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/raid1/www/Hosts/bankrupt/TCR_Public/040916.mbx T R O U B L E D C O M P A N Y R E P O R T E R Thursday, September 16, 2004, Vol. 8, No. 199 Headlines ADAHI INC: Case Summary & 15 Largest Unsecured Creditors AINSWORTH LUMBER: Moody's Puts B2 Rating on $450M Senior Notes AINSWORTH LUMBER: S&P Affirms B Corporate Credit & Debt Ratings AIRGATE PCS: Says Amended Sprint Agreement Will Settle Disputes ALADDIN GAMING: $510 Million Casino Sale Completed Aug. 31 ALLIED WASTE: Moody's Reviewing 28 Low-B Ratings & May Downgrade ALLIED WASTE: Fitch Revises Outlook on Low-B Ratings to Negative ALLISON DEVELOPMENT: List of 16 Largest Unsecured Creditors AVIALL INC: Performance Prompts Moody's to Hold Low-B Ratings BELL CANADA: Gets Court OK to Pay Noteholders $168.8M on Sept. 29 BOSTON CHICKEN: Trustee Settles Some FAD Lawsuits for 70% BPL ACQUISITION: Moody's Affirms Ba1 Senior Sec. & Implied Ratings BRIDGEPOINT TECH: Wants to Use Lender's Cash Collateral CALA CORP: Retains George Brenner as Independent Auditor CELESTICA INC: Expects Up to $2.15 Billion in Revenues for Q3 CENTRAL GARDEN: S&P Affirms BB Ratings with Negative Outlook CHARLES RIVER: Moody's Assigns Ba1 Rating to Credit Facilities CLECO EVANGELINE: Moody's Reviewing B3 Debt Rating & May Upgrade COVANTA: Claims Classification & Treatment Under Covanta Lake Plan CREST 2001-1: Fitch Affirms B+ Rating on Preferred Shares CREST 2002-IG: Fitch Affirms BB Rating on $14M Class D Notes CREST G-STAR: Fitch Puts Low-B Ratings on $21MM Notes & Preferreds CUSTOM PRODUCTION: Case Summary & 11 Largest Unsecured Creditors DAVIS PRESERVATION GROUP LLC: Voluntary Chapter 11 Case Summary DELTA AIR: Revised Form 10-K Discloses Possible Chapter 11 Filing DEVLIEG BULLARD: Wants Fladgate Fielder as Special Counsel DIGITALNET INC: Moody's Reviewing Single-B Ratings & May Upgrade DIRECTV HOLDINGS: Fitch Puts Double-B Ratings on Senior Debt E-SIM LTD: July 31 Balance Sheet Upside-Down by $5.3 Million ENRON CORP: Inks Closing Agreement with IRS Commissioner ENTERPRISE PRODS: Extends Four Cash Tender Offers to Sept. 24 EXIDE TECH: Five Creditors Transfer Claims Totaling $743,544 FINOVA GROUP: To Prepay $188,717,960 on 7.5% Sr. Notes on Oct. 15 FOSTER WHEELER: Wins $32MM Caltex EPC Pact for Low-Sulfur Project FOSTER WHEELER: Only 49.3% of Holders Okay Equity-for-Debt Swap GLOBAL CROSSING: AGX Trustee Wants to Establish Admin. Bar Date GOSHAWK RIDGE: U.S. Trustee Meeting Creditors on Oct. 25 GRAHAM PACKAGING: Moody's Rates New Loans at Junk & Low-B Levels GRAPHIC DETAIL INC: Case Summary & 20 Largest Unsecured Creditors HUNTSMAN: Planned IPO Prompts S&P to Put B Ratings on CreditWatch INTERPOOL INC: Sold $150 Million New Notes via Private Placement INTERPUBLIC: Poor Internal Controls Cue S&P to Watch BB+ Rating JUNIPER GENERATION: Fitch Lifts $105M Notes to Investment Grade KMART HOLDING: UBS Lifts 12-Month Price Target to $101 from $85 LAUREL MOUNTAIN: Somerset Trust Conducts Public Sale on Friday LONGHOUSE ASSOCIATES: Case Summary & Largest Unsecured Creditors MISSION HEALTH: Wants to Access Up to $1.2MM of Cash Collateral MGM MIRAGE: Fitch Assigns BB+ Rating to $400MM 6% Senior Notes MORGAN STANLEY: Fitch Affirms Low-B Ratings on Six Cert. Classes NATIONAL ENERGY: Goldman Sachs Wins 12 Equity Interests for $656MM NATIONAL MEDICAL: Reports $6.6MM Stockholders' Deficit at June 30 NORTEL NETWORKS: Completes Deployment of VoIP Networks in Mexico PATHMARK STORES: Competition Spurs Moody's to Pare Ratings to B3 PROJECT FUNDING: Fitch Pares Ratings on Two Note Classes to Low-B PURE TECH: U.S. Patent Office Grants 2nd Patent on P-Wave Tech. QUALITY DISTRIBUTION: Richard Marchese Acts as Interim SVP & CFO RCN CORP: Wants to Employ PDA as Operations Consultant RIVERSIDE FOREST: Says 11-Month Reports Prove Tolko Bid Inadequate SALEM COMMS: S&P's B+ Corporate Credit Rating Has Stable Outlook SCOTT ACQUISITION: Wants Renaissance Partners as Financial Adviser SIERRA HEALTH: Will Release 3rd Quarter Results on Oct. 20 SILICON GRAPHICS: S&P Affirms Junk Corporate Credit Rating SIMMONS BEDDING: IPO Uncertainty Cues S&P to Hold B+ Credit Rating SINO-FOREST: Appoints Messrs. Horsley & Hyde to Board of Directors SYSTECH RETAIL: Posts $1.5 Million 1st Quarter Net Loss UAL CORP: Board Wants to Appoint IFS as Pension Plan Fiduciary UAL CORP: Flight Attendants Support Chapter 11 Trustee Appointment UBS 400: Moody's Shaves Ratings on Two Cert. Classes to Low-B URS CORP: Wins Military Construction Management & Designs Pact US AIRWAYS: Moody's Assigns Junk Rating on Five Cert. Classes US AIRWAYS: Fitch Says 2nd Bankruptcy Raises U.S. Airport Concerns US AIRWAYS: Vacations Says It's Business as Usual During Reorg. US LEC: Moody's Assigns Junk Senior Implied & Issuer Ratings WASTECORP.: Disclosure Statement Hearing Adjourned to September 28 WEST OWENS MANAGEMENT GROUP: Voluntary Chapter 11 Case Summary * GDI Global Data Providing Services for Distressed Situations ********* ADAHI INC: Case Summary & 15 Largest Unsecured Creditors -------------------------------------------------------- Debtor: Adahi, Inc. PO Box 8106 Incline Village, Nevada 89452 Bankruptcy Case No.: 04-52718 Chapter 11 Petition Date: September 13, 2004 Court: District of Nevada (Reno) Judge: Gregg W. Zive Debtor's Counsel: Stephen R. Harris, Esq. Belding, Harris & Petroni, Ltd. 417 West Plumb Lane Reno, Nevada 89509 Tel: (775) 786-7600 Fax: (775) 786-7764 Total Assets: $10 Million to $50 Million Total Debts: $10 Million to $50 Million Debtor's 15 largest unsecured creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ M. Nielsen Corporation Loan $328,664 PO Box 3346 Incline Village, Nevada 89450 Holm Electric Goods and Services $33,332 Bauer Drywall Goods and Services $30,896 Otis Elevator Goods and Services $19,330 Luschar Plumbing Goods and Services $19,295 Huff's Heating Goods and Services $13,018 Copeland Lumber Yards Goods and Services $13,004 G & E Painting Goods and Services $11,025 Arcade Insulation Goods and Services $9,888 Blacktop Paving Goods and Services $8,400 Q S Stairs Goods and Services $2,650 Brite Glass Goods and Services $1,800 ITG Goods and Services $1,398 Green Thumbs Grounds Care Goods and Services $1,137 Cardenas Enterprises, Inc. Goods and Services $230 AINSWORTH LUMBER: Moody's Puts B2 Rating on $450M Senior Notes -------------------------------------------------------------- Moody's Investors Service assigned a B2 rating to Ainsworth Lumber Co. Ltd.'s proposed US$450 million new note issues. he new notes are being issued to fund Ainsworth's US$457.5 million purchase of Potlatch Corporation's oriented strandboard -- OSB -- assets, and will rank equally with Ainsworth's existing senior unsecured notes. Accordingly, the ratings on the existing notes, as well as Ainsworth's senior implied and issuer ratings, were downgraded to B2. The ratings outlook is stable. This action concludes a review initiated on August 27th. Rating issued: Ainsworth Lumber Co. Ltd.: Outlook: Stable * US$150 million senior unsecured floating rate notes: B2 * US$300 million senior unsecured notes: B2 Ratings Downgraded: Ainsworth Lumber Co. Ltd.: * Senior Implied: to B2 from B1 * Issuer Rating: to B2 from B1 * US$320 million senior unsecured 6.75% Notes due March 15, 2014: to B2 from B1 The B2 ratings reflect the company's: * increased leverage (debt per unit of capacity increases 54% to US$228/mmsf (3/8th inch) as a consequence of the acquisition), * relatively modest size, * limited product diversity, and * the extremely volatile pricing of its core OSB product line. While near term results are expected to remain exceptionally strong, mid-to-long term results are expected to remain quite volatile and Ainsworth's cash generation is expected to vary widely within relatively short periods of time as a consequence of OSB's price volatility. The rating also accounts for an aggressive acquisition policy that has seen Ainsworth complete two relatively large acquisitions within a very short time. In addition, with the most recent acquisition being 100% debt financed and with a small dividend having been paid during the associated acquisition assessment, with a significant amount of cash being retained, and with no means of reducing debt over the near term without incurring call premia, it does not appear that the company is focused on debt reduction. Further, with the newly acquired mills being higher cost than the existing stable of assets, and with the new assets being substantially dependent upon third party wood supplies, Ainsworth's average unit cost profile increases while its ability to control costs decreases. There are also integration risks, and with the transaction being completed at a time when there is greater risk of OSB prices decreasing than increasing, there is the potential of cash flow decreasing and frustrating any near term efforts to de-lever. Moody's ratings also reflected the sound quality, low cost and integrated fiber supply arrangements of the company's existing OSB mills (three of which are wholly owned with a third being a 50% joint venture), together with adequate liquidity arrangements and an absence of near term debt amortization requirements. The acquisition provides enhanced aggregate scale and geographic coverage, the potential for product mix and logistics synergies and reduces currency exchange rate risk. Ainsworth recently augmented its liquidity by entering into a 5-year C$50 million secured revolving credit facility. Outstandings are currently nil. Drawings under the facility are subject to a standard borrowing base and are secured by inventory and receivables. Ainsworth will shortly be implementing a United States based liquidity facility to serve its new operations. Although both credit facilities would continue to inject some structural subordination to the senior unsecured notes, the size of the facilities is expected to be small relative to outstanding debt (approximately C$1,027 million) and total assets (estimated by Moody's to be approximately C$1,485 million post the acquisition). Together with anticipated minimal usage, this allows the senior unsecured notes to be rated equivalent with the senior implied and issuer ratings at the B2 level. Ainsworth's current and expected financial results are in line with the proposed revolving credit facility covenants (there are no bond maintenance covenants). The outlook for the ratings is stable. Over time, higher ratings could result from material debt reduction (to significantly less that US$200/mmsf of capacity) and the implementation of more conservative financial policies. Adverse ratings actions could occur if: * OSB prices weaken for a prolonged period, * the Canadian dollar appreciates significantly, * the company increases leverage to support acquisitions or new facilities, or * financial liquidity deteriorates. Ainsworth Lumber Co., Ltd., a British Columbia corporation headquartered in Vancouver, Canada, is a publicly traded integrated OSB producer that also manufactures specialty overlaid plywood and finger-jointed lumber. Post the acquisition, Ainsworth will have a 13% market share in OSB, and OSB sales will represent approximately 97% of total revenues. AINSWORTH LUMBER: S&P Affirms B Corporate Credit & Debt Ratings --------------------------------------------------------------- Standard & Poor's Ratings Services affirmed its 'B+' long-term corporate credit and senior unsecured debt ratings on Vancouver, B.C.-based Ainsworth Lumber Co. Ltd. At the same time, the ratings were removed from CreditWatch, where they had been placed on Aug. 26, 2004, following the company's announcement to purchase all of Potlatch Corp.'s oriented strandboard -- OSB -- manufacturing and related facilities for about US$457.5 million. Ainsworth's proposed new issues of US$300 million of fixed senior unsecured notes due 2012 and US$150 million of floating variable- rate senior notes due 2010 were also assigned 'B+' ratings. The outlook is stable. "Although the purchase is being financed with additional debt, we believe Ainsworth will be able to generate sufficient cash flow to achieve a credit profile consistent with the existing rating, even if OSB prices decline significantly," said Standard & Poor's credit analyst Daniel Parker. In addition, the company will maintain about C$130 million cash on the balance sheet, which alleviates any liquidity concerns. The Potlatch assets will diversify the company's geographic and operating presence and solidify Ainsworth's position in the north-central U.S. The company's financial profile is very aggressive, as it uses a significant amount of debt in its capital structure. Profitability and credit protection measures can swing wildly with changes in OSB prices. Ainsworth's business mix is narrowly focused--OSB (a plywood substitute) accounts for well over 95% of sales and earnings. The major business risk is the extreme volatility of OSB prices, which is caused by supply and demand factors. Demand is driven primarily by the residential housing market, and OSB prices are sensitive to any demand fluctuations. A slowdown in the residential construction market would hurt OSB prices. Although OSB prices are likely to decline substantially in 2005 from the peak levels experienced in 2004, Standard & Poor's expects the company to be diligent in its efforts to reduce debt and to focus on integrating the new assets. Ainsworth Lumber Co., Ltd., a British Columbia corporation headquartered in Vancouver, Canada, is a publicly traded integrated OSB producer that also manufactures specialty overlaid plywood and finger-jointed lumber. Post the acquisition, Ainsworth will have a 13% market share in OSB, and OSB sales will represent approximately 97% of total revenues. AIRGATE PCS: Says Amended Sprint Agreement Will Settle Disputes --------------------------------------------------------------- AirGate PCS, Inc. (Nasdaq: PCSA), a PCS Affiliate of Sprint, reports an addendum to its Sprint Management and Services Agreements regarding back office billing and service charges, new customer activation fees and roaming rates, providing immediate substantial savings to AirGate's cost structure. The new fees will be effective August 1, 2004, through December 31, 2006. The Addendum was filed yesterday with the Securities and Exchange Commission as an exhibit to a Form 8-K filing being made by AirGate. AirGate says the companies have executed a Settlement Agreement and Mutual Release, which will result in the settlement of various financial and contractual disputes including all previously disputed charges between the companies. "We are very pleased to have reached this agreement with Sprint which solidifies our business partnership," commented Thomas M. Dougherty, president and chief executive officer of AirGate PCS. "Not only will AirGate achieve significant cost savings, but this established rate structure also provides us with better clarity on our key operating metrics going forward. As an additional benefit, we can also opportunistically explore refinancing indebtedness such as our credit facility with clarity as to the positive relationship we share with Sprint. Most importantly, with these issues resolved, we can fully focus our efforts on growing our business and gaining market share in our territory." About AirGate PCS AirGate PCS, Inc., is the PCS Affiliate of Sprint with the right to sell wireless mobility communications network products and services under the Sprint brand in territories within three states located in the Southeastern United States. The territories include over 7.4 million residents in key markets such as Charleston, Columbia, and Greenville-Spartanburg, South Carolina; Augusta and Savannah, Georgia; and Asheville, Wilmington and the Outer Banks of North Carolina. At June 30, 2004, AirGate PCS, Inc.'s balance sheet showed a $89,148,000 stockholders' deficit, compared to a $376,997,000 deficit at September 30, 2003. ALADDIN GAMING: $510 Million Casino Sale Completed Aug. 31 ---------------------------------------------------------- On August 31, 2004, BH/RE, L.L.C., and OpBiz, L.L.C., completed the acquisition of substantially all of the real and personal property owned or used by Aladdin Gaming, LLC, to operate the Aladdin Resort and Casino located in Las Vegas, Nevada, and $15 million of working capital from Aladdin Gaming. The purchase price was $510 million plus the assumption of various contracts and leases entered into by Aladdin Gaming in connection with its operation of the Aladdin and certain of Aladdin Gaming's liabilities. OpBiz paid the purchase price by issuing $500 million of Term Loan A notes and $10 million of Term Loan B notes under the Credit Agreement to Aladdin Gaming's secured creditors. A full-text copy of the Purchase and Sale Agreement, dated April 23, 2003, by and between OpBiz, L.L.C. and Aladdin Gaming, LLC, is available at no charge at: http://www.sec.gov/Archives/edgar/data/1281657/000095013404005333/d12968exv2w1.txt A full-text copy of the First Amendment to Purchase and Sale Agreement, dated August 31, 2004, by and between OpBiz, L.L.C. and Aladdin Gaming, LLC, is available at no charge at: http://www.sec.gov/Archives/edgar/data/1281657/000095013404013257/d18058exv2w2.txt Aladdin Gaming, LLC, dba Aladdin Hotel & Casino, owns and operates a casino and hotel located in Las Vegas, Nevada. Aladdin Gaming commenced its bankruptcy case on September 28, 2001, (Bankr. Nev. Case No. 01-20141). Gerald M. Gordon, Esq., at Gordon & Silver, Ltd. represents the Debtor. Aladdin entered into an Asset Purchase Agreement to sell substantially all of its assets to OpBiz on April 23, 2003. An auction was held, and OpBiz won. On August 29, 2003, the Bankruptcy Court confirmed Aladdin's Plan. Aladdin's balance sheet dated June 30, 2004, showed $568 million in assets and $591 million in liabilities. ALLIED WASTE: Moody's Reviewing 28 Low-B Ratings & May Downgrade ---------------------------------------------------------------- Moody's Investors Service placed the ratings of Allied Waste North America, Inc., its wholly owned subsidiary, Browning-Ferris Industries, Inc., and its parent company Allied Waste Industries, Inc., on review for possible downgrade. The review is triggered by company's weaker operating earnings and cash generation, and higher leverage than anticipated by Moody's over the last twelve months ended June 30, 2004, as well as the company's announcement of a downward revision in earnings guidance for the balance of the year. The rating review will focus on, among other things: (i) the reasons behind the company's lackluster performance in the last two quarters vis a vis its peers; (ii) the impact of current and expected operating performance on cash flow generation, funding of capital expenditures, and debt reduction; and (iii) the impact of the revised 2004 EBITDA on financial covenant tests. These ratings are affected: Allied Waste Industries, Inc.: * Senior Implied Rating, Ba3; * Senior Unsecured Issuer Rating, B3; * $230 million issue of 4.25% guaranteed senior subordinated convertible bonds due 2034, rated B3; * $345 million issue of mandatory convertible preferred stock -- conversion date of April 2006, rated Caa1; Allied Waste North America, Inc.: * $1.5 billion guaranteed senior secured revolving credit facility due 2008, rated Ba2; * $200 million guaranteed senior secured Tranche A Credit- Linked Deposits due 2010, rated Ba2; * $1.185 billion senior secured Tranche B Term Loan due 2010, rated Ba2; * $250 million senior secured Tranche C Term Loan due 2010, rated Ba2; * $150 million senior secured Tranche D Term Loan due 2010, rated Ba2; * $600 million issue of 7.625% guaranteed senior secured notes due 2006, rated Ba3; * $750 million issue of 8.5% guaranteed senior secured notes due 2008, rated Ba3; * $600 million issue of 8.875% guaranteed senior secured notes due 2008, rated Ba3; * $425 million issue of 6.125% senior secured notes due 2014, rated Ba3; * $350 million issue of 6.5% guaranteed senior secured notes due 2010, rated Ba3; * $400 million issue of 5.75% guaranteed senior secured notes due 2011, rated Ba3; * $375 million issue of 9.25% guaranteed senior secured notes due 2012, rated Ba3; * $450 million issue of 7.875% guaranteed secured senior notes due 2013, rated Ba3; * $400 million issue of 7.375% guaranteed senior unsecured notes due 2014, rated B2; * $345 million issue of senior subordinated notes due 2009, rated B3; * The Speculative Grade Liquidity Rating of SGL-2. Browning-Ferris Industries, Inc. - (assumed by Allied Waste North America, Inc.): * $69.4 million issue of 7.875% senior secured notes due 2005, rated Ba3; * $161.1 million issue of 6.375% senior secured notes due 2008, rated Ba3; * $99.5 million issue of 9.25% secured debentures due 2021, rated Ba3; * $360 million issue of 7.4% secured debentures due 2035, rated Ba3; * Approximately $191 million of industrial revenue bonds rated B2. Allied Waste North America, Inc., a wholly owned operating subsidiary of Allied Waste Industries, Inc., is based in Scottsdale, Arizona. Allied is a vertically integrated, non- hazardous solid waste management company providing collection, transfer, and recycling and disposal services for residential, commercial and industrial customers. The company had sales of $5.25 billion in 2003. ALLIED WASTE: Fitch Revises Outlook on Low-B Ratings to Negative ---------------------------------------------------------------- Fitch Ratings has revised the Rating Outlook for Allied Waste (NYSE: AW) to Negative from Stable, following the company's announcement of weaker operating results and increased capital expenditures, the combination of which will pressure free cash flow and slow the pace of debt reduction. Allied Waste's current ratings are as follows: -- Senior secured bank facilities 'BB'; -- Senior secured notes 'BB-'; -- Senior unsecured notes 'B+'; -- Senior subordinated notes 'B'; -- Mandatory convertible preferred 'B-'. Margin pressure has resulted from weaker pricing and higher costs than originally anticipated. Weak revenue performance has occurred despite improving economic conditions, and Allied Waste appears to be under-performing its competitors in this area. Allied Waste has also indicated higher repair and maintenance expenses and other corporate expenditures. Higher fleet expenditures should improve maintenance costs over the intermediate term but will pressure free cash flow in the short term. Fitch expects the company to continue to produce positive free cash flow, however the pace of delevering is expected to slow. If operational softness persists, expected improvement in credit metrics may not occur, although the company's fixed obligations have been improved through a number of refinancing activities. Further reduction in the company's positive free cash flow buffer could result in a review of the current ratings. Although not anticipated at this stage, further margin deterioration through economic weakness or other factors could tighten the room under bank covenants. At June 30, 2004, Allied Waste's LTM EBITDA/LTM interest, debt/LTM EBITDA, and debt/cap were 2.2 times, 5.1x, and 75.7%, respectively. ALLISON DEVELOPMENT: List of 16 Largest Unsecured Creditors ----------------------------------------------------------- Allison Development - Columbus, Inc., released a list of its 16 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ K & N Appliances Services $52,727 Frias Hardwood Floors Services $27,209 Wheatley Plumbing Services $25,000 FAR Painting Services $20,000 Custom Living Services $15,000 Olympus Marble & Granite Services $11,602 David Tile Services $8,975 Lighting Inc. Services $5,846 Dal Tile Services $4,229 Romo Electric Services $1,555 Hoelscher Weather Stripping Services $1,555 Joe Hijonsa Services $660 Lonestar Millwork Services $246 Stock Building Supply Services $179 BFI Services $76 Cornerstone Hardware Services $34 Headquartered in Houston, Texas, Allison Development - Columbus, Inc., filed for chapter 11 protection (Bankr. S.D. Tex. Case No. 04-42749) on September 3, 2004. Richard W. Aurich, Jr., Esq., in Houston, Texas, represents the Company in its restructuring efforts. When the Debtor filed for protection from its creditors, it estimated assets and debts of more than $1 million. AVIALL INC: Performance Prompts Moody's to Hold Low-B Ratings ------------------------------------------------------------- Moody's Investors Service has confirmed all ratings of Aviall Inc. (senior implied of Ba3), and has changed the company's rating outlook to positive from stable, recognizing the strength of Aviall's operating performance and credit fundamentals and its ability to internally fund ongoing growth initiatives while effectively managing financial and business risks. Specifically, these ratings have been confirmed: * Aviall's $200 million senior unsecured notes, due 2011, rated B1; * Senior implied rating of Ba3; and * Issuer rating of B2. The positive rating outlook reflects: * the company's recent track record of strong operating performance and financial results, * Moody's expectation that cash flow generation in the near term will be sufficient to cover capital expenditures and substantial levels of working capital investment that would be needed, particularly in inventory, to support the company's growth strategy. Ratings may be positively affected if the company were to demonstrate its ability to continue revenue growth of over 7% annually while maintaining gross profit margins of over 16%, with funds from operations sufficient to cover working capital and CAPEX requirements throughout this period. Conversely, ratings or their outlook could face downward revision if gross profit margins decline below 13% due to weak market conditions or the loss of critical contracts, or if continued aggressive growth causes free cash flow to fall below 10% of total debt over a protracted period of time. Since Moody's first assigned ratings to Aviall in June 2003, Aviall has generally achieved and, in some areas, exceeded expected operating performance measurements. Aviall's revenue has grown from $803 million in FY 2002 to $1.1 billion LTM June 2004. EBITDA has similarly grown in this period, although operating margins have tightened, largely due to the increase in lower- margin but less volatile military business. Approximately 53% of the company's FY 2003 revenues were derived from such sources, predominantly relating to the Rolls Royce T56 engine platform, which Moody's believes should provide the company with a stable long term revenue stream. By achieving such revenue growth while generally maintaining margins, Aviall has been able to generate robust and stable cash flow, while leverage has remained modest. June 2004 debt of $204 million represents about 2.2x LTM EBITDA, and LTM June 2004 free cash flow of about $60 million represents 29% of total debt, both of which are strong for this rating category. As the world's largest independent distributor of new aviation parts in the aftermarket, the company typically grows through obtaining exclusive distribution arrangements from OEM's for particular airframes. As part of this strategy, the company is required to purchase and maintain significant inventories of these parts to meet end customer demand. Considering expectations for general improvement in the commercial aviation segment and revenue stability provided by the continued-strong military sector, Moody's expects that free cash flow will be sufficient to support future growth, including any investments in inventory required to enter into large, new OEM distribution agreements. Moody's continues to be concerned about market risk inherent in Aviall's business model. As the company's core operations involve investment in inventories from OEM suppliers in advance of orders by downstream users, Aviall is ultimately exposed to changes in pricing and demand for the parts. Although much of this risk is mitigated by relatively short-term ordering cycles, unexpected pricing pressure, possibly caused by competitive factors or softness in downstream aviation markets, could have an adverse effect on the company's revenue growth and profitability over the near-term. Moreover, the company is exposed to event risk associated with its OEM supplier contracts. Approximately 60% of the company's 2003 sales were associated with contracts to one manufacturer, Rolls Royce, with particular exposure to the T56 engine platform. However, concentration risk on this platform is mitigated by: (a) the fact that the T56 contract cannot be terminated for convenience by Rolls Royce until January 2007; and (b) strong expected utilization of military aircraft using this engine, particularly the C-130, which should result in high replacement parts ordering levels. Still, Moody's remains cautious that loss of large supplier contracts with key OEM's, for performance reasons or due to an inability to renew existing contracts, could potentially have the effect of reducing Aviall's revenue base and cash flows, weakening its competitive position, and result in a general deterioration in credit fundamentals. Therefore, the maintenance of existing contract relationships and adroit management of its inventory investment strategy will be critical to Aviall's ratings. Aviall, Inc., headquartered in Dallas, Texas, is the largest independent global provider to the aerospace market of new aviation parts as well as supply chain management to customers in the government/military, general aviation/corporate and commercial aviation sectors. It is a public company since 1993, following its spin-off from Ryder System, Inc. The company has two subsidiaries: Aviall Services (97% of 2003 revenue), which is engaged in parts distribution, and ILS (3% of revenue), which operates a global electronic marketplace. Aviall had FY 2003 revenue of $1.01 billion. BELL CANADA: Gets Court OK to Pay Noteholders $168.8M on Sept. 29 ----------------------------------------------------------------- The Ontario Superior Court of Justice has approved the application of Bell Canada International, Inc., to pay, on the scheduled maturity date of September 29, 2004, the principal amount of $160 million due to holders of Bell Canada International's 11% senior unsecured notes. Holders of the notes will also receive on September 29, 2004 accrued interest of $8.8 million. Bell Canada International -- http://www.bci.ca/-- provides connectivity to residential and business customers through wired and wireless voice and data communications, local and long distance phone services, high speed and wireless Internet access, IP-broadband services, e-business solutions and satellite television services. Bell Canada is wholly owned by BCE Inc. 