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/raid1/www/Hosts/bankrupt/TCR_Public/041103.mbx T R O U B L E D C O M P A N Y R E P O R T E R Wednesday, November 3, 2004, Vol. 8, No. 240 Headlines ACCLAIM ENTERTAINMENT: Trustee Hires UMAC as Collection Agent AMERICA WEST: S&P Revises Outlook on 'B-' Rating to Negative ARDENT HEALTH: Completes Six Lease Agreements in Oklahoma ATA AIRLINES: Wants to Waive Deposit & Investment Guidelines AUCXIS CORP: Subsidiary Confirms Sale of Trading Solutions Unit AVAYA INC: Launches Senior Debt Offering & Consent Solicitation BALLY TOTAL: Seeks Waivers from Noteholders Due to Late Filing BRISTOL CDO: Moody's Slashes Class C's Rating to Ba2 from A2 CATHOLIC CHURCH: Tucson Proofs of Claim Must be in by April 15 CCC INFO: Sept. 30 Balance Sheet Upside-Down by $131.3 Million DEL GLOBAL: Posts $2.6 Million Net Loss in Fourth Quarter DII/KBR: Has Until December 31 to Remove State Court Actions DIMON INC: Lenders Agree to Waive Sr. Note Indenture Cross-Default ENRON CORP: Wants Court Nod on El Paso Swap Settlement Agreement FEDDERS CORP: Reports Third Quarter 2004 Financial Results FOSTER WHEELR: Calculates Exercisable Shares Following Debt Offer FRESH CHOICE: Hires United Commercial as Real Estate Broker FRIENDLY ICE CREAM: Weak Sales Prompt S&P's Negative Outlook G&L REALTY: Distributes $9.03 Million Dividend to Stockholders GAVILAN PARTNERS LLP: Voluntary Chapter 11 Case Summary GENOIL: Trades on OTC Bulletin Board After SEC Approval Obtained GEO SPECIALTY: Files Plan of Reorganization in New Jersey GERDAU AMERISTEEL: Closes North Star Steel Acquisition GLACIER FUNDING: Moody's Puts Ba2 Rating on $4 Mil. Class D Notes GLOBAL BUSINESS: Auditors Express Going Concern Doubt GSR MORTGAGE: Fitch Assigns Low-B Ratings to Classes 2B4 & 2B5 HAWK CORP: Closes New Five-Year $30 Million Loan from KeyBank HEALTHEAST: Moody's Reviewing Ba2 Bond Ratings & May Upgrade HOLLINGER INC: Subsidiary Needs More Time to Complete Financials HOLLINGER INTL: Board Demands $542M Damages in 2nd Amended Lawsuit HOLLYWOOD CASINO: Submits to Bankruptcy Protection ICEFLOE TECHNOLOGIES: Inks Pact with Insiders for $120,000 Loan INARA MANAGEMENT: Case Summary & 8 Largest Unsecured Creditors INNER HARBOR: Fitch Ups Junk Ratings on Three Classes After Review L-3 COMMUNICATIONS: S&P Rates Planned $500M Sr. Sub. Notes 'BB-' LANOPTICS LTD: Sept. 30 Balance Sheet Upside-Down by $19.1 Million LEVITZ HOME: S&P Assigns B- Rating to Planned $100M Sr. Sec. Notes MASTR ALTERNATIVE: Fitch Rates $1.712M Class B-I-4 Certs. 'BB' MIRANT CORP: Wants to Sell Turbines to Invenergy for $46.5 Million MIRANT: Wants to Tap Deloitte & Touche as Tax Service Providers MULBERRY STREET: Fitch Affirms BB Rating on $7 Mil. Class C Notes MULBERRY STREET: Fitch Affirms BB Rating on $5 Mil. Class C Notes NATIONAL ENERGY: Wants Objection Deadline to Cure Amounts Fixed NEW SKIES: Gets FCC Approval on Blackstone Group Acquisition NORTEL NETWORKS: Get New Waiver from Export Development Canada NORTEL NETWORKS: Optical Design Biz Transferred to Flextronics NORTH AMERICAN: Case Summary & 40 Largest Unsecured Creditors NORTHROP GRUMMAN: Names B. Niland as Newport News Sector CFO & VP NORTHWESTERN CORP: Completes Debt Offering & Inks New Bank Loan NORTHWESTERN CORP: Board Names Dr. E. Linn Draper as Chairman ORDERPRO LOGISTICS: Major Shareholder Alleges Management Fraud OWENS CORNING: Has Until Dec. 31 to Solicit Votes for Plan PACIFIC ENERGY: Impending Sale Prompts S&P to Watch 'BB+' Rating PACIFIC GAS: Dynegy Power Sets Record Straight on $1 Mil. Claim PARMALAT: Citigroup Files Detailed Response to Claims Rejection PRIMUS TELECOM: Sept. 30 Balance Sheet Upside-Down by $112.9 Mil. RYERSON TULL: Moody's Reviewing Single-B Ratings & May Downgrade SAN JOAQUIN: Moody's Withdraws Ratings After Notes Redemption SCHLOTZSKY'S: Wants Grant Thornton as Auditors & Accountants SEPRACOR INC: Sept. 30 Balance Sheet Upside-Down by $379.6 Million SHREVEPORT CAPITAL: Case Summary & 20 Largest Unsecured Creditors SOLUTIA INC: Has Until January 10 to File Plan of Reorganization SOLUTIA INC: Wants to Sell Axio Research Assets for $200,000 SOUTHWALL TECH: Sept. 26 Balance Sheet Upside-Down by $3 Million SPIEGEL INC: Wants to Reject Fleet Capital Equipment Lease TENET HEALTHCARE: Completes Sale of Four L.A. Hospitals to AHMC TOM'S FOODS: Non-Repayment Causes S&P to Tumble Rating to 'D' UAL CORPORATION: Court Approves Novare & ARC Application UAL CORP: Hires Bridge Associates to Analyze Business Plan US AIRWAYS: Wants to Decide on Leases Until Plan Confirmation US AIRWAYS: U.S. Bank Seeks Adequate Protection on Aircraft Deals USG CORP: Has Until March 1 to Make Lease-Related Decisions W.R. GRACE: Wants Until November 15 to File Plan of Reorganization WEST PENN: Moody's Upgrades Bond Rating to B1 with Stable Outlook WESTPOINT STEVENS: U.S. Trustee Amends Creditors' Comm. Membership * Upcoming Meetings, Conferences and Seminars ********* ACCLAIM ENTERTAINMENT: Trustee Hires UMAC as Collection Agent ------------------------------------------------------------- Allan B. Mendelsohn, Esq., the interim chapter 7 Trustee in Acclaim Entertainment, Inc.'s bankruptcy case asks the U.S. Bankruptcy Court for the Eastern District of New York for permission to employ University Management Associates & Consultants Corp./Atwell Curtis & Brooks, Ltd., as his collection agent. The Trustee needs University Management to locate, collect and recover $11 million in outstanding accounts receivable that secured repayment of secured debt owed to GMAC Commercial Financial LLC. Paul Rome, President of University Management, agrees that at least 85% of the stated amount owed will be negotiated and settled through the Firm. The Debtor will reimburse University Management for expenses incurred in overnight carriers, trucking or freight charges and travel related expenses. The collection Agent will be paid 9 percent of amounts collected before September 9 and 20% thereafter. The Trustee believes that University Management is a "disinterested" party as that term is defined in Section 101(14) of the Bankruptcy Code. Headquartered in Glen Cove, New York, Acclaim Entertainment is a worldwide developer, publisher and mass marketer of software for use with interactive entertainment game consoles including those manufactured by Nintendo, Sony Computer Entertainment and Microsoft Corporation as well as personal computer hardware systems. The Company filed a chapter 7 petition on September 1, 2004 (Bankr. E.D.N.Y. Case No. 04-85595). Jeff J. Friedman, Esq., at Katten Muchin Zavis Rosenman represents the Debtor. When the Company filed for bankruptcy, it listed $47,338,000 in total assets and $145,321,000 in total debts. AMERICA WEST: S&P Revises Outlook on 'B-' Rating to Negative ------------------------------------------------------------ Standard & Poor's Ratings Services revised its outlook on America West Holdings Corp. and subsidiary America West Airlines Inc. to negative from stable. At the same time, all ratings, including the 'B-' corporate credit rating on both entities, were affirmed. "The outlook revision is based on the current difficult airline environment, which resulted in a substantial loss of $47 million in the third quarter of 2004, after several quarters of profitability," said Standard & Poor's credit analyst Betsy Snyder. "The ongoing weakness in fares and high fuel prices are expected to continue over the near term, which should lead to further losses." The ratings on America West Holdings Corp. reflect risks relating to the adverse airline industry environment, a weak balance sheet, and limited financial flexibility. America West Holdings' major subsidiary is America West Airlines Inc., the eighth-largest airline in the U.S, with hubs located at Phoenix and Las Vegas. America West benefits from a low cost structure, among the lowest in the industry. However, it competes at Phoenix and Las Vegas against Southwest Airlines Co., the largest low-cost, low-fare, operator in the industry and financially the strongest. America West recently began service on transcontinental routes, where it competes not only against other low-cost airlines but larger network airlines as well. As a result of extensive competition on its route structure, as well as its substantial reliance on lower- fare leisure travelers, its revenue per available seat mile tends to be among the lowest in the industry. America West Holdings also owns the Leisure Co. one of the nation's largest tour packagers. In January 2002, America West received proceeds from a $429 million loan, 90% of which was guaranteed by the federal government under the Air Transportation Stabilization Board -- ATSB, which enabled it to avert filing for Chapter 11 bankruptcy protection. As part of this process, the company completed arrangements for over $600 million in concessions, financing, and other assistance. These actions have allowed it to maintain its low cost structure within the industry. The company had been profitable from the second quarter of 2003 through the second quarter of 2004, aided by its low costs and improving pricing. However, with excess capacity in the market, which has led to a weak fare environment, and high fuel prices, the company reported a substantial loss of $47 million in the third quarter of 2004. These trends are expected to continue over the near term, resulting in further losses. In addition, the company's financial flexibility is expected to remain limited. America West's earnings are expected to continue to be negatively affected by the weak fare environment and high fuel prices. If these trends continue for an extended period of time, resulting in significant ongoing losses, ratings could be lowered. ARDENT HEALTH: Completes Six Lease Agreements in Oklahoma --------------------------------------------------------- Ardent Health Services has completed leases with six regional hospitals that are part of Hillcrest HealthCare System, Tulsa, Oklahoma. The independent regional hospitals have long-standing leases with HHS that allows the system to operate their facilities. The local owners had the option to review these leases with the recent change of ownership. When Ardent announced its acquisition of HHS, the company had said it would pursue leases with these six hospitals. "These regional hospitals are vital parts of their communities and a vital part of our region's health care system," said Kevin Gross, president, Hillcrest HealthCare System. "We are delighted these hospitals have chosen to remain within the Hillcrest system as we continue to provide quality health care for patients throughout northeastern Oklahoma." The hospitals that have renewed their leases with Hillcrest include: - Bristow Medical Center, Bristow - Cleveland Area Hospital, Cleveland - Cushing Regional Hospital, Cushing - Henryetta Medical Center, Henryetta - Pawnee Municipal Hospital, Pawnee - Wagoner Community Hospital, Wagoner In addition to the regional hospitals, Hillcrest HealthCare System includes Hillcrest Medical Center, a 557-licensed bed medical center that consists of a comprehensive rehabilitation facility and the region's only women's hospital; Tulsa Regional Medical Center, a 331-licensed bed facility that is the nation's largest osteopathic teaching hospital; and Hillcrest Specialty Hospital, a long-term care hospital. The Hillcrest HealthCare System was recently purchased by Ardent. Over the next five years, Ardent will invest approximately $100 million into HHS for new equipment, equipment replacement, facility renovations, new facilities, medical office space, information systems and other capital improvements. About the Company Ardent Health Services is a provider of health care services to communities throughout the United States. Ardent currently operates 35 hospitals in 14 states, providing a full range of medical/surgical, psychiatric and substance abuse services to patients ranging from children to adults. * * * As reported in the Troubled Company Reporter on Jun. 25, 2004, Standard & Poor's Ratings Services affirmed its corporate credit and subordinated debt ratings on health care service provider Ardent Health Services Inc., and removed the ratings from CreditWatch, where they were placed May 11, 2004. At the same time, Standard & Poor's assigned its 'B+' rating to Ardent's proposed $275 million senior secured term loan due 2011, and lowered its rating on the company's existing $125 million senior secured revolving credit facility to 'B+' from 'BB-'. The rating anticipates the possible expansion of the revolving credit facility to $150 million. The downgrade on the secured bank debt is due to the large increase in the amount of secured bank debt outstanding and consequently, lowered expectations for lender recovery in a default scenario. The proceeds of the new term loan will be used for the acquisition of Hillcrest HealthCare System (B-/Stable/--), eastern Oklahoma's largest health care provider, for $281 million plus working capital. As of March 31, 2004, Ardent's total debt outstanding was $261 million. The company's $125 million revolving credit facility due 2008 and new $275 million term loan due in 2011, which are rated the same as the corporate credit rating, have been assigned a recovery rating of '3'. This indicates the expectation for meaningful (50%-80%), but not complete, recovery of principal in the event of a default. "The speculative-grade ratings on Nashville, Tennessee-based Ardent Health Services, a company that owns and operates hospitals and a health plan, reflect its still geographically concentrated acute care asset portfolio, its reliance on behavioral hospitals for a disproportionate amount of its earnings, as well as its short track record operating its key assets," said Standard & Poor's credit analyst David Peknay. Ardent, a young company, has purchased the majority of its key acute care assets, including seven hospitals and a health plan, within the past two and a half years. It is purchasing Tulsa, Okla.-based Hillcrest for $281 million plus working capital and a $100 million capital commitment over five years. Hillcrest, with nine hospitals, will reduce Ardent's current reliance on an integrated delivery system of five hospitals and a health plan in Albuquerque, N.M. After the transaction, the percentage of company revenues derived from Albuquerque will decline to about 50%, from 70%. However, from a ratings standpoint, Hillcrest's historically weak operating results, coupled with the additional debt leverage after the acquisition, will more than offset the recent improvement in Ardent's financial profile. In addition, because the Albuquerque assets include a significant health plan, the company is at risk for future premium trends as well as the cost of care to a large enrollee base in the Albuquerque market. Other key risks include Hillcrest's historically poor financial performance and the uncertain future of its supplementary government payments for graduate medical education, which have bolstered its profitability. Still, Ardent will benefit from a strong position in its two key markets. In both Albuquerque and Tulsa, the company will control about one-third of the local market. Ardent will attempt to improve operating efficiency, invest in key areas such as information systems, and add new services. ATA AIRLINES: Wants to Waive Deposit & Investment Guidelines ------------------------------------------------------------ The assets of ATA Airlines and its debtor-affiliates consist of, among other things, cash, cash equivalents, short-term investments and deposit accounts. Before the Petition Date, the Debtors invested cash in accordance with conservative guidelines and with the primary goal of protecting principal and the secondary goals of maximizing yield and liquidity. The financial institutions at which the Debtors maintain the Investment Accounts are financially stable banking institutions and, where applicable, are insured by the Federal Deposit Insurance Corporation up to an applicable unit per account. All deposits and investments are prudent and designed to yield the maximum reasonable net return on the funds invested, taking into account the safety of the deposits and investments. Moreover, the Debtors' loan documents with the Air Transportation Stabilization Board restrict the definition of "Cash Equivalents" and, therefore, impose certain investment restrictions that further limit the range of permissible investments. While the Debtors are seeking the full range of investment authority consistent with its prepetition practices, the Debtors have complied with the more restrictive provisions in the ATSB Loan Agreement and will continue to comply with those provisions so long as they remain in force. To maximize the assets of their estates, the Debtors seek the Court's authority to invest estate funds, in their sole discretion, in these short-term investment vehicles: (a) money market accounts; and (b) short term investments in commercial paper instruments. The proposed investment guidelines will enable the Debtors to maintain the security of their investments, while at the same time, provide the Debtors with the flexibility required to maximize the yield on the investment and deposit of cash. Section 345(a) of the Bankruptcy Code authorizes a debtor-in- possession to deposit or invest the money of a bankruptcy estate in a manner that will "yield the maximum reasonable net return on such money, taking into account the safety of such deposit or investment." For deposits or investments that are not "insured or guaranteed by the United States or by a department, agency, or instrumentality of the United States or backed by the full faith and credit of the United States," Section 345(b) provides that the estate must require from the entity with which the money is deposited or invested a bond in favor of the United States secured by the undertaking of an adequate corporate surety. However, the Debtors believe that they do not have to satisfy the investment and deposit restrictions under Section 345. The Debtors believe that the yield on investments under the proposed guidelines will be substantially greater than if the Debtors were restricted to direct investments in government securities. Given the amount of cash that is or will be in their estates, the Debtors would lose a substantial amount of money if limited to direct investment in government securities. Headquartered in Indianapolis, Indiana, ATA Airlines, owned by ATA Holdings Corp. -- http://www.ata.com/-- is the nation's 10th largest passenger carrier (based on revenue passenger miles) and one of the nation's largest low-fare carriers. ATA has one of the youngest, most fuel- efficient fleets among the major carriers, featuring the new Boeing 737-800 and 757-300 aircraft. The airline operates significant scheduled service from Chicago- Midway, Hawaii, Indianapolis, New York and San Francisco to over 40 business and vacation destinations. Stock of parent company, ATA Holdings Corp., is traded on the Nasdaq Stock Exchange. The Company and its debtor-affiliates filed for chapter 11 protection on Oct. 26, 2004 (Bankr. S.D. Ind. Case No. 04-19866, 04-19868 through 04-19874). Terry E. Hall, Esq., at Baker & Daniels, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $745,159,000 in total assets and $940,521,000 in total debts. (ATA Airlines Bankruptcy News, Issue No. 2; Bankruptcy Creditors' Service, Inc., 215/945-7000) AUCXIS CORP: Subsidiary Confirms Sale of Trading Solutions Unit --------------------------------------------------------------- Aucxis Corp., formerly e-Auction Global Trading Inc. (Pink Sheets: AUCX), a Nevada Corporation, reported that the bankruptcy trustee of Aucxis NV (the 100% owned Belgium subsidiary of Aucxis Corp.), confirmed the sale of Aucxis Trading Solutions Belgium, the 92.5% owned subsidiary of Aucxis NV. On April 11, 2003 Aucxis NV voluntarily filed for bankruptcy and a trustee in bankruptcy was entrusted with Aucxis NV's management and the realization of its assets for the benefit of its creditors. Through a series of negotiations with the former owners of Auction Global (Schelfhout), a settlement was reached whereby all claims were settled and the sale of ATS by way of auction was approved. On October 25, 2004, Aucxis received confirmation from its Belgium counsel that the sale had been finalized. Through the auction process, the trustee finalized the sale of ATS for proceeds of just over $2 million U.S. Of the gross proceeds received, the net amount available to Aucxis Corp. is not yet known due to various secured creditor claims and foreign exchange variances, but is estimated to be up to $200,000 U.S. The main secured creditor claims include repayment of bridge loans with accrued interest, the Schelfhout litigation settlement payment and Belgium legal fees. There also was a provision made to be applied toward any final charges from CEPINA, the Belgium arbitration tribunal utilized during the Schelfhout litigation process. Management is currently in negotiations with different groups who may be interested in assisting the Company with raising money and with projects ranging from the wireless industry to the resource sector. Management will likely not be able to secure financing and/or a viable project until all outstanding payables and claims are resolved. Management will be seeking the cooperation of all existing unsecured creditors by proposing a settlement of all outstanding payables. About Aucxis Aucxis is a Nevada Corporation headquartered in Vancouver, Canada and trades on the Pink Sheets under the symbol AUCX. AVAYA INC: Launches Senior Debt Offering & Consent Solicitation --------------------------------------------------------------- Avaya Inc. (NYSE: AV), a global provider of business communications software, systems and services, commenced a cash tender offer for any and all of its 11-1/8% Senior Secured Notes due 2009 and a consent solicitation to amend the related Note indenture. The consent solicitation will seek consents from holders of the Notes to eliminate substantially all restrictive covenants, the reporting requirements and certain events of default from the Note indenture, as well as eliminate the requirement under the indenture to provide security for the notes and related provisions regarding the collateral. The offer and consent solicitation are subject to the terms and conditions set forth in Avaya's Offer to Purchase and Consent Solicitation Statement dated November 1, 2004 and will expire at 5:00 p.m., New York City time, on December 1, 2004, unless extended. Avaya currently expects to have an initial settlement on November 16, 2004 for Notes tendered before 5:00 p.m., New York City time on November 15, 2004, followed by a final settlement promptly after the Expiration Date for Notes tendered after the Early Consent Date. The Company reserves the right to extend the initial settlement date up to and including the final settlement date. Holders of the Notes have limited withdrawal rights, as described in the Offer to Purchase and Consent Solicitation Statement and related materials. The purchase price (calculated as described in the Offer to Purchase and Consent Solicitation Statement) to be paid for each $1,000 in principal amount of the Notes validly tendered will be: (1) the present value on the initial settlement date of $1,055.63 (the amount payable on April 1, 2006, which is the first optional redemption date of the Notes) and the present value of the interest from the last interest payment date until April 1, 2006, discounted at a rate equal to the sum of: (i) the yield on the 1.50% U.S. Treasury Note due March 31, 2006 and (ii) a fixed spread of 50 basis points, minus accrued and unpaid interest from the last interest payment date to, but not including, the initial settlement date, minus (2) an amount equal to the consent payment referred to below. In addition, accrued and unpaid interest will be paid on the tendered Notes up to, but not including, the applicable settlement date. The reference yield will be calculated in accordance with standard market practice as of 2:00 p.m., New York City time, on November 15, 2004 (unless extended), as reported