conditions, including a reduction in headcount from 380 at December 31, 2001 to 136 at December 31, 2003. The failure or inability of MicroFinancial to successfully carry out these plans could ultimately have a material adverse effect on the Company's financial position and its ability to meet its obligations when due. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty." MIRANT: U.S. Trustee Amends Equity Security Holders' Committee ---------------------------------------------------------------- Pursuant to Section 1102(a) of the Bankruptcy Code, the U.S. Trustee for Region 17, William T. Neary, informs the United States Bankruptcy Court for the Northern District of Texas that Phaeton International/Phoenix Partners is no longer a member of the Official Committee of Equity Security Holders appointed Mirant Corporation and its debtor-affiliates' chapter 11 cases. As of July 26, 2004, the Equity Committee is composed of: (1) Morris Weiss, Chairman Tejas Securities Group, Inc. 112 E. Pecan, Suite 1510 San Antonio, Texas 78205 Tel: (210) 226-1555 Fax: (210) 226-7571 mdweiss@tejassec.com (2) Roger B. Smith 301 Kemp Road Suwanee, GA 30024-1607 Tel: (700) 418-1818 Fax: (404) 842-4523 rbsmith@bear.com (3) Andres Forero 705 E. 43rd Street Austin, TX 78751 Tel: (512) 380-7057 Fax: (512) 380-7057 aforero@mail.utexas.edu (4) Michael Willingham 9202 Meaux Drive Houston, TX 77031 Tel: (713) 270-8740 Fax: (866) 876-5362 mwillingham1@yahoo.com Headquartered in Atlanta, Georgia, Mirant Corporation -- http://www.mirant.com/-- together with its direct and indirect subsidiaries, generate, sell and deliver electricity in North America, the Philippines and the Caribbean. The Company filed for chapter 11 protection on July 14, 2003 (Bankr. N.D. Tex. 03- 46590). Thomas E. Lauria, Esq., at White & Case LLP represent the Debtors in their restructuring efforts. When the Company filed for protection from their creditors, they listed $20,574,000,000 in assets and $11,401,000,000 in debts. (Mirant Bankruptcy News, Issue No. 40; Bankruptcy Creditors' Service, Inc., 215/945-7000) MORGAN STANLEY: Fitch Retains Junk Ratings & Affirms Low-B Classes ------------------------------------------------------------------ Fitch Ratings affirms Morgan Stanley Capital I Inc.'s commercial mortgage pass-through certificates, series 1998-WF2, as follows: --$57.1 million class A-1 at 'AAA'; --$564.9 million class A-2 at 'AAA'; --$53.1 million class B at 'AAA'; --Interest-only class X at 'AAA'; --$47.8 million class C at 'AA'; --$53.1 million class D at 'A'; --$21.2 million class E at 'A-'; --$21.2 million class F at 'BBB+'; --$23.9 million class G at 'BBB-'; --$10.6 million class H at 'BB'; --$8.0 million class J at 'BB-'; --$8.0 million class K at 'B+'; --$15.9 million class L at 'B-'; --$5.3 million class M remains 'CCC'. Fitch does not rate the $8 million class N. As of the July 2004 distribution date, the pool's aggregate balance has been reduced by 15.4% to $898.1 million from $1.06 billion at closing. Wells Fargo, the master servicer, collected year-end (YE) 2003 financial statements for 88% of the properties by balance. Based on the information provided, the YE 2003 weighted average debt service coverage ratio (DSCR) for the pool is 1.73 times (x), which has increased from 1.56x at issuance. One loan (1.2%) is currently in special servicing. The loan is secured by a full-service hotel located in San Francisco, CA and is 90-plus days delinquent. The loan transferred to the special servicer at maturity when the borrower could not obtain financing. The property has since suffered appraisal reductions totaling $6.25 million as of the current remittance date. With the loan's exposure to the trust over $11.4 million and a current appraisal value of $5.8 million, Fitch expects a significant loss at the time the property is liquidated. Fitch expects that the unrated class will absorb the losses. MORGAN STANLEY: S&P Affirms Junk Ratings on Mortgage-Backed Notes ----------------------------------------------------------------- Standard & Poor's Ratings Services raised its rating on class C of Morgan Stanley Capital I Inc.'s commercial mortgage pass-through certificates from series 1998-WF2. Concurrently, the ratings are affirmed on 13 other classes from the same transaction. The raised and affirmed ratings reflect credit enhancement levels that provide adequate support through various stress scenarios, as well as the stable performance of the seasoned pool. As of the July 15, 2004 remittance report, the collateral pool consisted of 202 loans with an aggregate principal balance of $898.1 million, down from 219 loans totaling $1,062 million at issuance. The master and special servicer, Wells Fargo Bank N.A. (Wells Fargo), provided Dec. 31, 2003 net operating income (NOI) debt service coverage (DSC) figures for 95% of the pool. Based on this information, Standard & Poor's calculated a weighted-average DSC of 1.71x, up from 1.55x at issuance. To date, the trust has experienced no losses and two loans ($6.8 million, 1%) were defeased. All of the loans in the pool are current, with the exception of one loan ($10.7 million, 1%), which is a nonperforming matured loan. The top 10 loans have an aggregate outstanding balance of $273.6 million (30%). The weighted average DSC for the top 10 loans increased to 1.55x, up slightly from 1.50x at issuance. The improved DSC occurred despite the decline in performance of the ninth-largest loan, which is on Wells Fargo's watchlist. Standard & Poor's reviewed property inspections for all of the assets underlying the top 10 loans, and all were characterized as "good." According to Wells Fargo, there is only one specially serviced loan, the aforementioned nonperforming matured loan. A 177-room, boutique hotel in San Francisco, Calif. is collateral for the loan, which did not pay off at maturity in April 2003. The borrower continued to make loan payments while trying to sell the property until September 2003, at which time no further payments were made. Wells Fargo is currently negotiating a note sale, which would yield a loss less than the appraisal reduction amount of $6.3 million would indicate. Wells Fargo's watchlist consists of 18 loans with an aggregate outstanding balance of $76.1 million (8%). Five loans are secured by lodging assets with a total balance of $37.4 million (49% of the watchlist). The Catamaran Resort Hotel in San Diego, Calif. is the ninth-largest loan in the pool with a scheduled balance of $18.8 million (2%). The DSCs for the loan over the past three years were 0.84x, 0.97x, and 1.01x, respectively. The four other lodging assets also suffer from low DSCs due to the weak performance of the lodging industry. The 13 remaining non-lodging loans ($38.8 million, 4%) have an average balance of $3 million and appear on the watchlist primarily due to low vacancy and DSCs. The trust collateral is located across 32 states and only California (35%) accounts for more than 10% of the pool balance. After removing collateral for defeased loans, property concentrations greater than 10% of the pool balance are found in retail (29%), multifamily (25%), office (17%), and lodging (12%), with industrial, self-storage, and manufactured housing collateral comprising the remaining property types. Standard & Poor's stressed various loans with credit issues as part of its pool analysis. The resultant credit enhancement levels support the raised and affirmed ratings. Rating Raised Morgan Stanley Capital I Inc. Commercial mortgage pass-thru certs series 1998-WF2 Rating Class To From Credit Enhancement ----- -- ---- ------------------ C AA+ AA 19.51% Ratings Affirmed Morgan Stanley Capital I Inc. Commercial mortgage pass-thru certs series 1998-WF2 Class Rating Credit Enhancement ----- ------ ------------------ A-1 AAA 30.74% A-2 AAA 30.74% B AAA 24.83% D A+ 13.60% E A- 11.23% F BBB+ 8.87% G BBB- 6.21% H BB 5.03% J BB- 4.14% K B+ 3.25% L B- 1.48% M CCC 0.89% X AAA N/A N/A -- Not applicable MRO ACQUISITION: Moody's Assigns Low-B Ratings to Loan Facilities ----------------------------------------------------------------- Moody's Investors Service has assigned a B1 rating to the proposed senior secured first lien credit facilities, and a B2 rating to the proposed second lien credit facility of MRO Acquisition Corporation, a wholly owned subsidiary of Piedmont Hawthorne Holdings, Inc. Proceeds from the proposed offering will be used for two purposes: 1) to fund the recapitalization of Piedmont whereby Carlyle Partners III will purchase 100% of the Piedmont common stock held by Carlyle Partners II for $182.5 million, and repay existing Piedmont credit facilities, and 2) to finance the acquisition of Garrett Aviation Services from GE Engine Services for a purchase price of $159 million. Specifically, Moody's assigned the following ratings: -- B1 to the company's proposed $207 million senior secured first lien credit facilities, consisting of a $60 million revolving credit facility due 2009 and a $147 million term loan due 2010; -- B2 to the company's proposed $80 million senior secured second lien term loan due 2011; -- Senior implied rating of B1; and -- Issuer rating of B3. The rating outlook is stable. The ratings reflect the leading market positions that the new company will have in several segments of the aircraft services market as a provider of fixed based operations (FBO), maintenance repair and overhaul services (MRO), aircraft interior completions and modifications, and aircraft sales and trading. The company's core FBO and MRO businesses provide the primary support for the ratings and should continue to experience growth as the private aviation sector recovers from several years of weakness. While the company's MRO operations do have a degree of concentration risk related to particular aircraft engine platforms, these engines remain in active service on a large portion of the worldwide business jet fleet and the company also benefits from certain contractual service arrangements that should support revenue. The ratings also consider that MRO Acquisition will have a high level of financial leverage as a result of the recapitalization of Piedmont and the acquisition of Garrett. Nevertheless, the company's favorable operating margins and cash flow generation should support debt service metrics and facilitate debt reduction. The stable rating outlook reflects Moody's expectation that the company will be able to continue the strong revenue growth experienced during the first half of 2004 while maintaining margins, in line with what Moody's perceives to be a modestly recovering business jet sector. The outlook may be subject to upward revision if the company demonstrates the ability to further improve margins as it grows, and is able to generate sufficient free cash flow to reduce debt and sustain its debt/EBITDA below 4.0x. Conversely, ratings may be negatively impacted if profitability and free cash flow generation were to suffer due to unexpected difficulties in the civil aviation markets, or if leverage and other financial metrics were to weaken due to acquisitions or adverse developments in the company's aircraft trading activities. Upon close of the proposed transactions, MRO Acquisition Corp. will be highly levered. Total pro forma debt of $247 million (excluding about $16 million of non-recourse debt relating to the company's revolving aircraft financing facility) represents about 4.9x pro forma LTM EBITDA for the combined entity, and over 5x leverage if operating leases and non-recourse obligations are considered, which is high for this rating category. However, with strong revenue growth during 2004, EBIT margins are expected to remain above 5%, and interest coverage should remain relatively strong. For the proforma LTM ending March 2004 EBIT interest coverage was about 2.2x. Moody's also expects that the company's free cash flow generation will be sufficient to repay debt over the near term and lower debt/EBITDA to the 4.0-4.5x range. However, Moody's notes that a portion of this cash generation is contingent upon liquidation of a substantial amount of aircraft inventory held for sale, rather than from core MRO and FBO operations. Without proceeds from such sales, Moody's estimates that the company's 2004 free cash flow would be less than 10% of total debt. Moody's notes positively the strong market positions in the MRO markets that Garrett will contribute to the combined entity. Garrett is the leading service provider on the Honeywell TFE731 engine, performing more than 50% of all maintenance done on this platform, which is installed on about one-third of all business jets worldwide. The company is the only MRO service provider authorized to perform all major forms of service on the TFE731 engine in one location, and has similar authorization to work on the older but widely-utilized TPE331 platform, as well as a number of other engines in the business jet market. While Moody's recognizes the benefits that these contracts offer to protect the company's MRO position, this also suggests that the company is somewhat concentrated in the TFE731 and TPE331 engine platforms, implying that Garrett would be especially vulnerable to aftermarket requirements for those particular engines. Piedmont enjoys market leadership in the more-fragmented Airport Services, or FBO market, its Southeastern U.S.