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. BOSTON CHICKEN: Trustee Settles Some FAD Lawsuits for 70% --------------------------------------------------------- Gerald K. Smith, the Boston Chicken Plan Trustee, asks the U.S. Bankruptcy Court for the District of Arizona for permission to enter into a settlement agreement with certain defendants. The Fraudulent Transfer Complaint Four years ago, Mr. Smith filed a complaint (Adv. Pro. No. 00-676) to avoid certain fraudulent transfers arising out of the merger and roll-up transaction that occurred in March through July 1998, shortly before Boston Chicken's bankruptcy. The Trustee alleges that Boston Chicken paid approximately $9.5 million in cash and issued Boston Chicken securities to the holders of the "pooled preferred" equity interest in the Financed Area Developers ("FADs"). The Trustee alleges in that action that Boston Chicken was insolvent at the time of the merger transaction; that the preferred equity interests acquired by Boston Chicken were worthless; and, accordingly, the transfers to the defendants to acquire the preferred equity interests were fraudulent and preferential transfers. The Settling Defendants answered and denied, and continue to deny, liability. Summary Judgment Decision The Trustee and the Settling Defendants (and other defendants) filed cross-motions for summary judgment in the Action. On September 30, 2003, the Bankruptcy Court entered its under advisement decision re motions for summary judgment, granted summary judgment to the Trustee on the Trustee's fraudulent transfer claim and denied the Settling Defendants' motion. As part of their settlement discussions, the parties agreed not to seek entry of a final judgment and to date no final judgment has been entered by the Bankruptcy Court on that ruling. Prejudgment Interest Ruling After the decision on the cross-motions for summary judgment, the Trustee and the Settling Defendants engaged in further litigation and negotiation concerning the applicable amount of prejudgment interest. On or about December 30, 2003, the Bankruptcy Court issued a bench ruling concerning the date of accrual and appropriate rate of any prejudgment interest amount. The Settlement Conference After the Prejudgment Interest Ruling, the Trustee and the Settling Defendants, through their respective counsel, participated in the March 29, 2004, judicial settlement conference before the Honorable Redfield T. Baum, United States Bankruptcy Court Judge. As a result of the settlement conference, the parties' counsel agreed to recommend to their clients a settlement offer term sheet outlining the terms of the proposed settlement of the claims alleged in the Action against certain defendants represented by the Pedersen & Houpt law firm. A condition of the settlement was that there be enough acceptances of the terms by defendants to generate $4.725 million in settlement payments to the Trustee. The parties have since then negotiated the final terms and counsel for the Settling Defendants solicited and obtained the necessary consents to meet (and, in fact, exceed) the $4.725 million threshold. The Settlement Agreement The material terms of the settlement agreement are: (1) Each Settling Defendant will pay 70% of: (a) the principal amount of the cash received by the Settling Defendant in the July 15, 1998, merger and roll up transaction which was at issue in the Action; and (b) accrued prejudgment interest which the parties agree is 8.5% of the principal amount. (2) The Settlement Amount to be received by the Trustee pursuant to the Settlement Agreement will not be less than $4.725 million. Approximately $267,000 will be in the form of promissory notes and the remainder will be cash payments. The promissory notes will be secured by stipulated judgments and/or other personal guarantees with evidence of financial ability to pay the notes satisfactory to the Trustee. In the event that the total settlement payments exceed $4.725 million in cash and notes, the Trustee and the defendants will split the amount in excess of $4.725 million: (a) 66-2/3% to the Trustee and (b) 33-1/3% to the defendants. (3) Additional acceptances received between September 30 and December 31, 2004, will be split between the Trustee and the Settling Defendants: (a) for reimbursement of fees and costs in obtaining the settlement; (b) any amount in excess of 70% of the principal amount transferred and 70% of the accrued prejudgment interest to the Trustee; and (c) all amounts equivalent to 70% of the principal distribution and accrued prejudgment interest (net of the reimbursement of fees and expenses) will be divided between the Trustee (66-2/3%) and the defendants (33-1/3%). (4) The parties will provide each other with comprehensive mutual releases of claims and the action against the Settling Defendants will be dismissed with prejudice. The Settlement Amount to be received by the Trustee represents 70% of the cash transferred to the Settling Defendants and 70% of the accrued prejudgment interest. "Given that significant percentage; the possibility of an appeal and a reversal of this Court's decision; and the risk and cost of further litigation, the Trustee believes that this settlement is in the best interests of the Estate and should be approved," Robert H. McKirgan, Esq., at Lewis & Roca LLP, tells Judge Case. The largest Settling Defendants are: 70% Settlement Settling Defendant Amount ------------------ ---------- Bowana Foundation $395,996.30 C&B Holdings, Ltd. 126,990.16 Bryan J. Flynn [Trust] 115,294.73 Donald F. Flynn [Trust] 103,691.10 Kevin F. Flynn [Trust] 115,294.73 Frontenac VI Limited Partnership 464,145.34 Charles A. Lewis 330,703.55 Marquette Venture Partners II, L.P. 225,626,18 Thomas H. Patrick 146,205.78 Platinum Venture Partners II, L.P. 100,743.52 1989 Ryan Family Trust 391,743.06 Jeffrey Shearer 116,529.26 Spraying Systems [Profit Sharing Plan] 155,536.65 Howard C. Warren 195,871.53 Wijler Holdings, N.V. 155,536.65 The complete list of Settling Defendants is available at no charge at: http://bankrupt.com/misc/4155-A-1.pdf A hearing on the settlement pact is scheduled for October 5, 2004, at 11:00 a.m., in Phoenix. Objections, if any, must be filed and served by September 27, 2004. Boston Chicken, Inc., filed for chapter 11 bankruptcy protection in October 1998. On January 6, 2000, the Company announced that it and its Boston Market-related subsidiaries had filed a joint Plan of Reorganization and related Disclosure Statement with the U.S. Bankruptcy Court for the District of Arizona (Bankr. Case Nos. 2- 98-12547 through 2-98-12570). The basis of the Plan of Reorganization was an asset purchase agreement dated November 30, 1999 among the Debtors, as Sellers, Golden Restaurant Operations, Inc., a wholly-owned subsidiary of McDonald's Corporation, as Buyer, and McDonald's, as guarantor of certain of GRO's obligations under the Asset Purchase Agreement. Under the terms of the Asset Purchase Agreement, GRO purchased substantially all of the assets of the Debtors and assume certain liabilities of the Debtors for approximately $173.5 million. BPL ACQUISITION: Moody's Affirms Ba1 Senior Sec. & Implied Ratings ------------------------------------------------------------------ Moody's Investors Service affirmed with stable outlooks the debt ratings of Buckeye Partners, L.P. (Buckeye, Baa2 senior unsecured) and BPL Acquisition, L.P. (GP Holdco, Ba1 senior secured and senior implied) after an assessment of the credit impact of Buckeye's pending acquisition of and related financing for Shell Oil Products U.S.'s North System Pipelines and terminals package for $530 million in cash. In addition, Buckeye will incur roughly $20 million of start-up costs and expenses. GP Holdco's rating is based on Buckeye's, since GP Holdco's general partner interest in Buckeye is its only asset. The rating affirmations and stable outlooks are conditioned on Buckeye executing the following: * over the next few months, issuing at least $250 million of equity to repay a portion of the acquisition bridge financing, and * over the coming year, issuing sufficient additional equity to finance half of ongoing internal growth projects (about $75 million currently under construction). In addition, over the next 12-18 months, these rating actions are conditioned upon Buckeye: * improving the credit metrics that will weaken with acquisition-related debt (this will entail the company generating the level of cash flows from the Shell assets in the timeframe it currently expects, i.e., $55-$60 million of EBITDA from fiscal 2006); * demonstrating economic benefits from successfully integrating the acquired operations with its existing systems; and * validating the acquisition premium by earning incremental margins from operating what is now a largely proprietary logistical network more commercially as an open-access system. Lack of success in these endeavors will cause us to reassess Buckeye and GP Holdco's stable outlook. Buckeye and GP Holdco's ratings are affirmed, since they have incorporated the probability of a substantial acquisition of a refined product pipeline system. Up to this transaction, Buckeye has been less leveraged than some of its more acquisitive peers in terms of debt/EBITDA. Pro forma the transaction, the acquisition debt will push leverage above some of its peers' in the near term, but with the expectation that its credit metrics will fall more in line with its peers over the next year or so. Buckeye engages solely in refined product transportation, a business whose steadiness is underpinned by: * steady demand growth exposed to limited cyclicality, * high barriers to entry, * and tariffs governed by favorable, light-handed regulation. Consequently, Moody's deems Buckeye's business risk to be lower than some other of its MLP peers that are diversified into other businesses. The rating affirmations assume Buckeye will finance this acquisition in keeping with its financial policy: about half with debt, half with equity at or about the closing of the acquisition (expected in October). The Buckeye's ratings continue to be supported by: * its low business risk, * relatively conservative business strategy, and * reasonable leverage. However, Buckeye's ratings recognize the limitation on financial flexibility that arises from the mandate to distribute all available cash to unitholders, as is typical for MLPs like Buckeye. Buckeye's ratings are restrained by event risk signaled by the sale of Buckeye's general partner sponsor in May 2004, subsequent changes in Buckeye's senior management, and this acquisition, by far the largest in the company's history. The new GP sponsor Carlyle/Riverstone, a private equity fund, has stated that it contemplates leveraging its industry contacts to more actively assess business development opportunities. It has also recently made a large investment in another midstream MLP. Under Carlyle/Riverstone's sponsorship, Buckeye's acquisitions could become larger, more frequent, and more diverse than they have been historically. It remains to be seen how Buckeye's business strategy and financial strategy will evolve over Carlyle/Riverstone's investment horizon. Financial Impact The Shell acquisition will significantly grow Buckeye in terms of assets (roughly a 60% increase from 6/30/04), debt (a 50% increase), and cash flow (a 40% increase over LTM 6/04 EBITDA, if the company realizes its 2006 EBITDA estimate of $55 million). The transaction is fully valued at 10x EBITDA (based on company's 2006 EBITDA estimate of $55-$60 million), increasing the onus on the company to make it accretive. If the company realizes this EBITDA estimate, as well as issues $250 million of equity, the incremental debt/EBITDA from this transaction alone would be in the low-to-mid 5x range. Although this level of leverage is higher than Moody's investment grade MLP recent historic average (about 5x), when combined with Buckeye's pre-acquisition levels of 3x, the rating confirmation anticipates post-acquisition debt/EBITDA being brought down to the 4x range in the near term, so that GP Holdings will comfortably remain in compliance with its amended bank covenants. Moody's notes that the leverage covenant contained in GP Holdings' term loan was amended for this transaction to allow Buckeye's debt/EBITDA to rise up to 5.75x for 1Q05 and 2Q05 (assuming 10/1/04 acquisition closing), stepping down to 5.25x in 3Q05 and in 4Q05, to the leverage ceiling of 4.75x. Apart from this transaction, Buckeye has underway a large construction program to expand its Laurel and Memphis systems. Satisfactory completion and financing of these projects will also be keys to regaining Buckeye's debt protection measures in the near term. Key metrics assumed in Moody's current ratings for Buckeye -- and consequently, GP Holdings -- include distribution coverage ratio (gross cash flow -- sustaining and growth capex + interest / interest + distributions) at around 100%, and debt/gross cash flow sustained below 6x. Persistent variance from these measures would cause us to reassess Buckeye/GP Holdings' ratings. Acquired Assets The Shell acquisition consists of a package of product transportation pipelines and terminals located within Buckeye's geographic footprint in the Midwest. The two largest pieces of the package -- the North Line (30% of expected revenues) and the East Line (25% of expected revenues) product systems -- originate from ConocoPhillips' Wood River refinery (the second-largest refinery in PADD II) that serve the greater Chicago area. Another 25% of revenues are expected from a portfolio of off-system terminals. The remainder of expected revenues comes from the much smaller Two Rivers and St. Louis Pipelines that serve the greater St. Louis area. Buckeye sees potential for synergies from the interconnects and contiguous locations with its existing Midwest pipeline system. Revenues from the acquired assets will be underpinned by Shell under a 3-year throughput agreement. According to this agreement, Shell will commit to transportation and terminalling fees that will account for about 40% of the revenues expected from the acquisition. This throughput will mostly be on the North and East Lines, on which Shell is the primary shipper. Consequently, these systems have been underutilized. Buckeye is negotiating new transportation contracts with other shippers to fill the pipeline and terminal capacity. In doing so, Buckeye will face some competition from local refineries and other pipelines in the region. Also, this will be the first time that the system will be run purely as a commercial rather than a support operation for Shell, so its standalone financial performance has yet to be proven. Moody's will monitor Buckeye's success in securing higher than historic volumes on the system by expanding its shipper base, generating higher margins (e.g., through tariff modification) while controlling costs, and diversifying its supply sources. Buckeye Partners, L.P., headquartered in Emmaus, Pennsylvania, is a master limited partnership which operates one of the largest independent pipeline common carriers of refined petroleum products in the US. BPL Acquisition L.P. is owned by the Carlyle/Riverstone Global Energy & Power Fund II, L.P., a private equity firm based in New York, New York. BRIDGEPOINT TECH: Wants to Use Lender's Cash Collateral ------------------------------------------------------- BridgePoint Technical Manufacturing Corp., asks the U.S. Bankruptcy Court for the Western District of Texas, Austin Division, for permission to use the cash collateral of its secured creditor for actual, ordinary and necessary operating expenses to prevent immediate and irreparable harm to the estate. Silicon Valley Bank asserts a lien and security interests in the Debtor's inventory, accounts receivable and cash. The Debtor proposes to use the cash collateral in accordance with a budget projecting, for the period from September 3, 2004, through October 1, 2004: Cash Inflows $792,901 Disbursements 773,699 -------- Cash Flow from Operations $19,202 ======== As of petition date, the Lender has not consented to the Debtor's use of its cash collateral. To protect the interest of the Bank, the Debtor proposes to grant a post-petition replacement lien having the same extent, validity and priority as the pre-petition liens. Headquartered in Austin, Texas, BridgePoint Technical Manufacturing -- http://www.bridgept.com/-- provides engineering, testing, packaging, and circuit board assembly services to semiconductor and computer companies. The Company filed for chapter 11 protection on September 3, 2004 (Bankr. W.D. Tex. Case No. 04-14555). Mark Curtis Taylor, Esq., at Hohmann & Taube, LLP, represents the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed above $1 million in assets and above $10 million in debts. CALA CORP: Retains George Brenner as Independent Auditor -------------------------------------------------------- The Board of Directors of Cala Corporation recommended the retention of George C. Brenner as the Company's independent auditor and principal accountant after the resignation of Roger Castro in February 2004. The shareholders approved Mr. Brenner's retention on July 31, 2004. Mr. Castro's resignation was due to the fact that he was no longer an approved auditor under the Securities and Exchange Commission, and was not due to any disagreements between Mr. Castro and the Company or its Board of Directors. During the past two fiscal years, there have been no disagreements with Mr. Castro on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. Going Concern Doubt Mr. Brenner conducted an audit of the Company's 2002 and 2003 financial statements and issued a report for both fiscal years. For both years, Mr. Brenner issued an opinion disclosing the uncertainty of the ability of the Company to continue as a going concern. About the Company Cala Corporation develops international businesses with a corporate emphasis on undersea resort hospitality. The Company's international infrastructure extends from the United States, Europe and Asia. CELESTICA INC: Expects Up to $2.15 Billion in Revenues for Q3 ------------------------------------------------------------- Celestica, Inc., (NYSE, TSX: CLS), a world leader in electronics manufacturing services (EMS), provided an update to its financial guidance for the third quarter ending September 30, 2004. Based on its current estimates, the company now expects revenue in the range of US$2.05 to US$2.15 billion, and adjusted net earnings per share of US$0.07 - US$0.11. The company's previous guidance for the third quarter, which was provided on July 22, 2004, was for revenue of US$2.25 to US$2.40 billion and US$0.11 to US$0.17 adjusted net earnings per share. The company said the revision in revenue is due to recent order reductions from some of its largest communications and IT customers. The company will hold a conference call today, Wednesday, September 15 at 8:30 am EST to discuss the updated guidance. The conference call can be accessed at 416-640-1907 or at http://www.celestica.com/ The company's full third quarter results will be released on October 21, 2004. Celestica is a world leader in the delivery of innovative electronics manufacturing services (EMS). Celestica operates a highly sophisticated global manufacturing network with operations in Asia, Europe and the Americas, providing a broad range of integrated services and solutions to leading OEMs (original equipment manufacturers). Celestica's expertise in quality, technology and supply chain management, enables the company to provide competitive advantage to its customers by improving time- to-market, scalability and manufacturing efficiency. * * * As reported in the Troubled Company Reporter on March 31, 2004, Standard & Poor's Ratings Services lowered it long-term corporate credit rating and unsecured debt on Celestica Inc. to 'BB' from 'BB+'. At the same time, Standard & Poor's lowered its subordinated debt rating on the company to 'B+' from 'BB-'. The outlook is negative. "The ratings on Celestica reflect the continued difficult end- market conditions and sub par operating performance in the highly competitive electronic manufacturing services (EMS) sector," said Standard & Poor's credit analyst Michelle Aubin. These factors are partially offset by the company's tier-one position in the EMS sector and longer-term trends favoring electronic manufacturing outsourcing. Celestica, based in Toronto, Ontario, is the fourth-largest EMS provider in the world with revenues of US$6.7 billion in 2003. More than 80% of Celestica's revenues come from information technology (IT) infrastructure and communication end markets, a higher concentration than other tier-one EMS companies. Market conditions, particularly for IT and communication end- markets, remain challenging. Celestica's 2003 revenues were down more than 18% from US$8.2 billion in 2002. Weak end-market demand in Celestica's core areas, pricing pressures, and operating costs associated with ramping-up new programs and transitioning programs have undermined management's efforts to realize operating efficiency improvements from its restructuring programs. The EMS sector continues to have excess manufacturing capacity and remains competitive. Celestica faces strong competition from a number of tier-one competitors with global reach including Flextronics International Ltd. (BB+/Stable/--), Sanmina-SCI Corp. (BB- /Stable/--), Solectron Corp. (B+/Stable/--), and Jabil Circuit Inc (BB+/Stable/--) Nevertheless, end-market demand for IT and communication equipment is expected to stabilize in 2004, which will contribute to strengthening market conditions for EMS providers. Longer-term EMS industry prospects, particularly for top-tier companies, remain favorable because the outsourcing trend by original equipment manufacturers (OEM) is expected to continue. Tier-one companies in this sector, who are distinguished by their size, global scale of operations, and diversified customer base of leading companies are well positioned to service the specialized outsourcing requirements of the OEMs. The acquisition of EMS provider, Manufacturers' Services Ltd., which was completed on March 12, 2004, is neutral to the ratings. Although Celestica will most likely incur integration and restructuring costs in the near term, the transaction should not have a negative effect on the company's financial profile in the medium term. The negative outlook reflects Standard & Poor's expectation that revenues and operating performance will improve and that negative free operating cash flow will moderate in fiscal 2004. Any decline from expectations could result in the ratings being lowered. CENTRAL GARDEN: S&P Affirms BB Ratings with Negative Outlook ------------------------------------------------------------ Standard & Poor's Ratings Services affirmed its 'BB' corporate credit rating and other ratings on branded lawn and garden products and pet-supply products provider Central Garden & Pet Co. At the same time, the ratings were removed from CreditWatch, where they were placed July 12, 2004. The outlook is negative. Total debt outstanding at June 26, 2004, was about $290 million. The ratings on Lafayette, California-based Central Garden reflect: * strong competition in the company's business segments, * significant seasonality in the lawn and garden business, * customer concentration, and * the company's stepped-up acquisition strategy. These risks are somewhat mitigated by the company's broad product portfolio and currently moderate financial profile. "We expect that credit protection measures will be somewhat pressured as Central Garden continues to pursue its stepped-up growth strategy through mostly debt-financed acquisitions," said Standard & Poor's credit analyst Jean C. Stout. Since August 2004, the company has spent about $160 million on acquisitions within both business segments. While these acquisitions have added to Central Garden's growth in the first nine months of fiscal 2004, lease-adjusted operating margins remain weak relative to its lawn and garden and pet products peer group, and leverage remains higher than Standard & Poor's expectations. The rating, therefore, incorporates limited flexibility for additional debt-financed acquisitions in the near term, and does not include any potential negative judgments or awards arising from pending litigation. CHARLES RIVER: Moody's Assigns Ba1 Rating to Credit Facilities -------------------------------------------------------------- Moody's Investors Service assigned Ba1 ratings to the credit facilities of Charles River Laboratories International, Inc. Moody's also assigned a Ba1 Senior Implied Rating, a Ba2 Senior Unsecured Issuer Rating, and a Speculative Grade Liquidity Rating of SGL-1 to the company. The rating outlook for the company is stable. Assigned Ratings: * $150 Million Revolving Credit Facility -- Ba1 * $400 Million Term Loan A -- Ba1 * Senior Implied Rating -- Ba1 * Senior Unsecured Issuer Rating -- Ba2 * Speculative Grade Liquidity Rating -- SGL-1 * Outlook - stable The credit ratings reflect: * the company's moderate leverage, * the company's acquisitive strategy, * integration risks associated with the acquisition of Inveresk Research Group, and * the company's limited history as an independent company. Additional factors limiting the ratings include: * the competitive nature of the industry, particularly for outsourced drug development services, * Moody's concern regarding the recent weakness in pharmaceutical and biotechnology research and development spending, and * the industry's susceptibility to fluctuations in such spending. Credit strengths considered include: * the favorable overall operating trends at both Charles River and Inveresk, * Charles River's relatively conservative policy on leverage, * the company's dominant position in research models industry and its strong position in pre-clinical toxicology testing, and * the positive long term growth trend anticipated for outsourced drug development services. The ratings also recognize: * the diversification of the company's sales geographically and among numerous clients, * the increasing diversification of the company's business lines, and * Charles River's good free cash flow and strong liquidity position. The SGL-1 liquidity rating is based on Moody's expectation that internally generated cash flow combined with existing cash balances will be more than sufficient to fund working capital, capital expenditures and debt service over the next twelve months ending September 30, 2005. This rating also incorporates our expectation that availability under the company's proposed revolving credit facility will strengthen over the near term as the company pays down outstanding amounts. We expect the company to maintain access to this committed source, since based on the company's consistent historical performance, we anticipate that the company will remain comfortably in compliance with the financial covenants under the proposed credit facility. Moody's does note, however, that the company lacks an alternative source of liquidity, since all its assets will be encumbered as security interests under the proposed credit facility. However, given the strong anticipated cash flow, this consideration has limited impact on the rating. The outlook incorporates Moody's expectation for continued favorable performance at the company driven by underlying industry growth and supported by the company's strong competitive position within its business lines. We expect revenues to grow organically in line with the industry and margins to hold mostly stable given the increased demand for specialty models and improved demand for drug development services. Operating cash flow and free cash flow should remain strong. Near term, the company will likely use free cash flow, and possibly cash currently on the balance sheet, to reduce debt and leverage. However, longer term, Moody's anticipates that leverage may remain near current levels due to the company's interest in acquisitions. The outlook assumes there will not be any material, leveraging transaction until Charles River has made significant progress in the integration of Inveresk and has reduced debt by a material amount. If the company does complete another major acquisition, Moody's may consider downgrading the company's outlook or ratings. Moody's may also consider a negative rating action if the recent rebound in drug development services proves short lived, or if the company encounters difficulties in the integration process. Charles River has in the past acquired and integrated successfully numerous companies. However, Inveresk, at about half the size of Charles River, is by far the largest transaction ever completed by the company. For the foreseeable future, Moody's sees limited upside for the ratings. Prior to considering an upgrade of the company to investment grade, Moody's would like to see a longer operating history for the company at a meaningful size, Charles River maturing further beyond a rapid growth phase, and a commitment by the company to maintain leverage at a level appropriate for an investment grade company. Moody's would also consider whether Charles River has further diversified its businesses. Charles River announced on July 1, 2004 that it will be acquiring Inveresk Research Group, a major contract research organization providing drug development services to pharmaceutical and biotech companies. The deal is valued at approximately $1.5 billion and will be funded with a combination of Charles River stock and cash. The company will borrow $500 million, consisting of a $400 million term loan and $100 million drawn under the $150 million revolver, to fund a portion of the purchase price and to refinance Inveresk's existing debt. The acquisition of Inveresk Research Group will strengthen Charles River in the toxicology testing segment. Charles River's market share will increase from approximately 6% to the high teens. The company will be a top provider in the segment along with Covance, Inc. The acquisition will lead to greater geographic diversification of the company's sales, and further diversify its business mix as well. However, Moody's is somewhat concerned that the company will be entering a new business line in clinical development services, which will account for 12% of the combined entity's sales. Moody's also notes that the company's business mix will shift more to a segment that tends to experience greater fluctuation in sales trend relative to the company's research models business. As a result of the transaction, Charles River's leverage will increase by a significant amount. On a pro forma basis, for the year ending December 31, 2004, the company is anticipated to generate free cash flow coverage of debt of approximately 17%. Depending on how much of the free cash flow generated the company utilizes to repay debt, leverage may decline markedly next year, with free cash flow coverage of debt increasing to the 20%-30% range. Moody's notes that historically, the company has demonstrated an ability and willingness to delever its balance sheet. Moody's also notes that the significant use of equity to fund the acquisition is indicative of management's relatively conservative stance on financial leverage. Charles River Laboratories International, Inc., headquartered in Wilmington, Massachusetts, provides research tools and integrated support services for drug and medical device discovery and development. The company's two business segments are Research Models and Services, which involves the commercial production and sale of animal research models, and Development and Safety Testing, which involves the research, development and safety testing of drug candidates. The company operates facilities in 16 countries worldwide. CLECO EVANGELINE: Moody's Reviewing B3 Debt Rating & May Upgrade ---------------------------------------------------------------- Moody's Investors Service placed the B3 rating of the senior secured debt of Cleco Evangeline, LLC, under review for possible upgrade. The rating action reflects the improved credit and liquidity prospects for The Williams Companies, Inc. (Williams: B3 senior unsecured; under review for possible upgrade), which guarantees the payments of its subsidiary, Williams Energy and Trading Company (ETC), under a long-term tolling agreement between ETC and Evangeline that expires in 2020. This tolling agreement is the principal source of cash flow for the Evangeline project. The power project, which is located in the overbuilt southeastern U.S., has been dispatched less often than had been originally anticipated. However, the project continues to receive regular capacity payments, which represent the core component of cash flow for debt service, and are based upon the plant's average and peak availability target levels. Given the historical operating performance of the plant, Moody's anticipates that Evangeline will be able to continue to achieve required availability levels and receive associated capacity payments. Moody's notes that while the overbuilt market has impacted the capacity levels and associated operating margins, Evangeline's ability to cover required debt service obligations has remained robust due to the receipt of contracted capacity payments. The rating review will focus on the outcome of the Williams ratings review, and will also assess the expected financial performance at Evangeline as it operates in a power market that Moody's believes will remain severely overbuilt over the next several years. Located in St. Landry, Evangeline