by Bloomberg Government Pricing Monitor on "Page PX4." A consent payment of $30 will be paid for each $1,000 in principal amount of the Notes to holders who tender their Notes and deliver their consents to the proposed indenture amendments prior to the Early Consent Date. Holders of Notes tendered after the Early Consent Date will not receive a consent payment. The offer is subject to several conditions, including the receipt of consents from holders of, at least a majority in aggregate principal amount of the Notes, the execution of a supplemental indenture amending the Note indenture, and other customary conditions. Avaya may amend, extend or terminate the offer and consent solicitation in its sole discretion. About the Company Avaya Inc. designs, builds and manages communications networks for more than one million businesses worldwide, including more than 90 percent of the FORTUNE 500(R). Focused on businesses large to small, Avaya is a world leader in secure and reliable Internet Protocol telephony systems and communications software applications and services. Driving the convergence of voice and data communications with business applications -- and distinguished by comprehensive worldwide services -- Avaya helps customers leverage existing and new networks to achieve superior business results. For more information visit the Avaya website: http://www.avaya.com/ * * * As reported in the Troubled Company Reporter on May 4, 2004, Standard & Poor's Rating's Services revised its outlook on the rating of Avaya Inc. to positive from stable. The 'B+' corporate credit and senior secured debt and 'B' senior unsecured debt ratings were affirmed. The outlook revision reflects improved profitability in recent quarters combined with reduced debt, improving debt protection metrics and increased balance sheet liquidity. BALLY TOTAL: Seeks Waivers from Noteholders Due to Late Filing -------------------------------------------------------------- Bally Total Fitness Holding Corporation (NYSE: BFT) intends to seek waivers of defaults from holders of its 10-1/2% Senior Notes due 2011 and 9-7/8% Senior Subordinated Notes due 2007 under the indentures governing the notes. These defaults result from the Company's previously announced failure to timely file its financial statements for the quarter ended June 30, 2004 with the Securities and Exchange Commission and deliver those financial statements to the Indenture Trustees. Although the filing and delivery delay constitutes a default under the indentures, it does not result in an event of default or acceleration without the delivery to Bally of a default notice from the trustee or holders of at least 25% in the aggregate principal amount of either series of notes and the expiration of a 30-day cure period thereafter. If the defaults were not cured or waived by the expiration of such 30-day period, an event of default would occur, and the trustee or holders of at least 25% of the principal amount of either the senior notes or the senior subordinated notes would have the right to accelerate their respective series of notes at 100% of par value. On October 29, 2004, the trustee advised the Company it would begin notifying noteholders of the defaults in accordance with the indentures. In addition, the trustee has informed Bally it will not send default notices to the Company if Bally commences consent solicitations by November 15, 2004, and has either cured the defaults or obtained the necessary waivers from the holders of a majority of each series of notes by December 15, 2004. Bally previously announced that it had completed a new $175 million secured term loan, the proceeds of which were used to refinance its $100 million accounts receivable securitization and to provide approximately $75 million of additional liquidity. As a result of this financing, Bally has no significant repayment obligations on any debt until the maturity of the senior subordinated notes in 2007, and as of November 1, 2004, had no outstanding advances under the $100 million revolving credit portion of the facility, except for $8.7 million in letters of credit. The lenders under this newly combined $275 million secured credit facility have foregone any requirement for receipt from the Company of financial statements filed with the SEC. However, the credit agreement provides for a cross-default 10 days after delivery to Bally of a default notice under either of the indentures. As a result, the delivery of a default notice under either indenture to Bally could ultimately result in acceleration of the Company's obligations under the credit facility and the indentures. Notwithstanding Bally's intention to seek waivers, no assurance can be given that an event of default under the indentures will not occur in the future. About the Company Bally Total Fitness is the largest and only nationwide commercial operator of fitness centers, with approximately four million members and 440 facilities located in 29 states, Mexico, Canada, China, Korea and the Caribbean under the Bally Total Fitness(R), Crunch Fitness(SM), Gorilla Sports(SM), Pinnacle Fitness(R), Bally Sports Clubs(R) and Sports Clubs of Canada(R) brands. With an estimated 150 million annual visits to its clubs, Bally offers a unique platform for distribution of a wide range of products and services targeted to active, fitness-conscious adult consumers. * * * As reported in the Troubled Company Reporter on Oct. 20, 2004, Moody's has downgraded the ratings on $100 million, H & T Master Floating Rate Accounts Receivable-Backed Variable Funding Certificates, Series 2001-1, from Baa2 to Ba1. In addition, following the issuance of million new five-year term loan facility totaling $175 million to refinance existing debt on October 14,2004, including its present $100 million securitization facility, Moody's rating on $100 million, H & T Master Floating Rate Accounts Receivable-Backed Variable Funding Certificates, Series 2001-1, will be withdrawn. This concludes the review announced on August 19, 2004 and follows the downgrade by Moody's on September 30, 2004 of Bally Total Fitness Holding Corporation's senior implied rating to B3 and the corresponding senior subordinated rating to Caa2, with a stable rating outlook. Moody's rating action on Bally reflected significant leverage, limited free cash flow, competitive pressures, resulting in growth challenges and membership attrition. As a result of this downgrade the $100 million, H & T Master Floating Rate Accounts Receivable-Backed Variable Funding Certificates, Series 2001-1 transaction hit an early amortization trigger. Moody's downgraded the ratings of the H & T Master Floating Rate Accounts Receivable-Backed Variable Funding Certificates, Series 2001-1 due to concerns about potential future performance of the trust receivables pool. The future performance of the receivables will be closely related to the continued operations of its current level of health clubs. The current performance of the receivables in the trust is in line with expectations. BRISTOL CDO: Moody's Slashes Class C's Rating to Ba2 from A2 ------------------------------------------------------------ Moody's Investors Service has taken action on notes issued by Bristol CDO I, Limited, a collateralized debt obligation issuance. The tranches affected are: (1) U.S.$223,500,000 (current balance of $175,320,000) Class A-1 First Priority Senior Secured Floating Rate Notes Due 2032, currently rated Aaa, have been placed on watch for possible downgrade, (2) U.S.$20,500,000 (current balance of 16,080,000 ) Class A-2 First Priority Senior Secured Floating Rate Notes Due 2032, currently rated Aaa, have been placed on watch for possible downgrade, (3) U.S.$30,000,000 Class B Second Priority Senior Secured Floating Rate Notes Due 2037, currently rated Aa1, have been placed on watch for possible downgrade, and (4) U.S.$13,000,000 Class C Third Priority Secured Floating Rate Notes Due 2037 have been downgraded to Ba2 on watch for possible downgrade from A2 on watch for possible downgrade. Moody's has noted that Bristol CDO I, which closed on October 11, 2002, is violating, among other tests, the Weighted Average Rating Factor Test (Weighted Average Rating Factor has increased from June 2004 to October 2004 from 521 to 1088), the Class A/B Overcollateralization Test, and the Class C Overcollateralization Test which has decreased from June 2004 to October 2004 from 101.57% to 98.37%, each as reported in the monthly deal surveillance report dated as of October, 2004. Moody's has also noted that the sharp rise in the WARF is partially due to the presence in the collateral portfolio of manufactured housing securities, which have recently been downgraded. Rating Action: Watchlist & Downgrade Issuer: Bristol CDO I, Ltd. Tranche: U.S.$223,500,000 (current balance of $175,320,000) Class A-1 First Priority Senior Secured Floating Rate Notes Due 2032 Prior Rating: Aaa Current Rating: Aaa on watch for possible downgrade Tranche: U.S.$20,500,000 (current balance of 16,080,000 ) Class A-2 First Priority Senior Secured Floating Rate Notes Due 2032 Prior Rating: Aaa Current Rating: Aaa on watch for possible downgrade Tranche: U.S.$30,000,000 Class B Second Priority Senior Secured Floating Rate Notes Due 2037 Prior Rating: Aa1 Current Rating: Aa1 on watch for possible downgrade Tranche: U.S.$13,000,000 Class C Third Priority Secured Floating Rate Notes Due 2037 Prior Rating: A2 on watch for possible downgrade Current Rating: Ba2 on watch for possible downgrade CATHOLIC CHURCH: Tucson Proofs of Claim Must be in by April 15 -------------------------------------------------------------- Before 2002, the Roman Catholic Church of the Diocese of Tucson was a defendant in 11 suits involving 16 plaintiffs. Tucson also provided counseling and other services to people who alleged that they were abused but who had not sought damages through civil actions. In early 2002, Tucson settled the 11 suits. As part of the 2002 Settlement, Tucson agreed to pay the Plaintiffs in the 11 suits $3,000,000 due in January 2007. A parcel of real estate previously owned by Tucson secures the $3,000,000 Payment. The Claimants in the 11 suits are, therefore, secured creditors in Tucson's case. Tucson believed at the time of the 2002 Settlement that the Plaintiffs in the 11 suits, together with those who had informally sought help from Tucson, constituted the universe of claims arising out of these problems. That belief was mistaken. Since the 2002 Settlement, 22 more cases were filed in Arizona and in California, involving 34 plaintiffs alleging, again, the failure of Tucson to properly supervise or otherwise deal with alleged knowledge by Tucson of the actions of certain clergy and others. Given the experience since the 2002 Settlement as well as the experience of other Dioceses around the country who have settled these types of cases, Tucson believes that there may well be other claimants who have not yet asserted formal or informal claims arising out of alleged abuse by clergy or others associated with Tucson. Susan G. Boswell, Esq., at Quarles & Brady Streich Lang, LLP, in Tucson, Arizona, informs Judge Marlar that Tucson's universe of potential claimants includes: * secured claims related to the 2002 Settlement; * unsecured claims of trade creditors, vendors and other persons or entities who provide goods or services to the Diocese; * lenders, including parishes that are unsecured creditors in the case for, among other things, money lent to Tucson for the 2002 Settlement; and * the unsecured claims of persons who contend they were abused by clergy or other persons employed by or related to Tucson for which the claimants contend that Tucson is liable under various theories. Tucson classifies Tort Claims under five categories: Category 1: Claims currently in litigation. Category 2: Claims of claimants who have chosen not to initiate litigation against Tucson but who have asserted that they have been abused and are receiving counseling or other services from Tucson. Category 3: Claims of persons who have contacted Tucson regarding potential abuse claims but who have not sought counseling or other services offered by Tucson. Category 4: Claims that have not yet been asserted but are known to the claimants. Category 5: Potential claims of persons who are suffering from repressed memory. Tucson Seeks Claims Bar Date Tucson asks the U.S. Bankruptcy Court for the District of Arizona to: (a) establish a deadline for filing proofs of claim; (b) establish a deadline for claims resulting from the rejection of an executory contract or unexpired lease; and (c) approve the proof of claim forms, notice of the Bar Date, and publication notice. Specifically, Tucson suggests that the Claims Bar Date be 90 days after the Court enters its Order approving the request, or at another date as the Court finds appropriate under the circumstances. Furthermore, Tucson asks the Court to set the Bar Date for claims that result from the rejection of an executory contract or unexpired lease as the earlier of 30 days from the date (i) of an order rejecting the executory contract or unexpired lease, or (ii) a plan of reorganization is confirmed. "The Bar Date proposed . . . only seeks to set a deadline for claimants who are aware or may be aware that they have a potential claim against the Diocese whether or not those claims have been made known to the Diocese," Ms. Boswell says. Tucson will address claims of future claimants at a later date. Proof of Claim Forms Tucson proposes to modify the Official Bankruptcy Form No. 10 to elicit necessary information for the resolution of the Tort Claims. Tucson will seek input from interested parties as to the contents of the Tort Claim Form before submitting the Tort Claim Form to the Court for consideration. Tucson further proposes that the Claim Form for non-Tort Claims -- Other Claims Form -- be slightly modified to clearly advise claimants that they should only use this claim form if they are asserting claims other than Tort Claims. Ms. Boswell explains that the proposed modifications are warranted since the information that will be requested is critical to a reasonable evaluation and analysis of Tucson's liability for the alleged claims. Each proof of claim form will be designed to ensure that claimants provide necessary information relating to their claim. This would allow Tucson to determine the nature, extent and validity of the claims, while being sensitive to the special issues for victims related to the information sought. The information is also important in the event it becomes necessary for the Court to estimate claims with respect confirmation of a plan. Bar Date Notice Tucson will confer with interested parties and seek their input with respect to the form of notice for Tort Claims. Tucson will send the relevant proof of claim form to all creditors and others entitled to receive notice. The Bar Date Notice will also be published in consecutive issues of these Diocesan or Parish publications: 1. The Catholic Vision Newspaper, 2. Parish bulletins, and 3. The Bishop's weekly Monday memorandum which goes to all parishes, schools, catholic organizations and hundreds of individual Catholics throughout the Diocese. Additionally, Tucson will: -- post the Bar Date Notice on the home page of its Web site; -- request that each Parish post the Bar Date Notice on its Web site; and -- attempt to post the Bar Date Notice on the Web site of the Survivors Network of those Abused by Priests and any other Web sites for victim advocacy groups that allow Tucson to publish the Bar Date Notice. Publication Notice The Diocese will also publish a notice of the Bar Date: -- once in the Los Angeles Times, Wall Street Journal, and USA Today; and -- twice in the Ajo Copper News, Arizona Daily, Arizona Range News, Arizona Republic, Arizona Silver Belt, Bisbee Observer, Casa Grande Valley Newspapers Inc., Daily Dispatch, Eastern Arizona Courier, Green Valley News & Sun, Nogales International, Parker Pioneer, Pavson Roundup, San Pedro Valley News-Sun, Sierra Vista Herald, Yuma Sun, The Arizona Daily Star, and The Tucson Citizen. Any creditor, except for future claimants who are dealt with separately, who fails to timely file a proof of claim pursuant to the Bar Date will be prohibited from participating in Tucson's case with respect to voting on the Plan, distribution under the Plan, or in any other regard. Nevertheless, the holder of any un- filed claim would be bound by the terms of the Plan once confirmed by the Court. U.S. Trustee Wants Longer Bar Date for Categories 4 & 5 Tort Claims Ilene J. Lashinsky, the U.S. Trustee for Region 14, sees no problem with a 90-day deadline for the first three categories of Tort Claims but she is concerned about Categories 4 & 5, as outlined by the Diocese of Tucson. Trial attorney Christopher J. Pattock explains that Category 4 & 5 tort claimants may be prejudiced by a short Bar Date. Mr. Pattock asserts that a longer Bar Date should be set for these two categories, and an appropriate noticing procedure for both categories must be submitted with the Court. * * * At the Case Management Hearing on October 7, 2004, several parties-in-interest informed Judge Marlar that the 90-day Bar Date is insufficient. They argued, among other things, that the Bar Date should be open-ended, or if a date must be set, it should be extended well beyond a year. Barbara Blaine, survivor and President of SNAP, which represents a group of survivors, believes that "the victims should have ten years to come forward." However, Judge Marlar declares that the setting of a Bar Date is a routine request in a normal bankruptcy case, and a deadline in a Chapter 11 case is a necessity. Tucson, Judge Marlar explains, needs to know the number of creditors, what the amounts of the claims are, and how the claims will be settled. Accordingly, Judge Marlar rules from the bench setting April 15, 2005, as the deadline by which all claimants must file their claims in Tucson's Chapter 11 case. The Court directs Tucson's counsel to meet with all of the interested parties to craft a Bar Date Notice. A person will be appointed to represent the interests of the group of unknown parties that have not come forward, the potential group of minors, and the incapacitated or have repressed memories that may not know they have a claim. A fund will be established for future claimants. The future claimants representative will have to file a claim for the class by the Bar Date. The fund amount will be the subject of negotiation, agreement, or cram down. The proof of claim forms and the notice will be translated into Spanish, and Tucson the Diocese will publish information in Spanish-speaking newspapers in Yuma, Phoenix, Hermosillo, South Tucson, Nogales Sonora, Mexico and Agua Prieta. The Diocese may possibly publish in New Mexico, Texas, Colorado, and other western states. The Parade Magazine and USA Today are other options. The Roman Catholic Church of the Diocese of Tucson filed for chapter 11 protection (Bankr. D. Ariz. Case No. 04-04721) on September 20, 2004, and delivered a plan of reorganization to the Court on the same day. Susan G. Boswell, Esq., Kasey C. Nye, Esq., at Quarles & Brady Streich Lang LLP, represent the Tucson Diocese. The Archdiocese of Portland in Oregon filed for chapter 11 protection (Bankr. Ore. Case No. 04-37154) on July 6, 2004. Thomas W. Stilley, Esq. and William N. Stiles, Esq. of Sussman Shank LLP represent the Portland Archdiocese in its restructuring efforts. Portland's Schedules of Assets and Liabilities filed with the Court on July 30, 2004, the Portland Archdiocese reports $19,251,558 in assets and $373,015,566 in liabilities. (Catholic Church Bankruptcy News, Issue No. 8; Bankruptcy Creditors' Service, Inc., 215/945-7000) CCC INFO: Sept. 30 Balance Sheet Upside-Down by $131.3 Million -------------------------------------------------------------- CCC Information Services Group Inc. (NASDAQ:CCCG) reported net income of $0.5 million for the third quarter ending September 30, 2004, compared to net income of $6.4 million for the same quarter in 2003. The Company's third quarter results include the net impact of a non-cash stock compensation charge in connection with the self-tender offer and a net benefit related to a litigation settlement. Stock Compensation Expense Non-Cash During the quarter the company completed a $210 million self- tender offer to purchase 11.2 million shares, which leaves approximately 15.9 million shares outstanding. Participation by the company's shareholders was high, as over 90 percent of the share base tendered their shares. Due to the high participation rate, the ownership profile of the company remained relatively unchanged. In connection with the self-tender offer, the company recorded a charge of $13.1 million to reflect non-cash stock compensation expense related to employee options. The ability of employee stock option holders to participate in the self-tender offer through the Company on a net exercise basis resulted in variable stock compensation accounting for the Company's Stock Incentive Plans, which resulted in the non-cash charge. According to stock compensation accounting requirements, the charge had to cover all vested employee stock options including those that were not tendered and those that were unable to be exercised due to the 44 percent pro-ration factor. Employee option holders received $3.5 million, or 1.7%, of the $210 million returned to shareholders. All stock option holders received the same terms and conditions for the self-tender as shareholders and warrant holders. There are no further requirements for stock compensation expense in connection with the tender offer. In addition, the variable stock compensation accounting for the Company's Stock Incentive Plans ended on August 30, the date the tender offer closed. Litigation Settlement The Company recorded a net benefit for a litigation settlement of $2.6 million for the third quarter, which was comprised of three parts. During the quarter, CCC received $4.8 million as a result of the settlement of a lawsuit filed by certain insurers that had issued policies to the Company involving coverage in connection with the company's vehicle valuation product now known as CCC Valuescope(TM) Claim Services. Of the $4.8 million, $0.3 million was used to pay for legal costs related to the litigation. CCC also recorded a charge of $1.9 million to increase its net reserve for settlement of the litigation relating to CCC Valuescope, from $4.3 million to $6.2 million. The net result of the insurance settlement, after the $1.9 million charge and deduction of $0.3 million for legal costs resulted in the net pre-tax benefit of $2.6 million for the quarter. Financial Highlights Revenue for the third quarter increased 1.0 percent to $49.1 million, compared to $48.6 million for the same quarter in 2003. Operating income for the quarter was $1.4 million, including a net charge of $10.5 million representing the net effect of the charge and benefit mentioned in Table 1 above, compared to operating income of $10.7 million for the same quarter in 2003. Revenue for the first nine months of 2004 was $148.2 million, an increase of 2.6 percent compared to $144.5 million for the first nine months of 2003. Operating income for the first nine months of the year was $20.1 million, including two charges totaling $1.7 million in the second quarter, and a net charge of $10.5 million representing the net effect of the charge and benefit mentioned in Table 1 above. Operating income for the first nine months of 2003 was $29.4 million, including a charge of $1.1 million in the second quarter of 2003. Key revenue highlights for the quarter are as follows: -- The CCC Pathways(R) portfolio increased 4.9% from prior year due to the growth of our estimating solutions in the repair facility and insurance channels, as well as sales of our recycled parts solution to insurance companies. -- The CCC Valuescope(TM) portfolio grew 1.4 percent sequentially primarily due to the addition of new customers to the portfolio. -- The Workflow portfolio fell 3.8 percent from prior year as growth in CCC Autoverse(R) was offset by a decrease