-focused operations having a number two market share in the country. The company is the sole provider of FBO services in 18 of its 32 airport locations in the U.S. and Canada. The largest component of revenue generated by the FBO business is from fuel sales (69% of total Piedmont sales, LTM March 2004), with sales volume directly related to customer flight activity and margins that are relatively stable due to the company's ability to pass-through fluctuations in fuel prices. The company has a long term contract with Eastern Aviation Fuels (Shell aviation fuel distributor in the U.S.) ensuring stable fuel supply. Piedmont is also involved in business jet and turboprop aircraft sales. The company is the largest independent distributor of Raytheon aircraft in the world, and is also engaged in sales of new and used aircraft built by other manufacturers. Although this trading activity represents only a small portion of Piedmont's business (LTM March 2004 sales of about $37 million), and is funded by a separate non-recourse credit facility Moody's is cautious about the potential risks associated with aircraft trading. The B1 rating assigned to the first lien credit facilities, the same as the senior implied rating, reflects the predominance of these facilities among all of the company's committed debt, and their seniority in claim on essentially all of the company's assets, except for aircraft associated with the $25 million non- recourse aircraft financing facility. The B2 rating assigned to the second lien notes reflect their junior claim status to the first lien notes on the same asset base. In addition, with pro forma assets of $462 million, only about $70 million represents fixed assets, while about $160 million represents intangibles. Accounts receivable and inventories represent about $89 million and $57 million, respectively. This implies only modest coverage against about $207 million in first lien debt, and weaker coverage to the second lien facility. Moody's believes that in a distressed sale scenario, the company's asset base may not be sufficient to cover senior debt outstanding. Both the first and second lien facilities are guaranteed by all of the company's subsidiaries, as well as by the parent company, Piedmont Holdings. Piedmont, headquartered in Winston-Salem, North Carolina, is the second largest general aviation facility operator in North America with a network of 32 fixed base operations, offering services such as aircraft refueling, hangar rental, aircraft maintenance and charter services. In addition, Piedmont is a leading provider of interior completions and modifications of corporate, high net- worth individual and head-of-state air transport category aircraft, and also sells new and used general aviation aircraft. For the LTM period ended March 31, 2004, Piedmont generated revenues of $260.0 million. Garrett Aviation Services, headquartered in Tempe, Arizona, is a leading provider of gas turbine engine and airframe maintenance, repair and overhaul services, avionics system installations, engine retrofits, and interior modifications for business jet owners and operators. For the LTM period ended March 31, 2004, Garrett generated revenues of $384.8 million. NATIONAL CENTURY: JPMorgan Chase Bills $975,062 for Services ------------------------------------------------------------ William C. Wilkinson, Esq., at Thompson Hine, in Columbus, Ohio, relates that pursuant to certain Court orders relating to the use of the cash collateral of National Century Financial Enterprises, Inc. and its debtor-affiliates and subsidiaries in which JPMorgan Chase Bank had an interest, JPMorgan previously has been compensated for fees and expenses it incurred in connection with the bankruptcy case through January 15, 2003. Accordingly, JPMorgan, former Indenture Trustee for Debtor NPF VI, Inc., asks United States Bankruptcy Court for the District of Ohio to authorize the payment of compensation for services rendered and reimbursement of expenses incurred in the Debtors' cases during the period from January 16, 2003 through April 30, 2004, totaling $975,062. Since the Petition Date, Mr. Wilkinson reports, JPMorgan has been an active participant in the Debtors' bankruptcy case, working side-by-side with the Debtors to protect and preserve the Debtors' limited assets against the Providers' numerous continuous attempts to erode the assets. The Providers' relentless attacks against the Debtors' assets came in multiple forms and were made in multiple forums, but generally consisted of efforts to: (1) divert and obtain control of assets -- the accounts receivable -- of the bankruptcy estates; (2) use other bankruptcy courts to effectuate improper control over assets of the bankruptcy estate; and (3) improperly recharacterize the nature of the transactions between the Debtors and the Providers in a way as to further erode the estates' ownership interest in the Debtors' accounts receivable. Most of the Providers' actions against the Debtors' assets were initiated in the early stages of the bankruptcy case, at a time when the Subcommittees had not yet been formed or were ill- equipped to defend against these attacks. At that time as well, the Creditors Committee's stated role in the bankruptcy cases related to matters other than the Provider issues. As a result, JPMorgan and its counsel led the fight, often joined by, and in collaboration with, the Debtors, against the Providers to protect and preserve millions of dollars worth of assets of the bankruptcy estate. JPMorgan identified four different categories of activities, all relating to various Provider litigation matters, where it has made substantial contribution to the preservation and recovery of assets of the Debtors' bankruptcy estate: (1) Amedisys Litigation JPMorgan defended and thwarted litigation brought by the Amedisys Entities against, among others, the Debtors and JPMorgan, both in the United States District Court for the Southern District of Ohio and ultimately referred to the Ohio Bankruptcy Court and in the United States District Court for the Middle District of Louisiana, relating to the ultimately unsuccessful efforts of Amedisys to obtain control over approximately $7.3 million in estate funds. (2) The Provider Stay Relief Proceedings JPMorgan defended and thwarted litigation brought by and against other Providers, including various appeals in connection with the litigation, relating to attempts by the Providers to seize control over certain assets of the Debtors' bankruptcy estate. (3) The Anti-diversion Proceedings In conjunction with the Debtors' contempt proceedings against the Providers, JPMorgan filed proceedings against the Providers, in the form of contempt actions. (4) The True Sale Proceedings With the Debtors, JPMorgan defended against the Providers' attempts to recharacterize the nature of the true contractual relationship between the Debtors and the Providers. Headquartered in Dublin, Ohio, National Century Financial Enterprises, Inc. -- http://www.ncfe.com/-- is the market leader in healthcare finance focused on providing medical accounts receivable financing to middle market healthcare providers. The Company filed for Chapter 11 protection on November 18, 2002 (Bankr. D. Ohio Case No. 02-65235). Paul E. Harner, Esq., Jones, Day, Reavis & Pogue represents the Debtors in their restructuring efforts. (National Century Bankruptcy News, Issue No. 44; Bankruptcy Creditors' Service, Inc., 215/945-7000) NEW WEATHERVANE: Panel Wants to Hire BDO Seidman as Accountants --------------------------------------------------------------- The Official Unsecured Creditors Committee in New Weathervane Retail Corp., and its debtor-affiliates' chapter 11 cases, asks the U.S. Bankruptcy Court for the District of Delaware to approve its application to hire BDO Seidman, LLP, as its accountants, nunc pro tunc to June 14, 2004. The Committee expected BDO Seidman to: a. analyze the financial operations of the Debtors pre-and postpetition, as the Committee deems consider necessary; b. analyze the Debtors' real property interests, including lease assumptions and rejections and potential real property asset sales; c. perform claims analysis for the Committee, including analysis of reclamation claims; d. verify the physical inventory of merchandise, supplies, equipment and other material assets and liabilities, as necessary; e. assist the Committee in its review of monthly statements of operations to be submitted by the Debtors; f. assist the Committee in its evaluation of cash flow, budgets, and/or other projections prepared by the Debtors; g. scrutinize cash disbursements on an ongoing basis for the period subsequent to the Petition Date; h. analyze transactions with insiders, related and/or affiliated companies; i. analyze transactions with the Debtors' financing institutions or equity investors; j. assist the Committee in its review of the financial aspects of plan of liquidation, or in arriving at a proposed liquidation plan; k. attend meetings of creditors and conference with representatives of the creditor groups and their counsel; l. prepare a hypothetical orderly liquidation analysis; and m. perform any other services as the Committee or the Committee's counsel may request from time to time with respect to the financial, business and economic issues that may arise. Jerry D'Amato leads the engagement and reports that BDO Seidman professionals' current hourly rates are: Designation Billing Rate ----------- ------------ Partners $335 to $675 per hour Senior Managers $230 to $510 per hour Managers $210 to $345 per hour Seniors $150 to $255 per hour Staff $95 to $195 per hour Headquartered in New Britain, Connecticut, New Weathervane Retail Corporation -- http://www.wvane.com/-- is a Women's specialty retailer. The Company filed for chapter 11 protection on June 3, 2004 (Bankr. Del. Case No. 04-11649). William R. Firth, III, Esq., at Pepper Hamilton LLP, represents the Debtors in their restructuring efforts. When the Company filed for protection from their creditors, they listed $28,710,000 in total assets and $24,576,000 in total debts. NEXPAK CORP: U.S. Trustee Appoints 5-Member Creditors' Committee ---------------------------------------------------------------- The United States Trustee for Region 9 appointed five creditors to serve on an Official Committee of Unsecured Creditors in Nexpak Corp.'s Chapter 11 cases: 1. Chevron Phillips Chemical Co. LP c/o Larry Albritton 10001 Six Pines Drive The Woodlands, Texas 77380 Phone: (832) 813-4370 Fax: (832) 813-4525 2. BP Amoco Chemical Co. c/o Jeffrey C. Barno 150 W. Warrenville Road (600-2021A) Naperville, Illinois 60563 Phone: (630) 961-7675 Fax: (630) 961-7948 3. Atofina Petrochemicals, Inc. c/o Mark Hulings 15710 JFK Blvd. Houston, Texas 77032 Phone: (281) 227-5755 Fax: (281) 227-5759 4. Superb Industries c/o John Miller 330 Third Street NW Sugarcreek, Ohio 44681 Phone: (330) 852-0500 Fax: (330) 852-9908 5. Vail Industries/Massillon Container c/o Robert F. Vail Jr. 49 Ohio Street Navarre, Ohio 44662 Phone: (330) 879-5653 Fax: (330) 879-2772 Official creditors' committees have the right to employ legal and accounting professionals and financial advisors, at the Debtors' expense. They may investigate the Debtors' business and financial affairs. Importantly, official committees serve as fiduciaries to the general population of creditors they represent. Those committees will also attempt to negotiate the terms of a consensual chapter 11 plan -- almost always subject to the terms of strict confidentiality agreements with the Debtors and other core parties-in-interest. If negotiations break down, the Committee may ask the Bankruptcy Court to replace management with an independent trustee. If the Committee concludes reorganization of the Debtors is impossible, the Committee will urge the Bankruptcy Court to convert the Chapter 11 cases to a liquidation proceeding. Headquartered in Uniontown, Ohio, NexPak Corporation -- http://www.nexpak.com/-- is the market leader in manufacturing and supply of standard and custom packaging for DVD, CD, video, audio, and professional media formats. The Company, together with five of its affiliates filed for chapter 11 protection on July 18, 2004 (Bankr. N.D. Ohio Case No. 04-63816). Ryan Routh, Esq., and Shana F. Klein, Esq., at Jones Day represent the Debtors in their restructuring efforts. On March 30, 2004, the Debtors listed assets of $101 million and debts of $209 million. NOVEON INC: Fitch Withdraws BB- Senior Debt Ratings --------------------------------------------------- Fitch Ratings has withdrawn its ratings on Noveon, Inc.'s senior secured debt and senior subordinated debt. Noveon's senior secured credit facility was rated 'BB-'; the senior subordinated notes were rated 'B'. Lubrizol Corporation acquired Noveon International, Inc., Noveon's parent, in June 2004 and subsequently called Noveon's 11% senior subordinated notes. Lubrizol combined Noveon's businesses with its existing specialty chemicals businesses to form a new operating segment called Noveon. OWENS CORNING: Debtors & Asbestos Committees Back Wolin's Advisors ----------------------------------------------------------------- Michael Pope, an unsecured creditor with unliquidated asbestos personal injury claims against Owens Corning and its debtor- affiliates and subsidiaries as well as against Armstrong World Industries, Inc., USG Corporation, and Federal-Mogul Global, Inc., asks the Court to disqualify and terminate the appointment of Judson Hamlin, David Gross and Francis McGovern, and require them to disgorge the fees they received serving as advisors to former Judge Alfred Wolin. Objections A. The Owens Corning Debtors and Asbestos Claimants Committee The Debtors argue that the Disqualification Motion is moot because Messrs. C. Judson Hamlin and David Gross have no ongoing assignment in the Debtors' cases and Professor Francis McGovern has resigned as mediator. In addition, there is no legal basis to seek the disgorgement of fees from the Advisors. Thus, the Debtors ask the Court to dismiss the Disqualification Motion. The Asbestos Claimants Committee supports the Debtors' objection. B. Judson Hamlin Mr. Hamlin points out that Mr. Pope demonstrated no grounds for the extraordinary protection requested. The request for disqualification and termination of Mr. Hamlin's appointment as an advisor is moot and the request to order the disgorgement of fees is baseless. Thus, Mr. Hamlin asks the Court to deny the Disqualification Motion, and award him an administrative claim for his fees and expenses incurred in responding to the Motion. C. David Gross According to Mr. Gross, the Disqualification Motion "is an obvious attempt to bootstrap the recusal of Judge Wolin into evidence of some wrongdoing by [him] that is deserving of the harshest sanction, disgorgement of [his] hard-earned fees." Besides the "structural" or technical conflict, Mr. Gross asserts that no wrongdoing of any kind was found to be committed by him. To the contrary, L. Jason Cornell, Esq., at Fox Rothschild, LLP, in Wilmington, Delaware, tells the Court that Judge Wolin found that Mr. Gross and the other advisors had served the Court ably and well, and the Third Circuit did not disagree. Nonetheless, citing standards not even applicable to the Advisors, Mr. Pope seeks the ultimate sanction against Mr. Gross based entirely on the technical conflict found by a two-one majority of the Third Circuit. "Factually, legally, procedurally and substantively, [Mr. Pope's] application must fail," Mr. Cornell asserts. Mr. Cornell argues that disgorgement of the fees paid to Mr. Gross for the substantial services provided to the Court, which benefited the estates and creditors in the five Asbestos Cases, is simply not warranted. "No public policy goal would be achieved, and no actual harm ameliorated. Instead, disgorgement would serve as punishment for a violation that never occurred. [Mr.] Gross did not have the benefit of 20/20 hindsight then, and he should not be punished through the lens of hindsight now, for disclosures he did not fail to make and wrongdoing he did not commit," Mr. Cornell says. U.S. Trustee & Kensington, et al., Back Pope A. The U.S. Trustee Roberta A. DeAngelis, the Acting United States Trustee for Region 3, believes that terminating the Consultants' engagement is appropriate. With respect to the issue of whether the Consultants should be required to disgorge fees, it is not clear whether the Consultants have yet submitted to the Court all