Parish, Louisiana, Evangeline is a 784 mw natural gas fired generating station. Evangeline is owned 100% by Cleco Corporation (Baa3 senior unsecured; negative outlook), an electric utility and energy company headquartered in Pineville, Louisiana. COVANTA: Claims Classification & Treatment Under Covanta Lake Plan ------------------------------------------------------------------ Debtor Covanta Lake II, Inc., successor by way of merger to Covanta Lake, Inc., delivered a plan of reorganization and disclosure statement to the U.S. Bankruptcy Court for the Southern District of New York on September 10, 2004. As reported in yesterday's edition of the Troubled Company Reporter, the overriding purpose of the Plan is to enable Covanta Lake II to implement a settlement agreement with Lake County, Florida, and emerge from Chapter 11 for purposes of operating a waste-to-energy facility located in Okahumpa, Lake County, Florida. In accordance with Section 1122 of the Bankruptcy Code, the Reorganization Plan groups claims against and interests in Covanta Lake II, Inc., in five classes. Pursuant to Section 1123(a)(1), Administrative Expense Claims and Priority Tax Claims against Covanta Lake are not classified for the purposes of voting on or receiving distributions under the Plan. All those Claims are instead treated separately. Class Description Treatment Under the Plan ----- ------------ ------------------------ N/A Administrative Paid in full, in Cash Expense Claims N/A Compensation and Paid in full Reimbursement Claims N/A Priority Tax Claims (a) Tax Claims solely against Covanta Lake II Holders of Allowed Priority Tax Claim will receive Cash equal to the unpaid portion of the Allowed Claim on or as soon as practical after the later of: -- 30 days after the Effective Date; or -- 30 days after the date on which the Claim is Allowed (b) Tax Claims for Which Covanta Energy Corporation is Also Liable Each Allowed Claim will be treated in accordance with the provisions of the Covanta et al.'s Second Reorganization Plan, in full satisfaction, settlement, release, and discharge of the Allowed Claim N/A DIP Financing DIP Financing Claims will be Claims cancelled and treated as a capital contribution by the DIP Lender to Reorganized Covanta Lake II Approx. $750,000 to $1,000,000 as at December 2004 N/A Intercompany Intercompany Administrative Expense Administrative Claims automatically terminate on Expense Claims the Effective Date and become capital contribution by the applicable entity to Reorganized Covanta Lake II Approx. $7,100,000 1 Allowed Priority Paid in full, in Cash Non-Tax Claims Unimpaired, deemed to accept Plan Approx. $0 2 Allowed Secured Paid in full, in Cash Bondholder Claims Unimpaired, deemed to accept Plan Approx. $53,200,000 3A Allowed Unsecured Impaired. Holders of Allowed Claims Subclass 3A Claims will receive their Pro Rata Share of the Unsecured Creditor Distribution calculated based on the total amount of Allowed Subclass 3A Claims on the applicable Distribution Dates. Approx. $300,000 3B Allowed Impaired. Holders of Subclass 3B Intercompany Claims will receive distribution Claims after the holders of Allowed Subclass 3A Unsecured Claims have been paid in full, equal to their Pro Rata Share of the Unsecured Creditor Distribution remaining after paying all Allowed Subclass 3A Unsecured Claims, calculated based on the total amount of Allowed Subclass 3B Claims. Approx. $18,000 4 County Claims On the Effective Date, all County Claims against Covanta Lake II Claims filed by or other than those surviving under the on behalf of Lake Waste Disposal Agreement, Settlement County, Florida, Agreement, New Financing Agreements other than the and related agreements will be County Admin. Tax deemed disallowed, settled and Claim and the waived. No distribution will be County Priority made on account of any of the Tax Claim County Claims. Impaired, entitled to vote on the Plan Approx. $81,000,000 5 Allowed Equity Each holder will retain the Equity Interests Interest, together with all rights pertaining thereto, in consideration of, among others: (a) the DIP Lender's termination and forgiveness of the DIP Financing Claim; (b) the consent of Intercompany Administrative Claimholders to the expungement of their claims; and (c) the provision by Covanta of the New Parent Guarantee and the Claims Payment Guarantee. Unimpaired, deemed to accept Plan. Headquartered in Fairfield, New Jersey, Covanta Energy Corporation -- http://www.covantaenergy.com/-- is a publicly traded holding company whose subsidiaries develop, own or operate power generation facilities and water and wastewater facilities in the United States and abroad. The Company filed for Chapter 11 protection on April 1, 2002 (Bankr. S.D.N.Y. Case No. 02-40826). Deborah M. Buell, Esq., and James L. Bromley, Esq., at Cleary, Gottlieb, Steen & Hamilton represent the Debtors in their restructuring efforts. When the Debtors filed for protection from its creditors, they listed $3,280,378,000 in assets and $3,031,462,000 in liabilities. (Covanta Bankruptcy News, Issue No. 65; Bankruptcy Creditors' Service, Inc., 215/945-7000) CREST 2001-1: Fitch Affirms B+ Rating on Preferred Shares --------------------------------------------------------- Fitch has affirmed the ratings on the following class of notes issued by Crest 2001-1, Ltd., as issuer, and Crest 2001-1 Corp., as co-issuer: -- $363,197,740 class A senior secured floating rate terms notes due 2030 'AAA'; -- $30,000,000 class B-1 second priority fixed rate term notes due 2034 'A'; -- $35,000,000 class B-2 second priority floating rate term notes due 2034 'A'; -- $30,000,000 class C third priority fixed rate term notes due 2034 'BB+'; -- $25,000,000 preferred shares 'B+'. The transaction, a static arbitrage cash flow collateralized debt obligation -- CDO, is supported by a portfolio of real estate investment trust -- REIT -- securities and commercial mortgage- backed securities -- CMBS -- selected by Structured Credit Partners LLC, the collateral administrator, prior to its March 7, 2001 closing date. The rating actions are a result of Crest 2001-1's portfolio performance, which Fitch has deemed sufficient to maintain its current ratings. According to its Aug. 25, 2004 trustee report, the class A, B, and C overcollateralization tests were passing at 132.88%, 112.96%, and 105.65%, respectively, versus triggers of 125%, 107%, and 102%, respectively. In reaching its rating actions, Fitch reviewed the credit quality of the individual assets comprising the portfolio and reviewed the results of its cash flow model runs after running several different default timing and interest rate stress scenarios. The rating of the class A notes addresses the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The ratings of the class B and class C notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The rating of the preferred shares addresses the likelihood that investors will receive the stated balance of principal by the legal final maturity date. Fitch will continue to monitor this transaction. CREST 2002-IG: Fitch Affirms BB Rating on $14M Class D Notes ------------------------------------------------------------ Fitch Ratings upgrades two classes and affirms two classes of notes issued by CREST 2002-IG, Ltd. These rating actions are effective immediately: -- $512,691,359 class A Notes affirmed at 'AAA'; -- $78,000,000 class B Notes to 'A+' from 'A-'; -- $40,000,000 class C Notes to 'BBB+' from 'BBB'; -- $14,000,000 class D Notes affirmed at 'BB'. CREST 2002-IG is a collateralized debt obligation -- CDO, which closed on May 16, 2002. CREST 2002-IG is composed of approximately 34% senior unsecured real estate investment trust -- REIT -- securities and 66% commercial mortgage-backed securities -- CMBS, which were selected by the collateral administrator, Structured Credit Partners LLC. The collateral administrator is limited to sales of credit impaired, credit risk, and defaulted securities. The rating upgrades reflect the positive rating migration and the seasoning of the portfolio. Upgrades of one rating notch have occurred on 18% of the portfolio, while upgrades greater than one notch occurred on 15.8% of the portfolio. It is notable that 4.1% of the collateral has been downgraded one notch. According to the trustee report dated July 30, 2004, all the coverage and portfolio quality tests were passing their levels. Additionally, no collateral has defaulted since closing. The rating on the class A notes addresses the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The ratings on the class B, C, and D notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. Fitch conducted cash flow modeling utilizing various default timing and interest rate scenarios to measure the breakeven default rates relative to the minimum cumulative default rates required for the rated liabilities. As a result of this analysis, Fitch has determined that the original ratings assigned to the class A and D notes reflect the current risk to noteholders and that the credit enhancement available to the class B and C notes warrants an upgrade from their respective original ratings. Fitch will continue to monitor and review this transaction for future rating adjustments. CREST G-STAR: Fitch Puts Low-B Ratings on $21MM Notes & Preferreds ------------------------------------------------------------------ Fitch Ratings affirms all of the rated notes issued by Crest G- Star 2001-2, Ltd. The affirmation of these notes is a result of Fitch's annual rating review process. These rating actions are effective immediately: -- $265,000,945 class A senior secured floating-rate term notes affirmed at 'AAA'; -- $34,000,000 class B-1 second priority fixed-rate term notes affirmed at 'A-'; -- $15,000,000 class B-2 second priority floating-rate term notes affirmed at 'A-'; -- $21,000,000 class C third priority fixed-rate term notes affirmed at 'BB+'; -- $14,000,000 preferred shares affirmed at 'BB-'. Crest G-Star 2001-2 is a collateralized debt obligation -- CDO, which closed Dec. 18, 2001, supported by a static pool of: * real estate investment trusts (REITs; 62.7%), * commercial mortgage-backed securities (CMBS; 35.5%), and * collateralized debt obligations (CDO; 1.8%). Fitch has reviewed the credit quality of the individual assets constituting the portfolio. According to the July 30, 2004 trustee report: Class Overcollateralization Test Level ----- --------------------- ---------- Class A 131.7% 120.0% Class B 111.1% 105.0% Class C 104.2% 101.2% The CDO has not experienced any significant credit migration and minimal change in weighted average rating factor -- WARF. Fitch has discussed Crest G-Star 2001-2 with GMAC Institutional Advisors, rated 'CAM1' by Fitch, and will continue to monitor Crest G-Star 2001-2 closely to ensure accurate ratings. Based on the stable performance of the underlying collateral and the overcollateralization tests, Fitch affirms all rated liabilities issued by Crest G-Star 2001-2. Fitch will continue to monitor and review this transaction for future rating adjustments. CUSTOM PRODUCTION: Case Summary & 11 Largest Unsecured Creditors ---------------------------------------------------------------- Debtor: Custom Production Manufacturing, Inc. 20 Thomas Avenue Shrewsbury, New Jersey 07702-4022 Bankruptcy Case No.: 04-39473 Type of Business: The Company fabricates sheet metal. Chapter 11 Petition Date: September 13, 2004 Court: District of New Jersey (Trenton) Judge: Kathryn C. Ferguson Debtor's Counsel: Richard Honig, Esq. Hellring, Lindeman, Goldstein & Siegal One Gateway Center, 8th Floor Newark, New Jersey 07102 Tel: (973) 621-9020 Total Assets: $848,200 Total Debts: $1,164,778 Debtor's 11 largest unsecured creditors: Entity Claim Amount ------ ------------ Watson Industries, Inc. $1,000,000 and Benjamin Okwumabua 505 Chautauqua Avenue Jamestown, New York 14701 Becker, Christian $15,450 City of Jamestown-Treasurer $3,413 USAA Savings Bank $2,420 Monmouth Electric $1,000 Lakeville Motor Express, Inc. $533 Ditto Copy Systems $380 Home Depot Credit Services $245 R.F.W. Sales & Services $195 Sales Opportunity Services, Inc. $169 AllTel NY, Inc. $131 DAVIS PRESERVATION GROUP LLC: Voluntary Chapter 11 Case Summary --------------------------------------------------------------- Debtor: Davis Preservation Group LLC 200 Woodville Road Falmouth, Maine 04105 Bankruptcy Case No.: 04-21464 Chapter 11 Petition Date: September 13, 2004 Court: District of Maine (Portland) Judge: James B. Haines Jr. Debtor's Counsel: Thomas A. Grossman, Esq. 40 Babcock Street PO Box 2011 Brookline, Massachusetts 02446 Tel: 617-975-3331 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. DELTA AIR: Revised Form 10-K Discloses Possible Chapter 11 Filing ----------------------------------------------------------------- Delta Air Lines (NYSE: DAL) filed a Form 8-K with the Securities and Exchange Commission to make changes in its Annual Report on Form 10-K for the year ended December 31, 2003. The Annual Report is being revised so it may be incorporated into another document. Since Delta filed the Annual Report with the SEC, significant events have occurred which have materially adversely affected Delta's financial condition and results of operations. These events, which have been reported in Delta's subsequent SEC filings, include a further decrease in domestic passenger mile yield and near historically high levels of aircraft fuel prices. The Annual Report has been revised to disclose these events and the possibility of a Chapter 11 filing in the near term. Additionally, as a result of Delta's recurring losses, labor and liquidity issues and increased risk of a Chapter 11 filing, Deloitte & Touche LLP, Delta's independent auditors, has reissued its Independent Auditors' Report to state that these matters raise substantial doubt about the company's ability to continue as a going concern. For additional information on the revisions to Delta's Annual Report please refer to the Form 8-K filed yesterday. A full-text copy of Delta Air Lines revised Annual Report on Form 8-K is available at no charge at: http://www.sec.gov/Archives/edgar/data/27904/000095014404009128/0000950144-04-009128-index.htm About Delta Air Lines Delta Air Lines -- http://delta.com/-- is proud to celebrate its 75th anniversary in 2004. Delta is the world's second largest airline in terms of passengers carried and the leading U.S. carrier across the Atlantic, offering daily flights to 493 destinations in 87 countries on Delta, Song, Delta Shuttle, the Delta Connection carriers and its worldwide partners. Delta's marketing alliances allow customers to earn and redeem frequent flier miles on more than 14,000 flights offered by SkyTeam, Northwest Airlines, Continental Airlines and other partners. Delta is a founding member of SkyTeam, a global airline alliance that provides customers with extensive worldwide destinations, flights and services. * * * As reported in the Troubled Company Reporter on August 23, 2004, Standard & Poor's Ratings Services lowered Delta Air Lines, Inc.'s corporate credit rating and the ratings on Delta's equipment trust certificates and pass-through certificates to 'CCC'. Any out-of-court restructuring of bond payments or a coercive exchange would be considered a default and cause the company's corporate credit rating to be lowered to 'D' -- default -- or 'SD' -- selective default, S&P noted. Ratings on Delta's enhanced equipment trust certificates, which are considered more difficult to restructure outside of bankruptcy, were not lowered. As reported in the Troubled Company Reporter on August 17, 2004, Fitch Ratings downgraded Delta Airlines European Enhanced Equipment pass-through certificates, series 2001-2 (2001-2) to BBB- and CCC. A Committee of Senior Secured Aircraft Creditors of Delta Air Lines, Inc., holding $1.4 billion of senior secured debt and represented by the law firm of Bingham McCutchen LLP, has asked Delta for more information. Delta hasn't been forthcoming, the Committee indicated last week. DEVLIEG BULLARD: Wants Fladgate Fielder as Special Counsel ---------------------------------------------------------- DeVlieg Bullard II, Inc., asks the U.S. Bankruptcy Court for the District of Delaware for permission to retain Fladgate Fielder as special counsel, nunc pro tunc to July 21, 2004. In particular, Fladgate Fielder is expected to: a) advise the Debtor on United Kingdom insolvency law as it relates to Microbore -- the Debtor's trademarked precision boring system located in Nuneaton, England; b) assist the Debtor in the preparation and resolution of any purchase agreement related to Microbore; and c) advise the Debtor on employment issues related to Microbore employees. Alan J. Konieczka, Esq., a partner at Fladgate Fielder is the lead attorney in this proceeding. Mr. Konieczka states that his Firm's current hourly rates are: Designation Hourly Rate ----------- ----------- Partners $600 - $650 Assistants $386 To the best of the Debtor's knowledge, Fladgate Fielder is a "disinterested person" as that term is defined in Section 101(14) of the Bankruptcy Code. Headquartered in Machesney Park, Illinois, DeVlieg Bullard II, Inc. -- http://www.devliegbullard.com/-- provides a comprehensive portfolio of proprietary machine tools, aftermarket replacement parts, field service and premium workholding products. The Company filed for chapter 11 protection on July 21, 2004 (Bankr. D. Del. Case No. 04-12097). James E. Huggett, Esq., at Flaster Greenberg, represents the Company in its restructuring efforts. When the Debtor filed for protection from its creditors, it estimated debts and assets of over $10 million. DIGITALNET INC: Moody's Reviewing Single-B Ratings & May Upgrade ---------------------------------------------------------------- Moody's has placed the ratings of DigitalNet, Inc., on review for possible upgrade following the announcement on September 11, 2004 that BAE Systems North America, Inc., a subsidiary of BAE Systems plc (senior unsecured rating of Baa1 under review for downgrade, June 4, 2004), has signed a definitive agreement to acquire DigitalNet Holdings, Inc., for approximately $600 million, including the assumption of debt. Moody's has placed these ratings on review for possible upgrade: * $81.3 million Senior Unsecured Notes due 2010, rated B2; * Senior Implied, rated B1; * Senior Unsecured Issuer, rated B2. Moody's review of DigitalNet's debt ratings will focus on the impact that the transaction would have on DigitalNet's credit strength, including the potential for BAE Systems North America, Inc., to legally assume or guarantee DigitalNet's existing senior subordinated notes. However, absent an outright guaranty or legal assumption of DigitalNet's debt by BAE Systems North America, Inc., Moody's will evaluate DigitalNet's credit rating on a stand- alone basis. As of June 30, 2004, DigitalNet had $100.3 million of debt comprised of $81.3 million of senior unsecured notes and borrowings of approximately $19 million under its $50 million revolving credit facility (not rated by Moody's). Moody's anticipates that the acquisition would trigger a change in control provision in the senior unsecured notes indenture, which would allow the holders of the notes to require the company to repurchase all or a portion of the notes. If the senior unsecured notes are repaid, the ratings will be confirmed and withdrawn. The company expects the transaction to close in the fourth quarter of 2004 subject to certain government regulatory reviews and approvals. Headquartered in Herndon, Virginia, DigitalNet, Inc., is a leading provider of managed network, information security, and application development and integration services and solutions to U.S. civilian, defense, and intelligence federal government agencies. Revenues for the LTM period ended June 30, 2004 were approximately $354 million. DIRECTV HOLDINGS: Fitch Puts Double-B Ratings on Senior Debt ------------------------------------------------------------ Fitch Ratings has initiated coverage of DIRECTV Holdings, LLC, by assigning a 'BB+' rating to DIRECTV's senior secured credit facility. Additionally, Fitch has assigned a 'BB' rating the company's $1.4 billion 8.375% senior unsecured notes due 2013. The Rating Outlook for each of the ratings is Stable. Fitch's rating action effects approximately $2.4 billion of debt as of the end of the second quarter 2004, of which approximately $1.0 billion is secured. Fitch's ratings reflect DIRECTV's strong market position as the second largest multichannel video programming distributor in the U.S., the strong liquidity position of DIRECTV's parent company DIRECTV Group, Inc., and the company's solid credit protection metrics relative to its rating. Fitch's ratings also consider the intense competition for subscriber market share with cable multiple system operators and other direct broadcast satellite -- DBS -- providers, DIRECTV's lack of revenue diversity and narrow product offering relative to cable MSOs, and the high cost to acquire and retain subscribers. The ratings also consider the continued requirement for the company to invest and update its satellite infrastructure. From a strategic standpoint, 2004 to-date has been a year of transformation for DIRECTV Group marked by the sale of noncore assets and restructuring of remaining businesses all in support of the strategic focus on DIRECTV's DBS business. During 2004, DIRECTV Group raised substantial cash by selling its set top receiver manufacturing business to Thomson, its Hughes Software Systems business to Flextronics, and its 80.4% equity interest in PanAmSat Corporation to affiliates of Kohlberg, Kravis Roberts & Co, LP. The asset sales position DIRECTV Group with significant liquidity. Fitch estimates the total cash available to DIRECTV Group of approximately $4.3 billion after the close of the PanAmSat sale. DIRECTV Group, through an $875 million intercompany loan to DIRECTV and a $200 million capital contribution has invested $1.075 billion of the cash into DIRECTV to fund the acquisition of the DBS assets from Pegasus Satellite Television, Inc., and subscribers from the affiliates of the Rural Telecommunications Cooperative. Fitch believes a key factor contributing to the expected EBITDA and free cash flow growth will be how the company balances its strong subscriber growth momentum with controlling subscriber acquisition and retention costs and subscriber cash flow. During the second quarter of 2004, the company added a record 944,000 gross additions reflecting a 49% increase from the year-ago period. The positive gross subscriber addition momentum is being driven by the increased availability of local channel service coupled with service package and equipment discounting. In concert with higher gross additions, the company's subscriber acquisition costs -- SAC -- have increased on both in aggregate and per subscriber basis, negatively affecting EBITDA and margins. EBITDA during the second quarter declined over 46% relative to the same period last year, and the EBITDA margin decreased to 7.9%. SAC in aggregate during the second quarter of 2004 was 62% higher than the second quarter of 2003 while SAC per gross addition of $645 was 8.6% higher than the second quarter of 2003, pointing out that the 49% growth in gross additions is driving most of the year-over-year growth in SAC. Subscriber retention costs have swelled during 2004. Second quarter retention costs increased 156% relative to second quarter 2003 levels. The increase is attributable to digital video recorders, extra set top boxes, and local service upgrades provided to subscribers along with the costs associated with the company's movers program. During the balance of 2004 and into 2005, Fitch expects an elevated level of competition for subscribers and market share as cable MSOs continue to focus on marketing their product bundle, including a voice over Internet protocol service roll out to retain and grow its basic subscriber base. Fitch expects the increasingly competitive environment will temper DIRECTV's subscriber additions during the second half of 2004 and during 2005, positioning the company for EBITDA and margin growth. Fitch expects DIRECTV to stem the rise in SAC by focusing on securing better set top box pricing, migrating its sales distribution to lower cost channels, and negotiating more favorable agreements with its retail distribution channel. The company addressed a key competitive issue by recently announcing that it will launch four satellites that will increase the company's high definition -- HD -- programming capacity. The company's HD tier is on par with its cable MSO competition; however, DIRECTV's ability to provide local channels in HD and grow its HD programming on a broad basis as more content becomes available, in Fitch's view, currently lags behind a typical cable MSO's capability. The first two satellites, expected to launch in the first half of 2005 will be capable of providing 500 local HD channels across the U.S. The other two satellites, DIRECTV 10 and DIRECTV 11, are expected to launch early in 2007. These satellites will have the capacity to broadcast 1,000 additional local HD channels and 150 national HD channels. Fitch anticipates that the company will swing to a negative free cash flow position during 2004 after generating $375 million of free cash flow in 2003. Fitch's view on 2004 free cash flow is driven by the declines in EBITDA brought on by increased SAC and retention costs coupled with higher capital expenditures. DIRECTV's leverage as of the second quarter 2004 was 3.35x and, adjusted for the $875 million intercompany note pro forma leverage, was 4.56x. Fitch expects leverage (including the intercompany note) to improve to between 3.8x to 4.0x by year-end 2004. Fitch expects the leverage metric and free cash flow generation to improve during 2005. Fitch anticipates the company generating at least $400 million of free cash flow before the benefit of the NRTC subscribers and reducing leverage to less than 2.0x. Fitch's Stable Rating Outlook reflects the positive EBITDA and free cash flow trends expected during 2005 and 2006 driven by a managed subscriber growth profile and controlled SAC and retention costs balanced with the very competitive operating environment. E-SIM LTD: July 31 Balance Sheet Upside-Down by $5.3 Million ------------------------------------------------------------ e-SIM Ltd. (OTCBB: ESIM.OB), a leading provider of MMI (Man-Machine Interface) Solutions for wireless devices, reported its financial results for the second quarter, ended July 31, 2004. Revenues for the second quarter of 2004 were $1,241,099, compared to $1,206,740 for Q1 2004, representing an increase of 3%. The revenues for Q2 2003 were $1,306,839, showing a decrease of 5%. Gross profit for the current quarter was $643,206 as compared to $748,055 for Q1 2004, showing a decrease of 14%; gross profits for Q2 2003 were $821,811, representing a decrease of 22%. Total operating expenses for the recent quarter were $1,326,452, an increase of 14% from the previous quarter's figure of $1,160,249 and 3% less than the $1,370,511 in the comparable quarter in 2003. Net loss for the current quarter was $797,944, compared with a net loss of $542,951 in the first quarter of 2004, an increase of 47%. This quarter's net loss also showed an increase of 34% when compared to the net loss of $595,364 or $0.05 per share in Q2 2003. The company's backlog of orders is strong at $2.5 million. Marc Belzberg, the chairman and CEO of e-SIM Ltd., commented, "Although this quarter's financial results leave room for improvement, I am confident that e-SIM is on the right track for success. We have been making excellent progress in gaining market recognition, signing new customers, and partnering with important players in the market. Our newly announced MMI version 2.0 has been very well received by the market and e-SIM continues to move ahead on its strategy to build a strong foundation for a future, ongoing royalty revenue stream." About e-SIM Founded in 1990, e-SIM Ltd. -- http://www.e-sim.com/-- designs and engineers MMI (Man-Machine Interface) solutions for wireless and other electronic products. A wide range of platform vendors and wireless handset manufacturers use e-SIM's MMI Solutions including Texas Instruments, FreeScale (formerly Motorola SPS), Renesas, Sasken, NEC, Kyocera, BenQ, and others. e-SIM's MMI technology has been incorporated into millions of handsets on the market. At July 31, 2004, e-Sim Ltd.'s balance sheet shows a $5,359,410 stockholders' deficit, compared to a $6,652,020 deficit at January 31, 2004. ENRON CORP: Inks Closing Agreement with IRS Commissioner -------------------------------------------------------- On September 1, 2004, Enron Corp. and its debtor-subsidiaries entered into a "Closing Agreement On Final Determination Covering Specific Matters" with the United States Commissioner of Internal Revenue. A full-text copy of the Closing Agreement is available for free at: http://sec.gov/Archives/edgar/data/1024401/000095013404013335/d18257exv10w1.htm According to Wade Cline, Enron Managing Director and Assistant General Counsel, the Closing Agreement sets forth the dates on which the Debtors are required to recognize discharge of indebtedness income for federal income tax purposes in connection with the discharge of various types of claims pursuant to their Supplemental Modified Fifth Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code. Headquartered in Houston, Texas, Enron Corporation is in the midst of restructuring various businesses for distribution as ongoing companies to its creditors and liquidating its remaining operations. Before the company agreed to be acquired, controversy over accounting procedures had caused Enron's stock price and credit rating to drop sharply. The Company filed for chapter 11 protection on December 2, 2001 (Bankr. S.D.N.Y. Case No. 01- 16033). Judge Gonzalez confirmed the Company's Modified Fifth Amended Plan on July 15, 2004, and numerous appeals followed. Martin J. Bienenstock, Esq., and Brian S. Rosen, Esq., at Weil, Gotshal & Manges, LLP, represent the Debtors in their restructuring efforts. ENTERPRISE PRODS: Extends Four Cash Tender Offers to Sept. 24 ------------------------------------------------------------- Enterprise Products Operating L.P., the principal operating subsidiary of Enterprise Products Partners L.P. (NYSE:EPD), is extending the Expiration Time of its 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 to 5:00 p.m. New York City time on September 24, 2004. The Purchase Price for each series of GulfTerra notes will be determined at 2:00 p.m. New York City time on the second business day preceding the Expiration Time. The cash tender offers were initiated by Enterprise on August 4, 2004, and included a solicitation of consents to proposed amendments that would eliminate certain restrictive covenants and default provisions contained in the indentures governing the notes. Through August 13, 2004, holders of approximately 99.3% of the aggregate outstanding amount of all four series tendered their notes, thereby consenting to the proposed amendments and qualifying for the Consent Payment of $30 per $1,000 of notes, and no significant change to that percentage has occurred. This consent payment is in addition to the tender offer Purchase Price offered by Enterprise for each series of notes. GulfTerra has executed supplements to the indentures that affect the proposed amendments. However, the supplements will become effective only upon Enterprise's purchase of more than a majority in principal amount of the outstanding GulfTerra notes. Enterprise will purchase these notes promptly after the expiration time for the tender offers, provided that the conditions to the tender offers, including the completion of the merger between Enterprise Products Partners L.P. and GulfTerra Energy Partners, L.P., have been satisfied or waived. Enterprise recently satisfied one of these conditions by entering into a $2.25 billion acquisition credit facility, providing an unsecured 364-day facility that will be available for interim financing of certain transactions associated with the merger, the refinancing of GulfTerra's existing secured credit facility and term loans, and the purchase of all of the GulfTerra notes that are tendered to Enterprise. Enterprise's tender offers are contingent upon the completion of the merger and therefore, the expiration time of the tender period will be subsequent to the merger closing date. This extension was made based on our current expectations of the earliest probable closing date for the merger. This press release does not constitute a tender offer to purchase or a solicitation of acceptance of the tender offer, which may be made only pursuant to the terms of Enterprise's Offer to Purchase and Consent Solicitation Statement dated August 4, 2004 and related letter of transmittal. In any jurisdiction where the laws require the tender offers to be made by a licensed broker or dealer, the tender offers shall be deemed made on behalf of Enterprise by Lehman Brothers Inc. or one or more registered brokers or dealers under the laws of such jurisdiction. 