in EZNet(R). -- Other revenue decreased in line with the company's plan to exit the customer hardware business, and a planned phase out by a customer of the CARS(R) Direct service, a product originally introduced in 1997. Key operating expense highlights for the quarter are as follows: -- Production and customer support expenses declined from prior year due to costs incurred last year to transition to a new customer support model. -- Selling, general and administrative expenses increased from prior year as a result of an increase to certain incentive compensation costs tied to business performance. The increase in compensation expense was partially offset by savings generated from improved expense controls and the organizational realignment completed in the second quarter. -- Product development and programming expenses decreased primarily due to the organizational realignment of the company that took place in the second quarter. The company issued the following guidance for the fourth quarter and full year 2004: -- Revenue growth for the fourth quarter is expected to be in the 1 to 2 percent range versus the prior year, which would produce full year revenue growth in the 2 to 3 percent range. This is a change from our previous guidance of 3 to 4 percent. -- Operating income for the fourth quarter should be in the $12 to $13 million range, with full year operating income expected to be in the $32 to $33 million range, including the impact of the charges taken in the second quarter of $1.7 million and the impact of the net charge of $10.5 million taken in the third quarter. This is a decrease from our previous guidance of $43 to $45 million due to the impact of the net charge taken in the third quarter. -- Earnings per share for the fourth quarter is expected to be in the $0.36 to $0.39 per share range. Earnings per share for 2004 is expected to be in the $0.75 to $0.77 per share range, which represents a decrease from our previous guidance of $0.96 to $1.00 per share. Earnings per share guidance for the full year includes the impact of the reduction in the number of shares outstanding following completion of the self-tender offer as well as the effect of the $0.04 per share in charges taken in the second quarter and the $0.27 per share net charge recorded in the third quarter. Please note that due to the timing of the tender offer, the fully diluted share base expected to be used for the fourth quarter earnings per share calculation is much lower than the fully diluted share base that is expected to be used for the full year earnings per share calculation. As a result, adding together the earnings per share for the individual quarters will not produce the full year earnings per share figure. (The company is using a fully diluted share base of 24.2 million to calculate the full year EPS figure and 17 million shares for the fourth quarter) CCC also supplied the following preliminary guidance for 2005: -- Revenue growth is expected to be in the low to mid single digit percent range -- Earnings per share is anticipated to grow by 85 to 95 percent over 2004. Please note that this guidance is based on expectations for 2005 earnings compared to 2004 reported results, which include the impact of the net charges taken in the second and third quarters, and also reflects the decrease in the fully diluted share base due to the self- tender offer -- The company expects to use 17.3 million shares for the fully diluted earnings per share calculation for 2005 The company will be hosting its third quarter earnings call to discuss results at 11:00 AM EST. A live web cast will be made available at http://www.cccis.com/ About CCC CCC Information Services Group Inc. (NASDAQ: CCCG), headquartered in Chicago, is a leading supplier of advanced software, communications systems, Internet and wireless-enabled technology solutions to the automotive claims and collision repair industries. Its technology-based products and services optimize efficiency throughout the entire claims management supply chain and facilitate communication among approximately 21,000 collision repair facilities, 350 insurance companies and a range of industry participants. For more information about CCC Information Services, visit CCC's Web site at http://www.cccis.com/ At Sept. 30, 2004, CCC Info's balance sheet showed a $131,319,000 stockholders' deficit, compared to $51,583,000 in positive equity at Dec. 31, 2003. * * * As reported in the Troubled Company Reporter on August 5, 2004, Standard & Poor's Ratings Services assigned its 'B+' corporate credit rating to Chicago, Illinois-based CCC Information Services Inc. At the same time, Standard & Poor's assigned its 'B+' senior secured debt rating, with a recovery rating of '4', to the company's proposed $208 million senior secured bank facility, which will consist of a $30 million revolving credit facility (due 2009) and a $178 million term loan (due 2010). The 'B+' rating on the senior secured debt is the same as the corporate credit rating and the '4' recovery rating indicates that the first priority senior secured debt holders can expect marginal (25%-50%) recovery of principal in the event of a default. The proceeds from this facility, along with about $38 million of cash on hand, will be used to repurchase $210 million in CCC's common stock. The outlook is positive. Pro forma for the proposed bank facility, CCC had approximately $205 million in operating lease-adjusted debt as of June 2004. DEL GLOBAL: Posts $2.6 Million Net Loss in Fourth Quarter --------------------------------------------------------- Del Global Technologies Corp. reported operating results for its fiscal 2004 fourth quarter and year ended July 31, 2004. Corporate Overview As previously announced, Del Global completed the sale of its High Voltage Power business, a part of its Power Conversion Group, on October 1, 2004 as part of the Company's previously announced strategic alternatives review. Accordingly, this business is presented as a discontinued operation for the fiscal 2004 and 2003 periods. Also as previously announced, the Company entered into non-binding letters of intent for the sale of both the Medical Systems Group and the remainder of its Power Conversion Group business segments. The Company intends to call a meeting of stockholders to seek approval under New York law for the sale of the Medical Systems Group Segment in the event a definitive agreement is entered into for such sale. There can be no assurance that these non-binding letters of intent will result in the consummation of the sale of these segments or that the strategic alternatives process initiated by the Company will lead to any other transactions. The Company may seek stockholder approval of a plan of liquidation; however, the Board of Directors of the Company has not yet approved any plan of liquidation. Any proceeds that may be received by stockholders of the Company as a result of any plan of liquidation may be greater or less than the current market price of Del Global's common stock. Fiscal 2004 Fourth Quarter and Year End Results Consolidated net sales for fiscal 2004 increased 22.9% to $83.8 million from $68.2 million last year. Consolidated net sales in the fourth quarter of fiscal 2004 rose 3.2% to $19.4 million from $18.8 million in the comparable period of the prior year. Sales at the Medical Systems Group rose 26.2% to $70.8 million during fiscal 2004 from $56.1 million last year, due primarily to higher international sales, which offset a decline in domestic sales, as well as favorable foreign currency exchange effects of approximately $1.4 million. Medical Systems Group sales during the fourth quarter of fiscal 2004 increased 3.3 % to $15.8 million from $15.3 million in the same period last year. Fiscal 2004 sales at the Power Conversion Group improved by 8% to $13.1 million; sales last year were lower due to the impact of the Department of Defense investigation. Fiscal 2004 fourth quarter sales at the Power Conversion Group increased 5.9% to $3.6 million from $3.4 million in the fourth quarter of fiscal 2003. Consolidated gross margin improved to 25.4% during fiscal 2004 from 23% in fiscal 2003, due to higher gross margin at both the Medical Systems Group and the Power Conversion Group. Consolidated gross margin improved to 30.9% during the fiscal 2004 fourth quarter from 23.2% in the same period last year. The Power Conversion Group's gross margin for fiscal 2004 was 30.2% versus 28.9% last year, due to improved procurement practices resulting in lower average material costs. Gross margin during the fourth quarter of fiscal 2004 improved to 47.0% from 41.7% in the fourth quarter of fiscal 2003 for the same reasons. The Medical Systems Group's fiscal 2004 gross margin was 24.5% compared to 21.7% in fiscal 2003, due to higher margins domestically as a result of cost control measures. These factors also produced gross margin at the Medical Systems Group of 27.2% during the fourth quarter of fiscal 2004 versus 19.1% in the fourth quarter of fiscal 2003. Selling, General and Administrative expenses during fiscal 2004 declined to 19.0% of sales from 26.2% of sales last year. SG&A also declined in the fiscal 2004 fourth quarter to 22.0% of sales from 24.1% of sales in the comparable prior year period. These decreases were the result of reduced corporate legal and accounting costs. Operating income for fiscal 2004 improved to $194,000 from an operating loss of $6.1 million last year; operating income for the fiscal 2004 fourth quarter improved to $840,000 from an operating loss of $538,000 in the same period one year ago. Operating income also includes unallocated corporate costs of $3.7 million in Fiscal 2004, compared to unallocated corporate costs of $5.7 million in Fiscal 2003. The Medical Systems Group posted operating income of $5.4 million in fiscal 2004 and $0.9 million in the fourth quarter of fiscal 2004, as compared to operating income of $1.0 million in fiscal 2003 and operating income of $0.3 million in the fourth quarter of fiscal 2003. This was offset by operating losses of $1.6 million and $1.3 million at the Power Conversion Group in fiscal 2004 and fiscal 2003, respectively, and operating income of $1.0 million and $0.7 million for the fiscal 2004 and fiscal 2003 fourth quarters, respectively. The Company achieved operating profitability for the fiscal 2004- year and fourth quarter despite the impact of litigation settlement expenses totaling $3.7 million for the full year. Of these charges, $3.2 million related to the previously announced settlement with the U.S. Government regarding the investigation of the Company's RFI subsidiary (recorded in the second quarter of fiscal 2004), while $500,000 was expensed in connection with the modification to the warrants and related legal and professional fees incurred with the previously announced class action settlement (recorded in the fiscal 2004 fourth quarter). The loss from continuing operations for fiscal 2004 was $10.7 million, versus a loss from continuing operations of $15.2 million last year. Income from continuing operations for the fiscal 2004 fourth quarter was $335,000, versus a loss from continuing operations of $4.0 million in the same period last year. Results from continuing operations included the litigation settlement costs, as well as the previously announced $9.8 million deferred tax valuation allowance, which is included in provision for income taxes. Del Global also established a $7.9 million valuation allowance in the fiscal 2003 provision for income taxes. The loss from discontinued operations for fiscal 2004 was $5.1 million, versus income from discontinued operations of $128,000 last year. The loss from discontinued operations for the fourth quarter of fiscal 2004 was $2.9 million, versus a loss from discontinued operations of $238,000 in the same period last year. The loss from discontinued operations for the fiscal 2004 periods are related to the sale of the Del High Voltage division and included a $4.9 million write down of assets to net realizable value. Reflecting the above, Del Global reported a net loss of $15.8 million, for fiscal 2004 versus a net loss of $15.0 million last year. The net loss for the fiscal 2004 fourth quarter was $2.6 million, or $.25 per share, versus a net loss of $4.3 million, or $.41 per share, in the fourth quarter of fiscal 2003. The net loss for the fiscal 2003 fourth quarter includes a $3.2 million deferred tax valuation allowance, as discussed above. Litigation Settlement Update During the first quarter of fiscal 2005, Del Global paid the US Government $5.0 million pursuant to the terms of the previously announced RFI settlement. This settlement, as previously announced, also included the Company pleading guilty to one criminal count and remains subject to court approval. Backlog Consolidated backlog for continuing operations at July 31, 2004 was $25.9 million versus backlog at August 2, 2003 of approximately $16.3 million. Backlog in the Power Conversion Group at July 31, 2004 of $7.7 million was comparable to backlog at August 2, 2003. Backlog in the Medical Systems Group at July 31, 2004 was $18.2 million versus backlog at August 2, 2003 of approximately $8.6 million with increases at both operating units. Substantially all of the backlog should result in shipments within the next 12 months. Financial Condition Del Global's balance sheet at July 31, 2004 reflected working capital of $7.8 million (of which $4.8 million was cash and cash equivalents), shareholders' equity of $7.8 million and a stated book value of $0.75 per share. As of July 31, 2004, the Company had approximately $5.8 million of excess borrowing capacity under its domestic revolving line of credit. About the Company Del Global Technologies Corp. is primarily engaged in the design, manufacture and marketing of cost-effective medical imaging and diagnostic systems consisting of stationary and portable x-ray systems, radiographic/fluoroscopic systems, dental imaging systems and proprietary high-voltage power conversion subsystems for medical and other critical industrial applications. Through its RFI subsidiary, Del Global manufactures electronic filters, high voltage capacitors, pulse modulators, transformers and reactors, and a variety of other products designed for industrial, medical, military and other commercial applications. DII/KBR: Has Until December 31 to Remove State Court Actions ------------------------------------------------------------ The U.S. Bankruptcy Court for the Western District of Pennsylvania extended the period within which DII Industries, LLC, and its debtor-affiliates may file notices of removal with respect to prepetition actions through and including December 31, 2004, without prejudice to their rights to seek further extensions of the removal deadline for cause shown. Headquartered in Houston, Texas, DII Industries, LLC, is the direct or indirect parent of BPM Minerals, LLC, Kellogg Brown & Root, Inc., Mid-Valley, Inc., KBR Technical Services, Inc., Kellogg Brown & Root Engineering Corporation, Kellogg Brown & Root International, Inc., (Delaware), and Kellogg Brown & Root International, Inc., (Panama). KBR and its subsidiaries provide a wide range of services to energy and industrial customers and government entities in over 100 countries. DII has no business operations. DII and its debtor-affiliates filed a prepackaged chapter 11 petition on December 16, 2003 (Bankr. W.D. Pa. Case No. 02-12152). Jeffrey N. Rich, Esq., Michael G. Zanic, Esq., and Eric T. Moser, Esq., at Kirkpatrick & Lockhart LLP, represent the Debtors in their restructuring efforts. On June 30, 2004, the Debtors listed $6.255 billion in total assets and $5.295 billion in total liabilities. (DII & KBR Bankruptcy News, Issue No. 21; Bankruptcy Creditors' Service, Inc., 215/945-7000) DIMON INC: Lenders Agree to Waive Sr. Note Indenture Cross-Default ------------------------------------------------------------------ DIMON Incorporated (NYSE: DMN) has obtained the requisite majority of consents from the holders of each of its $200 million 9-5/8% Senior Notes due 2011 and its $125 million 7-3/4 % Senior Notes due 2013 and successfully completed the Company's previously announced consent solicitation. The consent solicitation expired at 5:00 p.m., New York City time, on Friday, October 29, 2004. The Company has also obtained a wavier from the requisite majority of lender banks under its $150 million syndicated credit facility of the cross defaults thereunder caused by the defaults under the Senior Notes indentures. In addition, the Company has obtained waivers of cross defaults under its operating credit lines that contained cross default provisions. The Company anticipated that the execution of the Supplemental Indentures relating to the consent solicitation and the payment of the consent payments to the Information Agent to occur on Nov. 1, 2004. For a complete statement of the terms and conditions of the consent solicitation and of the proposed waivers and amendments to the indentures, holders of the Notes should refer to the Consent Solicitation Statement dated October 11, 2004, as supplemented by the Supplemental Solicitation Statement dated October 27, 2004. The Solicitation Agent is Wachovia Securities. Questions from Note holders regarding the consent solicitation may be directed to Wachovia Securities, Liability Management Group, at 704-715-8341 or toll-free at 866-309-6316. D.F. King & Co., Inc. is serving as Information Agent in connection with the consent solicitation. Requests or questions of the Information Agent should be directed to the Information Agent at D.F. King & Co., Inc., 48 Wall Street, 22nd Floor, New York, New York 10005, Telephone: 212-269-5550. DIMON Incorporated is the world's second largest dealer of leaf tobacco with operations in more than 30 countries. For more information on DIMON, visit the Company's website at http://www.dimon.com/ * * * As reported in the Troubled Company Reporter on Oct. 15, 2004, Moody's Investors Service downgraded the ratings of the senior unsecured bonds and the bank credit facility of DIMON Incorporated to B1 from Ba3 and kept them under review for possible downgrade. A review of the ratings for possible downgrade was initiated on June 22, 2004. The downgrade reflects: (i) an increased competitive environment in the leaf trading industry, (ii) current disruptions in sourcing, and (iii) Moody's expectation that DIMON's ability to reduce its leverage over the medium term will be limited. Continuing review for possible downgrade of the ratings reflects the technical default under the indentures announced by the company on October 11, 2004. If a waiver of this technical default is obtained, Moody's is likely to confirm the ratings and assign a stable outlook. Rating downgraded and kept under review for possible downgrade: * Issuer rating, to B2 from B1 * Senior implied rating, to B1 from Ba3 * Bank credit facility, to B1 from Ba3 * $200 million senior notes due 2011, to B1 from Ba3 * $125 million senior notes due 2013, to B1 from Ba3 The downgrade is triggered by: -- Increased margin pressure from cigarette companies, as a result of their own necessity to reduce costs. While DIMON's customer base is fairly diversified, the leaf trading industry suffers from overcapacity in several areas of the world, increasing the bargaining power of the cigarette companies. Moody's expects that this pressure will make it more difficult for the company to stabilize its operating margins. This pressure is exacerbated by a consumer demand for cigarettes that is at best increasing at 1% of the average worldwide, due to demographic growth being largely offset by declining per-capita consumption rates. -- Difficulties in securing a steady flow of supplies. DIMON has recently become vulnerable to a global shift in leaf sourcing. Political difficulties in Zimbabwe have led to drastic cuts in shipments out of this country. While DIMON is well-positioned in Brazil, which is an alternative source to Zimbabwe, changing market dynamics there have created a more difficult environment for company as tobacco farmers have postponed deliveries and tried to extract a higher price from leaf dealers, and new entrants are now competing to purchase a portion of the crop. Nonetheless, while softness in volumes and sourcing disruptions have led DIMON to a last-twelve-months retained cash flow minus capital expenditures (after working capital) of $(19) million in the first quarter of fiscal year 2005, Moody's expects a significant improvement in revenue in the next two quarters, as shipments of a very large South American crop continue. -- Continuing high leverage. At the end of the first quarter of fiscal year 2005, the debt to EBIT ratio reached 10.95, concurrent with a 36% year-to-year increase in inventories, to $664 million. Moody's expects that these metrics largely reflect timing issues and will significantly improve in the coming two quarters, once procured tobacco is shipped and after processing is sold to clients, who have committed to make these purchases (as is normal practice in the industry). Nonetheless, Moody's also expects that after stabilization of earnings and cash flow, DIMON's retained cash flow (before working capital) to debt is likely to remain in the single digits, reflective of a B1 credit for this industry. The ratings reflect: (i) the company's strong position in the leaf trading industry, (ii) conservativeness of its procurement policy, and (iii) solidity of its relationship with its clients. They also reflect: (i) the strong bargaining power of these clients, which induces margin pressure, (ii) the volatility of crop supplies, (iii) minimal worldwide demand growth for tobacco, and (iv) the company's high leverage. DIMON has an approximate 35% market share in the worldwide leaf trading industry, a diversified client base and diversified sourcing (covering all tobacco-growing areas of the world). Ratings remain under review as a result of a technical default under the company's indentures and revolving credit. On October 11, 2004, DIMON sought consent of waiver of previous defaults under the limitation on restricted payments covenant under the indentures arising from or related to the payment of dividends to holders of the company's common stock, and investments in a majority-owned subsidiary. It also sought an amendment of certain provisions of the indentures to confirm the company's ability to make dividend payments to holders of its common stock in an amount not to exceed $14.1 million in any 12 month period and to allow the company to make up to $2 million of investments in subsidiaries through December 31, 2005, each case without regard to a consolidated interest coverage ratio tests. The company is also seeking a waiver of the cross-default clause under the revolving credit agreement. Dividend payments have been made since December 2003 in violation of the indentures as a result of an apparent misunderstanding by company's management of the restrictions under the indentures. Moody's expects that the company stands a strong chance of obtaining the waiver and amendment from bond holders and from the bank group, in view of the company's reasonable prospects of an improvement in its cash flow over performance in the first three quarters of the fiscal year 2005, and its reaffirmation of the earnings guidance in the upper range of the one it has previously given to investors. Should the company obtain the necessary waivers and amendment by the deadline it has set to bondholders and the banks of October 22, 2004, Moody's is likely to confirm the ratings and assign a stable outlook. If the company did not succeed in obtaining the waivers, the ratings could be downgraded by several notches and remain under review for possible downgrade, while the company would likely be looking for alternative solutions. ENRON CORP: Wants Court Nod on El Paso Swap Settlement Agreement ---------------------------------------------------------------- El Paso Merchant Energy, LP, an affiliate of El Paso Corporation, and Mesquite Investors, LLC, are parties to two Swap Agreements: -- ISDA Master Agreement, Schedule (East Coast Power) and