of their requests for compensation. The U.S. Trustee believes that the Court should resolve the matter by: -- fixing a deadline for the Consultants to file final fee applications; -- fixing appropriate deadlines for filing objections to those applications and conducting any necessary discovery; and -- setting an evidentiary hearing on the question of what fees, if any, should be awarded the Consultants, and thus the amount of any disgorgement that may be appropriate. B. Kensington, et al. Kensington International Limited and Springfield Associates, LLC, and Angelo, Gordon & Co, on behalf of certain managed funds and accounts, do not oppose the termination of the Conflicted Advisors' services. The Creditors contend that: (a) the issue whether the Conflicted Advisors should disgorge the fees they have received is premature at this time, and should first be investigated by an independent examiner: and (b) all issues relating to the Conflicted Advisors' fees must be heard in the District Court, rather than the Bankruptcy Court, since the District Court already has withdrawn the reference with respect to the Conflicted Advisors' fees. No More Investigation, Pope Tells Kensington Michael Pope objects to Kensington's proposal that the issue of disgorgement should be stayed pending investigation by an examiner. "Because the issues of disgorgement and disqualification are closely related, there is no reason to delay proceedings on the former. Moreover, the issues are best developed by the adversarial process of discovery and a hearing, not investigation by an examiner," Mr. Pope asserts. Pope Presents More Arguments Mr. Pope relates that the fee auditor does not have jurisdiction to determine the question of the disgorgement of the Consultants' fees. The power to adjudicate the extent and nature of the remedies for the conflicts observed by the Third Circuit lies with the District Court, the sole tribunal charged with authority to order disgorgement. "The role of the Auditor is limited to testing the fees for reasonableness," Mr. Pope reminds the Court. District Court Withdraws Reference Pursuant to Section 157 of the Judiciary Procedures Code, Judge Fullam withdraws the reference to the Bankruptcy Court with respect to Michael Pope's request to disqualify and terminate the appointment of Judson Hamlin, David Gross and Francis McGovern as Consultants in Owens Corning's cases, and to disgorge their fees. Headquartered in Toledo, Ohio, Owens Corning -- http://www.owenscorning.com-- manufactures fiberglass insulation, roofing materials, vinyl windows and siding, patio doors, rain gutters and downspouts. The Company filed for chapter 11 protection on October 5, 2000 (Bankr. Del. Case. No. 00-03837). Mark S. Chehi, Esq., at Skadden, Arps, Slate, Meagher & Flom represents the Debtors in their restructuring efforts. On Jun 30, 2001, the Debtors listed $6,875,000,000 in assets and $8,281,000,000 in debts. (Owens Corning Bankruptcy News, Issue No. 78 and 80 Bankruptcy Creditors' Service, Inc., 215/945-7000) PACIFIC GAS: Presents Long-Term Energy Resource Plan to Commission ------------------------------------------------------------------ In a regulatory filing with the Securities and Exchange Commission on July 14, 2004, Pacific Gas and Electric Company Vice President and Controller Dinyar B. Mistry disclosed that PG&E submitted its long-term integrated energy resource plan for the period 2005 through 2014 to the California Public Utilities Commission in compliance with CPUC decisions and orders regarding electric resource planning. The LTP sets forth the policy framework, strategies and implementation steps for meeting customer electricity demand -- or "load" -- for the next 10 years. The LTP is consistent with the Energy Action Plan adopted in 2003 by the CPUC, the Energy Resources Conservation and Development Commission, and the Consumer Power and Conservation Financing Authority to ensure that adequate, reliable, and reasonably priced electrical power and natural gas is provided in a cost-effective and environmentally sound manner for California's consumers. The EAP establishes a "loading order" of energy resources under which conservation and energy efficiency programs are first used to minimize increases in electricity and natural gas demand, next followed by use of renewable energy resources and distributed generation to meet new generation needs, followed by support for the development of additional clean, fossil fuel, central-station generation. In light of the future uncertainty regarding the extent to which PG&E's residential and small commercial customers -- core customers -- and its large commercial and industrial customers -- non-core customers -- can procure electricity from non-utility load serving entities like local publicly owned electric utilities, community choice aggregators or energy service providers, PG&E found it essential that the CPUC establish clearly articulated electricity reliability standards and cost responsibilities for all LSEs. Mr. Mistry relates that despite the uncertainty, PG&E made certain assumptions regarding the level of retail load that it will serve in the future to develop the "medium load" scenario on which the Utility's LTP is based. The Utility assumed that the current level of direct access participation would continue throughout the 10-year period. The Utility also assumed that its customer load would be further reduced over the 10-year period through: (a) a core/non-core program to be implemented through future legislation authorizing larger customers to participate in direct access on a phased-in basis starting as early as 2007; and (b) robust participation among smaller customers in community choice aggregation starting as early as 2006. PG&E assumed that by 2014, its load and corresponding procurement responsibility would be reduced by 4,000 megawatts. To minimize the uncertainties regarding the level of future retail load, PG&E asked the CPUC to establish five-year resource adequacy requirements for all LSEs that will ensure that these entities secure reliable electricity supplies for all of their customers far enough in advance to avoid a statewide shortage of power. To assure recovery of PG&E's costs of new long-term electricity resource commitments, PG&E asked the CPUC to adopt a non- bypassable charge to be collected from all customers on whose behalf the Utility makes these new commitments, including those who subsequently receive generation from LSEs. To meet the net open position -- that portion of the demand of PG&E's customers, plus applicable reserve margins, not satisfied from the Utility's own generation facilities and existing electricity contracts -- Mr. Mistry reports that over the 10-year planning horizon, PG&E proposes: * New customer energy efficiency programs to reduce load with total potential expenditures of $1 billion over the 10-year planning horizon. To achieve the assumed load reductions, the Utility asked the CPUC to approve an incremental revenue requirement increase of $245 million for three additional years -- from 2006 through 2008 -- of CEE programs based on the targets as proposed in the LTP. The Utility also asked the CPUC to approve a CEE incentive mechanism to encourage program success in achieving the proposed CEE targets; * The development of demand response programs in conjunction with the California Independent System Operator that will result in certain, predictable load reduction; * An increase in the percentage of renewable energy resources in the Utility's generation portfolio in accordance with the objective adopted in Senate Bill 1078. The LTP medium load scenario assumes that by 2010, 20% of the Utility's retail load will be met by a combination of purchases from renewable energy providers and the re-powering of existing wind projects; * Entry into short-term and mid-term power purchase agreements over the next four years with existing market resources to ensure adequate supply of electricity in the period before new generation facilities are assumed to become operational. The Utility asked for immediate authority from the CPUC to execute short-term and mid term contracts under its existing short-term procurement plan; and * The development of new utility-owned generation and generation to be purchased under long-term contracts particularly for the period from 2007 to 2010 when it is assumed that there will be a need for additional generation facilities. PG&E's LTP assumes that power plants currently providing 2,000 MW of generation to the Utility will retire within the next five or six years. PG&E has asked the CPUC approve the solicitation of offers for utility-owned generation development and for generation to be provided under long-term contracts for 1,200 MW by 2008 and an additional 1,000 MW by 2010. The Utility also proposed release drafts of the two requests for offers -- RFOs -- for public comment in September 2004 and to issue the RFOs in October 2004. The Utility asked the CPUC to issue an LTP decision by the end of 2004 and approve the proposed winning bidders from the RFOs no later than June 2005. PG&E also asked the CPUC, at the time the CPUC approves a proposal for a new utility-owned generation facility, to authorize a reasonable cost for the facility to be placed in rate base. If the actual costs of construction are less than or equal to the amount placed in rate base, PG&E proposed that the costs would not be subject to an after-the-fact reasonableness review by the CPUC. The Utility's target over the 10-year planning horizon is to own 50% of the new generation resources to be developed with the remaining 50% of the resources to be purchased under long-term contracts. As a condition to PG&E's willingness to make the long-term commitments, PG&E asked the CPUC to: * Extend Assembly Bill 57's trigger mechanism that requires the CPUC to adjust procurement rates if PG&E's Energy Resource Recovery Account becomes undercollected by more than 5% of the previous year's generation revenues. The ERRA is a balancing account designed to track and allow recovery of the difference between the Utility's recorded procurement revenues and actual costs incurred under the Utility's authorized procurement plans, excluding certain costs. As of January 1, 2006, the timing of the rate adjustments is left to the discretion of the CPUC. The Utility proposed that, at a minimum, the CPUC extend the trigger mechanism for the 10-year planning horizon covered by the LTP; * Clarify that the CPUC's maximum disallowance of utility administrative and dispatch costs applies to both the allocated California Department of Water Resources' power purchase contracts and administrative and dispatch costs related to utility-owned generation and other power purchase agreements. Currently, the maximum disallowance is equal to two times a utility's administrative costs of managing procurement activities, or, for PG&E, $36 million per year; and * Adopt a policy that recognizes and addresses the fact that credit rating agencies will consider obligations under long- term power purchase contracts to have debt-like characteristics that will adversely affect the Utility's credit ratios which may, in turn, adversely affect the resulting credit ratings. The Utility asked the CPUC to (i) evaluate the "debt equivalence" impacts when the Utility and the CPUC evaluate the bids for various long-term commitments, and (ii) mitigate the resulting debt equivalence impacts in subsequent cost of capital proceedings through adjustments to the Utility's authorized capital structure. The Utility presented testimony that under certain future scenarios, estimated future shortfalls in certain minimum financial ratios used by the credit rating agencies to support various investment grade ratings could be offset by an increase in the Utility's common equity ratio, which would increase annual revenue requirements. The Utility noted that its goal was to improve the credit ratings over time, as stated in the December 19, 2003 settlement agreement the Utility and its parent, PG&E Corporation, entered into with the CPUC to resolve the Utility's Chapter 11 proceeding. On July 8, 2004, a CPUC administrative law judge issued a ruling requesting comments on whether the CPUC should accelerate the phase-in of its planning reserve requirement to maintain a 15% to 17% reserve margin to June 1, 2006 from January 1, 2008. The medium load scenario described in the Utility's LTP does not assume the accelerated phase-in. If the accelerated phase-in is adopted, the Utility's net open position would increase. Neither PG&E Corp. nor the Utility can predict when or whether the CPUC will approve the LTP or take any of the actions the Utility has requested in connection with the LTP, how the uncertainties discussed will be resolved in the future, or whether the assumptions on which the LTP is based will prove to be accurate. PG&E Solicits Energy for Consumers Pacific Gas and Electric Company planned to issue a Request for Offers (RFO) to solicit renewable energy on behalf of its electric customers. This marks the company's first renewable energy solicitation pursuant to the State of California Renewable Portfolio Standard (RPS) program. PG&E has a long history of developing, generating, and purchasing renewable power. The Utility currently supplies 13% of its customer load from renewable resources that qualify under the RPS Program and another 19% from it's hydroelectric facilities, for a total of 32% of customer load supplied from renewables -- one of the highest volumes of any utility in the United States. PG&E planned to issue its solicitation with the goal of entering into contracts by the end of the year. PG&E looks forward to receiving a broad range of competitive products from prospective renewable energy suppliers. Typical sources of renewable energy include power generated from: * solar, * wind, * small hydroelectric, * geothermal, * biomass, * landfill gas, and * various ocean technologies. Binding bids will be due by August 23. Interested parties may obtain bid documents at PG&E's RFO website http://pge.com/RenewableRFO California's RPS Program requires each utility to increase its procurement of eligible renewable generating resources by 1% of load per year, so PG&E anticipates additional renewable solicitations in future years as well. The RPS Program was passed by the Legislature and is managed by California's Public Utilities Commission and Energy Commission. Headquartered in San Francisco, California, Pacific Gas and Electric Company -- http://www.pge.com/-- a wholly owned subsidiary of PG&E Corporation (NYSE:PCG), is one of the largest combination natural gas and electric utilities in the United States. The Company filed for Chapter 11 protection on April 6, 2001 (Bankr. N.D. Calif. Case No. 01-30923). James L. Lopes, Esq., William J. Lafferty, Esq., and Jeffrey L. Schaffer, Esq., at Howard, Rice, Nemerovski, Canady, Falk & Rabkin represent the Debtors in their restructuring efforts. On June 30, 2001, the Company listed $23,216,000,000 in assets and $22,152,000,000 in debts. Pacific Gas and Electric emerged from chapter 11 protection on April 12, 2004, paying all creditors 100 cents-on- the-dollar plus post-petition interest. (Pacific Gas Bankruptcy News, Issue No. 80; Bankruptcy Creditors' Service, Inc., 215/945-7000) PEGASUS SATELLITE: Committee Taps Greenhill as Financial Advisor ---------------------------------------------------------------- The Official Committee of Unsecured Creditors appointed in Pegasus Satellite Communications, Inc. and its debtor-affiliates' chapter 11 cases needs a financial advisor to assist in the critical tasks associated with analyzing and implementing critical restructuring alternatives, and to help guide it through the Debtors' reorganization efforts. After careful deliberations, the Committee decided that Greenhill & Co., LLC's broad experience in investment banking would best serve the interests of the Committee, its counsel, and the creditors in the Debtors' Chapter 11 cases. The Committee has carefully tailored the scope and compensation of Greenhill's retention so that: (i) the work performed by Greenhill will not be duplicative of the work performed by any other professionals retained by the Committee in the Chapter 11 cases; and (ii) the Debtors' estates do not incur unnecessary costs as a result of the Committee's retention of both Greenhill and Capital & Technology Advisors, LLC, as financial advisors. Accordingly, the Committee sought and obtained permission from the United States Bankruptcy Court for the District of Maine to retain Greenhill as its financial advisor, nunc pro tunc to June 14, 2004. Marion Stratakos, Chairperson of the Creditors' Committee, informs the Court that the Committee retained Greenhill as its financial advisor because it has general investment banking and financial expertise relating to the bankruptcy process and is uniquely able to provide restructuring financial advisory services to the Committee. Greenhill is a nationally recognized investment banking/financial advisory firm with more than 75 professionals. Greenhill provides investment banking and financial advisory services and execution capabilities in a variety of areas, including financial restructuring, where Greenhill is one of the leading investment bankers and advisors to debtors, bondholder groups, secured and unsecured creditors, acquirors, and other parties-in-interest involved in financially distressed companies, both in and outside of bankruptcy. Greenhill has served as a financial advisor in some of the largest and most complex Chapter 11 cases in the United States, including serving as the financial advisor to numerous debtors and creditors in restructurings involving Loral Space & Communications, Ltd., Solutia, Inc., Bethlehem Steel Corporation, AMRESCO, Inc., Regal Cinemas, Inc., and WebLink Wireless, Inc. In addition, Greenhill has provided financial advisory and investment banking services to several telecommunications and media companies and their creditors, including Adelphia Communications, Marconi Corporation, Plc, Allegiance Telecom, Inc., AT&T Canada, Inc., Cable & Wireless Plc, AT&T Latin America Corp. and RCN Corp. As financial advisor, Greenhill will: (a) to the extent it deems necessary, appropriate and feasible, review and provide an analysis of the business, operations, properties, financial condition and prospects of the Debtors; (b) monitor the Debtors' ongoing performance; (c) evaluate the Debtors' debt capacity in light of its projected cash flows; (d) review and provide an analysis of any proposed capital structure for the Debtors; (e) review and provide an analysis of any valuations of the Debtors on a going concern basis and on a liquidation basis; (f) review and provide an analysis of any proposed public or private placement of the debt or equity securities of the Debtors, or any loan or other financing; (g) review and provide an analysis of any of the Debtors' proposed non-ordinary course expenditures during the Chapter 11 cases; (h) review and provide an analysis of all proposed Chapter 11 plans proposed by any party; (i) in connection therewith, review and provide an analysis of any new securities, other consideration or other inducements to be offered or issued under the Plan; (j) assist the Committee and participate in negotiations with the Debtors, potential purchasers of the company and any other groups affected by the Plan or a sale; (k) assist the Committee in preparing documentation within its area of expertise required in connection with supporting or opposing the Plan or a sale; (l) review and provide an analysis of any proposed disposition of any material assets of the Debtors or any offers to purchase some or substantially all of the Debtors' assets; (m) when and as requested by the Committee, render reports to the Committee as Greenhill deems appropriate under the circumstances; and (n) participate in hearings before the Court with respect to the matters on which Greenhill has provided advice. Greenhill will be compensated with a $150,000 monthly fee. Upon the closing or consummation of a Restructuring or Sale, Greenhill will be entitled to a Transaction Fee equal to: * the sum of 125 basis points multiplied by the amount of the Unsecured Creditors' Recovery between $400,000,000 and $475,000,000 plus 200 basis points multiplied by the amount of the Unsecured Creditors' Recovery in excess of $475,000,000; less * an amount equal to 50% of the Monthly Advisory Fees in excess of $1,350,000 received by Greenhill. Greenhill will seek reimbursement of all reasonable out-of-pocket expenses. Bradley A. Robins, Managing Director of Greenhill, tells the Court that Greenhill is a "disinterested person" as defined in Section 101(14) of the Bankruptcy Code. According to Mr. Robins, Greenhill and its affiliates, professionals and employees have no connection with the Debtors, their creditors or other parties-in- interests, except that: (i) Greenhill Capital Partners Fund, an affiliate of Greenhill, raises funds from numerous sources including four entities that are affiliates of parties that are equity holders in the Debtors, agents to certain of the Debtors' prepetition credit facilities or members of the syndicate; (ii) Barrow Street Capital, LLC, an affiliate of Greenhill, raises funds from numerous sources including affiliates of GMAC Investment Funds, a major lender to the Debtors; (iii) Fleet National Bank, an equity holder in Pegasus Satellite Communications, Inc., is the bank provider for Greenhill and the private bank for several of Greenhill's employees; (iv) on May 5, 2004, Greenhill held an initial public offering where it used the underwriting services of certain parties that are unsecured creditors or equity holders of the Debtors, including Wachovia Bank and Lehman Brothers, Inc.; and (v) certain other parties-in-interest are vendors of Greenhill or its affiliates. Headquartered in Bala Cynwyd, Pennsylvania, Pegasus Satellite Communications, Inc. -- http://www.pgtv.com/-- is a leading independent provider of direct broadcast satellite (DBS) television. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. D. Me. Lead Case No. 04-20889) on June 2, 2004. Leonard M. Gulino, Esq., and Robert J. Keach, Esq., at Bernstein, Shur, Sawyer & Nelson, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,762,883,000 in assets and $1,878,195,000 in liabilities. (Pegasus Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 215/945-7000) PILLOWTEX: Revises Bidding Protocol for Hanover, Pa. Property Sale ------------------------------------------------------------------ In connection with the proposed sale of a property consisting of about 22.5 acres located at 401 Moulstown Road in Hanover, Pennsylvania, and including a 275,000 square-foot manufacturing plant, Pillowtex Corporation and its debtor-affiliates and subsidiaries want to subject the proposed sale to New Horizons Partnership, LLC, to competitive bidding pursuant to the Global Bidding Procedures established by the United States Bankruptcy Court for the District of Delaware in August 2003. The Debtors ask the Court to approve these supplemental bidding procedures with regards to the proposed sale of the Hanover Property: (a) The deadline for submission of competing bids for the Property is August 27, 2004 at 4:00 p.m., prevailing Eastern Time. (b) The Initial Overbid Increment for competing bids will be $150,000. Successive bidding increments will be $50,000. (c) The Auction will be held on September 2, 2004, at 3:30 p.m., prevailing Eastern Time at the office of Debevoise & Plimpton LLP, 919 Third Avenue, in New York, or at another place as the Debtors will notify all qualified bidders. At the Debtors' sole discretion and upon request of any qualified bidder, arrangements may be made for telephonic participation in the Auction. If, however, no qualified competing bid is received by the Bid Deadline, New Horizons will be the successful bidder for the Property and the Debtors will seek the Court's approval and authority to consummate the transactions contemplated in the Purchase Contract with New Horizons. (d) In the event that New Horizons is the second highest bidder at the conclusion of the Auction and the Debtors fail to consummate a sale of the Property to the successful bidder, the Debtors will consummate the sale of the Property to New Horizons under the terms of the Purchase Contract, provided it has not been terminated. (e) The hearing to consider the sale of the Property to the prevailing bidder will be held on September 3, 2004 at 10:30 a.m., prevailing Eastern Time or as soon as counsel and interested parties may be heard. New Horizons will pay the Debtors $3,400,000 in cash including a $340,000 earnest deposit already set aside in escrow with the Debtors' Escrow Agent, Capital Abstract Corporation. The Debtors propose to limit New Horizon's liability to the amount of the Deposit. William H. Sudell, Jr., Esq., at Morris Nichols Arsht & Tunnel, in Wilmington, Delaware, contends that the limitation is appropriate given New Horizons' concessions in the negotiations and its willingness to act as a stalking horse at the Auction. Judge Walsh schedules an emergency hearing to consider the Supplemental Bidding Procedures on August 12, 2004 at 1:30 p.m., prevailing Eastern Time. Headquartered in Dallas, Texas, Pillowtex Corporation -- http://www.pillowtex.com/-- sells top-of-the-bed products to virtually every major retailer in the U.S. and Canada. The Company filed for Chapter 11 protection on November 14, 2000 (Bankr. Del. Case No. 00-4211). David G. Heiman, Esq., at Jones, Day, Reavis & Poque represents the Debtors in their restructuring efforts. On July 30, 2003, the Company listed $548,003,000 in assets and $475,859,000 in debts. (Pillowtex Bankruptcy News, Issue No. 67; Bankruptcy Creditors' Service, Inc., 215/945-7000) PPM AMERICA: Fitch Places Junk A-3 Note Rating on Watch Negative ---------------------------------------------------------------- Fitch Ratings places two classes of notes issued by PPM America High Yield CBO I Company Ltd. on Rating Watch Negative as follows: -- $212,323,496 class A-1 notes rated 'AA-'; -- $55,700,000 class A-3 notes rated 'CCC+'. PPM High Yield CBO I is a collateralized bond obligation (CBO) managed by PPM America, Inc. PPM High Yield CBO I closed on March 2, 1999. The notes issued by the PPM High Yield CBO I are supported by a portfolio primarily consisting of high yield corporate bonds. Over the past year the collateral has deteriorated. The overcollateralization ratio has declined to a level of 65.3% as of the July 16, 2004 trustee report. The class A and class B interest coverage ratios have also deteriorated to 128.11% and 70.8%, respectively, as of the July 16, 2004 trustee report. The deteriorating credit quality of the portfolio has increased the credit risk of this transaction to the point the risk may no longer be consistent with the ratings. Fitch will review this transaction and take appropriate rating action upon completion of its analysis. Additional deal information and historical data are available on the Fitch Ratings web site at http://www.fitchratings.co/ RAPTOR INVESTMENTS: Structures Program to Continue Debt Reduction ----------------------------------------------------------------- Raptor Investments, Inc. (RAPT)(OTCBB:RAPT) has reduced debt by $60,000 over the last two months. The debt reduction will save the Company approximately $600 per month in interest expense. Raptor has structured a program where a certain percentage of the weekly revenues of J&B Wholesale Produce, Inc., the Company's wholly owned subsidiary, will go to debt reduction. The debt reduction is applied to the Company's Line of Credit. JBP is a 10-year-old wholesale produce distribution company servicing Broward, Dade and Palm Beach County. JBP services chain restaurants, single-location restaurants, retailers and other produce distributors. About the Company Raptor is a diversified holding company. The Company provides merchant banking, consulting and public relations services to privately held and publicly traded companies. As part of its merchant banking services, the Company will pursue various diversified acquisitions on a regular basis. It is the Company's goal to restructure these acquisitions and divest of them, in whole or in part, through a sale or spin-off. * * * At March 31, 2004, Raptor Investment Inc.'s balance sheet showed a $1,170,037 stockholders' deficit. RCN CORP: Subsidiary Files for Chapter 11 Protection in New York ---------------------------------------------------------------- RCN Cable TV of Chicago, Inc., an indirect subsidiary of RCN Corporation, filed a voluntary petition for reorganization under chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District Court of New York. The filing is part of RCN's ongoing efforts to modify its franchise agreements with the City of Chicago so that it can honor its commitment of continuing to grow and serve its approximately 100,000 customers in Chicago. Earlier this week, RCN also announced the launch of a new telephone service over the Internet to its Chicago customers. Chicago is the first of RCN's markets to launch this product and the first bundled provider to offer this product in the Chicago area. "We remain committed to our customers and employees in our Chicago market. We are optimistic that the City will help us execute on our strategy to provide choice and competition for our customers," said Tom McKay, Assistant General Manager in Chicago. "Our entire team has worked tirelessly for the past year to upgrade our network and launch new products and services that our customers are asking for so that we can continue to offer them a better choice for their telecommunication needs in the City of Chicago." Over the past 18 months, RCN has invested heavily in its Chicago market as part of its commitment to its current and growing customer base. RCN is in the process of completing the upgrade of its entire network to its approximately 300,000-household footprint that will be completed by October of this year. Recent product launches include a 7 Mbps cable modem product, voice service over the Internet, video on demand services, high- definition television service, and multiple bundle packages including its Digital City channel lineup and advanced channel guide. RCN previously reported that its senior secured lenders and members of an ad hoc committee of holders of its Senior Notes had agreed to support a financial restructuring. The Company anticipates filing a plan of reorganization and related disclosure statement consistent with the financial restructuring, prior to the end of August 2004. The Company expects to consummate its restructuring process during the fourth quarter of 2004. RCN anticipates no disruption of service to its customers as a result of this filing. Headquartered in Princeton, New Jersey, RCN Corporation -- http://www.rcn.com/-- is a provider of bundled Telecommunications services. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. S.D.N.Y. Lead Case No. 04-13638) on May 27, 2004. Frederick D. Morris, Esq., and Jay M. Goffman, Esq., at Skadden Arps Slate Meagher & Flom LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,486,782,000 in assets and $1,820,323,000 in liabilities. RCN CABLE TV: Case Summary & 11 Largest Unsecured Creditors ----------------------------------------------------------- Debtor: RCN Cable TV of Chicago, Inc. 350 North Orleans Street Chicago, Illinois 60654 Bankruptcy Case No.: 04-15120 Type of Business: The Debtor is a subsidiary of RCN Corporation, a provider of bundled Telecommunications services. See http://www.rcn.com/ Chapter 11 Petition Date: August 5, 2004 Court: Southern District of New York (Manhattan) Judge: Robert D. Drain Debtor's Counsel: Jay M. Goffman, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Time Square New York, NY 10036 Tel: 212-735-3000 Fax: 212-735-2000 Estimated Assets: $0 to $50,000 Estimated Debts: $100,000 to $500,000 Debtor's 11 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ City of Chicago Franchise Agreement $163,000 Chicago Access Corporation Contract $127,806 (Area 2) City of Chicago Franchise Agreement $6,000 Taylor Place Apartments Trade $600 Town Management Corp. Trade $500 The 5000 South Cornell Trade $500 Condominium Association Carl Sandburg Village Trade $393 Condominium Association II 828 S. Wabash, LLC Trade $348 The Chestnut Place Trade $300 Associates The 535 North Michigan Trade $115 Avenue The Drexel Towers Apartments Trade $100 RCN: Gets Final Okay to Hire AP Services as Crisis Managers ----------------------------------------------------------- On a final basis, the United States Bankruptcy Court for the Southern District of New York authorizes RCN Corporation and its debtor-affiliates to employ AP Services, LLC, as their crisis managers, effective as of May 26, 2004. Judge Drain's final order approving the engagement provides that: (a) All references to the "Contingent Success Fee" in the engagement letter and the Debtors' Application is deemed stricken without prejudice to APS' right to request for a success or similar fee. (b) APS' compensation will be subject to applicable provisions of the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules for the Southern District of New York, guidelines established by the Court, the United States Trustee Fee Guidelines, and these provisions, except that APS will not be required to file time records in accordance with the U.S. Trustee Guidelines. APS will comply with the Administrative Order under Sections 105 and 331 of the Bankruptcy Code Establishing Procedures for Interim Compensation and Reimbursement of Expenses of Professionals dated June 22, 2004, provided that in its monthly fee statements and interim and final fee applications filed with the Court, APS will present descriptions of those services provided on the Debtors' behalf, the approximate time expended in providing those services, and the individuals who provided professional services. (c) APS will have the right to request a success or similar fee in its final fee application after notice to all the parties-in-interest and upon hearing before the Court. There will be no presumptions created by these provisions to either grant or deny the request, and all objections of the U.S. Trustee and all parties-in-interest are preserved until that time. (d) APS will not be entitled to seek or receive a success or similar fee to the extent it is terminated for actions constituting gross negligence or willful misconduct. (e) A success or similar fee, if awarded, will not be deemed earned until the occurrence of the substantial consummation of a plan or plans of reorganization, as the case may be, for each of the Debtors. (f) APS will not be entitled to seek or receive a success or similar fee in the event: -- any entity or entities individually or collectively constituting 50% or more of the subscribers of the United States businesses of RCN Corporation and its direct and indirect subsidiaries will be liquidated, other than in a sale or sales as a going concern; -- the voluntary Chapter 11 case or cases of any entity or entities individually or collectively constituting 50% or more of the subscribers of the U.S. businesses of RCN Corporation and its direct and indirect subsidiaries will be dismissed without the Creditors Committee's consent; -- a Chapter 11 trustee with plenary powers, a responsible officer, or an examiner with enlarged powers relating to the operation of the businesses of the Debtors will be appointed; or -- the Chapter 11 case of any entity or entities individually or collectively constituting 50% or more of the subscribers of the U.S. businesses of RCN Corporation and its direct and indirect subsidiaries will be converted to a case or cases under Chapter 7 of the Bankruptcy Code. (g) All of John Dubel's requests for payment of indemnity pursuant to any indemnification agreement provided by the Debtors will be made by means of an application and will be subject to review by the Court to ensure that the payment of the indemnity conforms to the terms of the indemnification agreement and is reasonable based on the circumstances of the litigation or settlement in respect of which the indemnity is sought. However, in no event will Mr. Dubel be indemnified in the case of his own bad-faith, self-dealing, breach of fiduciary duty, gross negligence or willful misconduct. (h) In no event will Mr. Dubel be indemnified if the Debtors or a representative of the Debtors' estates, asserts a claim for, and a court determines by final order that the claim arose out of, Mr. Dubel's own bad-faith, self- dealing, breach of fiduciary duty, gross negligence or willful misconduct. (i) In the event that Mr. Dubel seeks reimbursement for attorney's fees from the Debtors pursuant to the indemnification agreement, the invoices and supporting time records from the attorneys will be included in Mr. Dubel's own applications, and the invoices and time records will be subject to the U.S. Trustee's guidelines for compensation and reimbursement of expenses and the Court's approval under the standards of Sections 330 and 331, without regard to whether the attorney has been retained under Section 327 and without regard to whether the attorney's services satisfy Section 330(a)(3)(C). Details concerning RCN's application to employ AP Services appears in the Troubled Company Reporter on June 14 and 22. Headquartered in Princeton, New Jersey, RCN Corporation -- http://www.rcn.com/-- is a provider of bundled Telecommunications services. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. S.D.N.Y. Lead Case No. 04-13638) on May 27, 2004. Frederick D. Morris, Esq., and Jay M. Goffman, Esq., at Skadden Arps Slate Meagher & Flom LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,486,782,000 in assets and $1,820,323,000 in liabilities. (RCN Corp. Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 215/945-7000) RELIANCE: Committees Wants to Ensure Viability of Tax Benefits -------------------------------------------------------------- The Official Unsecured Bank Committee and the Official Unsecured Creditors' Committee for Reliance Financial Services Corporation and Reliance Group Holdings, Inc., ask Judge Gonzalez of the United States Bankruptcy Court for the Southern District of New York to declare that RFSC's Tax Benefits remain viable. Arnold Gulkowitz, Esq., at Orrick, Herrington & Sutcliffe, in New York City, explains that Section 847 of the Internal Revenue Code allows a special deduction for insurance companies. The deduction is equal to the excess of the undiscounted, unpaid losses over the discounted, unpaid losses, which is credited to a "special loss discount account." The insurer must make a Special Estimated Tax Payment each year that the deduction is claimed equal to the tax benefit generated by the deduction, so that no tax benefit is initially realized by the deduction. As time passes and losses are paid, the spread between the insurer's undiscounted, unpaid losses and the discounted, unpaid losses for a taxable year will generally decrease. Each year, the decreases are debited from the special loss discount account and included in gross income. The insurer applies the SETPs from prior taxable years to offset taxes owed as a result of the income inclusions. If a special loss discount account for any tax year has not been reduced to zero before the 15th year, the remaining balance of the account must be included in income for that 15th year. The following year, any remaining SETPs made for that year are treated as an estimated tax payment, giving rise to Section 847 Refunds. The Tax Benefits, in the form of Section 847 Refunds, are one of RFSC's most significant assets that will inure to the Allowed Bank Claim holders, RGH and Reliance Insurance Company. Mr. Gulkowitz worries that the Internal Revenue Service may attempt to deny the Tax Benefits to Reorganized RFSC. If the IRS is successful, the Tax Benefits utilizable by Reorganized RFSC could be substantially reduced or eliminated. To reduce this risk and to avoid the loss of a financial investment estimated to exceed $5,000,000 over the next seven years, RFSC's Plan of Reorganization contemplates that the Court will approve certain tax determinations. Specifically, the Committees ask the Court to find that: a. After the Effective Date, the RFSC Tax Group -- as a result of the inclusion of Reliance Insurance Company in the affiliated group of corporations filing a consolidated Federal income tax return having Reorganized RFSC as the common parent -- will succeed to all special estimated tax payments within the meaning of Section 847 of the Tax Code made by RGH; b. RIC has been, and continues to be, subject to the tax imposed by Section 831 of the Tax Code; c. The Section 847(6)(A) provision, which applies to a company that liquidates or otherwise terminates its insurance business, does not apply to RIC due to its ongoing insurance activities; d. RGH was not required to designate on an originally filed tax return any estimated tax payments as "special estimated tax payments" under Section 847 of the Tax Code in order for the tax payments to be treated as special estimated tax payments refundable pursuant to Section 847 of the Tax Code; e. As a result of the application of Section 382(l)(5) of the Tax Code, the net operating loss limitations of Section 382(a) will not apply to any ownership change resulting from the RFSC Plan as confirmed; f. The principal purpose of the RFSC Plan, as proposed and confirmed, is not the avoidance or evasion of Federal income tax within the meaning of Section 269 of the Tax Code and the Treasury Regulations; and g. At all times subsequent to the Petition Date, RFSC has carried on more than an insignificant amount of an active trade or business within the meaning of Treasury Regulations Section 1.269-3(d). Granting the Committees' request will: -- increase the likelihood that the Section 847 Refunds will be recovered; and -- help resolve many of the issues that the IRS may raise in an attempt to disallow Reorganized RFSC's entitlement to the Section 847 Refunds. Under the RFSC Plan, Holders of the Allowed Bank Claims are being asked to exchange their claims for stock of Reorganized RFSC. The value of the stock, RFSC's estate, and the recovery to the Holders of the Allowed Bank Claims will be materially and adversely impacted if Reorganized RFSC is not entitled to the Section 847 Refunds. RIC anticipates generating income in the tax years following the confirmation of the RFSC Plan. Reorganized RFSC will also receive funds in future tax years from its interest in certain litigation proceeds. As a result, RIC and RFSC will be required to pay significant amounts of Federal income tax if the net operating losses of the RFSC Tax Group are restricted under Section 382(a) or Section 269 of the Tax Code. Thus, distributions to the policyholders of RIC and the Allowed Bank Claim holders will be adversely impacted if the reorganization effected by the RFSC Plan does not qualify under Section 382(l)(5) of the Tax Code or if Reorganized RFSC's use of the NOLs is restricted under Section 269 of the Tax Code. Headquartered in New York, New York, Reliance Group Holdings, Inc. -- http://www.rgh.com/-- is a holding company that owns 100% of Reliance Financial Services Corporation. Reliance Financial, in turn, owns 100% of Reliance Reliance Insurance Company. The Company filed for chapter 11 protection on June 12, 2001 (Bankr. S.D.N.Y. Case No. 01-13403). When the Company filed for protection from their creditors, they listed $12,598,054,000 in assets and $12,877,472,000 in debts. (Reliance Bankruptcy News, Issue No. 58; Bankruptcy Creditors' Service, Inc., 215/945-7000) RUSSEL METALS: Senior Executives Exercise Stock Options ------------------------------------------------------- Russel Metals Inc.'s (TSX:RUS) Chief Executive Officer and other senior executives have exercised stock options. Edward M. Siegel, Jr., Chief Executive Officer, exercised 260,000 common share options and sold 250,165 and currently holds 800,000 common shares worth approximately $9.28 million. Mr. Siegel has 600,000 common share options remaining after the exercise. Brian R. Hedges, Chief Financial Officer, exercised and sold 105,000 common shares. After giving effect to the trade, Mr. Hedges currently holds 188,300 common shares worth $2.18 million and 265,000 common share options. Russel Metals is one of the largest metals distribution companies in North America. It carries on business in three metals distribution segments: service center, energy tubular products and import/export, under various names including Russel