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. Enterprise Products Partners L.P., is the second-largest publicly traded midstream energy partnership, with an enterprise value of over $7.0 billion. Enterprise is a leading North American provider of midstream energy services to producers and consumers of natural gas and NGLs. 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 on May 20, 2004, 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. EXIDE TECH: Five Creditors Transfer Claims Totaling $743,544 ------------------------------------------------------------ Between April 5, 2004 and August 31, 2004, the Bankruptcy Clerk recorded five claims trading hands in the Exide Technologies and its debtor-affiliates' Chapter 11 cases: Claim Transferor Transferee Amount ---------- ---------- ------ AT&T Corp. Contrarian Capital Trade $466,453 WRR Environmental Services Argo Partners 29,794 American Business Forms Debt Acquisition Company 4,411 Clean Image, Inc. Fair Harbor Capital, LLC 9,670 Wells Fargo Equipment SCG Capital Corporation 233,216 Headquartered in Princeton, New Jersey, Exide Technologies is the world-wide leading manufacturer and distributor of lead acid batteries and other related electrical energy storage products. The Company filed for chapter 11 protection on April 14, 2002 (Bankr. Del. Case No. 02-11125). Matthew N. Kleiman, Esq., and Kirk A. Kennedy, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. On April 14, 2002, the Debtors listed $2,073,238,000 in assets and $2,524,448,000 in debts. (Exide Bankruptcy News, Issue No. 52; Bankruptcy Creditors' Service, Inc., 215/945-7000) FINOVA GROUP: To Prepay $188,717,960 on 7.5% Sr. Notes on Oct. 15 ----------------------------------------------------------------- In a regulatory filing with the Securities and Exchange Commission on September 1, 2004, Richard Lieberman, The FINOVA Group, Inc.'s Vice President, General Counsel and Secretary, reports that FINOVA will make a partial voluntary principal prepayment on October 15, 2004, to holders of record as of 5:00 p.m., New York City time, on October 7, 2004, on its 7.5% Senior Secured Notes Due 2009 with Contingent Interest Due 2016. FINOVA will pay $118,717,960, as partial principal prepayment, together with accrued interest on the portion of the principal being repaid up to but excluding the Prepayment Date. FINOVA has advised The Bank of New York, the Trustee of the Notes, regarding the prepayment. Including the October 2004 prepayment, FINOVA will have prepaid 23% of the $2,967,949,000 principal amount outstanding as of December 31, 2003, Mr. Lieberman says. Headquartered in Scottsdale, Arizona, The Finova Group, Inc., provides commercial financing to small and midsized businesses; other services include factoring, accounts receivable management, and equipment leasing. The firm has three segments: Commercial Finance, Specialty Finance, and Capital Markets. FINOVA targets such markets as transportation, wholesaling, communication, health care, and manufacturing. Loan write-offs had put the firm on shaky ground. The Company and its debtor-affiliates and subsidiaries filed for Chapter 11 protection on March 7, 2001 (U.S. Bankr. Del. 01-00697). Daniel J. DeFranceschi, Esq., at Richards, Layton & Finger, P.A., represents the Debtors. FINOVA has since emerged from Chapter 11 bankruptcy. Financial giants Berkshire Hathaway and Leucadia National Corporation (together doing business as Berkadia) own FINOVA through the almost $6 billion lent to the commercial finance company. (Finova Bankruptcy News, Issue No. 51; Bankruptcy Creditors' Service, Inc., 215/945-7000) FOSTER WHEELER: Wins $32MM Caltex EPC Pact for Low-Sulfur Project ----------------------------------------------------------------- Foster Wheeler South Africa (Pty) Limited, a subsidiary of Foster Wheeler Limited (OTCBB:FWLRF), has been awarded an engineering, procurement and construction contract by Caltex Oil South Africa (Pty) Ltd., a part of the ChevronTexaco group, for a low-sulfur diesel project. The contract, which is the third stage of the project, covers the full EPC portion of the project through commissioning assistance. Commissioning is expected to occur in November 2005. The total investment value of the project is $32 million. The terms of Foster Wheeler's contract were not disclosed. The booking was included in the second quarter. "This contract award reflects Caltex's continuing confidence in Foster Wheeler South Africa, and further develops the 15-year relationship between the two companies," said Mark Meyer, managing director of Foster Wheeler South Africa (Pty) Limited. Located at Cape Town, South Africa, the project involves the revamp of the diesel hydrotreating unit and addition of a hydrogen purification unit to produce low-sulfur diesel. Foster Wheeler plans to carry out engineering and procurement from its office in Midrand, South Africa, with construction management located on site in Cape Town. During the first stage of the project, Foster Wheeler produced a conceptual engineering package evaluating various options for the refinery to meet the phased tightening of diesel and gasoline specifications in South Africa, including a hydrogen management study. During the second stage of the project, Foster Wheeler completed a front-end engineering design (FEED) and total installed cost estimate for the revamp of the diesel hydrotreating unit, and installation of a new hydrogen purification unit. The project ensures compliance with the South African diesel fuel specification of 500 ppm wt sulfur by January 1, 2006. About the Company Foster Wheeler, Ltd., is a global company offering, through its subsidiaries, a broad range of design, engineering, construction, manufacturing, project development and management, research, plant operation and environmental services. At June 25, 2004, Foster Wheeler Ltd.'s balance sheet showed an $856,601,000 stockholders' deficit, compared to an $872,440,000 deficit at December 26, 2003. FOSTER WHEELER: Only 49.3% of Holders Okay Equity-for-Debt Swap --------------------------------------------------------------- Foster Wheeler Ltd., (OTCBB: FWLRF) says a minimum threshold related to its equity-for-debt exchange was not met for one class of securities. Specifically, only 49.3% of the revised minimum threshold of 60% has been tendered by holders of the 9.00% Preferred Securities. Foster Wheeler is extending its exchange offer until 5:00 p.m., New York City time, on September 17, 2004. "Let me be perfectly clear," said Raymond J. Milchovich, chairman, president and chief executive officer, "unless the tendered amount of Preferred Securities meets or exceeds an acceptable minimum threshold, this exchange offer will fail. If it does fail, all of the company's stakeholders will suffer." If Foster Wheeler fails to complete the exchange offer, it is then obligated, subject to certain conditions, to commence and attempt to consummate the same economic transactions contemplated by the exchange offer through an alternative implementation structure. This obligation is contained in the lock-up agreements signed with various institutional holders of the company's debt securities, and it is more fully described in the registration statement on Form S-4 filed with the SEC relating to the proposed exchange offer. Foster Wheeler continues to actively consider such alternatives. Legal Details The securities proposed to be exchanged are as follows: (1) Foster Wheeler's Common Shares and its Series B Convertible Preferred Shares and warrants to purchase Common Shares for any and all outstanding 9.00% Preferred Securities, Series I issued by FW Preferred Capital Trust I (liquidation amount $25 per trust security) and guaranteed by Foster Wheeler Ltd. and Foster Wheeler LLC, including accrued dividends; (2) Foster Wheeler's Common Shares and Preferred Shares for any and all outstanding 6.50% Convertible Subordinated Notes due 2007 issued by Foster Wheeler Ltd. and guaranteed by Foster Wheeler LLC; (3) Foster Wheeler's Common Shares and Preferred Shares for any and all outstanding Series 1999 C Bonds and Series 1999 D Bonds (as defined in the Second Amended and Restated Mortgage, Security Agreement, and Indenture of Trust dated as of October 15, 1999 from Village of Robbins, Cook County, Illinois, to SunTrust Bank, Central Florida, National Association, as Trustee); and (4) Foster Wheeler's Common Shares and Preferred Shares and up to $150,000,000 of Fixed Rate Senior Secured Notes due 2011 of Foster Wheeler LLC guaranteed by Foster Wheeler Ltd. and certain Subsidiary Guarantors for any and all outstanding 6.75% Senior Notes due 2005 of Foster Wheeler LLC guaranteed by Foster Wheeler Ltd. and certain Subsidiary Guarantors; and solicitation of consents to proposed amendments to the indenture relating to the 9.00% Junior Subordinated Deferrable Interest Debentures, Series I of Foster Wheeler LLC, the indenture relating to the 6.50% Convertible Subordinated Notes due 2007 and the indenture relating to the 6.75% Senior Notes due 2005. As of 5:00 p.m. on September 14, 2004, holders have tendered the following dollar amounts and percentages of the following original securities: (1) 9.00% Preferred Securities, $86,281,525 (49.3%); (2) 6.50% Convertible Subordinated Notes, $209,930,000 (99.97%); (3) Robbins Series C Bonds due 2024, $56,643,071 (73.4%), Robbins Series C Bonds due 2009, $12,028,197 (99.2%), and Robbins Series D Bonds, $35,489,277 based on the balance due at maturity (99.1%); and (4) 6.75% Senior Notes, $192,118,000 (96.1%). A copy of the prospectus relating to the New Notes and other related documents may be obtained from the information agent: Georgeson Shareholder Communications Inc. 17 State Street, 10th Floor New York, N.Y. 10014 Georgeson's telephone number for bankers and brokers is 212-440-9800 and for all other security holders is 800-891-3214. Direct any questions regarding the exchange offer and consent solicitation to the dealer manager: Rothschild Inc. 1251 Avenue of the Americas, 51st Floor New York, N.Y. 10020 Tel. No. 212-403-3784 Investors and security holders are urged to read the following documents filed with the SEC, as amended from time to time, relating to the proposed exchange offer because they contain important information: (1) the registration statement on Form S-4 (File No. 333-107054); and (2) the Schedule TO (File No. 005-79124). These and any other documents relating to the proposed exchange offer, when they are filed with the SEC, may be obtained free at the SEC's Web site at http://www.sec.gov/or from the information agent as noted above. The foregoing reference to the exchange offer and any other related transactions shall not constitute an offer to buy or exchange securities or constitute the solicitation of an offer to sell or exchange any securities in Foster Wheeler Ltd. or any of its subsidiaries. About the Company Foster Wheeler, Ltd., is a global company offering, through its subsidiaries, a broad range of design, engineering, construction, manufacturing, project development and management, research, plant operation and environmental services. At June 25, 2004, Foster Wheeler Ltd.'s balance sheet showed an $856,601,000 stockholders' deficit, compared to an $872,440,000 deficit at December 26, 2003. GLOBAL CROSSING: AGX Trustee Wants to Establish Admin. Bar Date --------------------------------------------------------------- Robert L. Geltzer, the trustee overseeing the liquidation of Asia Global Crossing, Ltd., and Asia Global Crossing Development Co., asks the Court to fix October 15, 2004, as the last day to file claims arising during the period from November 17, 2002, through June 11, 2003, which claims are entitled to administrative expense priority. The Administrative Bar Date will not apply to: (1) any person or entity holding a claim that arose prior to the Petition Date; (2) any professional retained by the AGX Trustee for the payment of fees and the reimbursement of expenses; (3) any person or entity that has previously filed with the Clerk of the Bankruptcy Court an Administrative Claim that arose during the Administrative Period; (4) any person or entity whose Administrative Claim has previously been allowed by the Court; (5) any person or entity whose Administrative Claim has been paid in full by any of the Debtors or the Trustee; and (6) any person or entity holding an Administrative Claim for which a specific deadline has previously been fixed by the Court. Any holder or purported holder of an Administrative Claim required to file a proof of claim by the Administrative Bar Date that fails to timely file that proof of claim will be forever barred from asserting that administrative claim against the AGX Debtors. The AGX Debtors and their estates will be forever discharged from any and all indebtedness or liability with respect to that administrative claim. The AGX Trustee will give notice of the Administrative Bar Date by mailing, via first class mail, the Administrative Bar Date Notice along with the Administrative Claim Form to all individuals and entities included as creditors in: (a) the AGX Debtors' schedules of assets and liabilities and statements of financial affairs; (b) the schedules of unpaid debts incurred since the Petition Date; and (c) the Bankruptcy Court's claims registry maintained for each of the Debtors' cases. The AGX Trustee will publish notice of the Administrative Bar Date in a form substantially similar to the Administrative Bar Date Notice once, approximately 25 days prior to the Bar Date in the national editions of The Wall Street Journal and The New York Times. And since the AGX Debtors' books and records indicate that they engaged professionals postpetition on an international basis, including in places like Hungary and Bermuda, a similar Notice will also be published in The International Herald Tribune and in two Bermudan newspapers -- The Bermuda Sun and The Royal Gazette. AGX, which is a Bermudan company, is currently the subject of "winding up" proceedings there, thus, the AGX Trustee believes that this additional notice is appropriate. Moreover, because the AGX Debtors' principal offices were located in Los Angeles, California, and their books and records reveal that they conducted business with various vendors and agencies in this area, the Notice will also be published in The Los Angeles Times. Headquartered in Florham Park, New Jersey, Global Crossing Ltd. -- http://www.globalcrossing.com/-- provides telecommunications solutions over the world's first integrated global IP-based network, which reaches 27 countries and more than 200 major cities around the globe. Global Crossing serves many of the world's largest corporations, providing a full range of managed data and voice products and services. The Company filed for chapter 11 protection on January 28, 2002 (Bankr. S.D.N.Y. Case No. 02- 40188). When the Debtors filed for protection from their creditors, they listed $25,511,000,000 in total assets and $15,467,000,000 in total debts. Global Crossing emerged from chapter 11 on Dec. 9, 2003. (Global Crossing Bankruptcy News, Issue No. 66; Bankruptcy Creditors' Service, Inc., 215/945-7000) GOSHAWK RIDGE: U.S. Trustee Meeting Creditors on Oct. 25 -------------------------------------------------------- The United States Trustee for Region 17 will convene a meeting of Goshawk Ridge Development, Ltd.'s creditors at 3:00 p.m., on October 25, 2004, at 300 Booth Street, Room 2110, in Reno, Nevada. 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 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 Incline Village, Nevada, Goshawk Ridge Development, Ltd., filed for Chapter 11 protection on Sept. 10, 2004 (Bankr. D. Nev. Case No. 04-52701). Stephen R. Harris, Esq., at Belding, Harris, & Petroni, Ltd., represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it estimated more than $10 million in assets and debts. GRAHAM PACKAGING: Moody's Rates New Loans at Junk & Low-B Levels ---------------------------------------------------------------- Moody's Investors Service rated the proposed debt of Graham Packaging Company, L.P., which arises from its definitive agreement on July 28, 2004 to purchase the Plastic Container unit of Owens-Illinois, Inc., for approximately $1.2 billion [Owens- Illinois has a senior implied rating of B2 with a stable outlook]. Despite Graham more than doubling its revenue pro-forma for this sizable acquisition, Moody's affirmed Graham's existing B2 senior implied rating. Proceeds from the proposed financings are intended to: * finance the acquisition; * refinance Graham's existing $700 million secured credit facility (rated B2); * repay Graham's outstanding $325 million 8.75% senior subordinated notes, due 2008 (rated Caa1), as well as the outstanding $169 million 10.75% senior discount notes, due 2009 (rated Caa2), issued at Graham Packaging Holdings Company; and * pay related expenses. Pro-forma for the proposed transactions, the affirmation of the B2 senior implied rating recognizes Graham's proven ability to operate successfully throughout the recent past despite substantial financial leverage, as evidenced by its ability to maintain industry-leading margins and adequate liquidity. The rating affirmation reflects the complementary nature of the proposed acquisition and attributes value to the realization of some synergies within the near term after combination. However, the rating remains constrained by the paucity of free cash flow relative to sizable pro-forma debt, which exceeds pro- forma consolidated revenue. Moreover, Moody's has concerns about the quality of earnings, pro-forma for the proposed transactions, given the high concentration of customers (one customer is approximately 17% of consolidated revenue and the top fifteen customers account for close to 70%) and the material amount of add-backs to EBIT given the negative unadjusted pro-forma EBIT. The more significant adjustments, which represent 100% of adjusted EBIT, include goodwill and other impairment charges, write-downs of assets, legal expenses, global restructuring charges, and project start-up costs (inclusive of the O-I Plastics intended purchase). Additionally, the rating incorporates heightened concern about working capital management and the company's ability to manage timing differences between capital investment and EBIT generation. Moody's took these ratings actions: * B2 rating assigned to the proposed $1.6 billion first lien credit facility consisting of a $250 million revolver, maturing in 6 years, and a $1.35 billion term B loan, maturing in 7 years; * B3 rating assigned to the proposed $350 million second lien term C loan, maturing in 7.5 years; * Caa1 rating assigned to the proposed $350 million senior unsecured note, due 2012; * Caa2 rating assigned to the proposed $375 million senior subordinated note, due 2014; * SGL-3 Speculative Grade Liquidity Rating affirmed. Senior implied rating of B2 affirmed and moved to Graham from Holdings Senior unsecured issuer rating of Caa2 (non-guaranteed exposure) affirmed and moved to Graham The ratings outlook changed to stable from positive. The ratings are subject to the closing of the proposed transactions and review of executed documentation. Upon the closing and concurrent execution of the proposed financings, the ratings of Graham's existing debt will be withdrawn. The change in the ratings outlook to stable from positive reflects the reversal of Graham's stated debt reduction strategy given the significant increase in financial leverage required to effect the discussed acquisition. The downward change to a stable outlook also reflects Moody's concern about integration risk, which is exacerbated by Graham's stretched financial profile. While acknowledging that the company has engaged an outside firm to assist with integration, some execution concerns linger as this is Graham's most substantial business combination. The company does not have a history of acquisitive growth. Given the magnitude of the proposed transactions and the required revitalization of margins at the acquired O-I Plastics' business, there is minimal tolerance for operating missteps or deterioration in pro-forma credit statistics before triggering a negative ratings outlook. It will likely take several consecutive quarters of on-plan or better performance before the outlook would be considered solid enough to migrate back to positive. Specifically, financial leverage would need to be reduced to at or below pre-acquisition levels (i.e. close to 8 times debt to EBIT; 5 times debt to EBITDA); EBIT return on assets returned to mid- teens or better; and break-even to positive annual free cash flow. Pro-forma for the proposed transactions, Graham's financial profile is weak in the near-term. However in Moody's opinion, the realization of some synergies should be captured fairly rapidly thereby bolstering the bottom line and taking some of the stress off Graham's stretched credit statistics during the first year of combination. Financial leverage is substantial at over 11 times pro-forma pre-synergies EBIT (slightly over 6 times pro-forma EBITDA). There is minimal free cash flow as pro-forma capital expenditures increase to the $200 million and above level, well over the approximately $90 million spent during fiscal 2003. Graham is likely to continue to reinvest at levels that exceed depreciation throughout the intermediate term. EBITDA less capital expenditures coverage of pro-forma interest expense is thin at virtually one-to-one. The B2 rating assigned to the proposed first lien credit facility reflects the priority position in the pro-forma capital structure and the expectation of collateral coverage. Moody's does not rate the credit facility better than the senior implied rating of B2 given the magnitude of committed first lien facilities (roughly 65% of total pro-forma debt), and the substantial leverage at approximately 7 times pro-forma consolidated pre-synergies EBIT (approximately 4 times EBITDA). Moody's notes that documentation provides for an uncommitted increase of up to $50 million to the proposed $250 million revolver, subject to conditions detailed in the Credit Agreement. The proposed $1.6 billion facility, consisting of the $250 million revolver plus a $1.35 billion term B loan, is intended to be secured by a first priority perfected lien on the assets, intercompany notes, and stock of the borrower, Graham, and each of its direct and indirect subsidiaries, except non-US subsidiaries for which the lien on stock is limited to 65%. Unconditional guarantees by Holdings and each of the borrower's wholly owned direct and indirect domestic subsidiaries support the facility. At closing, no advances under the proposed revolver are anticipated. Approximately $2 million letters of credit will be outstanding. Financial covenants are intended to address maximum total leverage, minimum interest coverage, and maximum capital expenditures. Pro-forma liquidity, while expected to remain adequate, will be reviewed when the transactions have been completed and documentation has been executed and reviewed (refer to the Speculative Grade Liquidity Assessment published on September 2, 2004 for Graham). The B3 rating assigned to the proposed $350 million second lien term C loan reflects the benefits and limitations of the collateral. The rating, one notch below the B2 senior implied rating, reflects the contractual subordination to a sizable amount of first lien debt. The rating expresses the expectation of collateral coverage. The loan is to be secured by a second priority perfected lien on the same collateral securing the first lien debt. An Intercreditor Agreement is expected to be in place. Guarantees by the same entities as the first lien facility support the term C loan. The Caa1 rating assigned to the proposed senior unsecured note reflects the effective subordination to a substantial amount of secured debt at Graham and gives consideration to the effective subordination to liabilities at the non-guarantee subsidiaries. Based upon the significance of those two, the loss severity on the note would likely exceed that of secured debt thus resulting in a rating that is two notches down from the senior implied rating. The note, issued by Graham, is to be guaranteed on a senior unsecured basis by the same entities supporting the first and second lien debt. The Caa2 rating assigned to the proposed senior subordinated note reflects the contractual subordination to a substantial amount of senior debt at Graham (approximately $2.07 billion of funded debt -- inclusive of approximately $20 million in assumed debt- plus a large level of trade payables and accrued expenses) and effective subordination to all obligations of Graham's subsidiaries. The rating would represent a downgrade from the existing senior subordinated notes' rating of Caa1 (to be withdrawn upon repayment from the proceeds of the proposed transactions) due to the sizable increase in senior indebtedness. The note, issued by Graham, is to be guaranteed on a senior unsecured basis by the same entities supporting the senior unsecured note. Based in York, Pennsylvania, Graham Packaging Company, L.P., is a leading global designer and manufacturer of customized blow-molded plastic containers for branded food and beverages, household and personal care products, and automotive lubricants. Blackstone Capital Partners of New York is the majority owner. Pro-forma for the intended acquisition of O-I Plastics, which is also a manufacturer of technology-based value-added custom plastic packaging, consolidated annual revenue would be approximately $2 billion. GRAPHIC DETAIL INC: Case Summary & 20 Largest Unsecured Creditors ----------------------------------------------------------------- Debtor: Graphic Detail, Inc. 10820 Gilroy Road Hunt Valley, Maryland 21031 Bankruptcy Case No.: 04-31114 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- Graphic Detail Offset, Inc. 04-31225 Type of Business: The Company is engaged in pre-press and printing business. See http://www.gdiprinting.com/ Chapter 11 Petition Date: September 13, 2004 Court: District of Maryland (Baltimore) Judge: James F. Schneider Debtor's Counsel: Ronald J Drescher, Esq. Drescher & Associates 4 Reservoir Circle, Suite 107 Baltimore, Maryland 21208 Tel: (410) 484-9000 Total Assets Total Debts ------------ ----------- Graphic Detail, Inc. $1,800,000 $1 M to $10 M Graphic Detail Offset, Inc. $200,000 $48,000 Debtor's 20 largest unsecured creditors: Entity Claim Amount ------ ------------ G.E. Capital Colonial Pacific $105,756 A&E Partners, L.P. $100,571 John Gillespie $100,000 American Express $26,702 Washington Printing Supplies $25,295 XpedX $16,937 GMAC $16,294 Atlantic Graphic Systems, Inc. $14,749 Printer's Service $6,600 Creo Americas, Inc. $5,201 A & S Graphics Supplies, Inc. $5,194 American Express $5,190 Expanets $3,730 Pitman Company $2,934 G.E. Richards Graphic Supplies $2,883 C & J Graphics, Inc. $2,173 Sonitrol of Baltimore $2,170 Braden Sutphin $2,074 Metro Express of Baltimore $2,040 Bottcher America Corporation $1,539 HUNTSMAN: Planned IPO Prompts S&P to Put B Ratings on CreditWatch ----------------------------------------------------------------- Standard & Poor's Ratings Services placed its 'B' corporate credit ratings and related debt ratings for Huntsman, LLC, and its affiliates, HMP Equity Holdings Corp., Huntsman International Holdings, LLC, and Huntsman Advanced Materials, LLC, on CreditWatch with positive implications, citing the company's announcement that it expects to file with the SEC to undertake an IPO of common stock. The size of the proposed offering has not been announced but substantially all of the proceeds will be applied to reduce the company's debt burden. Salt Lake City, Utah-based Huntsman is a large diversified chemical producer with significant exposure to the commodity chemical cycle. The company is one of the largest private chemical companies in the world with over $10 billion in sales and over $6.5 billion of debt outstanding. "The CreditWatch placement reflects the potential for an upgrade if the IPO is successfully completed and debt is significantly reduced," said Standard & Poor's credit analyst Kyle Loughlin. While the size of the offering would have to be substantial to warrant an upgrade in isolation, the potential for meaningful debt reduction taken together with the emerging trend of operating improvement, may support an upgrade within the next several months. Based on preliminary information, the company is expected to use substantially all of the proceeds for debt reduction, with the potential for additional secondary equity sales by the current owners. As a result, the company's credit protection measures should meaningfully improve, and begin to approach levels that could support a modestly higher rating. During 2003, Huntsman completed the purchase of Imperial Chemical Industries PLC's 30% interest in Huntsman International. From a credit perspective, this action more closely aligned the default risk of the primary entities, HMP Holdings, Huntsman International, and Huntsman LLC, because of the shared control and common interests of the owners. Despite the IPO announcement and potential acceleration of Huntsman's plans to reduce debt, the ratings will continue to reflect a highly aggressive financial profile and debt obligations at its subsidiaries that substantially elevate credit risk. Standard & Poor's will complete the review of the Huntsman ratings as more information about the proposed IPO becomes available. The ratings will be removed from CreditWatch on completion of the offering. INTERPOOL INC: Sold $150 Million New Notes via Private Placement ---------------------------------------------------------------- Interpool, Inc., (IPLI.PK) has sold $150 million total principal amount of a new series of 6% notes due 2014 in a private transaction with four investors consisting of Goldman, Sachs & Co., Greywolf Capital Management, Caspian Capital Advisors, LLC and Riva Ridge Capital Management. In connection with the sale of the notes, Interpool also issued to the investors warrants exercisable for approximately 8.3 million shares of Interpool's common stock at an exercise price of $18 per share. The sale of the notes and warrants was consummated on September 14, 2004. Interpool also entered into agreements with the investors to file registration statements with the Securities and Exchange Commission, for their benefit, with respect to the notes and the warrants. Of the $150 million in total proceeds from the transaction, Interpool used $49 million to repurchase Interpool 7.35% notes due 2007 and 7.20% notes due 2007 that were held by the four investors. The remaining proceeds from the sale of the 6% notes due 2014 will be used for general corporate purposes, including, but not limited to, the purchase of equipment, retirement of debt, acquisitions and/or working capital. Martin Tuchman, Chairman and Chief Executive Officer of Interpool, Inc., said, "I am pleased with the transaction for two reasons. First of all, the attractive interest rate on the long-term debt portion is extremely competitive. This