Confirmation (Swap-East Coast Power), dated February 23, 2001; -- ISDA Master Agreement, Schedule (Trutta) and Confirmation (Swap-Trutta), dated February 23, 2001. Pursuant to guaranties dated February 23, 2001, El Paso guaranteed El Paso Merchant's obligations under both the East Coast Power Swap Agreement and under the Trutta Swap Agreement. On February 23, 2001, Mesquite assigned to East Coast Power Holding Company, LLC, and East Coast Power assumed, all of Mesquite's rights and obligations under the East Coast Power Swap. According to Martin A. Sosland, Esq., at Weil Gotshal & Manges LLP, in New York, East Coast Power is a wholly owned subsidiary of non-debtor Joint Energy Development Investments II Limited Partnership. Joint Energy II's general partner is Enron Capital Management II Limited Partnership, an indirect wholly owned subsidiary of ENA. JEDI II's two limited partners are Enron Capital Management III Limited Partnership, an indirect, wholly owned subsidiary of Enron North America Corp., and the California Public Employees' Retirement System, a unit of the State & Consumer Services Agency of the State of California. Through its limited partnerships, ENA holds a 50% interest in JEDI II. CalPERS holds the remaining 50% interest. Mesquite also assigned to ECTMI Trutta Holdings, LP, and Trutta assumed, all of Mesquite's rights and obligations under the Trutta Swap. Trutta is a Delaware limited partnership and a non- debtor. Brook I LLC, an indirect wholly owned subsidiary of ENA, is the general partner of Trutta. The remaining interests of Trutta are owned directly by ECT Merchant Investments Corp. and indirectly by Whitewing Associates LP, also a non-debtor. The sole member of Brook I is ECTMI. East Coast Power and Trutta received the Swap Agreements as consideration for their interests in East Coast Power, LLC, Mr. Sosland relates. Prior to the Petition Date, the Debtors valued the Swap Agreements as a derivative of El Paso unsecured debt with an added discount to reflect certain restrictions contained in the Swap Agreements. As El Paso's yields began to fluctuate due to macro economic events in the energy industry, the Debtors' valuation of the Swap Agreements fluctuated accordingly. The Proposed Settlement To shorten the average life of the obligations under the Swap Agreements and to simplify the relationships between the parties, East Coast Power and Trutta want to restructure the Swap Agreements. Beginning in 2002, El Paso, Trutta and East Coast Power began to explore a potential exchange of the Swap Agreements for replacement debt. After extensive and substantial arm's-length negotiations, the Parties entered into a Swap Settlement Agreement on August 16, 2004. Debtors ENA and ECTMI ask the Court to approve their consent to the Settlement. The principal terms of the Settlement Agreement are: A. Notes El Paso will, concurrent with the execution and delivery of the Settlement Agreement, execute and deliver to: -- East Coast Power, a $117,524,163 promissory note; and -- Trutta, a $95,828,992 promissory note. B. Termination of Swaps and Guaranties The East Coast Power Swap Agreement, the Trutta Swap Agreement, the East Coast Power Guaranty and the Trutta Guaranty are terminated in their entirety and are of no further force or effect. C. Mutual Release Each Party will fully release, acquit, and forever discharge each of the other Parties of and from any and all claims, actions, causes of action, liabilities, contracts, costs and losses arising out of or related to the Swap Agreements; provided that they will not release any Party from obligations under the Settlement Agreement. D. Sale or Transfer of the Notes If either Enron Party desires to sell or transfer either of the Notes or any interest therein, that Enron Party will notify El Paso of the proposed Transfer, including the identity of the proposed transferee and the nature of the transaction. Prior to the Transfer, the Enron Party will deliver to El Paso, at that Enron Party's sole expense the evidence as El Paso may reasonably request in order to evaluate the Transfer's compliance with any applicable securities laws. Solely in connection with a Transfer of the East Coast Power Note, upon request of East Coast Power, El Paso will issue two new notes in an aggregate principal amount equal to the principal amount of the original East Coast Power Note. One of the new notes will be issued to CalPERS with any remaining balance issued to East Coast Power. A full-text copy of the Swap Settlement Agreement is available for free at: http://www.sec.gov/Archives/edgar/data/1024401/000095012904007877/h19235exv10w1.txt Mr. Sosland explains that the replacement debt that Trutta and East Coast Power will receive under the Settlement Agreement are one-year bullet maturities that mature on August 15, 2005, and pay quarterly interest at a preset rate equivalent to the valuation bond yield. The Notes are sized in exact relative proportion to the existing Swap Agreements and the covenants contained in the Notes mirror the vast majority of the covenants in El Paso's May 10, 1999 indenture that governs all of El Paso's senior unsecured debt. The only missing covenant in the Notes, Mr. Sosland points out, is the requirement to file financial statements, which has been omitted as El Paso executed waivers of the covenant and does not desire to further extend the waiver requirement given the recent extension of their filing date for their 2003 10-K until September 30, 2004. By shortening the average life of the obligations and also reducing the uncertainty inherent in holding the obligations over time, entering into the Settlement Agreement benefits East Coast Power and Trutta, Mr. Sosland contends. The Debtors believe that the settlement set forth in the Settlement Agreement represents a favorable resolution of the Swap Agreements and must be approved. 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. (Enron Bankruptcy News, Issue No. 128; Bankruptcy Creditors' Service, Inc., 15/945-7000) FEDDERS CORP: Reports Third Quarter 2004 Financial Results ---------------------------------------------------------- Fedders Corporation (NYSE: FJC), a global manufacturer of air treatment products, including air conditioners, air cleaners, dehumidifiers and humidifiers, and thermal technology products, reported sales of $69.2 million for the third quarter of fiscal year 2004 compared to $78.7 million in the prior fiscal year period. The decline in sales was the result of adverse weather conditions in key North America markets that depressed demand for room air conditioners. For the third quarter, sales in the HVACR reporting segment were $59.6 million compared to $70.4 million in the prior-year period. Much cooler than normal weather conditions in North America resulted in a very poor retail sales environment which not only prevented in-season sales re-orders, but also resulted in significant customer returns. Partially offsetting the lack of in- season sales of room air conditioners in North America was continued growth in sales of residential central air conditioning products globally and sales of all air conditioning products in Asia. Sales in the Engineered Products reporting segment also grew during the third quarter to $9.6 million, an increase from sales of $8.3 million in the prior-year period. The sales growth was due to improving market conditions for industrial air cleaners in both Asia and North America. For the third quarter, consolidated gross profit declined to $7.6 million or 11.0% of sales, compared to $15.5 million or 19.6% of sales in the prior- year period. Gross profit was adversely affected by higher component and raw material costs and unabsorbed manufacturing costs associated with the transfer of production from several US factories to China. Price increases have been announced to offset the increased materials costs. The operating loss for the third quarter was $10.4 million, compared to a loss of $0.8 million in the prior-year period. Selling, general and administrative expenses increased during the quarter to $18.0 million compared to $16.3 million in the prior- year period due to higher selling expenses as a result of increased sales activity globally and higher warehousing costs to support higher inventory levels, and severance costs. The net loss for the quarter was $9.7 million compared to a net loss of $3.7 million in the prior-year quarter. Net loss applicable to common stockholders was $10.7 million, or 35 cents diluted loss per share, compared to net loss applicable to common stockholders of $4.0 million in the prior-year quarter, or 13 cents diluted loss per share. For the nine months ended September 30, 2004, sales were $366.6 million compared to sales of $388.8 million in the prior-year period. Sales in the HVACR segment declined to $335.5 million compared to $363.9 million in the prior year due to the cold summer in North America, which depressed sales of room air conditioners. Growth in sales of central air conditioners globally and sales of all air conditioning products in Asia helped to offset the decline in sales. Based on a sales agreement the Company entered into with a significant customer for the 2005 season that includes a provision for the temporary return of the customer's unsold inventory of room air conditioners shipped in 2004, with subsequent re-sale of the product to the customer in 2005, the company determined that it will re-state prior quarter sales to reflect end of season returns from its customers. Although the agreement was made in the third quarter, and the products had been purchased and paid for, the company believes that the appropriate accounting treatment is to reflect the sales impact in a prior quarter rather than the third quarter. As a result, the company will amend its previously filed Form 10-Q to reduce sales by $17.9 million. The adjustments between the fiscal 2004 quarters are subject to review by the company's independent auditors. Any adjustments will not impact year-to-date results. Sales in the Engineered Products segment increased to $31.1 million from $24.9 million in the prior year due to growth in sales of industrial air cleaners globally. For the nine months, consolidated gross profit was $58.2 million compared to $87.5 million in the prior year. The net loss for the period was $12.6 million compared to net income of $16.8 million. Net loss applicable to common stockholders was $15.6 million or 51 cents per share compared to net income applicable to common stockholders of $16.2 million or 54 cents per share. * * * As reported in the Troubled Company Reporter on Oct. 13, 2004, Standard & Poor's Ratings Services lowered its ratings on air treatment products manufacturer Fedders Corp. and Fedders North America Inc., including its corporate credit ratings to 'CCC+' from 'B'. The outlook is negative. The Liberty Corner, New Jersey-based company's total debt outstanding at June 30, 2004, was about $197 million. "The downgrade and negative outlook reflect the significant erosion in Fedders' profitability, cash flows and credit protection measures," said Standard & Poor's credit analyst Jean Stout. Fedders' EBITDA for the first half of 2004 declined 45%, despite a 2% rise in sales. Moreover, the company's inventory levels grew 35% over the same period in 2003. This increase is due to not only the cooler than normal weather conditions in North America during the spring and summer seasons but also is a result of a build-up of inventory to support the company's expansion of central air conditioner sales and other products (specific for the Asian markets). Standard & Poor's is very concerned about the company's ability to reverse these negative operating trends and strengthen its financial profile in the near term, given the seasonality of its business. (Fedders typically reports a loss during the second half of the calendar year, as a majority of shipments and revenue is historically derived during the first six months of the calendar year.) As a result, Standard & Poor's is also concerned that Fedders liquidity will become constrained in the near term. FOSTER WHEELR: Calculates Exercisable Shares Following Debt Offer ----------------------------------------------------------------- Foster Wheeler Ltd. (OTCBB: FWLRF) announced that, following the expiration of the subsequent offering period in its recently completed equity-for-debt exchange offer, it has calculated the number of shares for which each Class A Warrant and each Class B Warrant issued in connection with the exchange offer will be exercisable. Both the Class A Warrants and the Class B Warrants allow the holders to purchase either: (i) the company's Common Shares if the approval of a certain increase in the authorized Common Shares is obtained at the shareholder's meeting scheduled to be held on November 29, 2004, or (ii) the company's Series B Convertible Preferred Shares if the approval of the increase in the authorized Common Shares is not obtained at the shareholder's meeting scheduled to be held on November 29, 2004. Each Class A Warrant and each Class B Warrant becomes exercisable on September 24, 2005, at an exercise price of $0.4689 per Common Share issuable (or $609.57 per Preferred Share issuable). The Class A Warrants expire at 5:00 p.m. on September 24, 2009, and the Class B Warrants expire at 5:00 p.m. on September 24, 2007. Each Class A Warrant will become exercisable for 33.6827 Common Shares, and each Class B Warrant will become exercisable for 1.4457 Common Shares, in each case as described above and subject to adjustment from time to time for certain dilutive events as described in the warrant agreement governing the warrants. In the event that the approval of the increase in the authorized Common Shares is not obtained at the shareholder's meeting scheduled to be held on November 29, 2004, each Class A Warrant will become exercisable for approximately 0.0259 Preferred Shares, and each Class B Warrant will become exercisable for approximately 0.0011 Preferred Shares. There were 4,152,914 Class A warrants issued and 40,771,560 Class B warrants distributed in connection with the equity-for debt exchange offer. 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. The Company's pro-forma financial statements contained in the Prospectus detailing its recent successful equity-for-debt exchange projects a $400 million reduction in total debt and a concomitant increase in shareholder equity. FRESH CHOICE: Hires United Commercial as Real Estate Broker ----------------------------------------------------------- Fresh Choice, Inc., sought and obtained permission from the U.S. Bankruptcy Court for the Northern District of California, San Jose Division, to retain United Commercial Retail Services, Inc., as its real estate broker. David E. Pertl, Executive Vice President and Chief Financial Officer of Fresh Choice, submits that the Debtor needs to engage the Broker to sell two buildings located in Texas. Proceeds from the proposed sale will be used to fund its operations and to repay some creditors' claims. The Debtor agrees to pay United Commercial a 6% sales commission based on the total sales price of each building upon completion of the sale. The Court is assured by Jack Gosnell of United Commercial's "disinterestedness" as that term is defined in Section 101(14) of the Bankruptcy Code. Headquartered in Morgan Hill, California, Fresh Choice -- http://www.freshchoice.com/-- owns and operates a chain of 46 salad bar eateries, mostly located in California. The company filed for chapter 11 protection on July 12, 2004 (Bankr. N.D. Calif. Case No. 04-54318). Debra I. Grassgreen, Esq., at Pachulski, Stang, Ziehl, Young, Jones & Weintraub represents the Debtor in its restructuring efforts. Lawyers at SulmeyerKupetz represent an official creditors' committee. When the Debtor filed for protection it listed $29,651,000 in total assets and $14,348,000 in total debts. At Sept. 5, 2004, Fresh Choice's balance sheet showed $23.7 million in assets and $21.1 million in liabilities. FRIENDLY ICE CREAM: Weak Sales Prompt S&P's Negative Outlook ------------------------------------------------------------ Standard & Poor's Ratings Services revised its outlook on Friendly Ice Cream Corp. to negative from positive due to two consecutive quarters of weaker-than-anticipated comparable sales results. Ratings on the company, including the 'B' corporate credit rating, were affirmed. Friendly experienced weak performance for both the second and third quarters of 2004, with back-to-back quarters of negative comparable-store sales. This measure fell 3% in the second quarter of 2004, the first quarterly decline since the fourth quarter of 2000, and was down 1.7% in third-quarter 2004. "Weak performance was due to reduced traffic in company restaurants, especially visits in the late-night segment," noted Standard & Poor's credit analyst Kristi Broderick. "Operating profit was also negatively affected in recent quarters as higher commodity costs for cream, raw milk, and vanilla had an unfavorable impact on cost of sales. In addition, operating expenses related to marketing, insurance costs, and professional fees increased." Lease-adjusted operating margins for the 12 months ended September 26, 2004 decreased to 11.0%, from 12.7% for the year ended December 2003 and 13.2% for the year ended December 2002. Wilbraham, Massachusetts-based Friendly commands a good position in the markets in which it operates, but has a relatively small 6.8% market share in the overall family dining sector of the highly competitive restaurant industry. The company also competes with a broad array of restaurants in other menu segments. The company is regionally concentrated, with about 90% of company- owned restaurants located in the Northeastern U.S. Moreover, due to the seasonality of ice cream consumption, Friendly is subject to the effect of weather during its peak summer selling season. G&L REALTY: Distributes $9.03 Million Dividend to Stockholders -------------------------------------------------------------- G&L Realty Corp. (NYSE: GLRPRA and GLRPRB) has spun-off all of its skilled nursing facility and assisted living facility assets to its common stockholders of record on Nov. 1, 2004. In total, skilled nursing and assisted living assets having a net equity of $9.03 million, derived from current independent property appraisals less the existing property debt, have been distributed as a dividend to these stockholders. The company will be filing a report on Form 8-K describing the transaction and including certain pro-forma financial information. The skilled nursing assets are now held by a recently formed limited liability company, G&L Senior Care Properties, LLC. G&L Realty does not intend to acquire in the future skilled nursing facility or assisted living facilities, and instead intends to focus on the development, ownership, and operation of medical office buildings. G&L Senior Care Properties, LLC is owned and managed primarily by Daniel Gottlieb and Steven Lebowitz, who are also the CEO and President, respectively, of G&L Realty. Due to the substantial management overlap between G&L Realty and G&L Senior Care Properties, LLC, the two companies have entered into a cost sharing agreement to allocate between them each year the general and administrative costs of the two companies. Management estimates that, at the current time, the skilled nursing facility and the assisted care living facility assets now owned by G&L Senior Care Properties, LLC, account for approximately 65% of the general and administrative costs of the two companies. G&L Realty has retained two promissory notes issued by G&L Senior Care Properties, LLC, a short term promissory note in the amount of $2 million and a long term promissory note in the amount of $4 million, each bearing interest at the rate of 10.75% per annum, and will for some time continue to be a creditor of G&L Senior Care Properties, LLC. The short-term promissory note has a term of six months, interest only payable monthly, and is unsecured. The long term promissory note has a term of 12 years, provides for flat monthly payments of interest and principal on a 25 year amortization basis, with a balloon payment of $3.32 million at the end of the term, and is secured by the interests of G&L Senior Care Properties, LLC in the various special purpose entities through which it holds its interest in its skilled nursing facility and assisted care living facility assets. G&L Realty will also continue to be contingently liable on certain guarantees previously issued by it to GMAC Commercial Mortgage Corporation in connection with the acquisition of financing for certain of its senior care assets. It is anticipated, however, that these guarantees will be released before the end of the year. These guarantees cover loans aggregating approximately $21 million. About the Company Founded in 1976, G&L Realty Corp. is a growth-oriented health care real estate investment trust currently specializing in the development, ownership, leasing and management of medical office buildings and the development, ownership and leasing of assisted living facilities and skilled nursing facilities. At June 30, 2004, G&L Realty's balance sheet showed a $16,246,000 stockholders' deficit, compared to a $14,293,000 deficit at Dec. 31, 2003. GAVILAN PARTNERS LLP: Voluntary Chapter 11 Case Summary ------------------------------------------------------- Debtor: Gavilan Partners, LLP 1832 Woods Road Atmore, Alabama 36502 Bankruptcy Case No.: 04-90671 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- Viking Industries, Inc. 04-49620 Type of Business: The Debtor is a real estate company. Chapter 11 Petition Date: November 1, 2004 Court: Northern District of Texas (Ft. Worth) Judge: Barbara J. Houser Debtor's Counsel: Behrooz P. Vida, Esq. Venable & Vida, LLP 3000 Central Drive Bedford, Texas 76021 Tel: (817) 358-9977 Fax: (817) 358-9988 Estimated Assets: $1 Million to $10 Million Estimated Debts: $500,000 to $1 Million The Debtor did not file a list of its 20 Largest Unsecured Creditors. GENOIL: Trades on OTC Bulletin Board After SEC Approval Obtained ---------------------------------------------------------------- Genoil is now trading on the OTC Bulletin Board in New York City after having obtained approvals from the SEC. As previously announces this has been a major goal of Genoil's Chairman, David Lifschultz, as he resides in New York. This will increase the company's exposure in the largest capital market in the world and should provide more liquidity and trading for Genoil shareholders in the United States. Genoil is a technology development company providing solutions to the oil and gas industry through the use of proprietary technologies. Genoil's shares are listed on the TSX Venture Exchange under the symbol GNO and on the OTC Bulletin Board under the symbol GNOLF. About the Company Genoil is a technology development company providing solutions to the oil and gas industry through the use of proprietary technologies. Genoil's shares are listed on the TSX Venture Exchange under the symbol GNO. The proposed issue of shares remains subject to Genoil receiving regulatory approval from the TSXV. * * * Going Concern Doubt The Corporation has not achieved commercial operations from its various patents and technology rights and continues to incur losses. At March 31, 2004, the Company has a working capital deficiency of $3,044,177, including a note payable due in January 2005. The future of the Corporation is dependent upon its ability to maintain the continued financial support of the note holder, and obtain additional financing to fund the development of commercial operations. These consolidated financial statements are prepared on the basis that the Corporation will continue to operate throughout the next fiscal period to March 31, 2005 as a going concern. A failure to continue as a going concern would then require that stated amounts of assets and liabilities be reflected on a liquidation basis, which would differ from the going concern basis. GEO SPECIALTY: Files Plan of Reorganization in New Jersey --------------------------------------------------------- GEO