Metals, A.J. Forsyth, Acier Leroux, Acier Loubier, Acier Richler, Armabec, Arrow Steel Processors, B&T Steel, Baldwin International, Comco Pipe and Supply, Drummond McCall, Ennisteel, Fedmet Tubulars, Leroux Steel, McCabe Steel, Megantic Metal, Metaux Russel, Milspec Industries, Poutrelles Delta, Pioneer Pipe, Russel Leroux, Russel Metals Williams Bahcall, Spartan Steel Products, Sunbelt Group, Triumph Tubular & Supply, Vantage Laser, Wirth Steel and York Steel. * * * As reported in the Troubled Company Reporter's February 9, 2004 edition, Standard & Poor's Ratings Services raised its ratings on Russel Metals Inc., including the long-term corporate credit rating, which was raised to 'BB' from 'BB-'. At the same time, Standard & Poor's assigned its 'BB-' rating to Russel Metals' proposed US$175 million notes. The rating on the notes is one notch lower than the long-term corporate credit rating, reflecting the significant amount of priority debt, including secured bank lines and subsidiary obligations, which would rank ahead of the notes in the event of default. The outlook is stable. SOLUTIA INC: Settles Mundy's $529,326 Claim with Contract Award --------------------------------------------------------------- At the request of Solutia, Inc. and its debtor-affiliates and subsidiaries, Judge Beatty approves their settlement agreement with Mundy Maintenance and Services, LLC. The Settlement Agreement is in connection with Mundy's provision of personnel to perform certain services under an agreement dated September 10, 2002. The Debtors utilize contractors to provide necessary personnel to perform a variety of services, including maintenance, construction and procurement at many of their plants. Before the Petition Date, Mundy provided personnel at Solutia, Inc.'s Chocolate Bayou, Texas facility while other contractors provided personnel at other Solutia facilities in: -- Greenwood, South Carolina, -- Decatur, Alabama, -- Pensacola, Florida, and -- Foley, Alabama. As of the Petition Date, Mundy asserts a prepetition claim for $529,326. M. Natasha Labovitz, Esq., at Gibson, Dunn & Crutcher, LLP, in New York, relates that the Debtors have reviewed their business operations and developed a new business plan, one goal of which is to reduce costs and increase profitability. One of the Debtors' initiatives in that regard is to review their executory contracts to identify those that are not profitable for them. As a result of the review, Solutia decided that it could achieve cost savings by consolidating its personnel providers and having only one contractor to provide the necessary personnel at the Facilities. Solutia informed its various contractors that it wants to have one contractor to provide all of its personnel needs at the Facilities and requested bids for the work. After review of the resulting bids and follow-up negotiations with the parties, Solutia determined that Mundy's proposal provided the most benefit to Solutia's estate. As part of its proposal, Mundy agreed to waive its Claim to induce Solutia to agree to amend and restate the Maintenance Contract and expand the scope of its provision personnel to include the Greenwood Facility. While the Debtors believe that Court approval is not generally required for a waiver of a prepetition claim, they recognize that the award of a future contract in connection with the claim waiver may be construed as a compromise or settlement of the claim within the meaning of Rule 9019 of the Federal Rules of Bankruptcy Procedure. Headquartered in St. Louis, Missouri, Solutia, Inc. -- http://www.solutia.com/-- with its subsidiaries, make and sell a variety of high-performance chemical-based materials used in a broad range of consumer and industrial applications. The Company filed for chapter 11 protection on December 17, 2003 (Bankr. S.D.N.Y. Case No. 03-17949). When the Company filed for protection from their creditors, they listed $2,854,000,000 in assets and $3,223,000,000 in debts. (Solutia Bankruptcy News, Issue No. 20; Bankruptcy Creditors' Service, Inc., 215/945-7000) SPECTRASCIENCE: Gets Court Confirmation on Reorganization Plan -------------------------------------------------------------- SpectraScience, Inc. (OTC: SPSIQ.PK) received a Court Order of Confirmation in connection with a Chapter 11 Reorganization Plan in the U.S. Bankruptcy Court filed by its Trustee, Timothy D. Moratzka. The expiration period for objections ended on August 2, 2004 and the Plan becomes effective August 23, 2004. The previously announced Shareholder Rights Offering under the Plan was completed on July 16, 2004. The Company also announced that it has begun transferring its manufacturing facilities to 11568-11 Sorrento Valley Road, San Diego, California 92121. The Company develops and markets its proprietary WavStat(TM) Optical Biopsy System for use by physicians in diagnosing tissue to be normal, pre-cancerous, or cancerous. The WavStat(TM) System is currently approved for use in the colon. Other applications are under development. SpectraScience filed for bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Minnesota on September 13, 2002. The case was converted to a Chapter 11 on February 5, 2003. SPIEGEL GROUP: New Hampton Property Auction Set for Sept. 15 ------------------------------------------------------------ An auction will commence at 10:00 a.m. on September 15, 2004, before Judge Blackshear in the United States Bankruptcy Court for the Southern District of New York, Courtroom 601, One Bowling Green in Manhattan to sell Spiegel Group's real property located at 2101, 2201, 2221 and 2401 Aluminum Avenue in Hampton, Virginia. American Port Services, Inc., has already offered $1,898,100 for the property. Headquartered in Downers Grove, Illinois, Spiegel, Inc. -- http://www.spiegel.com/-- is a leading international general merchandise and specialty retailer that offers apparel, home furnishings and other merchandise through catalogs, e-commerce sites and approximately 560 retail stores. The Company filed for Chapter 11 protection on March 17, 2003 (Bankr. S.D.N.Y. Case No. 03-11540). James L. Garrity, Jr., Esq., and Marc B. Hankin, Esq., at Shearman & Sterling represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $1,737,474,862 in assets and 1,706,761,176 in debts. (Spiegel Bankruptcy News, Issue No. 29; Bankruptcy Creditors' Service, Inc., 215/945-7000) SUN HEALTHCARE: June 30 Balance Sheet Insolvent by $108.2 Million ----------------------------------------------------------------- Sun Healthcare Group, Inc. (NASDAQ: SUNH) reported total net revenues of $212.7 million and net income of $7.3 million for the quarter ended June 30, 2004, compared with total net revenues of $203.9 million and a net loss of $11.6 million for the comparable quarter in 2003. The 2004 second-quarter net income included the reduction of $6.0 million of excess liability reserves for general and professional liability and workers' compensation insurance. The reduction of excess reserves for general and professional liabilities was $2.5 million, comprised of $2.0 million related to continuing operations for the first six months of the current year, $0.1 million related to continuing operations for prior periods and $0.4 million related to discontinued operations for prior periods. The reduction of reserves relating to workers' compensation insurance was $3.5 million, comprised of $1.0 million related to continuing operations for the first six months of the current year, $1.6 million related to continuing operations for prior periods and $0.9 million related to discontinued operations for prior periods. The 2004 second-quarter net income also included the forgiveness of $3.7 million of debt related to the refinancing of six inpatient facilities, a gain on discontinued operations of $1.7 million and a gain on sale of assets of $0.4 million. The 2003 second-quarter net loss included $5.6 million for loss on discontinued operations, a $2.8 million gain related to discounted payments to trade vendors and the recovery of bankruptcy-related preference payments and a $2.7 million gain on sale of assets. In July 2004, Sun commenced efforts to sell the portion of its laboratory and radiology operations located in California, which will be considered an asset held for sale in the third quarter of 2004. The California laboratory and radiology operations that Sun plans to sell contributed net revenues of $5.3 million and net operating losses of $3.6 million to Sun's laboratory and radiology services segment for the second quarter of 2004. Those net revenues and net operating losses will be reclassified into discontinued operations for the third quarter of 2004. "The second quarter demonstrates continued improvement in the company's financial performance year over year," said Richard K. Matros, chairman and chief executive officer. "Our operations show good progress and importantly, we have begun to show marked improvement in our workers' compensation and general and professional liability costs sooner than anticipated." Sun reported net revenues of $421.7 million and a net loss of $3.1 million for the six months ended June 30, 2004 compared with total net revenues of $399.8 million and a net loss of $24.8 million for the comparable period in 2003. Net revenues and net losses for the California laboratory and radiology operations for the six months ended June 30, 2004 were $6.7 million and $8.8 million, respectively. The net loss for the first six months included the reduction of excess liability reserves for insurances and the forgiveness of debt as discussed above. The 2004 six-month net loss also included a gain on sale of assets of $0.4 million and a gain on discontinued operations of $0.2 million. The 2003 six- month net loss included $11.5 million for loss on discontinued operations, a $4.1 million gain related to discounted payments to trade vendors and the recovery of bankruptcy-related preference payments and a $3.0 million gain on sale of assets. At June 30, 2004, Sun Healthcare Group's balance sheet showed a $108,242,000 stockholders' deficit compared to a deficit of $166,398,000 at December 31, 2003. Operating Results Net revenues from the inpatient services operations, which comprised 69.8 percent of Sun's total revenue from continuing operations for the quarter ended June 30, 2004 increased 7.9 percent from $137.6 million for the quarter ended June 30, 2003 to $148.5 million for the same period in 2004. The revenue gain primarily results from higher per diem rates in all payor categories and an increase in Medicare patients. EBITDAR for the continuing operations of inpatient services increased from $15.0 million for the quarter ended June 30, 2003 to $23.8 million for the same period in 2004. Sun's net revenues from its continuing ancillary business operations, comprised of SunDance Rehabilitation Corporation, CareerStaff Unlimited, Inc., SunPlus Home Health Services, Inc., and Sun Alliance Healthcare Services, Inc., net of intersegment eliminations, decreased $2.1 million from $66.2 million for the quarter ended June 30, 2003 to $64.1 million for the same period in 2004. EBITDAR for those operations decreased over the same period from $8.1 million to $3.8 million. The decrease was primarily attributable to the California laboratory and radiology operations that Sun is seeking to sell. Second Quarter Highlights During the second quarter of 2004, Sun: (i) divested two of its under-performing long-term care facilities, (ii) completed the restructure of the master lease of 33 facilities leased from Omega Healthcare Investors, Inc. (NYSE: OHI) and in that transaction converted approximately $7.8 million of rental obligations into 760,000 shares of its common stock plus a cash payment of $0.5 million, (iii) restructured $21.2 million of mortgage debt related to six facilities that became due in May 2004 as follows: $14.5 million was refinanced, $3.0 million was paid off, and $3.7 million was forgiven, and (iv) entered into option agreements that are exercisable in increments over a period of seven years to purchase nine entities that own nine facilities that it currently leases and operates in New Hampshire. Sun intends to divest five of its facilities and its California laboratory and radiology operations during 2004. Mr. Matros noted, "Although we are looking at opportunities to grow, the decision to sell our California laboratory and radiology business segment is the right decision for our company. After assessing the potential upside of this particular business unit, it simply is not enough to justify the investment in the continuing operations." About Sun Healthcare Group, Inc. Sun Healthcare Group, Inc., with executive offices located in Irvine, California, owns SunBridge Healthcare Corporation and other affiliated companies that operate long-term and postacute care facilities in many states. In addition, the Sun Healthcare Group family of companies provides therapy through SunDance Rehabilitation Corporation, medical staffing through CareerStaff Unlimited, Inc., home care through SunPlus Home Health Services, Inc., and medical laboratory and mobile radiology services through SunAlliance Healthcare Services, Inc. Sun Healthcare Group, Inc., filed for chapter 11 protection on October 14, 1999 (Bankr. Del. Case Nos. 99-3657 through 99-3841, inclusive) and emerged under the terms of an Amended Joint Plan of Reorganization that took effect on February 28, 2002. Michael F. Walsh, Esq., John J. Rapisardi, Esq., and Paul D. Leake, Esq., at Weil, Gotshal & Manges LLP, represented Sun Healthcare in that proceeding. The Amended Joint Plan delivered roughly 89% of the new equity issued under the Plan to the Debtors' senior secured creditors, a 9% stake to unsecured creditors, and 2% of the pie to the senior subordinated noteholders. URS CORPORATION: Wins USACE's Multiple Award Remediation Contract ----------------------------------------------------------------- URS Corporation (NYSE: URS) is one of five companies awarded an indefinite delivery/indefinite quantity Multiple Award Remediation Contract (MARC) with the U.S. Army Corps of Engineers (USACE) to provide environmental services for the USACE's Louisville District. Under the terms of the contract, as the USACE issues specific task orders, URS will provide environmental remediation activities, including investigations, as well as engineering support and construction services associated with environmental restoration projects. The Company also will provide environmental compliance assessments, engineering evaluations and cost analyses, and operations and maintenance services. The contract includes a three-year base period and up to seven years of options and/or extensions. The maximum aggregate value of the contracts to all five companies is $300 million over the full ten years assuming all the option periods are exercised. Commenting on the contract win, Gary V. Jandegian, President, URS