timely addition of liquidity will enable us to participate more efficiently and securely in a robust leasing market while continuing to pursue our longer-term strategic objectives. Second, the forward equity sale aspect of the transaction is particularly attractive; upon exercise of all of the warrants, it will result in $150 million of equity for Interpool." About the Company Interpool is one of the world's leading suppliers of equipment and services to the transportation industry. It is the world's largest lessor of intermodal container chassis and a world-leading lessor of cargo containers used in international trade. * * * As reported in the Troubled Company Reporter on July 13, 2004, Fitch Ratings affirms Interpool, Inc.'s senior secured, senior unsecured, and preferred stock ratings at 'BB-', 'B', and 'CCC+', respectively. The ratings are removed from Rating Watch Negative where they were placed on Oct. 10, 2003. The Rating Outlook is Positive. Approximately $322 million of debt and trust-preferred securities are affected by Fitch's action. The Rating Watch Negative was removed as Interpool has completed its financial restatement for fiscal years 2000, 2001, and 2002 with a negligible impact to credit fundamentals. While the company is not yet current with its Securities and Exchange Commission financial statement filings, Fitch has gained confidence that the company is ahead of the schedule announced in November 2003 to be in compliance with SEC financial statement reporting deadlines by the end of 2004. Interpool has also been successful at maintaining an acceptable liquidity position through sourcing new secured financing and consistent retention of meaningful unrestricted cash balances. The Positive Rating Outlook reflects Fitch's view that Interpool will continue its progress at becoming a timely SEC filer and also considers an expected strengthening of the company's information technology, accounting, and legal infrastructure resulting from the implementation of recommendations from Morrison and Foerster, LLP's forensic review of the company's operations. These improvements, when completed, will enable the company to better monitor, manage, and track equipment as well as improve the efficiency and integrity of its billing and cash management systems. INTERPUBLIC: Poor Internal Controls Cue S&P to Watch BB+ Rating --------------------------------------------------------------- Standard & Poor's Ratings Services placed its ratings on The Interpublic Group of Cos., Inc., including its 'BB+' long-term corporate credit rating, on CreditWatch with negative implications. The New York, New York-based advertising agency holding company had total debt outstanding of approximately $2.2 billion at June 30, 2004. "The CreditWatch listing reflects Standard & Poor's intensifying concerns about senior management turnover at Interpublic, coupled with the previously identified material weakness in the company's internal controls related to the processing and monitoring of transactions," said Standard & Poor's credit analyst Alyse Michaelson. "These issues, at a time when Interpublic is working to turn around a number of its businesses and stabilize operating trends, put pressure on already-vulnerable ratings," she added. The material weakness in internal controls, together with other material weaknesses associated with balance sheet and systemwide monitoring, could potentially result in accounting errors. Although the company is taking steps to remedy its technology and financial reporting systems, it appears that it will not be able to fully remedy the issues prior to year-end and will continue to have a material weakness in internal controls at Dec. 31, 2004. Affirmation and removal of the ratings from CreditWatch will depend in part on the company continuing to receive a clean audit opinion on its basic financial statements, although it may not receive a clean audit opinion on the specific matter of effectiveness of its internal controls. A downgrade would reflect increasing discomfort with management's ability to effectively resolve these issues in a timely manner, or if other unanticipated adverse accounting and key personnel- related developments occur. Further concerns relate to the potential repercussions of management departures and transitions, and to major internal operating inefficiencies. These issues are of greater concern as Interpublic is undergoing a restructuring program and its revenues, EBITDA margins, and discretionary cash flow are under continuing pressure. About Interpublic Interpublic is one of the world's leading organizations of advertising agencies and marketing-services companies. Major global brands include Draft, Foote, Cone & Belding Worldwide, GolinHarris International, Initiative, Lowe & Partners Worldwide, McCann-Erickson, Universal McCann, Octagon, Jack Morton Worldwide and Weber Shandwick Worldwide. Leading domestic brands include Campbell-Ewald, Deutsch and Hill Holliday. JUNIPER GENERATION: Fitch Lifts $105M Notes to Investment Grade --------------------------------------------------------------- Fitch Ratings has upgraded Juniper Generation LLC's $105 million senior secured notes due 2012 to 'BBB-' from 'BB' and removed the Rating Watch Positive. The rating action follows a full review of Juniper's actual and projected financial performance. Juniper's rating currently reflects its financial performance on a standalone basis, independent of counterparty constraints. The structural subordination of the Juniper notes to project-level debt is offset by the receipt of service fees, weak project-level distribution tests relative to project performance and Juniper's lack of dependence on any one project for cash distributions. The counterparty rating of Pacific Gas and Electric (PG&E, secured bonds rated 'BBB' with a Positive Outlook) is considered a constraint on the rating of Juniper, though this constraint is not currently active. Long-term SRAC price risk is the primary credit concern. Fitch's analysis includes several stress scenarios that incorporate conservative natural gas pricing assumptions, and the results of the analysis suggest that natural gas price risk is low under the current SRAC formula for PG&E. Projected debt service coverage ratios -- DSCR -- in the Fitch base case average 2.1 times (x) between 2007 and 2012, and DSCRs consistently remain above 1.5x in a depressed gas price scenario. However, potential changes to the SRAC formula after July 2006 could produce a mismatch between energy payments and Juniper's actual cost of natural gas, increasing Juniper's vulnerability to volatile natural gas prices. In the short term, the natural gas hedges at the Bakersfield projects and the fixed energy price of 5.37 >/kWh will continue to provide Juniper with stable, predictable cash flows in the absence of unexpected operational difficulties. ArcLight Capital Partners' involvement as an equity participant is not a factor in the assigned rating, as Juniper is considered a bankruptcy remote special purpose vehicle. In July 2004, ArcLight acquired El Paso Corp.'s equity interest in Juniper and subsequently sold a portion of its equity interest to Delta Power, which has replaced El Paso as the portfolio asset manager and operator at the Bakersfield and Corona projects. Previously, Juniper subcontracted all asset management, O&M and gas procurement services to El Paso; Delta has assumed the relevant contracts, the terms of which remain unchanged. El Paso's replacement by Delta is not expected to disrupt operations at the projects. Juniper's bondholders rely on the equity distributions from a portfolio of 10 gas-fired cogeneration plants and fees earned by two service companies. Each of these generating plants is a Qualifying Facility under federal PURPA legislation, obligating the local utility to purchase the plant's output at prices established by the California Public Utilities Commission. The output from nine plants is sold under power purchase agreements -- PPAs -- with PG&E, and the output from the remaining plant is sold under a PPA with Southern California Edison (senior unsecured bonds rated 'BBB' by Fitch). No single project is expected to contribute more than 25% of Juniper's total cash flow until 2012, when the Juniper debt matures. The service companies perform operations and maintenance at nine of the plants and fuel procurement at eight of the plants. Service fees represent approximately 20% of Juniper's total cash flow. KMART HOLDING: UBS Lifts 12-Month Price Target to $101 from $85 --------------------------------------------------------------- "Street Chatter" from Schaeffer's Investment Research focuses on Kmart Holding (Nasdaq:KMRT). "Street Chatter" is a report that analyzes three newsworthy stocks that are generating a lot of attention on Internet message boards. "Street Chatter" is published on http://www.SchaeffersResearch.com/- the home of Bernie Schaeffer and Schaeffer's Investment Research. Kmart Holding (Nasdaq:KMRT) is in the black on Tuesday after UBS issued positive comments on the discount retailer and lifted its 12-month price target to $101 from $85. The brokerage firm said it is comfortable with KMRT's cash-flow potential after the company's strong second-quarter results. KMRT notched a new peak on Tuesday, its highest reading since emerging from bankruptcy and returning for public trading in April 2003. The shares have also hurdled the 85 level, which was a site of potential short-term technical resistance. Schaeffer's put/call open interest ratio -- SOIR -- for KMRT has been in decline mode since late July, but recently inched higher from a short-term low. The indicator currently weighs in at 0.87, lower than 73 percent of the past year's worth of SOIR data. KMRT options pits are active Tuesday, particularly at the September 85, September 90, and December 90 call strikes. Meanwhile, there are more than 8.3 million KMRT shares sold short, which accounts for 22 percent of the stock's total float and is equal to a short- interest ratio of 2.8 days to cover. One group that has neglected KMRT is the analyst community. Currently, according to Yahoo! Finance, UBS is the only brokerage firm following the security. Any additional coverage could result in short-term strength for KMRT shares. Shares in KMRT closed at $88.05 in trading yesterday. Headquartered in Troy, Michigan, Kmart Corporation (n/k/a KMART Holding Corporation) -- http://www.bluelight.com/-- is the nation's second largest discount retailer and the third largest merchandise retailer. Kmart Corporation currently operates approximately 2,114 stores, primarily under the Big Kmart or Kmart Supercenter format, in all 50 United States, Puerto Rico, the U.S. Virgin Islands and Guam. The Company filed for chapter 11 protection on January 22, 2002 (Bankr. N.D. Ill. Case No. 02-02474). Kmart emerged from chapter 11 protection on May 6, 2003. John Wm. "Jack" Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, LLP, represented the retailer in its restructuring efforts. The Company's balance sheet showed $16,287,000,000 in assets and $10,348,000,000 in debts when it sought chapter 11 protection. LAUREL MOUNTAIN: Somerset Trust Conducts Public Sale on Friday -------------------------------------------------------------- Somerset Trust Company will conduct a public sale of Laurel Mountain Ski Company's properties, which includes the lifts, lodge and snow-making systems hardware that constitutes its collateral, in accord with its rights under the Uniform Commercial Code. The sale will be conducted at the Laurel Mountain Ski Resort on Route 30, Ligonier Township, Westmoreland County, Pennsylvania on Friday, September 17, 2004. Inspection of the property to be sold will occur on the date of the sale between 10:00 a.m. and the time of the sale. Arrangements for inspections at other times may be made by contacting: Lee Murdy VP-Special Assets Somerset Trust Company (814) 443-9222 murdy@somersettrust.com who will arrange for inspection at a mutually convenient time prior to the sale date. You may also contact Mr. Murdy for directions to the site of the sale and for a description of the collateral to be sold as well as the terms of sale. The said personal property shall be sold in as is where is condition, free and clear of any and all liens and/or encumbrances. LONGHOUSE ASSOCIATES: Case Summary & Largest Unsecured Creditors ---------------------------------------------------------------- Debtor: Longhouse Associates Inc. 4605 252nd Avenue South East Issaquah, Washington 98029 Bankruptcy Case No.: 04-21981 Chapter 11 Petition Date: September 13, 2004 Court: Western District of Washington (Seattle) Judge: Thomas T. Glover Debtor's Counsel: J. Scott Greer, Esq. Greer & Associates, P.S. 2122 112th Avenue North East, Suite A300 Bellevue, WA 98004 Tel: 425-637-8979 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Doug Hendel $578,000 [no address provided] Days Inn Worldwide $46,947 XO Communications $26,584 Qwest Dex AR $13,179 Qwest Dex Cust. Svc. $7,096 Lodgenet $3,944 WAHIT $3,630 American Hotel Register $3,576 Foremost Contract Furniture $3,028 Qwest Dex - renton $2,995 Ladd Contract Sales Corp. $2,673 Kone Inc. $637 Verizon Directories $369 American Tech. Corp. $366 Double Arch. Design $160 Bellevue Community College $125 All the Kings Flags $114 DC Bach Co. $77 Qwest $40 All City Fire & Safety Corp. $38 MISSION HEALTH: Wants to Access Up to $1.2MM of Cash Collateral --------------------------------------------------------------- Mission Health Services asks the U.S. Bankruptcy Court for the District of Utah, Central Division, for authority to use its secured creditors' cash collateral. U.S. Bank Corporation serves as the Indenture Trustee for certain of the company's bondholders. The bondholders assert a claim in excess of $12 million for obligations on the bonds issued pursuant to the Master Indenture. The Debtor tells the Court that it needs the cash collateral to continue its operations and to pay the Medicare and Medicaid reimbursements to its employees. The Debtor proposes to use the cash collateral according to a budget through February 2005 projecting: September October November ----------- --------- ---------- Beginning Cash Balance $973,207 $980,755 $1,073,158 Total Estimated Expenditure 904,052 849,859 877,219 Estimated Ending Cash Balance $980,755 $1,073,158 $1,108,158 December January February ---------- --------- ---------- Beginning Cash Balance $1,108,158 $1,062,562 $1,138,600 Total Estimated Expenditure 987,859 836,089 862,000 Estimated Ending Balance $1,062,562 $1,138,691 $1,127,900 To protect the bondholders' security interests, a post-petition replacement lien of the same extent, scope and validity in accounts receivables and any other type of collateral will be granted by the Debtor. The Debtor assures the Court that its business will accumulate cash under the proposed budget thereby adequately protecting the bondholders' interests. Headquartered in Layton, Utah, Mission Health Services operates nursing and rehabilitation facilities. The Company filed for chapter 11 protection on August 30, 2004 (Bankr. D. Utah Case No. 04-34063). Kenneth L. Cannon, II, Esq., at Durham Jones & Pinegar, represents the Debtor in its restructuring efforts. When the Company filed for protection it listed, more than $1 million in assets and more than $10 million in debts. MGM MIRAGE: Fitch Assigns BB+ Rating to $400MM 6% Senior Notes -------------------------------------------------------------- Fitch Ratings has assigned a 'BB+' rating to MGM MIRAGE's $400 million add-on to the 6% senior notes due 2009. Proceeds will be used to help repay a portion of the $1.7 billion outstanding under its $2 billion revolver maturing 2005. MGM MIRAGE's long-term ratings have been placed on Rating Watch Negative by Fitch since June of this year. The action followed the announcement of MGM MIRAGE's proposed acquisition of Mandalay Resort Group for $4.9 billion in cash plus the assumption of $2.8 billion in debt. Fitch expects the Rating Watch status to be resolved when final terms of financing and pace of deleveraging following the acquisition are announced. Financing terms have yet to be announced; however, management has suggested that the Mirage acquisition (completed in May 2000) is a good 'proxy' for the final structure. In this context, the assumptions detailed in the following paragraphs can be made. First, credit measures of the combined entity at close will likely mirror those of the Mirage acquisition. The Mirage acquisition closed May 2000 with 5.5 times (x) net debt-to-EBITDA, 4.5x senior leverage, and 2.5x-2.75x net interest coverage. This entailed roughly $5.2 billion in debt and $1.2 billion in equity. While this level of leverage was relatively high, the aggressive pace for deleveraging outlined by the company post-acquisition (below 4.0x within two years) provided comfort. Notably, MGM MIRAGE never achieved its goal of below 4.0x leverage (due in part to the impact of severe travel shocks of 9/11 and SARs) and MGM MIRAGE has since backed off that target in favor of aggressive share repurchases and heavy capital spending. In the case of the Mandalay Resort acquisition, Fitch projections suggest that 5.5x total debt to EBITDA would require a $1 billion equity infusion, while an all-debt transaction would result in roughly 6.0x leverage. Both scenarios would likely result in at least a notch downgrade at the various levels of debt. Second, a substantial portion of the transaction is likely to be financed with bank debt. At the time of the Mirage acquisition, MGM MIRAGE was able to arrange $4.3 billion in bank financing to support the $6.4 billion transaction. Strong free cash flow prospects provided the investors comfort that the company would quickly delever. Given the significant liquidity in the bank market today, the strong free cash flow generating ability of the combined entity, and extremely attractive interest rates, it is reasonable to expect bank debt to also account for the majority of the Mandalay deal. Notably, on a Sept. 9 investor call MGM MIRAGE's president and chief financial officer, Jim Murren, stated that this would be the company's last senior note offering for some time. In addition, he indicated that a larger bank deal is in the works. MGM MIRAGE currently has a $2.5 billion revolver on a stand-alone basis (the $1 billion term loan was merged into the $1.5 billion revolver in July 2004). Given MGM MIRAGE's past success in raising bank debt, the availability of capital, and the attractiveness of interest rates, Fitch believes that it is not unreasonable to envision MGM MIRAGE assembling a $5.0 billion credit facility to execute the deal. Under this scenario, subordinated debt is likely to become even further subordinated, potentially resulting in a multiple-notch downgrade. Third, proceeds from asset sales and the equity component will be limited. As in the Mirage acquisition, MGM MIRAGE appears to be content with the entire collection of Mandalay Resort assets (unless one counts the Golden Nugget properties that were sold four years after closing). The only exception in the case of the Mandalay Resort acquisition appears to be in Detroit where state regulation will force the sale of one of two licenses the combined company will own. Fitch projections have incorporated the sale of Mandalay Resort's 53.5% interest in Detroit MotorCity assuming roughly $450 million in proceeds. Anti-trust and regulatory issues could force the sale of Nevada assets given the combined company's dominant market position on the Las Vegas Strip. Potential cash infusions from equity issuance are also limited given MGM MIRAGE's recent successful forays in the debt market and the fact that MGM MIRAGE has been an aggressive purchaser of stock over the last two years. Fitch projects that over 75% of the transaction will be debt-financed. Finally, the transaction will likely be structured such that Mandalay Resort senior paper ranks pari passu with that of MGM MIRAGE. MGM MIRAGE's senior debt is currently secured due to springing lien clauses in the 6.875% senior notes due 2008 and the 6.95% senior notes due 2005, which were triggered by a rating downgrade. Mandalay Resort senior debt on the other hand is unsecured, creating the potential for MGM MIRAGE notes to be structurally superior to the Mandalay Resort notes. While this scenario was not the case at the time of the Mirage acquisition, the precedent for a simple structure was set, with MGM MIRAGE taking pains to ensure the notes on both sides were on equal footing. Trading activity has suggested some investor speculation that removal of the 6.875% and 6.95% notes would release the security and simplify this task. However, given the high level of leverage, Fitch believes the banks are not likely to easily give up their security. Moreover, MGM MIRAGE is not in a rush itself to release security, particularly if it requires a premium in finance costs, as it has by no means limited the company's access to the capital markets. Fitch believes the more likely scenario is that security is extended to the Mandalay Resort notes. Current ratings reflect MGM MIRAGE's market leading assets, significant discretionary free cash flow, and visible growth prospects. Current operations are benefiting heavily from Las Vegas exposure in light of extremely strong Strip fundamentals. Fitch also highlights the significant operating leverage inherent in this business, as solid topline growth has translated to strong margin increases in recent quarters. Recently reported second- quarter 2004 results were very strong, with record EBITDA of $365.5 million, up 25.6% versus last year, on a revenue increase of 10.1% to $1.07 billion. The overall EBITDA margin improved 374 bps to 34.1%. Gaming revenues grew a solid 8% in the quarter, while hotel revenues also posted a strong 9% increase. Revenue per available room (REVPAR) increased 12% at the MGM MIRAGE's Las Vegas Strip properties in the quarter due to improvements in both rate and occupancy. Nonetheless, MGM MIRAGE's lack of geographic diversification is a long-term concern. With roughly 75% of the company's cash flow derived from the Las Vegas Strip (both before and after the potential Mandalay Resort acquisition), MGM MIRAGE faces significant exposure to travel demand shocks, regulatory changes, regional economic downturns, and new competition. Notably, MGM MIRAGE faces formidable new Strip competition from Wynn Las Vegas, which is expected to open in second quarter 2005. Other key concerns include the potential deterioration of MGM MIRAGE's capital structure upon close of Mandalay Resort acquisition, and the ongoing risk that free cash flow will be directed toward share repurchases and/or other investment opportunities rather than further capital structure strengthening. MGM MIRAGE has a propensity for share repurchases which continued through the second quarter ($343 million year-to-date), and there remains a vast number of capital projects in the pipeline, which are not yet included in the already high capex budget (UK Gaming, Macau, Detroit permanent facility). MORGAN STANLEY: Fitch Affirms Low-B Ratings on Six Cert. Classes ---------------------------------------------------------------- Fitch Ratings affirms Morgan Stanley Dean Witter Capital Inc. commercial mortgage pass-through certificates, series 2003-TOP9, as follows: -- $298.9 million class A-1 at 'AAA'; -- $610.8 million class A-2 at 'AAA'; -- Interest Only (I/O) class X-1 at 'AAA'; -- I/O class X-2 at 'AAA'; -- $32.3 million class B at 'AA'; -- $35.0 million class C at 'A'; -- $12.1 million class D at 'A-'; -- $14.8 million class E at 'BBB+'; -- $6.7 million class F at 'BBB'; -- $5.4 million class G at 'BBB-'; -- $10.8 million class H at 'BB+'; -- $4.0 million class J at 'BB'; -- $5.4 million class K at 'BB-'; -- $5.4 million class L at 'B+'; -- $2.7 million class M at 'B'; -- $2.7 million class N at 'B-'. Fitch does not rate the $10.8 million class O. The affirmations are due to the stable pool performance and scheduled amortization. As of the August 2004 distribution date, the pool's aggregate principal balance has decreased 1.8% to $1.06 billion from $1.08 billion at issuance. There are no delinquent or specially serviced loans. Wells Fargo Bank, N.A., the master servicer, collected year-end 2003 operating statements for 89.0% of the transaction. The YE 2003 weighted average debt service coverage ratio -- DSCR, based on net operating income -- NOI, is 2.31 times (x), compared with 2.18x at issuance for the same loans. The six credit-assessed loans (27.2% of the pool) remain investment grade. Fitch reviewed operating statement analysis reports and other performance information provided by Wells. The DSCR for the loans are calculated based on a Fitch-adjusted net cash flow -- NCF -- and a stressed debt service based on the current loan balance and a hypothetical mortgage constant. Oakbrook Center (6.5%) is secured by 1.6 million square feet -- sf -- of a 2.4 million sf super regional mall located in Oak Brook, Illinois. The collateral includes: * in-line mall shops; * the 101,997 sf Lord & Taylor store; * storage space; * 240,223 sf of office space (located in three buildings); and * the ground rent for Neiman Marcus, Bloomingdales, Nordstrom's, and the 172-room Renaissance Hotel. The whole loan as of August 2004 has an outstanding principal balance of $234.0 million. The whole loan was divided into four pari passu notes. Only the $69.2 million A-1 note serves as collateral in the subject transaction. As of YE 2003, the Fitch- adjusted NCF has increased 2.0% since issuance. The corresponding DSCR as of YE 2003 was 1.53x, compared with 1.49x at issuance. 1290 Avenue of the Americas (6.6%) is secured by a 43-story class A office building totaling 2.0 million sf, located in midtown Manhattan, New York. The interest only whole loan as of August 2004 has an outstanding principal balance of $440.0 million. The whole loan was divided into four pari passu notes and a subordinate B note. Only the $70.0 million A-1 note serves as collateral in the subject transaction. As of YE 2003, the Fitch-adjusted NCF increased 3.0% since issuance. The corresponding DSCR as of YE 2003 was 1.51x compared with 1.47x at issuance. Although there is a considerable amount of lease exposure throughout the loan term (70.0% NRA), the borrower at issuance posted a $15.0 million leasing reserve account, and the building is currently leased at below market rents (as of the June 2004 rent roll) of $44.67 per sf, compared with current market rents of $57.48 per sf. 10 G Street, Nebraska (4.0%) is secured by an eight-story 256,626 sf office building located in the Capitol Hill district of Washington, DC. As of YE 2003, the Fitch-adjusted NCF decreased slightly due to a drop in occupancy to 96.7% as of YE 2003, compared with 100.0% at issuance. The DSCR as of YE 2003 was 1.42x, compared with 1.41x at issuance. Fitch will continue to monitor the leasing activity at the property. The remaining three credit assessed loans, 601 New Jersey Avenue (4.3%), Inland Portfolio (3.9%), and Parc East Tower (1.9%) have remained stable since issuance. NATIONAL ENERGY: Goldman Sachs Wins 12 Equity Interests for $656MM ------------------------------------------------------------------ National Energy & Gas Transmission, Inc., has entered into a definitive purchase agreement for GS Power Holdings II LLC, to acquire NEGT's equity interests in 12 power plants and a natural gas pipeline for $656 million, subject to certain post-closing adjustments. The agreement with the wholly owned subsidiary of The Goldman Sachs Group, Inc. (NYSE: GS) resulted from a multi- round bankruptcy court-sanctioned auction bidding process. The power plants are located throughout the country and have a combined generating capacity of more than 2,500 megawatts. The plants include: -- Carneys Point and Logan located in New Jersey; -- Selkirk and Madison Wind located in New York; -- Hermiston located in Oregon; -- Scrubgrass, Northampton and Panther Creek located in Pennsylvania; -- Cedar Bay and Indiantown located in Florida; -- MASSPOWER located in Massachusetts; and -- Plains End, located in Colorado. The plants are fueled primarily by natural gas and coal, and most of the electricity they generate is sold under long term contracts. NEGT's ownership interests in these facilities range from approximately 13 to 100 percent. Goldman Sachs, through its ownership of Cogentrix Energy, already owns interests in nine of these plants. In addition to selling its interests in these facilities, NEGT is selling its small ownership stake in the Iroquois Gas Transmission System. Pursuant to an agreement signed earlier this month, Perennial Power Company, LLC, has agreed to purchase NEGT's equity interest in the Hermiston facility for approximately $50 million. Perennial Power is a wholly owned subsidiary of Sumitomo Corporation and its principal U.S. affiliate, which is a current partner in the Hermiston plant. If the Perennial Power transaction is completed, then Hermiston's equity interest will be removed from the portfolio being sold to GS Power and the total sale price will be adjusted. NEGT voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code in July 2003. As a result, the sale of equity interests described above will be subject to bankruptcy court approval at a hearing on September 22, 2004. Tuesday's court-sanctioned auction process was held in accordance with customary bidding procedures approved by the bankruptcy court. As part of the process, NEGT sought offers that were higher or otherwise better than the $558 million purchase price negotiated with Denali Power, LLC, a company formed by affiliates of ArcLight Capital Partners, LLC and Caithness Energy, LLC. The transaction with GS Power is expected to close in the first quarter of 2005 and is subject to regulatory and third party approvals. Lazard served as exclusive financial advisor to NEGT in connection with this transaction. NATIONAL MEDICAL: Reports $6.6MM Stockholders' Deficit at June 30 ----------------------------------------------------------------- National Medical Health Card Systems, Inc. (Nasdaq: NMHC), a national independent pharmacy benefit manager (PBM) doing business as NMHC Rx, reported results for the fiscal fourth quarter and fiscal year ended June 30, 2004. "Fiscal 2004 was a momentous year for NMHC," stated Jim Bigl, chairman of NMHC. "First, we completed the $80 million private placement with New Mountain Capital, which was paramount to accelerating the company's long-term growth plan. Second, we expanded our service offering through our new mail-order facility and specialty-pharmacy business, both of which now enable us to offer our customers a total healthcare solution. Third, to keep pace with our rapid expansion, we enhanced the breadth and depth of the management team with the additions of Jim Smith as our new president and chief executive officer, and Stu Fleischer as our new chief financial officer. Finally, we have more than doubled the size of our sales force in anticipation of the growing demand for our total healthcare solutions package. Our strong performance in fiscal 2004, as evidenced by a substantial increase in net income excluding non-recurring New Mountain transaction items over fiscal 2003 (as described below), as well as the continued growth of our customer pipeline and the scalability of our platform, position NMHC to become a leader in the PBM industry." Jim Smith, president and chief executive officer, stated, "With a solid foundation in place, we look forward to growing both organically and through strategic acquisitions that leverage our substantial infrastructure. We remain focused on driving organic growth as the expanded sales force matures, and further capitalizing upon the substantial cross-selling opportunities among our divisions. Additionally, the integration of The Inteq Group with our existing PBM business is nearly complete without the loss of any customers, and we are beginning to benefit from the operating synergies and enhanced geographic presence." Mr. Smith continued, "We also anticipate continuing, and