Specialty Chemicals, Inc., a diversified manufacturer of specialty and electronic chemicals, has filed its Plan of Reorganization and Disclosure Statement with the United States Bankruptcy Court for the District of New Jersey. The Plan reflects an agreement as to the principal terms of a consensual reorganization reached among the company, its senior secured lenders and the official committee of unsecured creditors. "The filing of our reorganization plan represents a key event in our objective to emerge from Chapter 11 by year-end," said George Ahearn, President and Chief Executive Officer. "We believe that the Plan provides the framework that will allow GEO to emerge as a stronger, more competitive company. We especially want to thank our customers, vendors, employees and lenders for their support throughout this process. The fact that GEO has been able to achieve this in just over seven months from our initial filing attests to the resiliency of the company, its employees, and to its solid base of diversified businesses." Under the company's proposed Plan, which is subject to creditor approval, confirmation by the Bankruptcy Court, and consummation of exit financing, GEO's balance sheet would be substantially de- levered. Key elements of the proposed Plan include: -- Repayment of the company's current bank debt with a new exit financing facility of up to $130M which will also be used to fund working capital and pay Plan obligations. -- Conversion of the Company's $120M 10-1/8% Senior Subordinated Notes to equity. The next step in the bankruptcy process is to obtain Court approval of the Disclosure Statement at a hearing to be scheduled by the Court. If the Disclosure Statement is approved by the Court, the Company will solicit votes on the Plan from those pre- petition Creditors who are entitled to vote on the Plan. The Company hopes to confirm the Plan by year-end. The Plan is subject to supplementation, modification and amendment prior to confirmation. Headquartered in Harrison, New Jersey, GEO Specialty Chemicals, Inc. -- http://www.geosc.com/-- develops, manufactures and markets a wide variety of specialty chemicals, including over 300 products sold to major industrial customers for various end-use applications including water treatment, wire and cable, industrial rubber, oil and gas production, coatings, construction, and electronics. The Company filed for chapter 11 protection on March 18, 2004 (Bankr. N.J. Case No. 04-19148). Alan Lepene, Esq., Robert Folland, Esq., and Sean A. Gordon, Esq., at Thompson Hine, LLP, and Brian L. Baker, Esq., Howard S. Greenberg, Esq., and Stephen Ravin, Esq., at Ravin Greenberg, PC, represent the Debtors in their restructuring efforts. On September 30, 2003, the Debtors listed $264,142,000 in total assets and $215,447,000 in total debts. GERDAU AMERISTEEL: Closes North Star Steel Acquisition ------------------------------------------------------ Gerdau Ameristeel Corporation's (TSX: GNA.TO, NYSE:GNA) U.S. operating subsidiary, Gerdau Ameristeel US Inc., has acquired from Cargill, Incorporated and certain of its subsidiaries the fixed assets and working capital of: -- four long steel product minimills in St. Paul, Minn.; Wilton, Iowa; Calvert City, Ky.; and Beaumont, Texas; -- three wire rod processing facilities in Beaumont, Texas; Carrollton, Texas; and Memphis, Tenn.; and a grinding ball facility in Duluth, Minnesota. The integration of these operations will provide Gerdau Ameristeel's customers with expanded geographical coverage and a broader range of products. Gerdau Ameristeel paid $266 million for the acquired assets and assumed approximately $12 million of debt and employee benefit obligations. Gerdau Ameristeel expects to pay an additional amount of approximately $30 million within the next 60 days as an adjustment to the purchase price reflecting higher working capital levels on the day of the closing. The four acquired minimills have an annual production capacity of approximately two million tons of long steel products, principally merchant bars, special quality bars, light structural shapes, reinforcing bar and wire rod. Customers include steel service centers, original equipment manufacturers and steel fabricators. The four downstream product manufacturing facilities have an annual production capacity of approximately 300,000 tons. The wire rod processing facilities produce reinforcing wire mesh, chain link fencing and industrial wire. The grinding ball facility produces grinding balls for crushing and processing of minerals in various mining industries. Phillip Casey, president and CEO of Gerdau Ameristeel, commented: "Within the steel industry, the trend toward consolidation continues, and Gerdau Ameristeel is actively participating with the acquisition of these attractive assets. This strategic expansion represents a 30 percent capacity increase in our core business with favorable additions to our geographical market coverage and product range. Near term, substantial management resources and focus will be directed at the integration of these assets to realize the anticipated synergies from economies of scale, increased steel production capacity, and cost savings." About the Company Gerdau Ameristeel is the second largest minimill steel producer in North America with annual manufacturing capacity of over 8.4 million tons of mill finished steel products. Through its vertically integrated network of 15 minimills (including one 50% owned minimill), 15 scrap recycling facilities and 36 downstream operations, Gerdau Ameristeel primarily serves customers in the eastern two thirds of North America. The company's products are generally sold to steel service centers, steel fabricators, or directly to original equipment manufacturers for use in a variety of industries, including construction, cellular and electrical transmission, automotive, mining and equipment manufacturing. The common shares of Gerdau Ameristeel are traded on the Toronto Stock Exchange under the symbol GNA.TO and on the NYSE under the symbol GNA. For additional financial and investor information, visit www.gerdauameristeel.com/ * * * As reported in the Troubled Company Reporter on Oct. 11, 2004, Moody's Investors Service placed the ratings of Gerdau Ameristeel Corporation under review for possible upgrade in response to much-improved steel market conditions and the company's announcement of a common share offering, which, if successful, will finance the acquisition of certain assets of North Star Steel from Cargill, Incorporated. Moody's review will likely continue until the conclusion of the later of the share offering and the North Star acquisition. The ratings were placed under review for possible upgrade: * US$405 million of 10.375% senior unsecured notes due 2011, currently B2, * senior implied rating -- B1, and * senior unsecured issuer rating -- B3. As reported in the Troubled Company Reporter on Oct. 08, 2004, Standard & Poor's Ratings Services raised its corporate credit rating on Gerdau Ameristeel Corp. to 'BB-' from 'B+'. In addition, Standard & Poor's raised its rating on Gerdau Ameristeel's $350 million senior secured revolving credit facility to 'BB' from 'BB-'. The bank loan rating is rated one notch higher than the corporate credit rating indicating a high expectation of full recovery of principal in the event of a default. Standard & Poor's also raised the company's senior unsecured debt rating to 'B+' from 'B'. The outlook is stable. GLACIER FUNDING: Moody's Puts Ba2 Rating on $4 Mil. Class D Notes ----------------------------------------------------------------- Moody's Investors Service assigned ratings to these classes of notes issued by Glacier Funding CDO II, Ltd.: * Aaa to: -- the U.S. $100,000 A-1 First Priority Voting Senior Secured Floating Rate Notes due November 2042, -- the U.S. $324,900,000 Class A-1 First Priority Non-Voting Senior Secured Floating Rate Notes due November 2042, and -- the U.S. $70,000,000 Class A-2 Second Priority Senior Secured Floating Rate Notes due November 2042; * Aa2 to the U.S. $65,750,000 Class B Third Priority Senior Secured Floating Rate Notes due November 2042; * Baa2 to the U.S. $20,250,000 Class C Fourth Priority Mezzanine Secured Floating Rate Notes due November 2042; and * Ba2 to the U.S. $4,000,000 Class D Fifth Priority Mezzanine Secured Floating Rate Notes due November 2042. Terwin Money Management LLC will serve as collateral manager of the transaction. According to Moody's, its ratings on the notes address the ultimate cash receipt of all required interest and principal payments, as provided by the notes' governing documents, and are based on the expected loss posed to noteholders relative to the promise of receiving the present value of such payments, the characteristics of the collateral pool and the transaction's legal structure. GLOBAL BUSINESS: Auditors Express Going Concern Doubt ----------------------------------------------------- Berkovits, Lago & Company, LLP, audited Global Business Services, Inc.'s consolidated financial statements for the fiscal year ended June 30, 2004, and expressed substantial doubt about the Company's ability to continue as a going concern based on Global Business' dependence on outside financing, lack of sufficient working capital, recurring losses from operations and the discontinuing of its operations. "There are significant uncertainties with regard to our ability to generate sufficient cash flows from operations or other sources to meet and fund our commitments with regard to existing liabilities and recurring expenses," the Company said in its latest Form 10-K filed with the Securities and Exchange Commission. "In fiscal 2003 management decided to discontinue the ownership of its unprofitable company owned stores, and successfully disposed of or closed these operations in fiscal 2004. Our ongoing franchise business is profitable and we will continue to fund its growth. The Company intends to finance future operations from the proceeds of additional funding through private and public securities offerings." At June 30, 2004, Global Business' balance sheet showed a $977,063 stockholders' deficit. Global Business Services, Inc., through its wholly owned subsidiary, Cyber Centers, Inc., and CCI's subsidiary, Postal Connections of America Franchise Corp., is the franchisor of retail stores that provide postal, shipping and other business services and supplies. As of June 30, 2004, PCA is the franchisor of 66 independently owned locations (six of which have not yet commenced operations) in 22 states and eight area franchises. GSR MORTGAGE: Fitch Assigns Low-B Ratings to Classes 2B4 & 2B5 -------------------------------------------------------------- Fitch rates GSR Mortgage Loan Trust series 2004-12 residential mortgage pass-through certificates as follows: * Group 1 certificates: -- $306.4 million classes 1A1, 1AX, 1A2, (group 1 senior certificates) 'AAA'; * Groups 2 and 3 certificates: -- $656.9 million classes 2A1, 2A2, 2A3, 2AX1, 2AX2, 2AX3, 3A1, through 3A6, and R (groups 2 and 3 senior certificates) 'AAA'; -- $12,673,000 class 2B1 'AA'; -- $6,507,000 class 2B2 'A'; -- $3,082,000 class 2B3 'BBB'; -- $2,055,000 class 2B4 'BB'; -- $1,370,000 class 2B5 'B'. The 'AAA' rating on the group 1 senior certificates reflects the 6% subordination provided by: * the 2.70% class 1B1, * the 1.10% class 1B2, * the 0.85% class 1B3, and * the 1.35% privately offered classes: -- 1B4, -- 1B5 and -- 1B6 certificates. The publicly offered classes 1B1, 1B2, 1B3, and the privately offered classes 1B4, 1B5, and 1B6 are not rated by Fitch. The 'AAA' rating on the groups 2 and 3 senior certificates reflects the 4.10% subordination provided by: * the 1.85% class 2B1, * the 0.95% class 2B2, * the 0.45% class 2B3, and * the 0.85% privately offered classes: -- 2B4, -- 2B5, and -- 2B6 certificates. The publicly offered classes 2B1, 2B2, 2B3, and the privately offered classes 2B4, 2B5, and 2B6 are rated 'AA,' 'A,' 'BBB,' 'BB,' and 'B,' based on their respective subordination. The ratings also reflect the quality of the underlying collateral, the strength of the legal and financial structures, and the servicing capabilities of Countrywide Home Loans Servicing LP, National City Mortgage Co., and Wells Fargo, which are rated 'RPS1,' 'RPS2-,' and 'RPS1,' respectively, by Fitch. The transaction is secured by three pools of mortgage loans. Loan group 1 respectively collateralizes the group 1 certificates. Loan groups 2 and 3 respectively collateralize the groups 2 and 3 certificates. The group 1 collateral consists of 886 recently originated, one- to four-family residential, short-term adjustable rate mortgage loans. After an initial fixed interest rate period of one or six months, the interest rate will adjust annually based on the sum of either the One-Month LIBOR or Six-Month LIBOR index and a gross margin specified in the applicable mortgage note. Approximately 85.20% of group 1 loans require interest-only payments for three or 10 years, with principal and interest payments beginning thereafter. As of the cut-off date, October 1, 2004, the group consists of an approximate balance of $325,922,829. The mortgage loans were originated by: * Countrywide Home Loans Inc. (80.18%), * Wells Fargo Bank, N.A. (13.78%), and * National City Mortgage (6.04%). The average unpaid principal balance of the group 1 mortgage loans is $367,859. Rate/Term and cashout refinances represent 42.12% and 9.34%, respectively. Second homes and investor-occupied properties comprise 5.76% and 0.29%, respectively. The states that represent the largest geographic concentration of mortgaged properties are: * California (44.86%), and * Florida (5.92%). All other states comprise fewer than 5% of properties in the pool. The group 2 collateral consists of 635 recently originated, one- to two-family residential, hybrid adjustable-rate mortgage loans. After an initial fixed interest rate period of three years, the interest rate will adjust annually based on the sum of either the One-Year LIBOR or the One-Year CMT index and a gross margin specified in the applicable mortgage note. Approximately 85.09% of group 2 loans require interest-only payments until the month following the first adjustment date. As of the cut-off date, the group consists of an approximate balance of $319,931,147. The mortgage loans were originated by: * Countrywide Home Loans Inc. (60.42%), and * National City Mortgage (39.58%). The average unpaid principal balance of the group 2 mortgage loans is $503,828. Rate/Term and cashout refinances represent 15.15% and 6.76%, respectively. Second homes comprise 8.83% and there are no investor-occupied properties. The states that represent the largest geographic concentration of mortgaged properties are: * California (52.24%), * Florida (7.73%), and * Virginia (6.69%). All other states comprise fewer than 5% of properties in the pool. The group 3 collateral consists of 726 recently originated, one- to two-family residential, hybrid adjustable-rate mortgage loans. After an initial fixed interest rate period of five years, the interest rate will adjust annually based on the sum of either the One-Year LIBOR or the One-Year CMT index and a gross margin specified in the applicable mortgage note. Approximately 78.84% of group 3 loans require interest-only payments until the month following the first adjustment date. As of the cut-off date, the group consists of an approximate balance of $365,032,936. The mortgage loans were originated by: * Wells Fargo (53.29%), * Countrywide Home Loans Inc. (26.38%), and * National City Mortgage (20.33%). The average unpaid principal balance of the group 3 mortgage loans is $502,800. Rate/Term and cashout refinances represent 22.53% and 5.87%, respectively. Second homes comprise 4.97% and there are no investor-occupied properties. The states that represent the largest geographic concentration of mortgaged properties are: * California (49.64%), and * Virginia (5.53%). All other states comprise fewer than 5% of properties in the pool. None of the mortgage loans are 'high cost' loans as defined under any local, state or federal laws. For additional information on Fitch's rating criteria regarding predatory lending legislation, please see the press release issued May 1, 2003 entitled 'Fitch Revises Rating Criteria in Wake of Predatory Lending Legislation.' GS Mortgage Securities Corp. deposited the loans in the trust, which issued the certificates, representing undivided and beneficial ownership in the trust. For federal income tax purposes, the trustee will cause one or more REMIC elections to be made for the trust. Wells Fargo Bank, N.A. will act as securities administrator and U.S. Bank, N.A will serve as the trustee. HAWK CORP: Closes New Five-Year $30 Million Loan from KeyBank ------------------------------------------------------------- Hawk Corporation (Amex: HWK) has completed two financing transactions to replace its existing debt instruments. In the first transaction, Hawk completed its previously disclosed private offering of $110 million 8-3/4% Senior Notes due 2014. The Notes represent senior unsecured obligations of Hawk and are guaranteed by Hawk's domestic subsidiaries. Interest is payable semi-annually and the Notes mature in November 2014. Concurrently with the completion of the Notes offering, Hawk closed a new five-year, senior secured credit facility with KeyBank National Association. The new bank facility has a maximum revolving credit commitment of $30 million. Hawk will use the initial borrowings under its new bank facility along with proceeds of the Notes to refinance all of its outstanding 12% Senior Notes due 2006, to repay loans under its previous bank facility and to pay fees and expenses related to these transactions. Hawk will use its new bank facility to finance its ongoing working capital requirements and for general corporate purposes. "We are pleased to have extended the maturity of our high yield bonds to ten years with a very attractive fixed interest rate and covenant terms," stated Joseph J. Levanduski, the Vice President - CFO of Hawk. "This, combined with our new bank facility, will provide Hawk with ample liquidity and flexibility to continue its long-term growth initiatives." About the Company Hawk Corporation is a leading worldwide supplier of highly engineered products. Its friction products group is a leading supplier of friction materials for brakes, clutches and transmissions used in airplanes, trucks, construction equipment, farm equipment and recreational and performance automotive vehicles. Through its precision components group, Hawk is a leading supplier of powder metal and metal injected molded components used in industrial, consumer and other applications, such as pumps, motors and transmissions, lawn and garden equipment, appliances, small hand tools, trucks and telecommunications equipment. Hawk's performance racing group manufactures clutches and gearboxes for motorsport applications and performance automotive markets. Headquartered in Cleveland, Ohio, Hawk has approximately 1,600 employees and 16 manufacturing, research and administrative sites in five countries at its continuing operations. * * * As reported in the Troubled Company Reporter on Oct. 15, 2004, Standard & Poor's Ratings Services raised its corporate credit rating on Cleveland, Ohio-based Hawk Corp. to 'B+' from 'B'. The outlook is stable. At the same time, Standard & Poor's assigned its 'B' rating to Hawk's proposed $100 million senior unsecured notes due 2014. The proceeds from the offering and the new unrated $30 million, five- year bank facility are being used to refinance the 12% senior unsecured notes due 2006 and repay the existing $53 million credit facility. Pro forma for the transaction, total debt (including the present value of operating leases) for the specialty components manufacturer is expected to be approximately $111 million. "The ratings upgrade is due to the company's improved financial flexibility and capital structure, partly resulting from the refinancing that extends debt maturities to 2009 and beyond," said Standard & Poor's credit analyst Heather Henyon. "In addition, the company continues to benefit from improved financial performance resulting from the recovery of some of Hawk's end- markets, particularly heavy-duty trucking and construction." HEALTHEAST: Moody's Reviewing Ba2 Bond Ratings & May Upgrade ------------------------------------------------------------ Moody's Investors Service placed the Ba2 rating assigned to HealthEast's long-term bonds on Watchlist for possible upgrade following receipt of unaudited financial statements for the fiscal year ending August 31, 2004 and initial discussions with management. This watchlist action affects approximately $212 million of total debt outstanding for: * the Series 1993, 1994, 1996 (issued by City of Maplewood, Minnesota), * 1997A and 1997B and 1998 (issued by Washington County Housing and Redevelopment Authority) bonds. The Watchlist is based on our favorable review of the unaudited fiscal 2004 financial results that demonstrate a third year of improving financial performance. Cash balances remain modest for this three-hospital system, and have not grown with the improved financial performance; however management has demonstrated its ability to operate over these last few years despite the system's modest liquidity reserves and we will be exploring further the potential for management to increase this important credit factor as we proceed with our review. Moody's expects to complete its review within the next 90 days following more detailed discussions with management and receipt of audited year-end results. HealthEast operates three acute care hospitals in downtown St. Paul, Maplewood and Woodbury (total staffed beds of 504), a 132-bed long-term acute care hospital, an outpatient diagnostic site and two outpatient surgery sites. The system also employs approximately 105 primary care physicians at 11 locations. HOLLINGER INC: Subsidiary Needs More Time to Complete Financials ---------------------------------------------------------------- Hollinger Inc. (TSX: HLG.C; HLG.PR.B) provides the following update in accordance with the guidelines pursuant to which the June 1, 2004 management and insider cease trade order was issued. These guidelines contemplate that Hollinger will normally provide bi-weekly updates on its affairs until such time as it is current with its filing obligations under applicable Canadian securities laws. Reference should be made to Status Update Reports and other press releases that have been previously filed by Hollinger and which are available on SEDAR at http://www.sedar.com/ Hollinger and Hollinger International Inc. continue to pursue, on a without prejudice basis, the conclusion of mutually acceptable arrangements to permit the audit of Hollinger's 2003 annual financial statements to begin as soon as possible. Hollinger's 2003 annual financial statements cannot be completed and audited until Hollinger International's 2003 annual financial statements are completed. Hollinger International has advised Hollinger that it and its auditors need additional time to review the final report of the investigation by the Special Committee established by Hollinger International, which report was released on August 30, 2004, and to assess its impact, if any, on the results of operations of Hollinger International before it can complete and file its 2003 annual financial statements. As a result of the delay in the completion and audit of its annual financial statements for the year ended December 31, 2003, Hollinger will not be in a position to file its third quarter interim financial statements (and related interim Management's Discussion & Analysis) for the nine month period ended Sept. 30, 2004 by the required filing date under applicable Canadian securities laws. In its status update of October 15, 2004, Hollinger International indicated that it expects to be able to complete its financial statements (and related MD&A) for its fiscal year ended Dec. 31, 2003 within several weeks, and shortly thereafter to complete its interim financial statements for the fiscal quarters ended March 31 and June 30, 