Division, said: "This is a significant win for URS, underscoring our position at the forefront of the environmental services market and further expanding our strong relationship with the Army Corps of Engineers. We look forward to working with the Army Corps of Engineers on this important assignment." URS Corporation offers a comprehensive range of professional planning and design, systems engineering and technical assistance, program and construction management, and operations and maintenance services for surface transportation, air transportation, rail transportation, industrial process, facilities and logistics support, water/wastewater treatment, hazardous waste management and military platforms support. Headquartered in San Francisco, the Company operates in more than 20 countries with approximately 26,000 employees providing engineering and technical services to federal, state and local governmental agencies as well as private clients in the chemical, manufacturing, pharmaceutical, forest products, mining, oil and gas, and utilities industries http://www.urscorp.com/ * * * As reported in the Troubled Company Reporter's May 13, 2004 edition, Standard & Poor's Ratings Services raised its corporate credit and senior secured bank loan ratings on URS Corp. to 'BB' from 'BB-'. At the same time, Standard & Poor's raised the senior unsecured and senior subordinated debt ratings to 'B+' from 'B'. The ratings were removed from CreditWatch, where they were placed on March 31, 2004. The outlook is positive. "The upgrade reflects decreased leverage and improved financial flexibility upon completion of URS' equity offering as well as the expectation that the company will exercise a somewhat less aggressive financial policy in the future," said Standard & Poor's credit analyst Heather Henyon. "Management's commitment to a more conservative financial profile could lead to metrics exceeding Standard & Poor's expectations in the intermediate term, potentially leading to a ratings upgrade." VOEGELE MECHANICAL: Case Summary & Largest Unsecured Creditors -------------------------------------------------------------- Debtor: Voegele Mechanical Inc. dba Voegele Mechanical Services Inc. dba VMS Inc. 2170 Bennett Road Philadelphia, Pennsylvania 19116 Bankruptcy Case No.: 04-30628 Type of Business: The Debtor is a heating, air conditioning, refrigeration, plumbing, and electrical contractor. See: http://www.voegele.net/ Chapter 11 Petition Date: August 3, 2004 Court: Eastern District of Pennsylvania (Philadelphia) Judge: Stephen Raslavich Debtor's Counsels: Rhonda Payne Thomas, Esq. Klett Rooney Lieber and Schorling Two Logan Square, 12th Floor Philadelphia, Pennsylvania 19103-2756 Tel: (215) 567-7500 Estimated Assets: $10 Million to $50 Million Estimated Debts: $10 Million to $50 Million Debtor's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Economy Plumbing & Trade $1,049,416 Heating Supply Co 5245 Germantown Avenue Philadelphia, PA 19144-2394 United Association of Union $605,616 Journeymen and Apprentices of the Plumbing & Pipefitting Industry of the United States & Canada Plumbers Local Union No. 690 2791 Southampton Road Philadelphia, PA 19154 Danco, Inc. Trade $604,360 PO Box 367 Bellmawr, New Jersey 08031 United Association of Union $531,220 Journeymen and Apprentices of the Plumbing & Pipefitting Industry of the United States & Canada Plumbers Local Union No. 420 14420 Townsend Road Suite B Philadelphia, PA 19154-1028 United States Treasury Government $452,272 PO Box 8318 Philadelphia, PA 19162 City of Philadelphia Government $399,390 Wage Tax PO Box 8040 Philadelphia, PA 19101-8040 US Mid-Atlantic Insurance Insurance $250,138 PO Box 8500-5660 Philadelphia, PA 19178-5660 Quality Heating/SSM Trade $237,917 Diaz Excavating and Trade $213,215 Construction Inc. Luthe Sheet Metal, Inc. Trade $210,186 Building Control Trade $174,674 Systems, Inc. Stainless Steel Trade $173,072 Fabricators Bonland Industries, Inc. Trade $171,379 Pennsylvania Unemployment Government $135,213 Compensation Fund Labor And Industry Quality Heating and Trade $130,871 Sheet Metal Insultech Trade $129,090 Islandaire, Inc. Trade $118,871 United Association of the Union $117,335 Journeymen and Apprentices of the Plumbing & Pipefitting Industry of the United States & Canada, AFL-CIO Local Union No. 9 York International Corp Trade $117,190 WEIRTON STEEL: State Balks at Disallowing Frontier Insurance Claim ------------------------------------------------------------------ Pursuant to Chapter 23 of the West Virginia Statutes, West Virginia requires all employers operating in the State of West Virginia to participate in West Virginia's system for payment of workers' compensation claims. West Virginia requires that all employers either: (a) subscribe to a workers' compensation fund, to which payments are made by employers and from which employee workers' compensation claims are paid; or (b) self-insure against workers' compensation claims. Pursuant to the applicable laws and regulations, Debtor Weirton Steel Corporation elected to self-insure against workers' compensation claims with the consent of the West Virginia Workers' Compensation Commission. According to Mark E. Freedlander, Esq., at McGuireWoods, in Pittsburgh, Pennsylvania, even though the Debtor, as a self-insured employer, was not required to subscribe to the Fund, it was required to make certain payments, referred to as a "self-insured premium tax," to the Fund. On November 3, 2003, the Compensation Commission filed a proof of claim, asserting a contingent unsecured priority claim in the undiscounted amount of $111,031,825, and in the discounted amount of $59,901,268, for prepetition obligations allegedly owed by the Debtor to the Fund, based on the projected future payments to be made by the Fund to individual workers' compensation claimants on account of prepetition injuries sustained by the claimants. The Compensation Commission also filed an administrative priority claim for $6,178,687, for amounts allegedly owed by the Debtor to the Fund, based on the projected future payments to be made by the Fund to individual workers' compensation claimants on account of postpetition injuries sustained by the claimants. On April 23, 2004, the Commission filed a Notice of Appeal of the ISG Sale Order with the United States District Court for the Northern District of West Virginia. Mr. Freedlander tells the Court that the Debtor and the Commission have reached an agreement to settle issues relating to the Commission Claims and those issues raised by the Commission on Appeal. The Debtor expects to file a motion to settle claims with the Commission in the Bankruptcy Court soon. Subsequently, a substantial number of individual workers' compensation claimants have filed prepetition and administrative proofs of claim, asserting liability encompassed in the Commission Claims. Mr. Freedlander contends that the 496 Individual Workers' Compensation Claims totaling $15,950,443, are claims payable by the Commission from the Fund, not the Debtor. Hence, the Debtor asks the United States Bankruptcy Court for the Northern District of West Virginia to disallow the Individual Workers' Compensation Claims. Only 20 of the Individual Compensation Claims assert claim amounts: Claim Claim Claim Claimant Number Amount Classification -------- ------ ------ -------------- Beaver, George R. 1491 $813,971 unsecured Boniey, Mary 2203 100,000 unsecured Eannottie, Helen M. 1593 635 unsecured Enrietti, Leonard M. 1996 3,415 unsecured Frontier Insurance Co. 2764 10,277,950 unsecured Griffin, Janice 897 318,702 unsecured Guiddy, Paul G. 2368 44,252 unsecured Kozora, Steven M. 2157 12,000 unsecured Koroza, Steven M. 2681 28,243 unsecured Littleton, Richard S. 20309 25,000 administrative Mayerich, Gerald L. 2043 10,665 unsecured Proffit, Margaret 898 115,802 unsecured Rees, Samuel D. 1156 500,000 unsecured Reinard, Timothy A. 20362 80,000 administrative Reinard, Timothy A. 2599 1,750,000 unsecured Ryan, Robert J. Jr. 1496 543,278 unsecured Tiberio, Anthony T. Jr. 20207 25,000 administrative Todoroff, Michael A. 1986 1,296,770 unsecured Zrinyi, Eugene G. 1764 2,380 priority Zrinyi, Eugene G. 1814 2,380 priority Compensation Commission Responds The West Virginia Workers' Compensation Commission does not oppose the Debtor's Claims Objection as it relates to claims filed by former employees, their dependents and survivors. However, the Debtor wants to disallow Frontier Insurance Company's proof of claim. Marye L. Wright, Esq., in Charleston, West Virginia, asserts that there is no set of facts or legal basis to disallow Frontier's claim as a workers' compensation claim. The Commission does not have any liability to Frontier, and the settlement in principle between the Debtor and the Commission does not resolve the claim the Commission has against Frontier. Thus, the Commission asks the Debtor to provide a factual and legal basis for the inclusion of the Frontier claim. Headquartered in Weirton, West Virginia, Weirton Steel Corporation is a major integrated producer of flat rolled carbon steel with principal product lines consisting of tin mill products and sheet products. The company is the second largest domestic producer of tin mill products with approximately 25% of the domestic market share. The Company filed for chapter 11 protection on May 19, 2003 (Bankr. N.D. W. Va. Case No. 03-01802). Judge L. Edward Friend, II administers the Debtors cases. Robert G. Sable, Esq., Mark E. Freedlander, Esq., David I. Swan, Esq., James H. Joseph, Esq., at McGuireWoods LLP represent the Debtors in their restructuring efforts. (Weirton Bankruptcy News, Issue No. 32; Bankruptcy Creditors' Service, Inc., 215/945-7000) WESTPOINT STEVENS: Renews Modified Headquarters Lease ----------------------------------------------------- WestPoint Stevens, Inc., as successor-in-interest to J.P. Stevens & Co., Inc., is a tenant under a certain non-residential real property lease with Reckson 1185 Sixth LLC. The premises subject to the Lease, dated as of November 25, 1968, is located at 1185 Avenue of the Americas, in New York. According to John J. Rapisardi, Esq., at Weil, Gotshal & Manges, LLP, in New York, the Debtors rent the 9th through 13th floors, the entire 15th floor, and 10,150 square feet of the Building's basement. The Lease is subject to a license with Ralph Lauren Home collection, a division of Polo Ralph Lauren Corporation, under which Ralph Lauren occupies the entire 9th floor and a portion of the 10th floor. The Debtors use the Premises as their principal headquarters in New York for administrative, marketing, and other corporate offices. The Lease is scheduled to expire by its own terms on December 6, 2005. After extensive, good faith, arm's-length negotiations, the Debtors and Reckson entered into a Modification Agreement to renew the Lease with respect to the entire 11th, 12th, 13th and 15th floors. The salient terms of the Modification Agreement are: (a) The Lease term with respect to the Renewal Space will be extended to December 31, 2006; and (b) The Fixed Rent for the Extension Period will be $4,272,000 per year, payable in equal monthly installments of $356,000. Because the Debtors do not have an option to renew, the Debtors will be forced to relocate to another location absent the extension contemplated in the Modification Agreement. Mr. Rapisardi asserts that relocation would certainly involve considerable expense and inconvenience as well as a great deal of uncertainty over whether a suitable location can be found at an advantageous price. A lease renewal will allow the Debtors to focus on their business operations and emergence from Chapter 11 rather than on the logistical issues surrounding a move of their entire New York operations and principal showroom. The Modification Agreement provides for an extension of only a portion of the office space currently occupied by the Debtors, enabling them to eliminate rental obligations associated with underused or unneeded space. The Debtors sought and obtained the Court's authority to assume the Lease, as modified. Since the Debtors have continued to remain current on their payments under the Lease, there are no outstanding amounts owed under the Lease and therefore assumption will not result in any cure costs. Headquartered in West Point, Georgia, WestPoint Stevens, Inc., is the #1 US maker of bed linens and bath towels and also makes comforters, blankets, pillows, table covers, and window trimmings. It makes the Martex, Utica, Stevens, Lady Pepperell, Grand Patrician, and Vellux brands, as well as the Martha Stewart bed and bath lines; other licensed brands include Ralph Lauren, Disney, and Joe Boxer. Department stores, mass retailers, and bed and bath stores are its main customers. (Federated, J.C. Penney, Kmart, Sears, and Target account for more than half of sales.) It also has nearly 60 outlet stores. Chairman and CEO Holcombe Green controls 8% of WestPoint Stevens. The Company filed for chapter 11 protection on June 1, 2003 (Bankr. S.D.N.Y. Case No. 03-13532). John J. Rapisardi, Esq., at Weil, Gotshal & Manges, LLP, represents the Debtors in their restructuring efforts. (WestPoint Bankruptcy News, Issue No. 26; Bankruptcy Creditors' Service, Inc., 215/945-7000) WILLIS LEASE: Renews $126 Million Revolving Credit Facility ----------------------------------------------------------- Willis Lease Finance Corporation (Nasdaq:WLFC) has renewed one of its primary revolving credit facilities with a syndicate of banks led by Fortis Bank (Nederland) N.V. as structuring and security agent and National City Bank as administrative agent. California Bank & Trust, City National Bank, Wells Fargo Bank, HSH Nordbank, and State Bank of India are also participants in the credit. The credit facility makes immediately available to Willis Lease up to $126.0 million on a revolving basis through May 31, 2006, with final maturity on May 31, 2007. This and other credit facilities support the company and its subsidiaries in financing the $498.1 million equipment lease portfolio as of June 30, 2004. "We are very pleased we have been able to renew this facility," said Charles F. Willis, President and CEO. "Access to capital is fundamental to our success, and we see the continued support of both domestic and international banks as a vote of confidence for our business model." About Willis Lease Willis Lease Finance Corporation leases spare commercial aircraft engines, rotable parts and aircraft to commercial airlines, aircraft engine manufacturers and overhaul/repair facilities worldwide. These leasing activities are integrated with the purchase and resale of used and refurbished commercial aircraft engines. * * * Liquidity and Capital Resources In its Form 10-Q for the quarterly period ended March 31, 2004, filed with the Securities and Exchange Commission, Willis Lease Finance Corporation reports: "Cash flows from operations are driven significantly