in certain strategic areas accelerating, our investments in technology and other resources to take full advantage of our growth prospects over the next two to three years. Inclusive of these investments, we are reaffirming our previous guidance for estimated fiscal 2005 net income growth, excluding acquisitions, of 25 to 35 percent over $9.5 million which represents fiscal 2004 net income excluding non-recurring New Mountain transaction items. Given our operational improvements, growing demand for our services, and attractive consolidation opportunities--we remain quite confident in the near- and long-term outlook for the business." Revenue for the 2004 fiscal fourth quarter was $176.6 million, compared to revenue of $148.4 million for the same period last year. Revenue grew due to the acquisitions of The Inteq Group and Portland Professional Pharmacy as well as the addition of new customers and the growth in existing customers during the quarter. Gross profit for the 2004 fiscal fourth quarter increased 34.2% to $18.0 million, compared to $13.4 million for the same period last year. Revenue for the twelve months ended June 30, 2004 was $651.1 million, compared to revenue of $573.3 million for the same period last year. For the twelve months ended June 30, 2004, gross profit increased 34.0% to $64.0 million compared to $47.8 million for the same period last year. The closing of the New Mountain transaction in March 2004 resulted in $688,000 and $2.6 million of non-recurring expenses, before income tax benefit, for the fourth quarter and fiscal 2004, respectively, including transaction bonuses, severance, and a compensation charge due to the acceleration of the vesting of certain stock options. Including these Non-recurring New Mountain Transaction Items, operating income for the 2004 fiscal fourth quarter was $4.0 million, compared to $3.2 million for the same period last year, and operating income for the twelve months ended June 30, 2004 was $13.4 million, compared to $11.8 million for the same period last year. EBITDA for the twelve months ended June 30, 2004 was $19.3 million, compared to $16.4 million for the twelve months ended June 30, 2003. Net income available to common stockholders for the 2004 fiscal fourth quarter was $1.0 million, or $0.21 per diluted share, compared to net income available to common stockholders of $1.7 million, or $0.21 per diluted share, for the same period last year. Results for the 2004 fiscal fourth quarter included the net after-tax expense of $406,000 related to the Non-recurring New Mountain Transaction Items. Results for the 2004 fiscal fourth quarter also included an approximate $1.4 million preferred stock cash dividend. Net income excluding the Non-recurring New Mountain Transaction Items increased 74.8 percent to $2.9 million, or $0.25 per diluted share on the "as if converted" method. The New Mountain transaction also resulted in an $80 million non- recurring, non-cash charge, known as a Beneficial Conversion Feature, in the third quarter of fiscal 2004. With the BCF, the net loss available to common stockholders for fiscal 2004 was $73.8 million, compared to net income available to common stockholders of $6.4 million for the same period last year. The BCF is calculated as the difference between the fair market value of the company's common stock on the date of the closing of the New Mountain transaction and the effective conversion price of $11.29, and is limited to the $80 million purchase price for the preferred stock. Results for fiscal 2004 included the net after- tax expense of $1.5 million related to the Non-recurring New Mountain Transaction Items. Results for fiscal 2004 also included an approximate $1.6 million preferred stock cash dividend. Net income excluding the Non-recurring New Mountain Transaction Items increased 47.6 percent to $9.5 million, or $0.98 per diluted share on the "as if converted" method. The company has included with its financial statements a reconciliation from reported net income as per U.S. generally accepted accounting principles to net income and net income available to common stockholders excluding Non-recurring New Mountain Transaction Items. While net income and net income available to common stockholders excluding Non-recurring New Mountain Transaction Items are not measures of financial performance under U.S. generally accepted accounting principles, they are provided as information for investors for analysis purposes in evaluating the effect of the New Mountain transaction. Net income and net income available to common stockholders excluding Non-recurring New Mountain Transaction Items are not meant to be considered a substitute or replacement for net income or net income (loss) available to common stockholders as prepared in accordance with U.S. generally accepted accounting principles. About NMHC National Medical Health Card Systems, Inc. operates NMHC Rx (pharmacy benefits manager or PBM), Integrail (health information solutions), NMHC Mail (home delivery pharmacy), and Ascend (specialty pharmacy solutions), providing services to corporations, unions, health maintenance organizations, third- party administrators, and local governments. Through its clinical programs, value-added offerings, and advanced information systems, NMHC provides quality, cost effective management of pharmacy benefit programs. Balance Sheet Turns Upside-Down At June 30, 2004, NMHC's balance sheet shows a $6,623,000 stockholders' deficit, compared to a $28,426,000 of positive equity at June 30, 2003. NORTEL NETWORKS: Completes Deployment of VoIP Networks in Mexico ---------------------------------------------------------------- Grupo Iusacell S.A. de C.V. (Iusacell) (NYSE:CEL)(BMV:CEL), a leading wireless operator in Mexico, and Nortel Networks (NYSE:NT)(TSX:NT) completed deployment of a voice over Internet Protocol -- VoIP -- core network to support the operator's long-distance traffic, significantly increasing network capacity and efficiency. Among the first next generation carrier VoIP networks in Mexico, this deployment positions Iusacell to converge voice and data traffic into packets that can be transmitted together over a single, high-speed network. This helps to drive reduced operational costs and allows Iusacell to offer advanced new wireless services to residential and enterprise customers. "Iusacell has now moved all of its long-distance traffic to an IP network," said Gustavo Guzman, managing director of Iusacell. "The Nortel Networks VoIP solution lets us converge voice, data and multimedia, helping us optimize network efficiency and flexibility. With this implementation we can save on cost while offering added value to our customers." Iusacell has migrated its circuit switches to a packet infrastructure using Nortel Networks Succession Communication Server (CS) 2000 Superclass softswitch. Iusacell has also deployed Nortel Networks Passport 15000 and Passport Packet Voice Gateways in Mexico's main cities as the basis for its new IP-based core data infrastructure, positioning the operator to easily expand and deploy third generation (3G) wireless technologies. "Nortel Networks has an extensive VoIP portfolio and global experience in evolving circuit-switched networks into next generation infrastructures," said Pablo Vazquez, managing director, Mexico, Nortel Networks. "Combined with a clear understanding of its local requirements, we are uniquely positioned to help Iusacell successfully realize its circuit-to- packet evolution, and we will continue to support Iusacell in delivery of even more advanced services to its customers in Mexico." Nortel Networks Succession CS 2000 Superclass softswitch enables service providers to deliver the full suite of traditional voice services to business and residential customers on a packetized network, with voice and data traffic sharing the same communications lines to provide more efficient and cost-effective use of existing transmission capacity. As a trunk gateway, Passport PVG is an integral part of Nortel Networks Carrier Voice over IP solutions. It offers complete carrier-grade options for long distance, local exchange, wireless, and cable operators. Nortel Networks Passport multiservice switching portfolio is deployed with more than 20 major wireless operators around the world, delivering proven reliability for wireless packet networking solutions across GSM/GPRS/UMTS, TDMA and CDMA/CDMA2000 technologies. Nortel Networks, which has a proven portfolio of products and services for packet voice services, is providing Succession voice over packet solutions to a number of leading operators, including Bell Canada, Cable & Wireless Cayman Islands, Charter Communications, China Netcom, China Railcom, Cox Communications, Hong Kong Broadband Network, MCI, Sprint and Verizon Communications. Grupo Iusacell, S.A. de C.V. (Iusacell)(NYSE:CEL)(BMV:CEL) is a wireless cellular and PCS service provider in Mexico encompassing a total of approximately 92 million POPs, representing approximately 90 percent of the country's total population. Independent of the negotiations towards the restructuring of its debt, Iusacell reinforces its commitment with customers, employees and suppliers and guarantees the highest quality standards in its daily operations offering more and better voice communication and data services through state-of-the-art technology, such as its new 3G network, throughout all of the regions in which it operate. As a global innovation leader, Nortel Networks enriches consumer and business communications worldwide by offering converged multimedia networks that eliminate the boundaries among voice, data and video. These networks use innovative packet, wireless, voice and optical technologies and are underpinned by high standards of security and reliability. For both carriers and enterprises, these networks help to drive increased profitability and productivity by reducing costs and enabling new business and consumer services opportunities. Nortel Networks does business in more than 150 countries. For more information, visit Nortel Networks on the Web at http://www.nortelnetworks.com/or http://www.ww.nortelnetworks.com/media_center * * * As reported in the Troubled Company Reporter on August 18, 2004, the Integrated Market Enforcement Team of the Royal Canadian Mounted Police recently advised Nortel that it will commence a criminal investigation into the Company's financial accounting situation. As reported in the Troubled Company Reporter on August 12, 2004, Nortel's directors and officers, and certain former directors and officers are facing allegations from certain shareholders in the U.S. District Court for the Southern District of New York that the directors and officers breached fiduciary duties owed to the Company during the period from 2000 to 2003. PATHMARK STORES: Competition Spurs Moody's to Pare Ratings to B3 ---------------------------------------------------------------- Moody's Investors Service downgraded all ratings of Pathmark Stores, Inc., including the Senior Subordinated Note (2012) issue to B3, and assigned a stable outlook. The rating downgrade was prompted by the increasing intensity of grocery retailing competition in the company's trade area and Moody's expectation that stabilizing revenue and operating profit will prove challenging. Constraining the ratings are: * Moody's belief that the company will run free cash flow deficits over the intermediate term, * the company's highly leveraged financial condition, and * the pressures on already low-margins in the highly competitive supermarket industry. However, the wide regional recognition of the "Pathmark" trade name and the good productivity of a typical Pathmark store support the assigned ratings. The company intends to refinance its bank loan before the current quarter ends in October 2004 to avoid violating financial covenants such as EBITDA falling below the mandatory minimum. Ratings lowered are as follows: -- $350 million 8.75% Senior Subordinated Notes (2012) to B3 from B2, -- Senior Implied Rating to B1 from Ba3, and -- Unsecured Issuer Rating to B2 from B1. Moody's does not rate the current $175 million secured Revolving Credit Facility commitment or the $46 million secured Term Loan. The company indicates that it is negotiating a replacement $250 million bank loan. The ratings reflect: * the company's leveraged financial condition (especially adjusted for operating leases), * exposure to economic conditions of a limited geography roughly between New York City and Philadelphia, and * Moody's expectation that capital expenditures and term loan amortization will modestly exceed operating cash flow over the medium term. In Moody's opinion, the company still needs to make up for a lengthy period of underinvestment prior to the Sept. 2000 reorganization by renovating stores as quickly as liquidity permits. However, the ratings acknowledge Pathmark's status as a well-recognized supermarket operator in its trade areas, potential operating efficiencies resulting from high sales per square foot, and the progress made in updating its store base. The stable outlook considers Moody's opinions that Pathmark has adequate liquidity and a defendable position in its trade areas around New York City and Philadelphia. Ratings would decline if: * the company fails to progress at growing revenue and simultaneously maintaining decent margins, * operating cash flow does not soon cover debt service and a normalized level of capital investment, or * working capital becomes a material use of cash. However, the ability to internally finance an adequate capital investment program, stability in market share, and improving debt protection measures (such as lease adjusted leverage falling towards 4.5 times and fixed charge coverage exceeding 1.5 times) could eventually reduce the business and financial risks facing Pathmark. The B3 rating on the senior subordinated notes considers that this debt is subordinated to significant amounts of more senior obligations. Contractually senior claims include the $175 million secured revolving credit facility commitment, the $46 million secured Term Loan, and $222 million of capital lease obligations and mortgages. The senior subordinated notes are also effectively junior to $89 million of trade accounts payable. The majority of revenue and assets are located at the issuing entity and almost all operating subsidiaries guarantee the notes. The company had $91 million of revolving credit facility borrowing capacity as of July 31, 2004. Operating margin decreased to 1.4% for the quarter ending July 31, 2004 compared to 2.8% in the same period of 2003 as Pathmark has adjusted gross margin in order to maintain market share. Moody's believes that market share for Pathmark has remained steady over recent periods as its comparable store sales have approximately equaled other supermarket operators with substantial operations in and around New York City and Philadelphia. For the twelve months ending July 31, 2004, lease adjusted leverage equaled about 4.9 times and fixed charge coverage was around 1.1 times. As the company invests in its store base, Moody's expects that operating challenges will pressure debt protection measures over the next several years. Pathmark Stores, Inc, with headquarters in Carteret, New Jersey, operates 142 supermarkets around the New York City and Philadelphia metropolitan areas. The company generated revenue of $4.0 billion for the twelve months ending July 31, 2004. PROJECT FUNDING: Fitch Pares Ratings on Two Note Classes to Low-B ----------------------------------------------------------------- Fitch Ratings downgrades four classes of notes issued by Project Funding Corporation I -- PFC I. These downgrades are the result of Fitch's review process. These rating actions are effective immediately: -- $116,491,917.68 class I senior notes downgrade to 'AA' from 'AAA'; -- $3,749,071.93 class II senior notes downgrade to 'BBB' from 'A'; -- $3,882,897.65 class III mezzanine notes downgrade to 'BB' from 'BBB'; -- $4,686,502.59 class IV mezzanine notes downgrade to 'B' from 'BB'. The rating of the class I notes address the likelihood that investors will receive timely interest as well as the stated balance of principal by the final payment date. The ratings of the class II, III and IV notes address the likelihood that the investors will receive ultimate and compensating interest payments, as well as the stated balance of principal by the final payment date. PFC I is a collateralized debt obligation -- CDO -- administered by Credit Suisse First Boston, which closed March 5, 1998. PFC I was established to issue approximately $617 million in debt and equity securities and invest the proceeds in a static portfolio of amortizing project finance loans originated by CSFB. Included in this review, Fitch Ratings discussed the current state of the portfolio with the administrator and their portfolio management strategy going forward. As of the June 30, 2004 payment date, there were 24 loans to 16 obligors and the notes have paid down approximately 78% of their original balance. The notes of PFC I feature a pro rata principal payment and sequential payment of interest prior to the occurrence of certain triggers. To date, no such triggers have been achieved and the collateral has performed within expectations. While the collateral continues to amortize, the pro rata feature of PFC I results in an increased exposure to single obligors. As a result, Fitch has determined that the original ratings assigned to all rated classes of PFC I no longer reflect the current risk to noteholders. Fitch conducted cash flow modeling utilizing various default timing and interest rate scenarios to measure the breakeven default rates going forward relative to the minimum cumulative default rates required for the rated liabilities. For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralised Debt Obligations,' dated Sept. 13, 2004, available on Fitch's web site at http://www.fitchratings.com/ Fitch will continue to monitor and review this transaction for future rating adjustments. PURE TECH: U.S. Patent Office Grants 2nd Patent on P-Wave Tech. --------------------------------------------------------------- Pure Technologies Ltd., TSX-V: PUR, reported that the United States Patent Office has granted a second patent relating to Pure's P-Wave(R) electromagnetic pipe inspection technology. This patent is in addition to the patent granted and announced on August 25, 2004. Related patent applications are pending in other countries. Pure Technologies expects that the patent will help to solidify its position as a leading provider of non-destructive inspection technologies for prestressed concrete pipelines in North America and overseas. Pure Technologies -- http://www.puretechnologiesltd.com/-- is an international technology company, which has developed patented and proprietary technologies for management and surveillance of critical infrastructure. Applications for these technologies include bridges, pipelines, nuclear power plants, high-rise buildings, parking structures and other structures throughout the world. Pure designs and supplies the systems and provides continuing remote monitoring and technical support from its headquarters in Calgary, Canada, its subsidiary in the United States, and a strategic partnership overseas. At June 30, 2004, Pure Technologies stockholders' deficit narrowed to $8,821,000. At December 31, 2003, the company's equity deficit was pegged at $9,884,000. QUALITY DISTRIBUTION: Richard Marchese Acts as Interim SVP & CFO ---------------------------------------------------------------- Quality Distribution, Inc., (Nasdaq:QLTY) reported the appointment of Richard B. Marchese as interim Senior Vice President and Chief Financial Officer. Mr. Marchese is currently a Director of the Company, Chairman of the Audit and Corporate Governance Committees, Lead Independent Director, and a member of the Executive Committee. He will continue as a Director, but will resign from the Audit and Corporate Governance Committees. Mr. Marchese was Chief Financial Officer of Georgia Gulf Corporation from 1989 until his retirement early in 2004. Mr. Marchese received a BS in accounting from Farleigh Dickenson University in 1968 and was named Senior Financial Officer of the Year by Chemical Week Magazine for 2003. "Dick's years of experience as chief financial officer of a large public company strengthens our senior management team and assures continuity while the Company searches for a permanent Chief Financial Officer," said CEO Tom Finkbiner. "We are very pleased that Dick has agreed to accept this position. At the same time, it is salutary that he will continue as a Board and Executive Committee member where his advice and counsel have proved invaluable." The Company also announced that Alan H. Schumacher, Director and member of the Audit and Compensation Committees has agreed to assume the role of Chairman of the Audit Committee and Audit Committee financial expert. Mr. Schumacher also was appointed a member of the Corporate Governance Committee, replacing Mr. Marchese. Joshua Harris, currently a member of the Corporate Governance Committee will assume the role of Chairman of that Committee. Mr. Schumacher is Chairman of the Board of Anchor Glass Container Corporation. From 1977 to 2000, Mr. Schumacher served in various financial positions at American National Can and American National Can Group serving as Executive Vice President and Chief Financial Officer from 1997 to 2000. Mr. Schumacher is also a member of the Federal Accounting Standards Advisory Board and a member of the board of directors of BlueLinx Holdings Inc. On September 9, 2004 Samuel M. Hensley submitted his resignation as Senior Vice President and Chief Financial Officer, effective September 24, to pursue another opportunity. Headquartered in Tampa, Florida, Quality Distribution operates approximately 3,500 tractors and 8,250 trailers through three principal transportation subsidiaries: Quality Carriers, TransPlastics, and Quebec-based Levy Transport. The Company also provides other bulk transportation services, including tank cleaning and freight brokerage. Quality Distribution is an American Chemistry Council Responsible Care(R) Partner and is a core carrier for many of the Fortune 500 companies who are engaged in chemical production and processing. * * * As reported in the Troubled Company Reporter on May 25, 2004, Standard & Poor's Ratings Services affirmed Quality Distribution, Inc.'s ratings, including its 'B+' corporate credit rating. At the same time, Standard & Poor's assigned a recovery rating of '3' to wholly owned subsidiary Quality Distribution LLC's $215 million bank facility, indicating an expectation of meaningful (50% to 80%) recovery of principal in a default scenario. The bank facility is rated 'B+'. The outlook was revised to negative from stable. "The outlook change reflects the potential for a deterioration in Quality Distribution, Inc.'s credit protection measures over the near-to intermediate-term due to increased spending on new, though related, business lines, continued expansion of its traditional bulk tank business, and ongoing litigation issues," said Standard & Poor's credit analyst Kenneth L. Farer. Despite strong industry fundamentals, Quality Distribution reported weaker operating results for first-quarter 2004 compared with the same period of 2003 due to costs associated with the company's entry into the juice transportation business and an investigation related to reinsurance issues at the company's insurance subsidiary. The Tampa, Florida-based bulk tank truck carrier has about $280 million of lease-adjusted debt. Ratings on Quality Distribution Inc. reflect its participation in a low-margin, fragmented industry, combined with a weak financial profile. Quality Distribution is the largest bulk tank truck carrier in North America. Through a network of more than 160 terminals, Quality Distribution LLC, a wholly owned subsidiary, primarily transports a broad range of chemical products. The company also transports plastics and flat glass and provides customers and affiliates with supplemental services such as tank wash and insurance. Over the past few months, the company has expanded its operations through the acquisition of Bulkmatic Transport Co.'s liquid trailer fleet and entry into the Florida juice transportation market. Although the company benefits from a strong market share in an industry with high barriers to entry, its customers sometimes have transportation alternatives (rail, barge), depending on the nature of the shipment. RCN CORP: Wants to Employ PDA as Operations Consultant ------------------------------------------------------ RCN Corporation and its debtor-affiliates sought and obtained the Court's authority to employ the PDA Group, LLC, pursuant to Section 363(b) of the Bankruptcy Code. PDA will provide consulting services relating to the Debtors' market operations and execution of sales and marketing strategies, on the terms set forth in an engagement letter dated August 19, 2004, between the parties. Peter Aquino, a principal at PDA, will provide the services as part of an agreement the Debtors reached with the Official Committee of Unsecured Creditors to facilitate the Debtors' transition into a reorganized company. Mr. Aquino will become an officer of RCN and ultimately part of Reorganized RCN's senior management team. Jay M. Goffman, Esq., at Skadden, Arps, Slate, Meagher & Flom, LLP, in New York, explains that the employment of Mr. Aquino to focus on RCN's operations will greatly benefit the Debtors' existing management, who can continue to focus on the Debtors' restructuring and emergence from Chapter 11. Mr. Aquino has years of industry experience, including managing a cable overbuilder in Latin America and serving in a senior management capacity at Bell Atlantic. He is also very familiar with the Debtors' operations as a result of consulting services he performed in the bankruptcy cases for Capital & Technology Advisors, LLC, the operations advisor to the Creditors Committee. Accordingly, Mr. Aquino enjoys the confidence of the Creditors Committee, who represent in large part the future owners of RCN. In exchange for Mr. Aquino's services, the Debtors will pay PDA a $45,000 monthly fee beginning August 19, 2004, for the term of the engagement. All payments contemplated in the Engagement Letter will be made on or before the first of each month to which the payment relates. A $90,000 payment for the months of August and September 2004 will become payable upon Court approval. Partial months work will be prorated accordingly. Additional services performed beyond the Debtors' standard workweek and on the Debtors' established holidays will be billed at $650 per hour. The initial term will be in effect for a period of six months and will thereafter continue in effect on a month-to-month basis, provided that both parties approve the extension in writing or electronic transmission within seven days prior to the expiration of the term. The Debtors will reimburse PDA for reasonable legal fees associated with drafting and defense of the Engagement Letter up to $20,000, and all reasonable out-of-pocket travel and business expenses, including voice and data usage, incurred by Mr. Aquino in connection with PDA's obligations under the Engagement Letter upon presentation to the Debtors of appropriate supporting documentation relating to the expenses. From the effective date of the Engagement Letter through September 30, 2004, the Debtors will cover all airfare, car rental and lodging directly through the Debtors' business travel account whereby the Debtors will directly pay all expenses. All expense reimbursements will be paid to PDA within 15 calendar days of the presentation of the documentation to the Debtors consistent with their established policies. In the event the Debtors terminate the Engagement Letter for any reason, other than for Cause or non-Renewal, Mr. Aquino will be entitled to a $90,000 termination fee. Mr. Aquino attests PDA does not represent or hold any interest adverse to the Debtors' estates or their creditors. PDA is a "disinterested person" within the meaning of Section 101(14) of the Bankruptcy Code. Headquartered in Princeton, New Jersey, RCN Corporation -- http://www.rcn.com/-- provides bundled Telecommunications services. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. S.D.N.Y. Case No. 04-13638) on May 27, 2004. Frederick D. Morris, Esq., and Jay M. Goffman, Esq., at Skadden Arps Slate Meagher & Flom LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,486,782,000 in assets and $1,820,323,000 in liabilities. (RCN Corp. Bankruptcy News, Issue No. 11; Bankruptcy Creditors' Service, Inc., 215/945-7000) RIVERSIDE FOREST: Says 11-Month Reports Prove Tolko Bid Inadequate ------------------------------------------------------------------ Riverside Forest Products Limited (TSX: RFP) released the unaudited consolidated financial statements as at and for the 11-month period ended August 31, 2004. The Company reported net earnings for the two months ended August 31, 2004 of $21.4 million or $2.27 per share. This brings the net earnings for the eleven months ended August 31, 2004 to $69.3 million or $7.63 per share compared to a net loss of $1.3 million or $0.15 per share for the year ended September 30, 2003. Earnings before interest, taxes, depreciation and amortization was $36.3 million for the two months ended August 31, 2004. This brings EBITDA for the eleven months ended August 31, 2004 to $141.8 million compared to $17.3 million for the year ended September 30, 2003. As of August 31, 2004, Riverside had cash on hand of $169 million, or $17.88 per share. Tolko Bid Inadequate Gordon W. Steele, Riverside Chairman, President and Chief Executive Officer, said: "In light of Tolko Industries Ltd.'s recent offer to purchase all of the outstanding common shares of the Company, we wanted to ensure that shareholders have Riverside's most recent financial information available to them. In our view, the strength of the Company's financial results and its balance sheet confirm the financial inadequacy of the Tolko bid." Riverside Forest Products Limited is the fourth largest lumber producer in British Columbia with over 1.0 Bbf of annual capacity and an annual allowable cut of 3.1 million cubic metres. The company is also the second largest plywood and veneer producer in Canada. * * * As reported in the Troubled Company Reporter on August 27, 2004, Standard & Poor's Ratings Services placed its 'B+' long-term corporate credit and senior unsecured debt ratings on Kelowna, B.C.