2004. This is a necessary but not sufficient condition to permit Hollinger to complete and file its consolidated financial statements for the same periods as the completion and audit of Hollinger's financial statements will require a level of cooperation from Hollinger International and its auditors which is still in negotiation. As previously disclosed by Hollinger, in response to a motion filed by Hollinger International with the Delaware Chancery Court requesting that the Court extend the expiration date of its June 28, 2004 injunction against Conrad (Lord) Black and Hollinger from October 31, 2004, an agreement in principle had been reached by the parties to voluntarily extend the injunction to expire on the earlier of January 31, 2005 and the date of the completion of any Distribution. This agreement has been now been approved by the Corporate Review Committee of the Hollinger International Board of Directors and embodied in an Order of the Delaware Chancery Court issued on October 30, 2004. Hollinger International has previously announced that it is considering distributing to its stockholders a portion of the proceeds of the sale of the Telegraph Group, through a dividend, a self-tender offer or some other mechanism. The Extension Order provides that, except as required by statute, regulation or court order (other than an order sought or instigated by Hollinger International), Hollinger International will not take any action to encumber, attach, set off, hold back or in any other way, directly or indirectly, interfere with the amount of the Distribution payable to any of Hollinger Inc., 504468 N.B. Inc., a subsidiary of Hollinger which holds shares of Hollinger International, or Lord Black, nor take any other action that would prevent the amount of the Distribution otherwise payable to any of such parties from being paid into bank accounts designated by such persons. In addition, Hollinger International has agreed that the decision regarding the use or distribution of the Telegraph Group Proceeds will ultimately be determined by the full Board of Directors of Hollinger International, and not the CRC as originally proposed by Hollinger International. The Extension Order further provides that Hollinger International will negotiate in good faith a co-operation agreement with Hollinger, drafts of which have been exchanged among the parties, which agreement will facilitate the audit of Hollinger's 2003 annual financial statements. On October 29, 2004, representatives of Lord Black publicly disclosed that it was his intention to resign as a director and as Chairman and Chief Executive Officer of Hollinger, within a matter of days, in order to facilitate consideration of the proposed going private transaction involving Hollinger announced on October 28, 2004. As previously disclosed by Hollinger, Mr. Justice Colin L. Campbell of the Ontario Superior Court of Justice has appointed Ernst & Young Inc. as inspector pursuant to s. 229(1) of the Canada Business Corporations Act to conduct an investigation of certain of the affairs of Hollinger, as requested by Catalyst Fund General Partner I Inc., a shareholder of Hollinger, as a consequence of Mr. Justice Campbell's reasons for decision released on September 15, 2004. Each of Hollinger and Catalyst consented to E&Y's appointment. A preliminary report of E&Y is required to be delivered to the Court by November 25, 2004. The application commenced by Catalyst in the Ontario Superior Court of Justice seeking an order removing all of the directors of Hollinger (except for Robert J. Metcalfe and Allan Wakefield, each of whom was appointed as a director of Hollinger on September 27, 2004) and an injunction restraining any non-arm's length transactions involving Hollinger without notice to and approval of the Court, has been adjourned until November 2, 2004. On October 8, 2004, the US$1.25 billion legal action brought by Hollinger International in the US District Court, Northern District of Illinois, against Hollinger and others parties was dismissed. On October 29, 2004, Hollinger International announced that it has filed a motion for certification for interlocutory appeal of the dismissal of its claims in the Amended Complaint related to the Racketeer Influenced and Corrupt Organizations Act. The motion is scheduled to be heard on November 4, 2004. Hollinger International further announced that the Special Committee of its Board of Directors has filed a Second Amended Complaint in the US Court on behalf of Hollinger International in its lawsuit against, among others, Hollinger. The total amount of damages sought in this Second Amended Complaint is approximately US$542 million, which includes pre-judgment interest of US$117 million. As of the close of business on October 29, 2004, Hollinger and its subsidiaries (other than Hollinger International and its subsidiaries) had approximately US$13.03 million of cash or cash equivalents on hand and Hollinger owned, directly or indirectly, 792,560 shares of Class A Common Stock and 14,990,000 shares of Class B Common Stock of Hollinger International. Based on the October 29, 2004 closing price of the shares of Class A Common Stock of Hollinger International on the New York Stock Exchange of US$17.85, the market value of Hollinger's direct and indirect holdings in Hollinger International was US$281,718,696. All of Hollinger's direct and indirect interest in the shares of Class A Common Stock of Hollinger International are being held in escrow with a licensed trust company in support of future retractions of its Series II Preference Shares and all of Hollinger's direct and indirect interest in the shares of Class B Common Stock of Hollinger International are pledged as security in connection with Hollinger's outstanding 11.875% Senior Secured Notes due 2011 and 11.875% Second Priority Secured Notes due 2011. In addition, Hollinger has previously deposited with the trustee under the indenture governing the Senior Notes approximately US$10.5 million in cash as collateral in support of the Senior Notes (which cash collateral is also now collateral in support of the Second Priority Notes, subject to being applied to satisfy future interest payment obligations on the outstanding Senior Notes as permitted by amendments to the Senior Indenture). Consequently, there is currently in excess of US$278.0 million aggregate collateral securing the US$78 million principal amount of the Senior Notes and the US$15 million principal amount of the Second Priority Notes outstanding. Hollinger's principal asset is its approximately 68.0% voting and 18.2% equity interest in Hollinger International. Hollinger International is an international newspaper publisher with nglish- language newspapers in the United States and Israel. Its assets include the Chicago Sun-Times and a large number of community newspapers in the Chicago area, The Jerusalem Post and The International Jerusalem Post in Israel, a portfolio of new media investments and a variety of other assets. Hollinger's principal asset is its approximately 68.0% voting and 18.2% equity interest in Hollinger International. Hollinger International is an international newspaper publisher with English-language newspapers in the United States and Israel. Its assets include the Chicago Sun-Times and a large number of community newspapers in the Chicago area, The Jerusalem Post and The International Jerusalem Post in Israel, a portfolio of new media investments and a variety of other assets. * * * As reported in the Troubled Company Reporter on August 31, 2004,as a result of the delay in the filing of Hollinger's 2003 Form 20-F (which would include its 2003 audited annual financial statements) with the United States Securities and Exchange Commission by June 30, 2004, Hollinger is not in compliance with its obligation to deliver to relevant parties its filings under the indenture governing its senior secured notes due 2011. $78 million principal amount of Notes are outstanding under the Indenture. On August 19, 2004, Hollinger received a Notice of Event of Default from the trustee under the Indenture notifying Hollinger that an event of default has occurred under the Indenture. As a result, pursuant to the terms of the Indenture, the trustee under the Indenture or the holders of at least 25 percent of the outstanding principal amount of the Notes will have the right to accelerate the maturity of the Notes. Approximately US$5 million in interest on the Notes was due on September 1, 2004. Hollinger has deposited the full amount of the interest payment with the trustee under the Indenture and noteholders will receive their interest payment in a timely manner. There was in excess of $267.4 million aggregate collateral securing the $78 million principal amount of the Notes outstanding. Hollinger also received notice from staff of the Midwest Regional Office of the U.S. Securities and Exchange Commission that they intend to recommend to the Commission that it authorize civil injunctive proceedings against Hollinger for certain alleged violations of the U.S. Securities Exchange Act of 1934 and the Rules thereunder. The notice includes an offer to Hollinger to make a "Wells Submission", which Hollinger will be making, setting forth the reasons why it believes the injunctive action should not be brought. A similar notice has been sent to some of Hollinger's directors and officers. HOLLINGER INTL: Board Demands $542M Damages in 2nd Amended Lawsuit ------------------------------------------------------------------ Hollinger International Inc. (NYSE: HLR) said the Special Committee of its Board of Directors has filed a Second Amended Complaint in the U.S. District Court for the Northern District of Illinois on behalf of the Company in its lawsuit against certain directors and former directors and officers, as well as the Company's controlling shareholder and its affiliated companies. The total amount of damages sought in this Second Amended Complaint is approximately $542 million, which includes pre- judgment interest of $117 million. As previously announced, the Second Amended Complaint asserts all of the same breach of fiduciary duty claims against Hollinger Inc., Conrad Black, David Radler, Ravelston, Barbara Amiel Black, John Boultbee, and Daniel Colson as had been in the previous Amended Complaint filed May 7, 2004. The Second Amended Complaint asserts additional claims against certain of the Defendants based on the findings set forth in the Report of Investigation by the Special Committee filed with the Court on August 30, 2004. These include, among others, claims to rescind the $33.5 million balance of a $36.8 million loan from the Company to Hollinger Inc. that is alleged to have been obtained on the basis of false and misleading statements. The Second Amended Complaint also adds claims for fraud, conversion and punitive damages, while eliminating as Defendants Bradford Publishing Company and the Horizon companies. The Second Amended Complaint adds Hollinger International Director Richard N. Perle as a Defendant. The suit claims breaches of fiduciary duty by Perle related to his service as a member of the Company's Executive Committee. Gordon A. Paris, Interim Chairman, President and Chief Executive Officer of the Company, and Chairman of the Special Committee, said: "The Special Committee's work is not complete until we have prosecuted litigation against the Defendants to seek full redress for the enormous damage they have caused to the Company and its shareholders. The filing of the Second Amended Complaint reflects our vigorous pursuit of this objective." The Company also said that, consistent with its previous statements, it has filed a motion for an interlocutory appeal of the Court's recent decision related to the Company's claims under the Racketeering Influenced and Corrupt Organizations Act, or "RICO." The Company has also reached an agreement with Hollinger Inc. and Mr. Black for an extension of the injunction entered in Delaware Chancery Court on June 28, 2004 and requested the Court enter an agreed-upon form of Order. The terms of the agreement are substantially the same as outlined in a letter to Vice Chancellor Strine filed with the Delaware Chancery Court on October 26, 2004. The Company will be filing the Amended Complaint and Order by the Delaware Chancery Court as exhibits to a Form 8-K with the U.S. Securities and Exchange Commission. About the Company Hollinger International Inc. is a newspaper publisher with English-language newspapers in North America, Israel and Canada. Its assets include The Chicago Sun-Times and a large number of community newspapers in the Chicago area, The Jerusalem Post and The International Jerusalem Post in Israel, several local newspapers in Canada, a portfolio of new media investments, and a variety of other assets. * * * As reported in the Troubled Company Reporter on August 6, 2004, Moody's Investors Service changed the rating outlook on Hollinger International Publishing, Inc., to positive from stable and has withdrawn other ratings. Details of this rating action are: Ratings withdrawn: * $45 million Senior Secured Revolving Credit Facility, due 2008 -- Ba2 * $210 million Term Loan "B", due 2009 -- Ba2 * $300 million of 9% Senior Unsecured Notes, due 2010 -- B2 Ratings confirmed: * Senior Implied rating -- Ba3 * Issuer rating -- B2 The outlook is changed to positive. HOLLYWOOD CASINO: Submits to Bankruptcy Protection -------------------------------------------------- HCS I, Inc., the managing general partner of Hollywood Casino Shreveport, said on Oct. 30, 2004, Hollywood Casino and its debtor-affiliates agreed to be placed under bankruptcy protection. The bankruptcy cases are pending in the bankruptcy court in Shreveport, Louisiana. The Company obtained a series of orders from the Bankruptcy Court designed to minimize any disruption of business operations and to facilitate the reorganization. The Company expects the filing to have minimal impact on its day-to-day operations and believes that its significant cash on hand will continue to be sufficient to timely fulfill obligations to employees, customers and trade vendors in full as they come due. Melvyn Thomas, general manager of the casino, said, "Hollywood Casino will continue to focus on its relationships with its employees, its guests and its vendors while the sale of the property and restructuring of the debt are resolved through the process that began earlier this year. As far as our operation is concerned, it's business as usual." As reported in the Troubled Company Reporter on Sept. 14, 2004, Black Diamond Capital Management L.L.C., a privately held investment management firm with approximately $5 billion under management, says two of its funds, together with other creditors, have filed an involuntary Chapter 11 bankruptcy petition against Hollywood Casino Shreveport. The Company has been in default on $189 million in bonds for 18 months; Black Diamond funds are now owed in excess of $30 million by the Company. The Company previously announced that, in cooperation with an Ad Hoc Committee representing a majority of its noteholders, it had entered into an agreement with Eldorado Resorts LLC providing for Eldorado's acquisition of the Company. On October 28, 2004, the Company filed a joint plan and disclosure statement that incorporates the Eldorado transaction. The Company hopes to obtain approval of its disclosure statement and commence solicitation of acceptances of its plan by the end of the year. Headquartered in Shreveport, Louisiana, Hollywood Casino Shreveport operates a casino hotel and resort featuring riverboat gambling. Its creditors filed an involuntary chapter 11 protection on September 10, 2004 (Bankr. W.D. La. Case No. 04-13259). Robert W. Raley, Esq. at 290 Benton Road Spur, Bossier City, LA 71111 and Timothy W. Wilhite, Esq. at Downer, Hammond & Wilhite, L.L.C. represent the petitioners in their involuntary petition against the Debtor. The Company owed $34,958,113 to the petitioners. ICEFLOE TECHNOLOGIES: Inks Pact with Insiders for $120,000 Loan --------------------------------------------------------------- Icefloe Technologies Inc. (TSX Venture Exchange: ICY) has reached an agreement with Messrs. J. Robert Furse, Whit Tucker and Wayne Newson, pursuant to which the Lenders will lend an aggregate amount of $120,000 to Icefloe. The Loan is secured against the assets of Icefloe, subject to previous security interests, and is due and payable on December 31, 2004. No interest is payable on the Loan, except that interest in the amount of ten percent (10%) per annum is payable on any amount of the Loan that is in default. The Loan provides Icefloe with funds to meet its operating cash flow needs while arrangements are being made for a more comprehensive private placement financing. It is anticipated that this transaction will allow Icefloe to meet its operating and cash flow requirements until the private placement financing is completed. Messrs. Furse, Tucker and Newson are related parties of Icefloe in that each of them is a director of Icefloe. In addition, Mr. Newson is the President and Chief Executive Officer of Icefloe and Mr. Furse is Chairman of the Board of Icefloe. Mr. Furse beneficially owns or controls 145,557 common shares of Icefloe or approximately three point four (3.4%) percent of the issued and outstanding shares of Icefloe. Mr. Tucker beneficially owns or controls 160,000 common shares of Icefloe or approximately three point eight (3.8%) percent of the issued and outstanding shares of Icefloe. Mr. Newson beneficially owns or controls 52,548 shares of Icefloe or approximately one point two (1.2%) percent of the issued and outstanding shares of Icefloe. This transaction was reviewed and unanimously approved by the entire board of directors without abstention or any material disagreement between directors. Messrs. Furse, Tucker and Newson declared their interest in the transaction to the board of directors. In considering this transaction, the directors also formed a special committee consisting of the two disinterested directors who evaluated this transaction separately from the interested directors and the full board and who also unanimously approved the agreement. There was no material disagreement between the board and the special committee with respect to this transaction. Icefloe has not obtained formal valuation for this transaction, as Icefloe is relying on exemptions pursuant to Section 5.5(2) and 5.7(2) of Ontario Security Commission rule 61-501. These exemptions are applicable if, at the time the transaction is agreed to, neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the transaction, in so far as it involves interested parties, exceeds twenty-five (25%) percent of Icefloe's market capitalization. The consideration for this transaction in the aggregate is $120,000.00, while the float quoted market value of Icefloe at the time of the transaction is approximately $2,500,000.00. No other agreements have been entered into by either Icefloe or any of the related parties involved in this transaction with any other interested party or joint actor in connection with this transaction. Pursuant to Policy 5.1 of the TSX Venture Exchange, Icefloe is providing the Exchange with written notice of the proposed loan. About the Company Founded in March 2001, Icefloe (TSX Venture Exchange: ICY) is a Canadian-based company dedicated to the development and commercialization of its proprietary chilling technology which brings flash chilling capability in a portable form and enables the beverage industry to serve ice cold draft beer without excessive foam loss, anytime and anywhere. Since April 2001, Icefloe has focused its efforts on securing patents for its platform technologies, while developing, field-testing, manufacturing and marketing commercial products using its unique technologies. Its wholly owned subsidiary, Draught Guys Inc., provides installation, sales and service for both traditional draft systems and Icefloe's proprietary products in the Ontario market. Icefloe commenced trading on Tier 2 of the TSX Venture Exchange on April 14, 2004 under the symbol "ICY". The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release. No Securities Commission or other regulatory authority having jurisdiction over Icefloe has approved or disapproved of the information contained herein. For more information about Icefloe, please visit Icefloe's website at http://www.icefloe.com/ Founded in March 2001, Icefloe (TSX Venture Exchange: ICY) is a Canadian-based company dedicated to the development and commercialization of its proprietary chilling technology which brings flash chilling capability in a portable form and enables the beverage industry to serve ice cold draft beer without excessive foam loss, anytime and anywhere. Since April 2001, Icefloe has focused its efforts on securing patents for its platform technologies, while developing, field-testing, manufacturing and marketing commercial products using its unique technologies. Its wholly-owned subsidiary, Draught Guys Inc., provides installation, sales and service for both traditional draft systems and Icefloe's proprietary products in the Ontario market. At March 31, 2004 Icefloe Technologies Inc.'s balance sheet shows a deficit of C$2,442,825 as compared to a deficit of C$1,834,309 at December 31, 2003. INARA MANAGEMENT: Case Summary & 8 Largest Unsecured Creditors -------------------------------------------------------------- Debtor: Inara Management, LLC 3336 Lexington Avenue Grapevine, Texas 76051 Bankruptcy Case No.: 04-90571 Type of Business: The Company operates five gasoline stations with convenience stores. Chapter 11 Petition Date: November 1, 2004 Court: Northern District of Texas (Ft. Worth) Judge: D. Michael Lynn Debtor's Counsels: William Lyle Perlman, Esq. Leonard J. Robinson II, Esq. Perlman & Robison 3626 North Hall Street, Suite 610 Dallas, Texas 75219 Tel: (214) 520-2200 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 8 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Wise County Tax Assessor Statutory Lien $0 Collector 404 West Walnut Decatur, Texas 76234 Wise County Appraisal District Statutory Lien $0 400 East Business 380 Decatur, Texas 76234 Tarrant County Tax Collector Statutory Lien $0 100 East Weatherford Fort Worth, Texas 76196 Pacific Fuel Distributors Miscellaneous $0 206 West Bedford Euless Rs. Business Debt Hurst, Texas 76053 LSF Franchise Investments, LLC Miscellaneous $0 c/o Hudson Advisors LLC Business Debt 717 Northwood Street, Suite 2200 Dallas, Texas 75201 Linebarger, Goggan, Blair & Notice Only $0 Sampson 2323 Bryan Street, Suite 1600 Dallas, Texas 75201 Kenneth L. Maun Statutory Lien $0 1800 N. Graves Street, Suite 170 McKinney, Texas 75070 Cooke County Appraisal District Statutory Lien $0 201 North Dixon Gainesville, Texas 76240 INNER HARBOR: Fitch Ups Junk Ratings on Three Classes After Review ------------------------------------------------------------------ Fitch Ratings upgrades five classes and affirmed one class of notes issued by Inner Harbor CBO 1999-1 Ltd. These actions are the result of Fitch's review process and are effective immediately: These notes have been upgraded as follows: -- $13,000,000 class A-3L notes from 'BBB-' to 'A-'; -- $40,000,000 class A-3 notes from 'BBB-' to 'A-'; -- $28,000,000 class A-4A notes from 'CC' to 'CCC+'; -- $10,000,000 class A-4B notes from 'CC' to 'CCC+'; -- $9,000,000 class B-1L notes from 'C' to 'CC'. These notes have been affirmed as follows: -- $89,506,201.72 class A-2L notes at 'AAA'; -- $5,500,000 class B-2 notes remain at 'C'; -- $24,491,916 class C notes remain at 'C'. Inner Harbor is a collateralized debt obligation managed by T. Rowe Price Associates, Inc., which closed December 21, 1999. Inner Harbor is composed of 100% high yield bonds. Included in this review, Fitch discussed the current state of the portfolio with the asset manager and their portfolio management strategy. In addition, 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. Since the last rating action, the collateral has improved. The weighted average rating has increased from 'B-' to 'B'. The senior class A and class A overcollateralization ratios have increased to 136.2% and 106.7%, respectively, as of the most recent trustee report dated October 2, 2004 from 123.7% and 104.6% as of Dec. 2, 2002. The class B OC ratio of 98.4% continues to fail versus its trigger level of 103%. As of the most recent trustee report available, Inner Harbor defaulted assets represented 1.48% of the $187 million of total collateral and eligible investments. Assets rated 'CCC+' or lower represented approximately 8.5%, excluding defaults. The ratings of the class A-2L, class A-3L, and class A-3 notes address 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 A-4A, class A-4B, class B-1L, and class B-2 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 ratings of the class C notes address the likelihood that investors will receive their ultimate stated balance of principal by the legal final maturity date. As a result of this analysis, Fitch has determined that the current ratings assigned to the class A-2L, class B-2, and class C notes still reflect the current risk to noteholders. However, Fitch has determined that the current ratings assigned to the class A-3L, class A-3, class A-4A, class A-4B, and class B-1L notes no longer reflect the current risk to noteholders and has subsequently improved over the past year. Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch Ratings web site at http://www.fitchratings.com/ For more information on the Fitch VECTOR model, see 'Global Rating Criteria for Collateralised Debt Obligations,' dated Sept. 13, 2004, available on the Fitch Ratings web site. L-3 COMMUNICATIONS: S&P Rates Planned $500M Sr. Sub. Notes 'BB-' ---------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'BB-' rating to L-3 Communications Corp.'s proposed $500 million senior subordinated notes due 2014, which are to be sold under SEC Rule 144A with registration rights. At the same time, Standard & Poor's affirmed its other ratings, including the 'BB+' corporate credit rating, on the New York, N.Y.-based defense electronics supplier. The outlook is positive. "The ratings on L-3 Communications reflect an average business profile, satisfactory profitability and cash generation, and the risks of an active acquisition program," said Standard & Poor's credit analyst Christopher DeNicolo. "Credit quality benefits from an increasingly diverse program base, efficient operations, and the favorable environment for defense spending," the analyst continued. The proceeds from the new notes will be used to redeem the company's $200 million 8% subordinated notes due 2008 and to fund acquisitions. Debt to capital will decline to 41% from 45% at September 30, 2004, pro forma for the new notes and the conversion to common equity of the firm's $420 million 4% CODES due 2011, which occurred in October 2004. Acquisitions are an important part of the company's growth strategy, and leverage has periodically become somewhat elevated because of debt-financed transactions. However, management has a good record of restoring financial flexibility by issuing equity. Although significant increases in revenues and profits in recent years have been driven largely by acquisitions, organic growth has also been solid. L-3 provides secure communication systems, specialized communications devices, and flight simulation and training. Products include secure, high-data-rate communication systems, microwave components, avionics, telemetry, and instrumentation devices, and simulator training products and services. The firm's revenues have grown rapidly through numerous acquisitions, positioning L-3 to better compete in the growing intelligence, surveillance, and reconnaissance market. Some well-supported programs, with a high percentage of sole-source contracts, mitigate the company's exposure to a competitive environment. The company had a funded backlog of $4.4 billion at Sept. 30,2004. L-3's program diversity and financial profile have shown steady improvement over the past few years due largely to acquisitions, but also to efficient operations and organic growth. A continuation of this trend could result in an upgrade. LANOPTICS LTD: Sept. 30 Balance Sheet Upside-Down by $19.1 Million ------------------------------------------------------------------ LanOptics Ltd. (NASDAQ: LNOP), a provider of network processors, reported results for the third quarter ended September 30, 2004. For the three months ended September 30, 2004, LanOptics reported revenues of US$1,403,000 versus US$467,000 in the third quarter of 2003. All of these revenues were attributable to LanOptics' subsidiary, EZchip Technologies. Operating loss amounted to US$2,002,000, versus US$2,381,000 in the third quarter of 2003. The majority of the expenses that resulted in the operating loss were attributable to EZchip's research and development efforts on future products, and the balance of the expenses related primarily to EZchip's sales and marketing activities. Net loss for the third quarter was US$2,215,000, compared to net loss of US$ 2,529,000 for the same period last year. For the nine months ended September 30, 2004, LanOptics reported revenues of US$3,026,000, compared with US$1,196,000 for the same period last year. All of these revenues were attributable to LanOptics' subsidiary, EZchip Technologies. Operating loss for the nine months amounted to US$6,283,000, versus US$7,875,000 in the same period last year. Net loss for the nine months was US$6,868,000, compared to year-earlier loss for the comparable period of US$ 8,125,000. "During the third quarter we continued to fulfill volume orders from customers who are in production with EZchip-based products," said Dr. Meir Burstin, Chairman of the Board. "We also continued to add new customers and now have 40 customers in total, and nine NP-1c based products are currently in production. The pace of deployment of these products and our continued revenue ramp-up will continue to depend on market acceptance of our customers' products and the pace of recovery in the telecommunications and related markets. During the third quarter we continued to secure design wins for NP-2, our third generation chip that will sample in Q1/05. We believe that NP-2's added functionality and lower price point greatly increase EZchip's market opportunity versus the NP-1c. While the NP-1c is commonly utilized in services cards, which typically have one or two of these cards per chassis, the NP-2 also addresses line cards that often have ten or more cards installed per chassis. Our customers are now beginning to design NP-2 based products and will continue to do so during 2005. We expect that volume production of NP-2 based products will begin in 2006." As previously announced, effective the first quarter of 2004, LanOptics' financial statements are being prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP). Since its inception, LanOptics' consolidated financial statements had been prepared in U.S. dollars in accordance with generally accepted accounting principles in Israel (Israeli GAAP), which differ in certain material respects from U.S. GAAP. As previously disclosed by LanOptics in its financial statements and quarterly earnings releases, the principal consequence of the change from Israeli GAAP to U.S. GAAP relates to the accounting for Preferred Shares of LanOptics' EZchip Technologies subsidiary. Under Israeli GAAP, a subsidiary's losses are attributed to the different classes of the subsidiary's shares according to the ownership level, which is determined by liquidation preference. Under U.S. GAAP, the issuance of a subsidiary's Preferred Shares to a third party is accounted for as a separate component of minority interest, "Preferred Shares of Subsidiary," that does not participate in the losses of the subsidiary. As a result, under U.S. GAAP the reported net loss reflects all of the losses of our EZchip Technologies subsidiary, in which we hold 53%, without any minority participation. The cumulative effect of this change results in a deficiency in the consolidated shareholders' equity. LanOptics is focused on its subsidiary EZchip Technologies, a fabless semiconductor company providing high-speed network processors. EZchip's breakthrough TOPcore(R) technology provides both packet processing and classification on a single chip at wire speed. EZchip's single-chip solutions are used for building networking equipment with extensive savings in chip count, power and cost. Highly flexible 7-layer processing enables a wide range of applications to deliver advanced services for the metro, carrier edge and core and enterprise backbone. At Sept. 30, 2004, LanOptics' balance sheet showed a $19,148,000 stockholders' deficit, compared to a $12,370,000 deficit at Dec. 31, 2003. LEVITZ HOME: S&P Assigns B- Rating to Planned $100M Sr. Sec. Notes ------------------------------------------------------------------ Standard & Poor's Ratings Services assigned its 'B-' rating to furniture retailer Levitz Home Furnishings Inc.'s proposed $100 million class A senior secured note offering due 2011. In addition, a 'CCC' rating was assigned to Levitz' $30 million class B notes due 2011. The notes will be issued under Rule 144A with registration rights. Proceeds from the offering will be used to repay the company's existing indebtedness. The 'B-' corporate credit rating on the company was affirmed. The outlook is positive. Standard & Poor's previously assigned its 'B-' rating to Levitz' proposed $130 million senior secured notes on Oct. 18, 2004. Since then, the terms of the deal have changed, and the company is now issuing the notes in two separate tranches. The class A notes are rated at the same level as the corporate credit rating due to the expectation for a substantial recovery of principal in the event of a default, based on a discrete asset analysis. The class B notes are rated two notches lower than the corporate credit rating, as they are structurally subordinated to the class A notes. "The ratings reflect Levitz' participation in the cyclical and highly competitive and fragmented retail furniture industry, its regional concentration, history of inefficient operations, and very highly leveraged capital structure," said Standard & Poor's credit analyst Robert Lichtenstein. "These weaknesses are somewhat offset by the company's established position and recognized brand in the markets in which it competes." MASTR ALTERNATIVE: Fitch Rates $1.712M Class B-I-4 Certs. 'BB' -------------------------------------------------------------- MASTR Alternative Loan Trust 2004-11, is rated as follows by Fitch Ratings: -- $646.5 million classes 1-A-1, 2-A-1, 3-A-1, 4-A-1, 5-A-1, 6- A-1, 7-A-1, 8-A-1 through 8-A-3, 9-A-1, 9-A-2, 15-PO, 30-PO, 15-AX, 20-AX, 30-AX, A-LR, and A-R (senior certificates) 'AAA'; -- $13,698,000 class B-I-1 'AA'; -- $3,891,000 class B-I-2 'A'; -- $2,802,000 class B-I-3 'BBB'; -- $1,712,000 the privately offered class B-I-4 'BB'. The 'AAA' rating on the of group I, II, V, VI, VII and VIII senior certificates reflects the 8% subordination provided by: * the 4.40% class B-I-1 (not rated by Fitch), * the 1.25% class B-I-2 (not rated by Fitch), * the 0.90% class B-I-3 (not rated by Fitch), * the 0.55% privately offered class B-I-4 (not rated by Fitch), * the 0.35% privately offered class B-I-5 (not rated by Fitch), and * the 0.55% privately offered class B-I-6 (not rated by Fitch) certificates. The 'AAA' rating on the of group III, IV, and IX senior certificates reflects the 7% subordination provided by: * the 3.30% class B-1 (not rated by Fitch), * the 1.45% class B-2 (not rated by Fitch), * the 0.85% class B-3 (not rated by Fitch), * the 0.60% privately offered class B-4 (not rated by Fitch), * the 0.45% privately offered class B-5 (not rated by Fitch), and * the 0.35% privately offered class B-6 (not rated by Fitch) certificates. Fitch believes the above credit enhancement will be adequate to support mortgagor defaults as well as bankruptcy, fraud and special hazard losses in limited amounts. In addition, the ratings also reflect the quality of the underlying mortgage collateral, strength of the legal and financial structures and the master servicing capabilities of Wells Fargo Bank Minnesota, N.A., which is rated 'RMS1' by Fitch. The mortgage loans are separated into nine loan groups. Loan groups I, II, V, VI, VII and VIII are cross collateralized with the class B-I certificates that support the class 1-A-1, 2-A-1, 5-A-1, 6-A-1, 7-A-1, 8-A-1 through 8-A-3, 15-A-X, 30-A-X, 15-PO, and 30-PO certificates. Loan groups III, IV, and IX are cross collateralized with the class B certificates that support the class 3-A-1, 4-A-1, 9-A-1, 9-A-2, 20-A-X, 30-A-X, and 30-PO certificates. The certificates generally receive distributions based on collections on the mortgage loans in the corresponding loan group or loan groups. Groups I, II, V, VI, VII, and VIII in aggregate contain 2,573 fully amortizing 15- and 30-year fixed-rate mortgage loans secured by first liens on one- to four-family residential properties with an aggregate scheduled principal balance of $311,305,107. The average unpaid principal balance of the aggregate pool as of the cut-off date (Oct. 1, 2004) is $120,989. The weighted average original loan-to-value ratio (OLTV) is 71.34%. The weighted average credit score of the borrowers is 718. Approximately 14.58% of the pool was originated under a reduced (non Full/Alternative) documentation program. I nvestor properties comprise 100% of the loans. The weighted average mortgage interest rate is 6.328% and the weighted average remaining term to maturity -- WAM -- is 312 months. The top three states that represent the largest portion of the aggregate mortgage loans are: * California (18.69%), * New York (9.84%), and * Florida (7.89%). Groups III, IV, and IX in aggregate contain 2,261 fully amortizing 15- and 30-year fixed-rate mortgage loans secured by first liens on one- to four-family residential properties with an aggregate scheduled principal balance of $387,180,801. The average unpaid principal balance of the aggregate pool as of the cut-off date (Oct. 1, 2004) is $171,243. The weighted average OLTV is 78.16%. The weighted average credit score of the borrowers is 694. Approximately 52.17% of the pool was originated under a reduced (non Full/Alternative) documentation program. Investor properties comprise 1.60% of the loans. The weighted average mortgage interest rate is 6.548% and the WAM is 344 months. The top three states that represent the largest portion of the aggregate mortgage loans are: * California (16.89%), * New York (12.45%), and * Florida (9.37%). None of the mortgage loans are 'high cost' loans as defined under any local, state or federal laws. For additional information on Fitch's rating criteria regarding predatory lending legislation, please see the press release issued May 1, 2003 entitled 'Fitch Revises Rating Criteria in Wake of Predatory Lending Legislation.' MASTR, a special purpose corporation, deposited the loans into the trust, which issued the certificates. U.S. Bank National Association will act as trustee. For federal income tax purposes, elections will be made to treat the trust fund as multiple real estate mortgage investment conduits -- REMICs. MIRANT CORP: Wants to Sell Turbines to Invenergy for $46.5 Million ------------------------------------------------------------------ Prior to filing for chapter 11 protection, Mirant Corporation and its debtor-affiliates implemented a generation capacity growth strategy pursuant to which the Debtors purchased various new turbine generators and ancillary equipment to construct additional power generation facilities. As a result of a downturn in the merchant energy sector, as well as the Debtors' need to focus on liquidity, the Debtors suspended the construction of certain projects for which the Equipment was originally dedicated, and placed the Equipment into storage. In formulating their long-term business plan, the Debtors' management, in consultation with their advisors, analyzed the economics of completing certain of the suspended projects. As a result of the analysis, the Debtors determined that based on current and projected market conditions, the incremental costs to complete select projects exceed the risk adjusted present value of the cash flows that would be generated by the completed projects, as well as the expected market resale value of the projects. The Debtors also learned that, provided that certain minimum amounts are received for the Equipment, any option value to be derived from retaining the Equipment, either for use in other projects or for future disposition, is outweighed by the administrative and economic costs of maintaining and storing the Equipment for an uncertain period of time. Thus, the Debtors decided to market the Equipment and, if appropriate values can be derived as a result from the marketing, sell the Equipment. Based on an initial analysis of various potential strategic and financial buyers, the Debtors and their advisors found that the disposition of the assets by an experienced marketer familiar with these types of assets would yield the highest recovery possible. Accordingly, the Debtors entered into negotiations to retain PennEnergy, Inc., as their marketer and broker for the limited purpose of selling the Equipment. As a result of the Debtors and PennEnergy's marketing efforts, a number of interested parties approached the Debtors to discuss the potential acquisition of some of the Equipment. On June 11, 2004, the Debtors received an initial expression of interest from Invenergy Turbine Company, LLC, for the purchase of the Debtors' General Electric Model PG7241 FA 60 Hz dual fueled combustion turbines and all related appurtenances, modules, equipment, and other services. The Purchase and Sale Agreement The Debtors engaged in extensive negotiations with Invenergy, which resulted to a purchase and sale agreement, dated October 6, 2004, between Mirant Bowline, LLC, and Invenergy. The Debtors agreed to sell three Turbines to Invenergy, subject to higher or otherwise better offers. Invenergy will pay $46,500,000 for assets. According to Robin E. Phelan, Esq., at Haynes & Boone, in Dallas, Texas, the Sale Agreement requires Mirant Bowline to transfer: (a) certain Long Term Service Agreements between Mirant Bowline and General Electric International, Inc.; (b) certain technical assistance prepayment service prepayments originally paid to GE International; and (c) certain other rights, including delivery rights, under Mirant Bowline's original purchase agreement with GE International for the Turbines. Within 90 days after the closing of the Sale, the purchase price of the Turbines will be reduced by the estimated cost of refurbishing parts that may have been damaged due to storage or replacing parts that may have been lost or destroyed. Unless the Debtors expressly agree otherwise, the Estimated Remediation Cost is limited to: -- $4,500,000 on the sale of three Turbines; -- $3,000,000 on the sale of two Turbines; and -- $1,500,000 on the sale of one Turbine. Mirant Bowline is entitled to terminate the Sale Agreement if the Estimated Remediation Cost exceeds the applicable Limit. The Debtors believe that the Estimated Remediation Cost will be far less than the applicable Limit. Mr. Phelan explains that the Long Term Service Agreements between Mirant Bowline and GE International are for, among other things, maintenance and service on, and parts for, the Turbines. In connection with the global restructuring of substantially all of their LTSA obligations, the Court authorized Mirant Bowline to reject its prepetition LTSA and to enter into a more favorable postpetition LTSA. As part of its original purchase agreement with GE International for the Turbines, Mirant Bowline prepaid GE International for certain technical assistance services -- the TA Service Prepayment -- to be used in connection with the construction and start-up of the Turbines. The value of these services is $4.1 million. Upon transfer of ownership of the Turbines, GE International will credit the TA Service Prepayment amount to the account of the purchaser to be applied during the construction and start-up of the Turbines. Invenergy has provided a $2,325,000 earnest money deposit. If Mirant Bowline terminates the Sale Agreement due to a material breach by Invenergy, Mirant Bowline will be entitled to retain the Invenergy Deposit as its sole and exclusive remedy. If Invenergy terminates the Sale Agreement in accordance with the terms of the Agreement, or if the Debtors sell one or more of the Turbines to an entity or entities other than Invenergy or any of its affiliates, Invenergy's sole and exclusive remedies will be limited to return of the Invenergy Deposit and, under certain circumstances, payment of an "Expense Reimbursement" and "Topping Fee." Mr. Phelan relates that among the more pertinent conditions in the Agreement is the Debtors' ability to obtain Court approval of proposed Bidding Procedures before November 3, 2004, and Court approval of the proposed Sale within forty-five days after the entry of the Bidding Procedures Order. A full-text copy of the Purchase and Sale Agreement is available for free at: http://bankrupt.com/misc/Mirant_Turbines_Purchase_Agreement.pdf Partial Sale Option Although the Debtors believe that they have gained a substantial benefit from obtaining a commitment from Invenergy to acquire all three Turbines, the Debtors recognize that certain potential competing bidders may be interested in acquiring less than three Turbines. To ensure that the Debtors are able to attract the greatest potential bidders and receive the maximum available consideration for the Turbines, the Debtors successfully negotiated with Invenergy the ability to accept competing bids on a unit-by-unit basis while Invenergy, under certain circumstances, remains committed to acquiring the remaining assets. Specifically, the parties agreed that if the Debtors sell one of the Turbines to a third party, Invenergy is required to purchase the remaining two Turbines for $31,000,000. In the event the Debtors sell two of the Turbines to a third party, Invenergy may, but is not obligated, to purchase the remaining Turbine for $15,500,000. Mr. Phelan tells Judge Lynn that the flexibility of the Sale Agreement will enable the Debtors to maximize their return of each Turbine by allowing the Debtors to market and sell on of the Turbines to a third party without foregoing the value of selling the remaining two Turbines to Invenergy. The Partial Sale Option will enable the Debtors to accept an offer for only two of the Turbines, if the offer is otherwise more favorable than the sale of all three Turbines to Invenergy or another third party. The Debtors ask the Court to authorize the sale of the Turbines free and clear of liens, claims, encumbrances and interests to Invenergy or its designee, or to another party submitting the highest or otherwise best bid, pursuant to the terms and conditions of the Purchase and Sale Agreement. Headquartered in Atlanta, Georgia, Mirant Corporation -- http://www.mirant.com/-- together with its direct and indirect subsidiaries, generate, sell and deliver electricity in North America, the Philippines and the Caribbean. Mirant Corporation filed for chapter 11 protection on July 14, 2003 (Bankr. N.D. Tex. 03-46590). Thomas E. Lauria, Esq., at White & Case LLP, represent the Debtors in their restructuring efforts. When the Company filed for protection from their creditors, they listed $20,574,000,000 in assets and $11,401,000,000 in debts. (Mirant Bankruptcy News, Issue No. 47; Bankruptcy Creditors' Service, Inc., 215/945-7000) MIRANT: Wants to Tap Deloitte & Touche as Tax Service Providers --------------------------------------------------------------- As previously reported, Mirant Corporation and its debtor- affiliates employed Deloitte & Touche, LLP, to provide certain tax services, which include income tax consulting services, tax compliance services, IRS examination services, bankruptcy tax restructuring services and certain other tax consulting services in accordance with the terms of the various engagement letters entered into between the Debtors and Deloitte. To align its