by changes in revenue. While the Company has experienced some deterioration in lease rates, these have been offset by reductions in interest rates such that the spread between lease rates and interest rates has remained relatively constant throughout the period. The lease revenue stream, in the short-term, is at fixed rates while a majority of the Company's debt is at variable rates. If interest rates increase the Company may not be able to increase lease rates in the short-term and this would cause a reduction in the Company's earnings. Approximately 88%, by book value, of the Company's equipment held for lease, was leased at March 31, 2004 and December 31, 2003. Decreases in utilization, as well as deterioration in lease rates that are not offset by reductions in interest rates, would have a negative impact on earnings and cash flows from operations. The Company believes that utilization and lease rates will continue to fluctuate for the foreseeable future. "Approximately $335.7 million of the Company's debt is subject to the Company continuing to comply with the covenants of each financing, including debt/equity ratios, minimum tangible net worth, and minimum interest coverage ratios, and other eligibility criteria including customer and geographic concentration restrictions. In addition, the Company can typically borrow 83- 85% of an engine purchase price and only 70% of a spare parts purchase price under these facilities, so the Company must have other available funds for the balance of the purchase price of any new equipment to be purchased or it will not be permitted to draw on these facilities for a particular purchase. The facilities are also cross-defaulted. If the Company does not comply with the covenants or eligibility requirements, the Company may not be permitted to borrow additional funds and accelerated payments may become necessary. Additionally, debt is secured by engines on lease to customers and to the extent that engines are returned from lease early or are sold, repayment of that portion of the debt could be accelerated. The Company was in compliance with all covenants at March 31, 2004. "As a result of the floating rate structure of the majority of the Company's borrowings, the Company's interest expense associated with borrowings will vary with market rates. In addition, commitment fees are payable on the unused portion of the revolving facility. "The Company believes that its current equity base, internally generated funds and existing debt facilities are sufficient to maintain the Company's current level of operations. The Company's ability to sustain its current level of operations would be impaired if there is a decline in the level of internally generated funds that could result if off-lease rates increase, or if there is a decrease in the availability under the Company's existing debt facilities. The Company is currently discussing additions to its debt base with its commercial and investment banks. If the Company is not able to access additional debt, its ability to continue to grow its asset base consistent with historical trends will be impaired and its future growth limited to that which can be funded from internally generated capital." WORLDSPAN LP: Moody's Low-B & Junk Ratings ------------------------------------------ Moody's Investors Service has confirmed Worldspan's B1 guaranteed secured bank credit facility rating, B2 guaranteed senior note rating, and Caa1 subordinated note (Seller Notes) rating. The rating action concludes a review for possible upgrade initiated on June 4, 2004 and is in response to Worldspan's announcement on June 29, 2004 that its anticipated IPO has been postponed. The rating outlook is stable. The confirmation reflects: A) Worldspan's leading market position as an online global distribution system (GDS) provider, B) the current essential nature of GDS services to the airlines as the primary mechanism for travel distribution, and C) Worldspan's leading market share as a GDS vender to online travel agencies. The rating confirmation also reflects credit challenges related to Worldspan's: X) online customer concentration, Y) aggressive capital structure, which contributes to high debt leverage, and Z) modest cash position and revolving credit facilities with tight financial covenants. The stable outlook is based on Moody's expectation that Worldspan will continue to: 1) increase its airline and other booking market share within the online travel market, 2) effectively manage the shift of bookings from the traditional travel agent channel (54% of Worldspan's air booking volume in 2003) to online transactions, and 3) maintain financial flexibility under the financial covenants of its bank credit facility. The stable outlook also assumes that Expedia's announcement on May 5, 2004 that Expedia will shift a portion of its bookings from the Worldspan to the Sabre GDS will not have a material negative impact on Worldspan's credit profile. The rating could be raised if the company's financial flexibility were to improve substantially as measured by adjusted debt to EBITDA less capex, or the online market becomes the primary distribution channel and the company maintains a significant share of that market. The rating could be lowered if Worldspan were to lose or experience a diminution in contract value related to one of its major online customers, resulting in a potentially material decline in the company's revenue, liquidity, or operating margins. The ratings may also be lowered if online agencies other than those powered by the Worldspan GDS grow at the expense of Worldspan's clients, the company's net booking fee (gross booking fee less inducements) deteriorates, or the company's traditional channel market share weakens before online becomes the dominant travel and lodging distribution channel. Moody's placed Worldspan's ratings on review for possible upgrade on June 4, 2004. The review for upgrade was based on Moody's expectation that IPO proceeds of roughly $650 million would be used to repay a substantial portion of the company's outstanding debt and preferred equity. Sales in the company's first fiscal quarter ended March 31, 2004 grew 6% to $249 million and free cash flow (defined as operating cash flow less capex) increased to $20 million from -$4 million in the comparable prior year quarter. Rent adjusted debt to EBITDAR less capex for the last twelve months ended March 31, 2004 improved to 4.7x versus 7.6x for the fiscal year ended December 31, 2003. At March 31, 2004, Worldspan's liquidity consisted of $32 million cash, $50 million undrawn revolver expiring June 30, 2007, all of which was available at March 31, 2004, and $88 million free cash flow. RATINGS CONFIRMED: -- B1 rating on $175 million guaranteed senior secured bank credit facility due 2007 -- B2 rating on $280 million guaranteed senior unsecured notes due 2011 -- Caa1 rating on $84 million senior subordinated notes (Seller Notes) due 2012 -- B1 Senior Implied rating -- B3 Long Term Issuer Rating Worldspan L.P., headquartered in Atlanta, Georgia, is an international provider of computer reservation systems and other IT services for the travel industry. XEROX CORP: Expects $400 Million from Senior Debt Offering ---------------------------------------------------------- Xerox Corporation (NYSE: XRX) expects to raise $400 million through a senior unsecured note offering. Proceeds from the offering, which is subject to market and other conditions, will be used for general corporate purposes. Due 2011 and denominated in U.S. dollars, the notes will be issued by Xerox and sold under the company's $2.5 billion universal shelf registration statement. Citigroup Global Markets Inc. and JPMorgan Securities Inc. are acting as joint book-running managers for the offering. A copy of the prospectus for this offering may be obtained by contacting: Citigroup Global Markets, Inc. Prospectus Department Brooklyn Army Terminal, 8th Floor 140 58th Street Brooklyn, NY 11220 Phone: +1-718-765-6732 Fax: +1-718-765-6734 About Xerox Corporation Xerox is best known for its copiers, but it also makes printers, scanners, fax machines, software, and supplies, and provides consulting and outsourcing services. The company designs its products for home users, businesses, and high-volume publishers such as newspapers. Customers include Kinkos and the US Army Reserve. Although it plans to expand its color printing offerings, the company still generates two-thirds of its revenue from black and white products. Sales outside the US account for nearly 45% of revenues. Xerox, which has seen its sales and market share slip, has cut jobs and sold assets, including half of its stake in Fuji Xerox. As reported in the Troubled Company Reporter's April 20, 2004, edition, Standard & Poor's Ratings Services withdrew its 'B' commercial paper rating for Xerox Corp. and all of its subsidiaries that carried a short-term rating on April 13, 2004. No commercial paper is currently outstanding at the company and the programs are inactive. The long-term ratings on Xerox, including the 'BB-' corporate credit rating, were affirmed. The outlook remains negative. * BOOK REVIEW: Merchants of Debt -------------------------------- Author: George Anders Publisher: Beard Books Hardcover: 335 pages List Price: $34.95 Own your personal copy at http://amazon.com/exec/obidos/ASIN/1587981254/internetbankrupt Review by Gail Owens Hoelscher "For the first fourteen years of KKR's existence, the buyout firm's hallmark could be expressed in one word: debt. . . . As KKR grew evermore powerful, Kravis and Roberts derived their economic clout from a single fact: They could borrow more money, faster, than anyone else." KKR acquired $60 billion worth of companies in wildly different industries in the 1980s: Safeway Stores, Duracell, Motel 6, Stop & Shop, Avis, Tropicana, and Playtex. They made piles of money by deducting interest expenditures from their taxes, cutting costs in their new companies and riding a long-running bull market. The juggernaut of Kohlberg Kravis Roberts & Co. began rolling in 1976 when Jerome Kohlberg and cousins Henry Kravis and George Roberts left Bear, Stearns with about $120,000 to spend. The three wunderkind shortly invented and dominated the leveraged buyout as they sought investors and borrowed money to acquire Fortune 500 companies in dizzying succession. They put up very little money of their own funds, but their partnerships made out like bandits. Consider the case of Owens-Illinois: KKR put up only 4.7 percent of the purchase price. The company's chairman earned $10 million within a few years, the takeover advisors got $60 million, Owens-Illinois was left "gaunt and scaled back," and about five years later, KKR took it public at $11 a share, more than twice what the KKR partnership had paid for it. In this reprint of his 1992 book Merchants of Debt: KKR and the Mortgaging of American Business, George Anders tells us how they worked: "[t]ime after time, the KKR men presented a tempting offer. The CEO could cash out his company's existing shareholders by agreeing to sell the company to a new group that would be headed by KKR, but would include a lot of room for existing management. The new ownership group would take on a lot of debt, but aim to pay it off quickly. If this buyout worked out as planned, the KKR men hinted, the new owners could earn five times their money over the next five years. Presented with such a choice in the frenzied takeover climate of the 1980s, managers and corporate directors again and again said yes. To top management a leveraged buyout was the most palatable way to ride out the merger-and-acquisition craze." The author includes a detailed appendix of KKR's 38 buyouts during the period 1977-1992 that presents the following on each purchase: price paid by KKR; percentage of the purchase price paid by KKR's equity funds; length of time KKR owned the company; financial payoff for the ownership group; and the annualized profit rate for investors over the life of the buyout. KKR used less than 9 percent of its own funds in 18 of the 38 cases. In only four cases did KKR put up more than 30 percent of the price. KKR owned the 38 companies for an average of about 5 years. As Anders puts it, "[a]s quickly as the KKR men had roared into a company's life, they roared off." This behind-the-scene account shows the ambition, pride, envy, and fear that characterized the debt mania largely engineered by KKR, a mania that put millions out of work and made a very few very rich. This book is a must-read in understanding what happened to corporate American in the 1980s. George Anders is the West Coast bureau chief of Fast Company magazine. He worked for two decades at The Wall Street Journal, and was part of a seven-person reporting team that won the Pulitzer Prize for national reporting in 1997 ********* Monday's edition of the TCR delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR editor holds some position in the issuers' public debt and equity securities about which we report. Each Tuesday edition of the TCR contains a list of companies with insolvent balance sheets whose shares trade higher than $3 per share in public markets. At first glance, this list may look like the definitive compilation of stocks that are ideal to sell short. Don't be fooled. Assets, for example, reported at historical cost net of depreciation may understate the true value of a firm's assets. A company may establish reserves on its balance sheet for liabilities that may never materialize. The prices at which equity securities trade in public market are determined by more than a balance sheet solvency test. A list of Meetings, Conferences and Seminars appears in each Wednesday's edition of the TCR. Submissions about insolvency- related conferences are encouraged. Send announcements to conferences@bankrupt.com. Each Friday's edition of the TCR includes a review about a book of interest to troubled company professionals. All titles are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/books/to order any title today. Monthly Operating Reports are summarized in every Saturday edition of the TCR. For copies of court documents filed in the District of Delaware, please contact Vito at Parcels, Inc., at 302-658-9911. For bankruptcy documents filed in cases pending outside the District of Delaware, contact Ken Troubh at Nationwide Research & Consulting at 207/791-2852. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Frederick, Maryland USA. Yvonne L. Metzler, Emi Rose S.R. Parcon, Bernadette C. de Roda, Rizande B. Delos Santos, Jazel P. Laureno, Cherry Soriano-Baaclo, Marjorie Sabijon and Peter A. Chapman, Editors. Copyright 2004. All rights reserved. ISSN: 1520-9474. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR subscription rate is $675 for 6 months delivered via e- mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 240/629-3300. *** End of Transmission ***