-based Riverside Forest Products Ltd. on CreditWatch with developing implications following the company's announcement that it would reject an unsolicited takeover offer from privately held Tolko Industries Ltd. "The ratings could be lowered, raised, affirmed, or withdrawn depending on how the situation evolves," said Standard & Poor's credit analyst Daniel Parker. "Riverside's unsecured notes contain a provision that requires the company to make an offer to repurchase all the outstanding notes in the event of a change of control. It is unclear whether Tolko's offer will be successful and what the effect will be on the outstanding notes," Mr. Parker added. Standard & Poor's uses a consolidated methodology and would consider the credit profile of any successful acquisitor in determining the effect on the credit ratings on Riverside. At this stage, it is too early to determine the impact on the ratings. The ratings on Riverside reflect its narrow product concentration in cyclical wood products, its vulnerability to foreign exchange risk, and its acquisition strategy. Partially offsetting these risks are the company's low-cost position in the manufacturing of lumber and plywood, some vertical integration in fiber and energy, and good liquidity. SALEM COMMS: S&P's B+ Corporate Credit Rating Has Stable Outlook ---------------------------------------------------------------- Standard & Poor's Ratings Services revised its outlook on Salem Communications Corp. to stable from negative, based on the company's improving financial profile. The 'B+' long-term corporate rating on the company was affirmed. The Camarillo, California-based radio broadcasting company had total debt outstanding of approximately $284.4 million at June 30, 2004. "The outlook revision recognizes Salem's lower leverage following an approximately $66 million equity-financed reduction of debt," said Standard & Poor's credit analyst Alyse Michaelson. Pro forma debt to EBITDA was 5.65x at June 30, 2004, compared with leverage closer to 7x prior to the financing. Credit measures have also strengthened through steady growth in EBITDA, notwithstanding radio advertising's muted recovery. Salem has a comfortable cushion of financial covenant compliance under the 7.25x leverage covenant contained in its bank agreement. The company is expected to continue its growth plans prudently in order to accommodate a tightening leverage covenant on Dec. 31, 2004, and again at year-end 2005. The rating and outlook incorporate the expectation that Salem's ongoing acquisition activity will proceed at a more reasonable pace than it has historically and will be financed in a manner that preserves debt to EBITDA in the 5x-6x range. Salem began generating discretionary cash flow in 2003, converting approximately 36% of EBITDA into discretionary cash flow, which could be used to help fund acquisitions or reduce debt. The rating on Salem reflects: * high financial risk from debt-financed radio station acquisitions, * a short track record of generating discretionary cash flow, and * its niche religious programming focus. These factors are partially offset by: * the company's expanding large-market radio station clusters, * increasing scale, * stable cash flow from block programming time sales, and * good asset value. SCOTT ACQUISITION: Wants Renaissance Partners as Financial Adviser ------------------------------------------------------------------ Scott Acquisition Corp. and its debtor-affiliates ask the United States Bankruptcy Court for the District of Delaware for permission to retain Renaissance Partners, L.C., as their financial advisors and consultants. The Debtors tell the Court that the services of Renaissance Partners are necessary because of its extensive experience and knowledge in the field of retail chain organization. Renaissance Partners performed consulting services for the Debtors during April and May 2004 and is familiar with the Debtors' finances and current state of affairs. Renaissance Partners is expected to: a) provide continuing business/operational detailed analysis and recommendations concerning the future of the business, organizational requirements, projected financial performance, and realistic capital structure; b) maximize the return for all concerned in the liquidation process in the event that the Debtors agree that a going- forward business is not viable, and that liquidation is the desired course of action; c) prepare projected liquidation analysis in comparison for going-forward business alternatives; d) seek to determine management requirements of a going- forward business; e) prepare with management new financial models and cash flow plans based on analysis and recommended plans of action including weekly cash flow plans; f) develop execution plans, management buy-in and specific management responsibilities to carry out execution of plans; g) participate in discussions and negotiations with lenders, vendors, equity participants, real estate landlords, and other parties pursuant to the Debtors' plans and actions required to achieve the plans; h) assist management with compliance, court-related documents, and filings and monitoring to help ensure that plans are implemented; and i) coordinate and monitor activities of outside service providers in the areas of real estate and merchandise liquidations, asset sales, and other actions that may be considered to create liquidity. Mr. Thomas H. Hicks, Managing Partner of Rennaisance Partners, discloses that the Firm received a $75,000 retainer. Mr. Hicks reports Renaissance Partners' professionals bill: Designation Hourly Rate ----------- ----------- Managing Partner/Senior Principals $400 Principals 350 Consultants 300 Analysts 100 To the best of the Debtors knowledge, Renaissance Partners is "disinterested" as the term is defined in Section 101(14) of the Bankruptcy Code. Headquartered in Winter Haven, Florida, Scott Acquisition Corp. is a retailer of a wide range of building materials and home improvement products serving the "do-it-yourself" market for individual homeowners, as well as the professional builder and commercial markets. The Debtors filed for protection on September 10, 2004 (Bankr. D. Del. Case No. 04-12594). When the Company and its debtor-affiliates filed for protection from their creditors, they reported $45,681,000 in assets and $30,068,000 in debts. SIERRA HEALTH: Will Release 3rd Quarter Results on Oct. 20 ---------------------------------------------------------- Sierra Health Services Inc. (NYSE:SIE) will release its third quarter financial results after market close on Wednesday, Oct. 20, 2004. A conference call with investors, analysts and the general public is scheduled for 11 a.m. (ET) on Thursday, Oct. 21, 2004. Listeners in the United States may access the conference call by dialing 888-988-9162. Listeners overseas may access the call by dialing 484-644-0963. The passcode for both numbers is "EARNINGS." Individuals who dial in to listen to the call will be asked to identify themselves and their affiliations. Listeners may also access the conference call free over the Internet by visiting the investor page of Sierra's Web site at http://www.sierrahealth.com/ To listen to the live call on the Web site, please visit the Sierra site at least 20 minutes early (to download and install any necessary audio software). In order to facilitate a better understanding of the call, Sierra is asking listeners to review its Annual Report on Form 10-K for the year ended Dec. 31, 2003, and Quarterly Report on Form 10-Q for the periods ended March 31, 2004 and June 30, 2004. Listeners should review cautionary statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Sierra Health Services Inc. -- http://www.sierrahealth.com/-- based in Las Vegas, is a diversified health care services company that operates health maintenance organizations, indemnity insurers, military health programs, preferred provider organizations and multispecialty medical groups. Sierra's subsidiaries serve more than 1.2 million people through health benefit plans for employers, government programs and individuals. * * * As reported in the Troubled Company Reporter on May 18, 2004, Standard & Poor's Ratings Services revised its outlook on Sierra Health Services Inc. to positive from stable. At the same time, Standard & Poor's affirmed its 'B+' counterparty credit rating on Sierra and its 'B+' issue credit rating on Sierra's $115 million 2.25% senior convertible notes due March 2023. "The revised outlook reflects Sierra's improved profitability, strengthened capital adequacy, and more focused market profile, offset by its geographic concentration, narrow product scope, and contingency exposure to its recently divested workers' compensation business," explained Standard & Poor's credit analyst Joseph Marinucci. SILICON GRAPHICS: S&P Affirms Junk Corporate Credit Rating ---------------------------------------------------------- Standard & Poor's Ratings Services affirmed its 'CCC+' corporate credit rating on Mountain View, California-based Silicon Graphics, Inc., and revised its outlook to developing from positive. "Although EBITDA trends have continued to be positive, the outlook revision reflects Standard & Poor's concern about negative cash flow trends over the past two quarters, and the recently disclosed weaknesses in Silicon Graphics' internal controls," said Standard & Poor's credit analyst Martha Toll-Reed. Silicon Graphics' ratings reflect: * a leveraged financial profile, * limited financial flexibility, and * weak operating performance. While Silicon Graphics has a good technology position in high-end computing and graphics solutions, the company has been struggling to establish revenue stability and net profitability in the highly competitive technical workstation and server markets. The company's efforts have been hampered by reduced levels of information technology spending, particularly for high-end equipment, and a highly competitive industry environment. Silicon Graphics had revenues of $211 million in the quarter ended June 25, 2004, down 6% from the prior-year period, excluding discontinued operations. The company has continued to implement cost-reduction actions, resulting in year-over-year EBITDA improvement in each of the past four quarters. EBITDA coverage of interest was 2.3x in the June 2004 quarter, up substantially from 0.4x in the prior-year period. Because of weak profitability levels, leverage remains high. Total debt to EBITDA as of June 2004 was in excess of 6x. SIMMONS BEDDING: IPO Uncertainty Cues S&P to Hold B+ Credit Rating ------------------------------------------------------------------ Standard & Poor's Ratings Services affirmed its ratings on Atlanta, Georgia-based mattress manufacturer Simmons Bedding Company, including its 'B+' corporate credit rating. At the same time, the ratings were removed from CreditWatch, where they were placed on May 18, 2004. The outlook is stable. At June 26, 2004, $752.6 million in total debt was outstanding. "The ratings affirmation reflects the uncertainty over the timing of the company's planned IPO of common stock that was announced in June 2004 due to unpredictable market conditions," said Standard & Poor's credit analyst Martin S. Kounitz. The ratings are based on Simmons' leveraged financial profile, which resulted from a debt-financed acquisition by an affiliate of Thomas H. Lee Partners L.P., in late 2003. This debt leverage is partially mitigated by the company's number-two market share, its history of new product innovation, and its stable cash-flow generation in the domestic mattress industry. The stable outlook reflects Standard & Poor's expectation that Simmons will maintain and improve its market position through higher unit sales and price increases, and will strengthen its credit profile by applying free cash flow to debt reduction. Given current equity market conditions, the stable outlook does not incorporate the prospect of an IPO due to the uncertainty of this event. Simmons remains highly leveraged after its December 2003 recapitalization. SINO-FOREST: Appoints Messrs. Horsley & Hyde to Board of Directors ------------------------------------------------------------------ Sino-Forest Corporation (TSX: TRE.A; TRE.S) appoints Mr. David Horsley and Mr. James Hyde to its board of directors. "The additional members will add excellent financial and public company experience to our current board of directors," stated Allen T. Y. Chan, Chief Executive Officer of Sino-Forest. "We believe that the new members will be able to greatly assist management of Sino-Forest in achieving our operational and financial objectives". About David Horsley Mr. Horsley is Senior Vice President and Chief Financial Officer of Cygnal Technologies Corporation (TSX: CYN). He has served on a number of private and public boards including Unico Foods, EDM, Site Oil Tools, FuelMaker, Chapters, where he also served as Chairman of the Audit Committee and Cygnal where he was Chairman of the Audit Committee and a member of the Compensation and Corporate Governance Committee. Mr. Horsley holds a Bachelor of Arts degree from the University of Toronto. He is a member of the Canadian Institute of Chartered Accountants as well as the Institute of Chartered Accountants of Ontario. He is also a member of the Institute of Chartered Business Valuators. About James Hyde Mr. Hyde is Vice President, Finance and Chief Financial Officer of GSW, Inc., (TSX: GSW.a, GSW.b), a leading North American manufacturer and marketer of building products and water heaters. Prior to joining GSW, Inc., in 2002, Mr. Hyde was with Ernst & Young for 24 years, including twelve years as a Partner. Mr. Hyde holds a Bachelor of Business Administration degree from the University of New Brunswick and a Canadian Chartered Accountancy designation. He is a past Director of the Canadian Venture Capital Association. Sino-Forest Corporation (S&P, BB- Credit Rating, Stable Outlook, July 28, 2004) is involved in the growing & harvesting of eucalyptus, aspen and pine trees under long-term plantation programs in Southern China. The Company also manufactures, distributes and sells forest products including logs, wood chips and wood products. SYSTECH RETAIL: Posts $1.5 Million 1st Quarter Net Loss ------------------------------------------------------- Systech Retail Systems Corp., doing business as OPENFIELD Solutions, a leading software developer and integrator of technology solutions for the retail industry, reported results for the three months ended July 31, 2004. For Q2 FY 2005, the Company recorded revenues of $3.9 million, a decrease of $1.5 million, or 28.2% over the same period in the prior year. Loss before income taxes and discontinued operations was $(1.2) million for the quarter, compared to a loss of $(856) thousand for the second quarter of the prior year. Deducting discontinued operations and income taxes brought the loss for the quarter to $(1.5) million, compared to a loss of $(881) thousand for the same quarter of the prior year, which represents an increased loss of $(631) thousand. In order to properly interpret the meaning of these results, it should be noted that in Q2 FY 2004, the foreign exchange gain was significantly higher than in Q2 FY 2005. If the foreign exchange is factored out, the net loss for Q2 in FY 2005 would have been $(2.0) million as compared to a net loss of $(1.8) million for Q2 in FY 2004, a decrease in the Company's performance of only 7.3%. While revenues declined versus the second quarter last year, the full impact of the cost-cutting program significantly reduced the impact on operations. As a result, operating results only declined marginally for Q2 FY 2005 as compared to the same quarter in the prior year when foreign exchange impact is factored out. "While we were pleased to reduce the loss for Q2 FY 2005 as compared to Q1 results of this year, long sales cycles have presented a challenge in rebuilding the sales backlog. That being said, management is beginning to see customers making decisions as well as additional opportunities with new retail customers" said David Shonerd, Systech's President and Chief Executive Officer. Highlights During The Quarter: -- As a result of delays in rebuilding the sales backlog since coming out of bankruptcy protection and deferrals by customers of existing orders until Q4, revenue for systems and software products declined; -- Systems solutions rollouts to Sedanos, Earthfare and Magruders continued to grow the ISIS install base; -- Software services and support revenues declined as new contracts have not been obtained to fully offset the loss of OEM contracts in FY 2004 and the completion of the programming services contract with the Northwest Company; -- Despite these challenges, the Company continued to implement new programming services contracts with customers including multiple tier 1 grocery chains, an additional tier 2 grocery chain, and a large OEM in Q2. -- Helpdesk and software maintenance support revenues increased through a combination of new support contracts associated with ISIS rollouts for the Northwest Company, Sedanos, Magruders, and by obtaining new contracts with customers including a tier 1 grocery chain. Outlook The biggest challenge in returning to profitability continues to be rebuilding the Company's sales order backlog. After emerging from CH11 /CCAA protection in September of 2003, management focused on re-engaging with customers who had not ordered from the Company during the bankruptcy process. In many cases, this was equivalent to "starting the sales cycle over" which can often take 6-12 months to complete. While the process is not progressing as quickly as anticipated, management is now beginning to see a renewed commitment to the Company by its existing customers and more opportunities to compete for business from third party solutions providers and new retailer prospects. These agreements have been established since April of 2004: -- In April of 2004, Rack Room Shoes committed to its first installations of the HP RP 5000 POS platform. This is the result of continued strategic partnership between HP and the Company; -- In April of 2004, Earthfare committed to extend its existing rollout the Company's ISIS solution to five more stores by June of 2005; -- In July of 2004, the Company announced an agreement with Gottschalks, the largest independently owned department store chain in California; The Company will deliver programming services, software and professional services to Gottschalks in partnership with IBM Retail Systems. -- In August of 2004, the Company announced that contracts were signed with a new customer for ISIS called City Market. City Market is located in Vermont and is the community-owned grocery of the Onion River Cooperative; -- In August of 2004, the Company reached agreement with a tier 1 retailer for integration services and support contracts through 2005; -- In September of 2004, the Company announced that Tru Valu contracted for its ISIS application. Tru Valu is based in Trinidad, West Indies and is part of Eastern Commercial Land, Inc.; -- In September of 2004, the Company announced an agreement with Magruders for the implementation of NCR FastLane self- checkout systems in 2005. The Gottschalks order is a prime example of the effort required to complete the sales cycle in retail. The Company has been developing the relationship with Gottschalks for over two years. These efforts have resulted in new programming services business and potential opportunities in the future for implementation of the ISIS platform. Even with the increased focus on improving revenues in the current business, management acknowledges that the sales cycle for point- of-sale software solutions will require time for the orders backlog to rebuild. In order to reduce the Company's dependency on the timing of customer buying decisions, management has developed a long-term strategic plan for the growth of the ISIS application and improving the Company's business model. The plan involves upgrading the existing product to meet the needs of the large Tier One grocers and the development of an indirect sales channel for selling the product to smaller Tier Three and Four grocers. Management believes that these two initiatives will enable the Company to penetrate a larger share of the POS market with a wider range of customers and to sell its products much more efficiently. This strategy can generate alternative revenue streams to complement the existing business and increase the Company's potential to return to profitability. In connection with the completion of the fundraising program to support the strategic plan, management has obtained shareholder approval to convert over $13 million debt owed to Integrated and Park Avenue into equity in conjunction with a broader arrangement to include a private placement of the Company's equity to arms' length parties. The combination of new capital and a stronger balance sheet from a reduced debt load will not only improve the financial position of the Company, but will enhance customer confidence in making longer term commitments to OPENFIELD's products and services. Management is confident that the combination of increased focus on software sales opportunities and the implementation of a clear strategic plan based on its proprietary ISIS application will enhance the Company's ability to achieve success. About Systech Systech Retail Systems Corp, dba OPENFIELD Solutions, is the North American retail industry's premier independent developer and integrator of retail technology, including software, systems and services. Its open architecture solutions enable powerful new technology to be applied in retail environments. OPENFIELD Solutions' significant cross-platform capability and considerable POS application experience allow it to address any in-store systems requirement, regardless of project size or scope. Shares and Warrants of Systech Retail Systems Corp., d.b.a. OPENFIELD Solutions, are traded on the Toronto Stock Exchange under the symbols "SYS" and "SYS.WT" respectively. At April 30, 2004, Systech Retail Systems Corp.'s balance sheet showed a $13,600,000 stockholders' deficit, compared to a $11,842,000 deficit at January 31, 2004. UAL CORP: Board Wants to Appoint IFS as Pension Plan Fiduciary -------------------------------------------------------------- On January 30, 1986, UAL Corp. and its debtor-affiliates' Board of Directors vested its fiduciary responsibilities as administrator of the Debtors' pension plans to a committee of employees named the Pension and Welfare Plan Administration Committee. The Debtors served as the Plan Administrator while operational control of the Plans vested in the PAWPAC. There were three members of the PAWPAC: (1) Peter McDonald, a member of the United Board and Chief Operations Officer; (2) Frederic F. Brace, III, a member of the United Board, and Executive Vice president, Chief Financial Officer; and (3) Sara A. Fields, Senior Vice President, People. The Debtors' management determined that, given the existing dynamic restructuring environment, the PAWPAC members were in an impossible position. The PAWPAC members could not simultaneously fulfill their duties to the Plans and participate in decisions that might involve ceasing minimum funding contributions, possibly ending in a distress termination. As the issues with the Debtors' Pensions heated up, all three members of the PAWPAC resigned effective June 28, 2004. By resolution on July 16, 2004, the Board revoked the PAWPAC's duties and responsibilities and transferred them to the Debtors. Thereafter, the Debtors and the United States Department of Labor discussed the ongoing management of the Plans. Because the Debtors could be placed in the same conflicted position as the former PAWPAC members, the Labor Department agreed that the Plan's constituencies would best be served by the appointment of an independent fiduciary. An agreement was reached between the Debtors and the Labor Department regarding the selection of an independent fiduciary by September 15, 2004. The independent fiduciary will have the authority to retain attorneys, accountants, actuaries and other professionals. The costs will be borne by the Debtors. James H.M. Sprayregen, Esq., at Kirkland & Ellis, tells the Court that after considering several potential candidates, the Debtors and the Labor Department selected Independent Fiduciary Services, Inc., to act as independent fiduciary. IFS began as an investment consulting unit of Bear Stearns in 1986. In 1996, IFS's principals purchased the business and focused on independent fiduciary services to pension and other benefit plans. Samuel W. Halpern, Executive Vice President of IFS, will act as lead member and supervisor of the IFS team. On September 3, 2004, the Debtors and IFS entered into a Fiduciary Services Agreement, outlining these powers and duties: (1) IFS, with the concurrence of Labor Department, is appointed independent fiduciary of the Plans; (2) IFS will review the Plans' funding policies and make recommendations to the Board; (3) IFS will investigate and analyze and pursue or assert any claims, obligations, debts or liabilities owing to the Plans connected with the funding or contribution provisions of the Plans; (4) IFS will take appropriate action including initiation of litigation for breaches of fiduciary duty; (5) The Debtors will pay IFS $175,000 for its services for the first three months and $50,000 for each month thereafter; (6) IFS will be entitled to reimbursement for reasonable out-of-pocket costs; (7) IFS will maintain a $10,000,000 fiduciary liability insurance; (8) The Debtors will indemnify, defend, reimburse and hold IFS harmless against any losses or other claims for services performed, other than losses arising from gross negligence, willful or intentional misconduct or criminal conduct; and (9) The Agreement may be terminated with 60 days' notice. By this motion, the Debtors ask the Court to approve the appointment of IFS as Pension Plan fiduciary. Headquartered in Chicago, Illinois, UAL Corporation -- http://www.united.com/-- through United Air Lines, Inc., is the holding company for United Airlines -- the world's second largest air carrier. The Company filed for chapter 11 protection on December 9, 2002 (Bankr. N.D. Ill. Case No. 02-48191). James H.M. Sprayregen, Esq., Marc Kieselstein, Esq., David R. Seligman, Esq., and Steven R. Kotarba, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $24,190,000,000 in assets and $22,787,000,000 in debts. (United Airlines Bankruptcy News, Issue No. 59; Bankruptcy Creditors' Service, Inc., 215/945- 7000) UAL CORP: Flight Attendants Support Chapter 11 Trustee Appointment ------------------------------------------------------------------ The Association of Flight Attendants-CWA, AFL-CIO, agrees with the International Association of Machinists that a Chapter 11 trustee must be appointed in UAL Corp. and its debtor-affiliates' cases. In addition to the breaches of fiduciary duty highlighted by the IAM, the AFA identified "numerous examples of the Debtors' gross mismanagement, as well as incompetence and dishonesty." According to Jeffrey A. Bartos, Esq., at Guerrieri, Edmond & Clayman, any one of the AFA's findings establishes cause for the appointment of a Chapter 11 Trustee under Section 1104(a)(1) of the Bankruptcy Code: (1) In their financial model, which formed the basis for the business plan, the Debtors erroneously assumed that a $275,000,000 reduction in 2003 operating expenses would continue every year thereafter. To plug this gap, the Debtors attacked retiree medical expenses through the use of Section 1114; (2) The Debtors submitted their loan guarantee application to the Air Transportation Stabilization Board with no alternative plan in case the submission was denied; (3) While the Debtors were demanding drastic, permanent reductions in retiree medical benefits, United's CEO, Glenn Tilton granted himself an 18% pay raise, from $712,500 to $845,000; and (4) The Debtors' maneuvers in relation to the pension plans have been laughable. In early June, Mr. Tilton assured members of Congress that the Debtors would fund their pension plans. However, on July 6, 2004, the Debtors decided to not make the quarterly contributions to the pension plans. The Debtors never consulted with their unions in search of alternative savings nor attempted to avoid default by applying to the Internal Revenue Service for a waiver. Mr. Bartos maintains that numerous grounds exist under Section 1104(a) for the Court to appoint a Chapter 11 Trustee. The Court need only make note of the Debtors' gross mismanagement, incompetence and dishonesty. The Debtors' contemptuous treatment of their employees, exemplified by the decision to stop funding their pension plans, is proof of managements' recklessness. The Debtors have squandered employee morale and confidence. Through this alienation of the workforce, the Debtors have precluded a consensual reorganization. Accordingly, a Trustee is in the best interest of the Debtors' stakeholders, including employees and creditors. Headquartered in Chicago, Illinois, UAL Corporation -- http://www.united.com/-- through United Air Lines, Inc., is the holding company for United Airlines -- the world's second largest air carrier. The Company filed for chapter 11 protection on December 9, 2002 (Bankr. N.D. Ill. Case No. 02-48191). James H.M. Sprayregen, Esq., Marc Kieselstein, Esq., David R. Seligman, Esq., and Steven R. Kotarba, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $24,190,000,000 in assets and $22,787,000,000 in debts. (United Airlines Bankruptcy News, Issue No. 59; Bankruptcy Creditors' Service, Inc., 215/945- 7000) UBS 400: Moody's Shaves Ratings on Two Cert. Classes to Low-B ------------------------------------------------------------- Moody's Investors Service downgraded the ratings of UBS 400 Atlantic Street Mortgage Trust, Commercial Mortgage Pass-Through Certificates, Series 2002-C1A as follows: -- Class B-1, $7,500,000, Fixed, downgraded to Baa1 from A3 -- Class B-2, $4,200,000, Fixed, downgraded to Baa2 from Baa1 -- Class B-3, $5,000,000, Fixed, downgraded to Baa3 from Baa2 -- Class B-4, $4,235,000, Fixed, downgraded to Ba1 from Baa3 -- Class B-5, $8,844,309, Fixed, downgraded to Ba2 from Ba1 The Certificates are collateralized by a $29,779,310 subordinate mortgage note on 400 Atlantic Street, a 15-story Class A office building located at 400 Atlantic Street in Stamford, Connecticut. The property is challenged by an increased vacancy rate and poorer market conditions. Property occupancy as of June 2004 was 91.6%, down from 100.0% at securitization. The vacancy rate in the Stamford Class A office market is in excess of 16.0%. Arthur Andersen, which had leased 6.0% of the net rentable area -- NRA -- at securitization, terminated its lease in May of 2002. This space has not been re-leased as of yet. Additionally, American Express Company (38.2% of NRA) has listed all of its space on the sublease market at a rent significantly below market and has requested an early termination of its lease. Moody's stabilized net cash flow is $12.8 million, compared to $13.2 million at securitization. Moody's loan to value ratio is 76.0%, compared to 70.1% at securitization, resulting in the downgrade of all Classes. URS CORP: Wins Military Construction Management & Designs Pact -------------------------------------------------------------- URS Corporation (NYSE:URS), as the managing partner of a joint venture with Louis Berger Group, Inc., has been awarded an indefinite delivery/indefinite quantity contract with the U.S. Army Corps of Engineers, Gulf Region District, to provide construction management and design services for military construction, infrastructure rehabilitation and reconstruction projects in Iraq. Under the terms of the contract, as the Army Corps of Engineers issues specific task orders, the joint venture will provide construction management and design services for facilities and infrastructure projects. The contract, which includes a one-year base period and four additional one-year option periods, has a maximum value to the joint venture of $300 million for the one-year base period and $1.2 billion over the full five years assuming all option years are exercised. URS Corporation -- http://www.urscorp.com/-- offers a comprehensive range of professional planning and design, systems engineering and technical assistance, program and construction management, and operations and maintenance services for surface transportation, air transportation, rail transportation, industrial process, facilities and logistics support, water/wastewater treatment, hazardous waste management and military platforms support. Headquartered in San Francisco, the Company operates in more than 20 countries with approximately 27,000 employees providing engineering and technical services to federal, state and local governmental agencies as well as private clients in the chemical, manufacturing, pharmaceutical, forest products, mining, oil and gas, and utilities industries. * * * As reported in the Troubled Company Reporter on August 20, 2004, Moody's upgraded URS Corporation's ratings to reflect the company's reduced debt balances, improved credit metrics, and expectations that revenues and margins will support further improvement in the company's cash flows. The company's rating outlook has been changed from positive to stable. Moody's has upgraded these ratings: * $225 million senior secured revolving credit facility, due 2007, upgraded to Ba2 from Ba3; * $84 million senior secured term loan A, due 2007, upgraded to Ba2 from Ba3; * $270 million senior secured term loan B, due 2008, upgraded to Ba2 from Ba3; * $130 million 11.5% senior unsecured notes, due 2009, upgraded to Ba3 from B1; * $20 million 12.25% senior subordinated notes, due 2009, upgraded to B1 from B2; * Senior Implied, upgraded to Ba2 from Ba3; * Senior Unsecured Issuer, upgraded to Ba3 from B1; * Speculative Grade Liquidity Rating, upgraded to SGL-1 from SGL-2. The ratings upgrade: (1) reflects the company's improved balance sheet; (2) strong operating performance; and (3) the expectation that the company's services will continue to enjoy stable demand. In its third fiscal quarter, URS used the net proceeds of an equity offering, cash on hand and additional borrowings under its credit facility to redeem $70 million of its 11.5% senior notes and $180 million of its 12.25% senior subordinated notes. As a result of these redemptions, the company's overall debt balance decreased by over $180 million to about $594 million. This is a significant improvement over the $955 million debt balance at October 31, 2002. The company's ratings also benefit from: (1) a stable customer base; (2) recurring revenues; (3) a $3.9 billion backlog at April 30, 2004; and (4) expected increases in defense and homeland security spending. The ratings are constrained by the challenges the company faces in growing its state and local revenues due to state budget deficits and delays in funding of state and local infrastructure projects. Revenues from the company's private clients are also under pressure due to reduced levels of capital spending and cost- cutting measures by the company's private clients. In 2002, URS purchased EG&G for $500 million for a purchase multiple that equates to just under 10 times its fiscal 2003's EBITDA. This acquisition transformed URS as EG&G represents around 32% of total revenues. Going forward, Moody's does not expect the company to make large debt-financed acquisitions as URS has publicly stated that it wants to maintain a debt to capitalization ratio below 40%. A change in policy due to an acquisition or other transaction, however, would pressure the ratings. A decrease in the company's revenues, operating margins and free cash flow generation would also pressure the rating. US AIRWAYS: Moody's Assigns Junk Rating on Five Cert. Classes ------------------------------------------------------------- Moody's Investors Service downgraded its ratings of selected Enhanced Equipment Trust Certificates -- EETC's -- supported by payments from US Airways, Inc. The rating outlook for these securities remains negative. Ratings actions include: Ratings downgraded: * Series 1998-1 -- Class A: to Ba2 from Ba1 -- Class B: to Caa1 from B3 -- Class C: to C from Caa2 * Series 1999-1 -- Class B: to Caa1 from B3 -- Class C: to C from Ca * Series 2000-3 -- Class C: to C from Caa2 * Series 2001-1 -- Class C: to C from Caa3 Ratings confirmed: * Series 1999-1 -- Class A: Confirmed at Ba2 The Aaa ratings for certain of the company's Enhanced Equipment Trust Certificates that are based on the support of insurance policies issued by monoline insurance companies are unaffected by this rating action. The rating downgrades reflect the company's September 12th filing under Chapter 11 of the US Bankruptcy Code and the increasing potential for losses for EETC holders. The rating agency noted that each of the transactions is supported by a liquidity facility that is designed to service interest payments for a period of 18, and benefits from a perfected security interest in underlying aircraft. Nevertheless, potential exists for a renegotiation of debt and lease payments under the related transactions and/or for the rejection of debt obligations associated with some or all of the aircraft collateralizing the Certificates, which could lead to losses for investors. The rating actions primarily affect the most junior tranches of the EETC's which Moody's believes are most likely to incur losses. The September 12th filing is the second in 25 months for the company. In the first reorganization, debt and lease payments on some of the aircraft in the 1998 and 1999 transactions were rejected and those aircraft were delivered to debt holders for liquidation, with proceeds applied to reduce the outstanding balances under the transactions. However, debt and lease payments on the remaining aircraft collateralizing those transactions and all of the aircraft collateralizing other rated transactions were affirmed and payments continued throughout that bankruptcy process and after the company emerged from bankruptcy on March 31, 2003. With the second bankruptcy filing, US Airways will again have the opportunity to affirm or reject aircraft debt or lease payments or could seek to renegotiate payment terms with creditors. Although Moody's estimates that current debt and lease payments are reasonably close to current market rates, it is likely that US Airways will take the opportunity presented by the bankruptcy process to renegotiate payment terms. The ratings actions recognize that this course of action could result in junior debt tranches experiencing shortfalls in the ultimate payment of principal amounts due. Although the ratings adjustments reflect increased risk for some senior classes of debt, Moody's expects that these debt holders will ultimately receive full principal repayment due to the moderate loan to value ratios of the senior tranches. Supporting the ratings are firming values for the aircraft types collateralizing the transactions, the relatively young age of the aircraft and US Airways' need for the assets if it continues to implement its current business plan. All of the aircraft collateralizing the transactions are Airbus models and include A320 family (A319, A320 and A321) and A330 aircraft. The A320 family aircraft are used in domestic service and the larger, longer range A330's are used in the company's international routes. While it is possible that US Airways could decide to reduce the number of aircraft in its fleet or the number of fleet types, such an action, relatively easy during the last bankruptcy process, would be more difficult at this time. This is particularly the case if the company wishes to continue to execute its current business plan. A reduction of a few aircraft is possible but a large rejection of aircraft will leave the company without the capacity it needs to execute the plan. US Airways could reduce the number of fleet types it operates by exiting its international routes and eliminating its A330 fleet. However, Moody's notes that yields remain much stronger internationally than in the domestic network and revenue from the company's international segment is reported to be ahead of its operating plan while domestic revenue is behind plan. Full affirmation of debt and lease obligations and a clear and rapid progress toward emergence from bankruptcy protection could result in the stabilization of the outlook. Further ratings downgrades could occur if liquidity facilities do not fund interest payments when due, debt and/or lease payments are renegotiated such that debt holders suffer unexpectedly large losses, and/or meaningful progress toward a decision regarding affirmation or rejection of debt and lease payments is not evident. The ratings would also come under pressure should large numbers of aircraft become available as a result of decisions on the part of US Airways to substantially reduce its fleet size or to liquidate rather than reorganize. Moody's will monitor the progress of US Airway's reorganization and the implications for EETC holders, but stated that if insufficient information is available to monitor the status of EETC transactions it will withdraw the ratings. US Airways Group, Inc. and its primary operating subsidiary, US Airways, Inc. are headquartered in Arlington, Virginia. US AIRWAYS: Fitch Says 2nd Bankruptcy Raises U.S. Airport Concerns ------------------------------------------------------------------ US Airways, Inc.'s filing on Sept. 12, 2004 for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code, its second such action in just over two years, poses minor immediate concerns to domestic airports as the airline stated it intends to maintain its current schedule. However, the airline's precarious financial position, lack of an identified source for ongoing financing, and the current economic status of the domestic airline industry in general, present the airline with several significant obstacles to a successful reorganization through the bankruptcy process. Fitch rates all three airports that serve as the airline's central domestic hubs: -- Charlotte-Douglas International Airport (City of Charlotte, N.C. general airport revenue bonds rated 'A' by Fitch); -- Philadelphia International Airport (City of Philadelphia GARBs rated 'A' by Fitch), -- and Pittsburgh International Airport (Allegheny County Airport Authority GARBs rated 'BBB' by Fitch, on Rating Watch Negative). US Airways also maintains a significant presence at: -- New York's LaGuardia Airport (Port Authority of New York and New Jersey, consolidated revenue bonds rated 'AA-' by Fitch); -- Boston-Logan International Airport (Massachusetts Port Authority Revenue Bonds rated 'AA-' by Fitch); and -- Washington-Regan National Airport (Metropolitan Washington Airports Authority, GARBs rated 'AA-' by Fitch) While the initial phases of the bankruptcy process generally pose minimal credit concerns as the debtor maintains its operations in an effort to reorganize, operational decisions made by the debtor during the course of the proceedings may raise credit concerns for individual airports. The greatest risk to airports in the current case is the potential suspension of service and eventual liquidation of US Airways. In this event, the bankruptcy court would oversee the dispersal of US Airways assets, possibly including its rights under the various use and lease agreements for gates at these and other airports. As a result, all six airports may be in a position where a significant number of gates are inactive for a protracted period of time, which could strain their financial performance. US Airways maintains a dominant position at both CLT and PIT, reflecting their role as central connecting hubs in the US Airways network. At PIT, US Airways and its affiliates accounted for 81.2% of total enplanements in 2003. US Airways had previously announced its intention to substantially reduce its presence at PIT, thus management has undertaken significant planning to prepare for such an eventuality. Furthermore, other carriers recently initiated additional service, including United Airlines to Denver and Northwest Airlines with flights to Memphis. In addition, the Commonwealth of Pennsylvania passed legislation providing the airport with approximately $15 million of gaming revenues annually to offset approximately 25% of the airport's annual debt service costs. Thus, while PIT faces significant challenges related to US Airway's actions, Fitch believes it is better prepared to handle these changes than it was at the time of US Airways first bankruptcy filing in August 2002. At CHT, US Airways and its affiliates accounted for 90% of total enplanements in 2003. Like PIT, connecting traffic at CHT accounted for approximately 75% of total enplanements in 2003 (at PIT, connecting traffic represented 60%). Should US Airways liquidate, Fitch believes it is highly unlikely another airline would establish a connecting hub at CHT, at least in the short to medium term. However, Fitch does expect other carriers to enter the market to serve origination and destination traffic, particularly as CHT has been plagued by high airfares and features a significant business community led by the headquarters of Bank of America Corp. and Wachovia Corp. Still, with overall enplanements likely to decline substantially, the cost of airport operations to the remaining carriers will likely rise from its 2003 level of $2.15 to perhaps as much as $7.00, based on estimates provided by the airport. The airport held $182 million in unrestricted cash and equivalents at the end of fiscal 2003, which should buffer its financial operations should US Airways cease service at CHT. As CHT would be affected the most by a liquidation of US Airways, Fitch plans to contact management and provide additional comments in the near future. While US Airways is the leading carrier at PHL as well, its share of the market was only 68% in 2003. Furthermore, connecting traffic accounted for just 34% of total enplanements, thus overall traffic should decline by a smaller proportion at PHL, compared with PIT and CHT in the event US Airways ceases operations. As Southwest entered the market earlier this year and is already facing constraints due to its limited number of gates, the airline would likely be interested in some of US Airways facilities should they become available. Fitch believes other carriers would follow the lead of Frontier Airlines and AirTran Airways, which also entered the PHL market this year and increase service in this attractive market, partially offsetting the financial impact of a potential loss of US Airways. US Airways facilities at LGA, BOS, and DCA, along with its east coast shuttle operations, are perhaps among its most valuable assets. As a result, Fitch believes these airports would likely be the quickest to recover should US Airways be forced into liquidation. However, as with the other airports, the pace of such a recovery will be influenced by the ability of other carriers, most of which are experiencing financial difficulties of their own, to make such investments, redistribute aircraft, and allocate appropriate staff to incorporate additional service into their existing operations. Fitch plans to closely follow developments at US Airways and make comments as appropriate as the airline moves through the Chapter 11 process. While the airports mentioned above are the most visibly affected by the status of US Airways, the potential shut- down of the carrier may have ramifications for airports with little service from that airline should other carriers redesign their schedules to capture the traffic currently served by US Airways in the business-oriented markets of the Northeast. Fitch notes that its recent studies on municipal default rates indicate that there has never been a default on a GARB issued by a major domestic commercial airport. Furthermore, while there may have been slight degradation in airport credit quality, airport credit ratings remained firmly in the investment-grade stratum after the earlier liquidations of Eastern Airlines, Pan American World Airways, and Braniff International Airlines. At this time, Fitch continues to believe that the possibility of a default on a GARB issued by a major commercial airport remains remote. Headquartered in Arlington, Virginia, US Airways' primary business activity is the ownership of the common stock of US Airways, Inc., Allegheny Airlines, Inc., Piedmont Airlines, Inc., PSA Airlines, Inc., MidAtlantic Airways, Inc., US Airways Leasing and Sales, Inc., Material Services Company, Inc. and Airways Assurance Limited, LLC. Under a chapter 11 plan declared effective on March 31, 2003, USAir emerged from bankruptcy with the Retirement Systems of Alabama taking a 40% equity stake in the deleveraged carrier in exchange for $240 million infusion of new capital. US Airways and its subsidiaries filed another chapter 11 petition on September 12, 2004 (Bankr. E.D. Va. Case No. 04-13820). Brian P. Leitch, Esq., Daniel M. Lewis, Esq., and Michael J. Canning, Esq. at Arnold & Porter LLP, and Lawrence E. Rifken, Esq. and Douglas M. Foley, Esq. at McGuireWoods LLP represent the Debtors in its restructuring efforts. In the Company's second bankruptcy filing, it lists $8,805,972,000 in total assets and $8,702,437,000 in total debts. US AIRWAYS: Vacations Says It's Business as Usual During Reorg. --------------------------------------------------------------- US Airways Vacations(R) will continue business as usual during US Airways' reorganization initiatives announced Sunday, Sept. 12, 2004. US Airways Vacations, operated by The Mark Travel Corporation, is not a part of US Airways' filing for Chapter 11 protection under the U.S. Bankruptcy Code. All US Airways Vacations reservations will be honored as usual, and all regular refund and exchange policies apply. US Airways' customer programs, such as Dividend Miles, remain unaffected and US Airways Vacations passengers will continue to accrue miles on the air portion of their vacation packages. US Airways Vacations' commitment to excellent customer service remains our priority. Travelers will notice no changes to US Airways' flight operations or customer service programs. "We are fully supportive of US Airways' plans to reorganize," said Kris Potter, vice president and general manager of US Airways Vacations. "This is a positive step to returning the airline to profitability and ensuring their future. We have maintained a strong marketing relationship with US Airways for the past 11 years, and we look forward to providing memorable vacations together for many years to come." The Mark Travel Corporation (TMTC), an industry leader, is comprised of 16 nationally recognized vacation companies including leading airlines and hotels. TMTC is affiliated with: * United States Tour Operators Association (USTOA); * $1 Million Consumer Plan American Society of Travel Agents (ASTA); * ASTA's Tour Operators Program (TOP); * Travel Industry Association of America (TIA). "TMTC is fully committed to US Airways Vacations and will continue to provide the best possible vacation experience to our customers," Potter added. For the past several months, US Airways has pursued their Transformation Plan to position the company for a successful future. Efforts include offering better service, more flights and low fares. -- US Airways continues to expand GoFares, which provide lower, simpler fares without compromising amenities like seat assignments, first class cabins and airport clubs. -- Enhancements to usairways.com as well as airport technology improvements will make traveling even easier. -- Strong positions in Boston, Charlotte, New York, Philadelphia, and Washington D.C., allow US Airways to offer even more service to popular business and leisure destinations, and with its new international gateway in Fort Lauderdale, the airline's Caribbean and Latin America expansion continues -- offering even more choices for customers. Further information about the reorganization can be obtained by visiting US Airways' dedicated restructuring web site at http://www.transformingusairways.com/ US Airways Vacations offers complete vacation packages to more than 90 destinations throughout the Caribbean, Latin America, the United States, and Europe. For more information or to make reservations, travelers can contact their travel consultant, call US Airways Vacations at 1-800-352-8747 or visit http://www.gousv.com/. US Airways Vacations is operated by The Mark Travel Corporation. Through this relationship, US Airways Vacations is a member of United States Tour Operator Association's Traveler's Assistance Program and the American Society of Travel Agents. Headquartered in Arlington, Virginia, US Airways' primary business activity is the ownership of the common stock of US Airways, Inc., Allegheny Airlines, Inc., Piedmont Airlines, Inc., PSA Airlines, Inc., MidAtlantic Airways, Inc., US Airways Leasing and Sales, Inc., Material Services Company, Inc. and Airways Assurance Limited, LLC. Under a chapter 11 plan declared effective on March 31, 2003, USAir emerged from bankruptcy with the Retirement Systems of Alabama taking a 40% equity stake in the deleveraged carrier in exchange for $240 million infusion of new capital. US Airways and its subsidiaries filed another chapter 11 petition on September 12, 2004 (Bankr. E.D. Va. Case No. 04-13820). Brian P. Leitch, Esq., Daniel M. Lewis, Esq., and Michael J. Canning, Esq. at Arnold & Porter LLP, and Lawrence E. Rifken, Esq. and Douglas M. Foley, Esq. at McGuireWoods LLP represent the Debtors in its restructuring efforts. In the Company's second bankruptcy filing, it lists $8,805,972,000 in total assets and $8,702,437,000 in total debts. US LEC: Moody's Assigns Junk Senior Implied & Issuer Ratings ------------------------------------------------------------ Moody's Investors Service assigned a B3 rating for the proposed $150 million senior secured (second-priority lien) notes due 2009 of US LEC Corporation, as outlined below. This is the first time that Moody's has rated US LEC. The ratings broadly reflect the substantial business risk of the CLEC sector in which US LEC operates and the company's limited track record in generating meaningful free cash flow to date offset somewhat by comparatively moderate financial risk. The rating outlook is stable. US LEC Corp.: * Senior Implied Rating -- Caa1 * $150 million Second-Priority Senior Secured Floating Rate Notes due 2009 -- B3 * Issuer Rating -- Caa2 * Speculative Grade Liquidity Rating -- SGL-3 The ratings reflect US LEC's position as a competitive local exchange carrier -- CLEC. The company's expansion strategy depends on taking market share from larger and better capitalized regional Bell operating companies (e.g. BellSouth), inter-exchange carriers such as AT&T, and other CLECs. Moody's believes that the highly competitive environment in which US LEC operates limits the company's pricing power. A positive factor supporting the rating is US LEC's switch-based, leased-transport strategy, which conserves scarce capital resources and facilitates demand-driven capital spending, thereby minimizing the risk that US LEC could be left stranded with underutilized assets. Other positive factors supporting the ratings include: * the company's extension of its debt maturity profile and alleviating its intermediate-term debt amortizations (i.e. pro forma for the proposed note issuance), * relatively low total leverage (3.1x TTM at Q2'04, as adjusted), * consistent revenue growth, and * improving operating metrics and high customer loyalty demonstrated by low monthly customer churn (approximately 0.7% per month and trending downwards). We anticipate the company to be essentially cash flow neutral for the next year or two before improving to material cash flow generation. The B3 rating on the senior secured notes is notched up with respect to the Caa1 senior implied rating reflecting their superior position within the capital structure given their second- priority claims on effectively all the company's assets with a possible first-priority lien facility limited to only $10 million. The positive notching also considers the meaningful amount of "junior capital" in the pro forma capital structure in the form of $253 million of mandatorily convertible preferred PIK stock subject to mandatory redemption in 2010, which Moody's considers to have debt-like characteristics. The stable rating outlook reflects Moody's expectation that the company should realize adequate revenue growth over the next several years, despite facing challenges reducing network costs in light of the current regulatory environment. Free cash flow generation will depend largely on careful network cost, overhead expense, and capital investment management. Stronger than expected competitive pressures, resulting in pricing erosion, could pressure the ratings and be a cause for a negative rating outlook, although much of this risk is effectively factored into the current ratings. Additionally, if the company's preferred stock were to be refinanced with debt pari passu to the senior secured notes, Moody's would not anticipate a change to the senior implied rating, though the senior secured notes rating could come down to that of the senior implied rating. If US LEC were to exceed expectations with respect to free cash flow generation, in particular, the outlook could improve to positive, indicating a possible ratings upgrade over time as business fundamentals improve. Also, if the company were to redeem the preferred stock with common equity, the senior implied rating could rise reflecting the company's debt being almost entirely comprised by the senior notes. If the company were to employ subordinated debt, Moody's would not anticipate any impact on the senior implied rating. US LEC's SGL-3 rating reflects the company's "adequate" liquidity profile as projected for the next twelve months. Pro forma for the note issuance, Moody's expects US LEC's liquidity to approximate $80 million, comprised mostly of cash balances and operating cash flow. Moody's also notes that the company's capital expenditures are largely discretionary thereby providing the company with additional cash conservation flexibility in a distress situation. While US LEC's cash balances and operating cash flows provide the company with adequate liquidity, the absence of a bank credit facility and material non-core saleable assets, impede flexibility. Subsequent to the issuance of the notes, US LEC's assets will be largely encumbered. US LEC's conservative capital structure has allowed it to pursue its business strategy while many of the company's over-leveraged CLEC competitors were forced into Chapter 11 bankruptcy proceedings. However, many of the market challenges faced by the CLECs several years ago persist today. Though the U.S. economy has improved in the past two years, demand for telecom services is generally more closely aligned with job growth, which has been weak. Additionally, recent regulatory changes with respect to UNE- P have no direct impact on US LEC as the company does not deploy UNE-P. However, such regulatory changes will likely impede the company's ability to negotiate favorable special access or UNE-L rates (i.e. cut network costs). US LEC, headquartered in Charlotte, North Carolina, is a competitive local exchange telecom carrier and generated approximately $336 million in revenues in TTM ended June 30, 2004. WASTECORP.: Disclosure Statement Hearing Adjourned to September 28 ------------------------------------------------------------------ Wastecorp. International Investments, Inc., (TSX Venture: Stock Symbol "WII"), reported that the U.S. Bankruptcy Court for the District of New Jersey has adjourned the hearing on its preliminary disclosure statement to September 28, 2004, at 2:00 p.m. On May 12, 2004, Wastecorp. filed a preliminary disclosure statement to explain its chapter 11 plan. ITT Industries, Inc., the Company's largest creditor, raised various objections. The Company has the exclusive right to solicit acceptances of its plan from creditors through September 28, 2004. Headquarted in Glen Rock, New Jersey, Wastecorp. Inc. -- http://www.wastecorp.com/ -- is a waste management company specializing in wastewater sewage treatment with its Wastecorp. Marlow Plunger Pump line, medical waste disposal, with its reusable sharps container program and plastic and scrap tire recycling division. On April 7, 2003, Wastecorp. International Investments Inc., together with its subsidiary, Wastecorp. Inc., filed voluntary Chapter 11 petitions in the United States, Bankruptcy Court for the District of New Jersey. Wastecorp. Is represented in Canada by the law firm of Borden, Ladner, Gervais, and in the United States by lawyers at Cole, Schotz, Meisel, Forman & Leonard. WEST OWENS MANAGEMENT GROUP: Voluntary Chapter 11 Case Summary -------------------------------------------------------------- Debtor: West Owens Management Group, LLC aka West Owens Management, LLC 2440 Legacy Island Circle Henderson, Nevada 89074 Bankruptcy Case No.: 04-19690 Chapter 11 Petition Date: September 13, 2004 Court: District of Nevada (Las Vegas) Judge: Bruce A. Markell Debtor's Counsel: Michael J. Dawson, Esq. 515 South Third Street Las Vegas, Nevada 89101 Tel: (702) 384-1777 Total Assets: $1,500,000 Total Debts: $1,092,579 The Debtor does not have any unsecured creditors. * GDI Global Data Providing Services for Distressed Situations -------------------------------------------------------------- GDI Global Data Inc. (NEX:GDT.H) completed a significant phase of its repositioning as a small cap merchant bank providing financial advisory services and funding for distressed/turnaround situations. The repositioning involves the following key elements: -- securing a C$1.0 million credit facility with Saturn Capital Corporation and private investors to fund investments in distressed businesses requiring investment capital and management resources; -- settling its litigation with Octagon Capital Corporation whereby Global Data has issued 600,000 common shares to Octagon, subject to a four month statutory hold period, and the payment of $9,765; -- completing a $10,000 private placement with Northern Securities, Inc., consisting of 133,333 units at $0.075 per unit, with each unit consisting of one common share and one warrant exercisable until August 25, 2005 at $0.10 per share; and -- the issuance of 333,333 common shares to Northern at an issue price of $0.09 per common share subject to a four- month hold period in consideration for financial advisory services provided to Global Data. "With our litigation with Octagon now resolved, we now have no remaining material continent liabilities outstanding and are therefore well positioned to dedicate resources towards providing financial advisory services and investment capital to distressed companies that are experiencing daunting but manageable problems such as operational turnarounds, bankruptcy or liquidity deficiencies," said Lawrence E. Davis, Chief Executive Officer. "By using a public company as the investment vehicle, we are able to provide owners of distressed businesses with the opportunity to have shares of a publicly listed company as consideration in a turnaround transaction and thereby participate in the recovery of the business situation. We are also able to offer investors with a unique vehicle to invest in a public company targeting turnaround situations, not typically available to retail investors," added Davis. ********* Monday's edition of the TCR delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR editor holds some position in the issuers' public debt and equity securities about which we report. Each Tuesday edition of the TCR contains a list of companies with insolvent balance sheets whose shares trade higher than $3 per share in public markets. At first glance, this list may look like the definitive compilation of stocks that are ideal to sell short. Don't be fooled. Assets, for example, reported at historical cost net of depreciation may understate the true value of a firm's assets. A company may establish reserves on its balance sheet for liabilities that may never materialize. The prices at which equity securities trade in public market are determined by more than a balance sheet solvency test. A list of Meetings, Conferences and Seminars appears in each Wednesday's edition of the TCR. Submissions about insolvency- related conferences are encouraged. Send announcements to conferences@bankrupt.com. Each Friday's edition of the TCR includes a review about a book of interest to troubled company professionals. All titles are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/books/to order any title today. Monthly Operating Reports are summarized in every Saturday edition of the TCR. For copies of court documents filed in the District of Delaware, please contact Vito at Parcels, Inc., at 302-658-9911. For bankruptcy documents filed in cases pending outside the District of Delaware, contact Ken Troubh at Nationwide Research & Consulting at 207/791-2852. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Frederick, Maryland USA. Yvonne L. Metzler, Emi Rose S.R. Parcon, Rizande B. Delos Santos, Jazel P. Laureno, Cherry Soriano-Baaclo, Marjorie Sabijon, Terence Patrick F. Casquejo and Peter A. Chapman, Editors. Copyright 2004. All rights reserved. ISSN: 1520-9474. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR subscription rate is $675 for 6 months delivered via e- mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are $25 each. For subscription information, contact Christopher Beard at 240/629-3300. *** End of Transmission ***