organizational structure and its affiliates more closely, Deloitte & Touche reorganized some of its business units, including, among others, the business unit providing tax services. As of August 22, 2004, Deloitte Tax, LLP, began providing tax services to its clients, including the Tax Services for the Debtors. Although the personnel comprising the Tax Services engagement team for the Debtors in the Chapter 11 cases remain substantially the same since the Court authorized the Debtors to employ Deloitte & Touche, consistent with the reorganization, the personnel have now become personnel of Deloitte Tax as of August 22. The Debtors seek the Court's permission to employ Deloitte Tax as their tax service providers effective as of August 22, 2004. Because Deloitte Tax is a newly operating entity, it provided no services to the Debtors before the Petition Date. Additionally, the Debtors are not aware of any prepetition claims held by Deloitte Tax against them for fees and expenses in respect of services rendered. However, to the extent the claims exist, Deloitte Tax agrees not to seek or accept any recovery. Furthermore, Deloitte Tax has received no postpetition retainers from the Debtors in respect of any services it may provide to them in the future. Robin Phelan, Esq., at Haynes and Boone, LLP, in Dallas, Texas, informs the Court that the personnel associated with Deloitte Tax have considerable experience in providing clients, both in and out of bankruptcy, with the scope of services it anticipates to provide the Debtors in their Chapter 11 cases. The Debtors believe that Deloitte Tax is well qualified to serve them in their Chapter 11 cases in an efficient and cost-effective manner. Mr. Phelan asserts that the Tax Services are necessary to enable the Debtors to maximize the value of their estates and reorganize successfully. Mr. Phelan assures the Court that Deloitte Tax will use reasonable efforts to coordinate with the Debtors' other retained professionals to avoid unnecessary duplication of services. Deloitte Tax's fees in connection with the provision of the Tax Services are based on hourly rates and time expended. The range of hourly billing rates reflects, among other things, differences in experience levels within classifications, geographic differentials and differences between types of services being provided. In the normal course of business, Deloitte Tax revises its regular hourly billing rates to reflect changes in responsibilities, increased experience, and increased costs of doing business. The Debtors ask the Court to allow Deloitte Tax to revise the rates to the hourly billing rates that will be in effect from time to time. Changes in regular hourly billing rates will be noted by Deloitte Tax on the invoices for the first time period in which the revised rates became effective. Deloitte Tax will maintain reasonably detailed records of any costs and expenses incurred in connection with its provision of the Tax Services. Jacien L. Steele, a partner at Deloitte Tax, assures Judge Lynn that the partners, principals, and directors at Deloitte Tax anticipated to provide services to the Debtors do not hold or represent any interest adverse to the Debtors. Deloitte Tax and its professionals are also "disinterested persons" as that term is defined in Section 101(14) of the Bankruptcy Code, as modified by Section 1107(b). Headquartered in Atlanta, Georgia, Mirant Corporation -- http://www.mirant.com/-- together with its direct and indirect subsidiaries, generate, sell and deliver electricity in North America, the Philippines and the Caribbean. Mirant Corporation filed for chapter 11 protection on July 14, 2003 (Bankr. N.D. Tex. 03-46590). Thomas E. Lauria, Esq., at White & Case LLP, represent the Debtors in their restructuring efforts. When the Company filed for protection from their creditors, they listed $20,574,000,000 in assets and $11,401,000,000 in debts. (Mirant Bankruptcy News, Issue No. 46; Bankruptcy Creditors' Service, Inc., 215/945-7000) MULBERRY STREET: Fitch Affirms BB Rating on $7 Mil. Class C Notes ----------------------------------------------------------------- Fitch Ratings affirmed eight classes of notes issued by Mulberry Street CDO II, Ltd. These affirmations are the result of Fitch's review process. These rating actions are effective immediately: -- $195,000,000 class A-1A notes affirmed at 'AAA'; -- $41,500,000 class A-1B notes affirmed at 'AAA'; -- $30,000,000 class A-1U notes affirmed at 'AAA'; -- $283,000,000 class A-1W notes affirmed at 'AAA'; -- $73,500,000 class A-2 notes affirmed at 'AA'; -- $4,000,000 class B-F notes affirmed at 'BBB'; -- $38,000,000 class B-V notes affirmed at 'BBB'; -- $7,000,000 class C notes affirmed at 'BB'. Mulberry Street II is a collateralized debt obligation managed by the Clinton Group, which closed June 26, 2003. Mulberry Street II is composed of RMBS/CMBS/ABS securities. Included in this review, Fitch discussed the current state of the portfolio with the asset manager and their portfolio management strategy going forward. Since closing, the collateral has continued to perform. The weighted average rating factor has remained at 10.8 ('BBB+'). The class A, class A-2, class B, and class C overcollateralization ratios have improved to 128.3%, 113.2%, 106.0% and 104.9% as of the most recent trustee report dated October 15, 2004, respectively from 127.9%, 112.8%, 105.7% and 104.6%, at close. As of the most recent trustee report available, assets rated lower than 'BBB-' represented approximately 1.8% of the portfolio balance. The rating of the class A-1A, class A-1B, class A-1U, class A-1W and class A-2 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-F, class B-V 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 As a result of this analysis, Fitch has determined that the original ratings assigned to all the classes of notes still reflect the current risk to noteholders. Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch Ratings web site at http://www.fitchratings.com/ (For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralised Debt Obligations,' dated September 13, 2004, available on the Fitch Ratings web site. MULBERRY STREET: Fitch Affirms BB Rating on $5 Mil. Class C Notes ----------------------------------------------------------------- Fitch Ratings affirmed five classes of notes issued by Mulberry Street CDO, Ltd. These affirmations are the result of Fitch's review process. These rating actions are effective immediately: -- $352,500,000 class A-1A notes affirmed at 'AAA'; -- $40,000,000 class A-1B notes affirmed at 'AAA'; -- $52,500,000 class A-2 notes affirmed at 'AA'; -- $30,000,000 class B notes affirmed at 'BBB'; -- $5,000,000 class C notes affirmed at 'BB'. Mulberry Street is a collateralized debt obligation managed by the Clinton Group, which closed December 18, 2002. Mulberry Street is composed of RMBS/CMBS/ABS securities. Included in this review, Fitch discussed the current state of the portfolio with the asset manager and their portfolio management strategy going forward. Since closing, the collateral has slightly deteriorated. The weighted average rating factor has increased from 11.61 ('BBB') to 12.97 ('BBB/BBB-'). The class A, class A-2, class B, and class C overcollateralization ratios have decreased to 125.9%, 111.1%, 104.1% and 103.01% as of the most recent trustee report dated October 15, 2004, respectively from 128.4%, 113.3%, 106.1% and 105.0%, at close. As of the most recent trustee report available, Mulberry Street's defaulted assets represented less than 1% of the $494 million of total collateral and eligible investments. Assets rated lower than 'BBB-' represented approximately 4.34% of the portfolio balance. The rating of the class A-1A, class A-1B and class A-2 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 As a result of this analysis, Fitch has determined that the original ratings assigned to all the classes of notes still reflect the current risk to noteholders. Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch Ratings web site at http://www.fitchratings.com/ For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralised Debt Obligations,' dated Sept. 13, 2004, available on the Fitch Ratings web site. NATIONAL ENERGY: Wants Objection Deadline to Cure Amounts Fixed --------------------------------------------------------------- National Energy and Gas Transmission, Inc.'s Plan of Reorganization includes a list of Executory Contracts to be assumed "as of the Confirmation Date (but subject to the occurrence of the Effective Date)." NEG's Plan provides that: "If prior to the Confirmation Date or such other date as the Bankruptcy Court may fix, a party to such an Executory Contract . . . fails to file with the Bankruptcy Court and serve upon the attorneys for the Debtor an objection to the applicable cure amount . . . then such party shall be forever barred from asserting any additional or other amounts against the Debtor respecting such cure amount." By this motion, NEG asks Judge Mannes to fix an objection deadline for cure amounts with respect to Executory Contracts to be assumed under the Plan. Upon fixing the Objection Deadline for cure amounts, the Debtor intends to serve a notice of the amounts it believes are due and owing to cure any defaults under the applicable Executory Contract to the affected parties. NEG proposes to fix the Objection Deadline to respond to the Notice of Cure Amount as November 22, 2004. Headquartered in Bethesda, Maryland, PG&E National Energy Group, Inc. -- http://www.pge.com/-- (n/k/a National Energy & Gas Transmission, Inc.) develops, builds, owns and operates electric generating and natural gas pipeline facilities and provides energy trading, marketing and risk-management services. The Company filed for Chapter 11 protection on July 8, 2003 (Bankr. D. Md. Case No. 03-30459). Matthew A. Feldman, Esq., Shelley C. Chapman, Esq., and Carollynn H.G. Callari, Esq., at Willkie Farr & Gallagher represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $7,613,000,000 in assets and $9,062,000,000 in debts. NEGT received bankruptcy court approval of its reorganization plan in May 2004, and emerged from bankruptcy on Oct. 29, 2004. NEW SKIES: Gets FCC Approval on Blackstone Group Acquisition ------------------------------------------------------------ New Skies Satellites N.V. (AEX, NYSE: NSK), the global satellite communications company, said the sale of the company to affiliates of The Blackstone Group, a leading private investment firm, has been approved by the United States Federal Communications Commission (FCC). New Skies expected the transaction to close on Nov. 2, 2004. Assuming the transaction closes on this date, trading in New Skies' shares on Euronext Amsterdam and American Depository Shares on the New York Stock Exchange will be suspended as of the close of trading on November 2, 2004. Following the closing, the corporate entity that presently holds the company's assets will go into liquidation and the company's business and operations will be continued by the acquiring company, New Skies Satellites B.V. Holders of New Skies' ordinary shares in book-entry form and holders of American Depository Shares as of the close of trading on the date of the closing will be entitled to receive payment of the sale distributions. Dan Goldberg, New Skies' chief executive officer, said: "We are delighted that we successfully completed the FCC approval process sooner than originally anticipated and are now poised to close the transaction with Blackstone next week. We were pleased with the overwhelming support of our shareholders for the transaction and are focused on ensuring that the sale proceeds are distributed as quickly as possible." New Skies expects to make an initial distribution of the sale proceeds to its current shareholders within two weeks after the closing of the transaction. We anticipate that the initial distribution will constitute approximately 95 percent of the sale proceeds. Following this initial distribution, shareholders in New Skies Satellites N.V. will be entitled to a second and final distribution. This final distribution will constitute the remaining sale proceeds and will be made following the expiration of the statutory two-month opposition period in connection with the company's liquidation and provided that any potential opposition has been taken into account. Further information on the two distributions to shareholders will be provided when the relevant dates have been determined. About the Transaction New Skies signed a definitive agreement for the sale of the company to affiliates of The Blackstone Group, a leading private investment firm, for $956 million in cash, equivalent to approximately $7.96 per fully diluted share on June 5, 2004. Subsequently, New Skies and The Blackstone Group announced certain regulatory and shareholder approvals necessary for the completion of the transaction, including: -- On July 2, 2004, New Skies and The Blackstone Group received early termination of the required waiting period under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976 for Blackstone's acquisition of New Skies. -- On July 19, 2004, New Skies' shareholders overwhelmingly approved the sale of the company, with 92.4 percent of shares in attendance voting for the acquisition. -- The Netherlands' Ministry of Economic Affairs formally approved the transaction on July 28, 2004. -- The U.S. Federal Communications Commission formally approved the transaction on October 27, 2004. About the Company New Skies Satellites is one of only four fixed satellite communications companies with truly global satellite coverage, offering video, data, voice and Internet communications services to a range of telecommunications carriers, broadcasters, large corporations, Internet service providers and government entities around the world. New Skies has five satellites in orbit and ground facilities around the world. The company also has secured certain rights to make use of additional orbital positions for future growth. New Skies is headquartered in The Hague, The Netherlands, and has offices in Beijing, Hong Kong, New Delhi, Sao Paulo, Singapore, Sydney and Washington, D.C. * * * As reported in the Troubled Company Reporter on Oct. 26, 2004, Moody's Investors Service assigned a B2 senior implied rating to New Skies Satellites, BV, reflecting the substantial financial risk associated with its proposed recapitalization, significant operating risk inherent in the satellite industry, and challenging competitive environment. As part of this rating action, Moody's initiates these ratings: * B2 -- Senior Implied Rating * B1 -- $75 million senior secured revolving credit facility * B1 -- $460 million senior secured term loan * B3 -- $160 million senior unsecured floating rate note * Caa1 -- $125 million senior subordinate notes * B3 -- Senior Unsecured Issuer Rating * SGL-3 -- Speculative Grade Liquidity Rating The outlook for all ratings is stable. New Skies' B2 senior implied rating reflects high leverage and a weak fixed charge coverage. Moody's expects New Skies' to take on leverage of approximately 12x debt to free cash flow (Total debt/CFFO less CAPEX less dividend) by the end of the year, and fixed charge coverage (EBITDA-CAPEX/Cash Interest) to fall to about 1.9x. Moody's is concerned that these high fixed debt payments will weaken New Skies' ability to react to an increasing competitive environment, and potential operational shortfall. The rating also incorporates rising costs of insurance across the industry, which may offset any margin gains resulting from improved operational efficiency or higher utilization rates. The ratings also reflect New Skies' steady cash flow generation supported by a sizable backlog, its relatively young and flexible asset base, and superior global coverage in both C- and Ku- bands, which allows New Skies' to bid against a very narrow field for certain contracts. The ratings also incorporate the financial flexibility of New Skies to control the timing of its capital expenditures. In the near-term, Moody's expects the company's ability to manage free cash flow through capital expenditure planning to increase as it completes its current capital investment cycle. Moody's is also concerned that further delays in the completion of the NSS-8 satellite, currently under construction, will continue to weaken the company's potential revenue growth. Moody's is concerned about New Skies' lack of scale. With only five satellites in its operating fleet, New Skies is significantly smaller than the other three satellite providers with global reach in the industry. New Skies' operating flexibility is more limited, and the relative impact of a potential in-orbit loss to the company's overall financial strength is significantly higher. Moody's, however, notes that the quality, age, unused capacity and strong track record of the New Skies fleet to date partially mitigates this risk. While insurance proceeds could offset a portion of the loss associated with the book value of the asset, the insurance policy for New Skies, like other providers in the industry, does not cover business interruption costs or loss of future revenue during the time required to replace the satellite. Moody's believes that, even moving existing traffic to a leased satellite, while recapturing some revenue, will significantly reduce New Skies' operating margins. The satellite communication industry is plagued with oversupply, which results in increased pricing pressure and shorter average contract lives. Although Moody's expects industry dynamics to improve as less capacity is scheduled to come on line over the next several years and demands for higher capacity utilization services continue to grow, we do not expect New Skies' margins to improve in the near term largely due to significant insurance costs. Moody's also notes that New Skies' capacity utilization, and thus, operating margins significantly trail those of larger competitors. The strength of its customer base supports New Skies' ratings. At June 30, 2004, New Skies' backlog was $648.7 million, 94% of which is related to non-cancelable contracts. The remaining 6% of the contracts contain significant cancellation fees. New Skies' customer diversity, in terms of geography, industry segment, and product line helps to stabilize earnings and cash flow. Gains in government services and emerging markets, for example, have offset challenges to the growth of video services. Moody's expects New Skies to experience above industry growth in these sectors in the intermediate term. Moody's notches the senior secured bank facility rating above the senior implied rating to reflect its priority claim on the majority of the firm's assets, and enhanced structural features such as a 75% free cash flow sweep that improves the senior secured lender's claims on free cash flow. The senior unsecured floating rate notes are one notch below the senior implied rating of a B2 to reflect the subordination to a substantial amount of senior secured debt, which constitutes 53% of total debt. (In total debt calculations, Moody's assumes an undrawn revolver, and 80% debt like treatment of the shareholder loans.) Moody's places the senior subordinated notes two notches below the senior implied rating to reflect even further subordination. Moody's notes that in a distressed scenario, recovery rates would likely be substantially lower for unsecured debt. Therefore, notching may widen for unsecured notes if the senior implied falls. Moody's considers the New Skies' sponsor's equity contribution to New Skies in the form of a subordinated shareholders loan to add leverage to the company, given its stated maturity and, while PIK, the high interest rate which creates future obligations. New Skies' SGL-3 liquidity rating reflects Moody's belief that New Skies has adequate liquidity to meet its near-term cash operating and investment needs through a combination of operating cash flow and availability under its $75 million revolving credit facility. While Moody's does not expect New Skies to accumulate cash over the intermediate term because of the cash sweep provision in its term loan facility, we believe the $75 million revolving credit facility will be sufficient for working capital needs and spikes in satellite capital expenditures. Three financial covenants, total leverage, interest coverage, and limitations on capital expenditures will govern the bank credit facility. While not finalized at the time of this release, Moody's rating assumes that the covenants will be set at a level to allow the company adequate cushion to weather an unexpected operational shortfall, but tight enough to restrict meaningful incremental debt. In the event of a liquidity crisis, Moody's does not believe that New Skies is likely to sell assets given the strategic importance of its fleet. New Skies' rating is likely to improve if the company can significantly reduce leverage and increase its ability to generate free cash flow through higher fleet utilization. The ratings are likely to fall if New Skies experiences an unexpected in-orbit failure that results in meaningful revenue erosion coupled with higher capital expenditures. NORTEL NETWORKS: Get New Waiver from Export Development Canada -------------------------------------------------------------- Nortel Networks Corporation's (NYSE:NT)(TSX:NT) its principal operating subsidiary, Nortel Networks Limited, has obtained a new waiver from Export Development Canada under the EDC performance- related support facility of certain defaults related to the delay by the Company and NNL in filing their respective 2003 Annual Reports on Form 10-K, Q1 2004 Quarterly Reports on Form 10-Q and Q2 2004 Quarterly Reports on Form 10-Q, in each case with the U.S. Securities and Exchange Commission, the trustees under the Company's and NNL's public debt indentures and EDC. The waiver also applies to certain additional breaches under the EDC Support Facility relating to the delayed filings and the planned restatements and revisions to the Company's and NNL's prior financial results. The new waiver from EDC will remain in effect until the earlier of certain events including: -- the date on which the Delayed Reports have been filed with the SEC; or -- November 19, 2004. NNL's prior waiver from EDC, previously announced on September 30, 2004, was set to expire on October 31, 2004. As previously announced, the Company and NNL expect to file the Delayed Reports in mid November 2004 and expect to file their third quarter 2004 Quarterly Reports on Form 10-Q after Nov. 24, 2004. If the Company and NNL fail to file either the Delayed Reports by November 19, 2004 or the Third Quarter Reports by November 24, 2004, EDC will have the right, on such dates, unless EDC has granted a further waiver in relation to the delayed filings and the Related Breaches, to terminate the EDC Support Facility, exercise certain rights against collateral or require NNL to cash collaterize all existing support. If the Company and NNL fail to file the Delayed Reports by November 19, 2004, there can be no assurance that NNL would receive any further waivers or any extensions of the waiver beyond its scheduled expiry date. While NNL expects to seek a new waiver from EDC in connection with the delay in filing the Third Quarter Reports past November 24, 2004, there can be no assurance that NNL will receive a new waiver or as to the terms of any such waiver. In addition, the Related Breaches will continue beyond the filing of the Delayed Reports. Accordingly, EDC will have the right (absent a further waiver of the Related Breaches) beginning on the earlier of the date upon which the Delayed Reports are filed and November 19, 2004 to terminate or suspend the EDC Support Facility notwithstanding the filing of the Delayed Reports. While NNL expects to seek a permanent waiver from EDC in connection with the Related Breaches, there can be no assurance that NNL will receive a permanent waiver, or any waiver or as to the terms of any such waiver. The EDC Support Facility provides up to US$750 million in support, all presently on an uncommitted basis. The US$300 million revolving small bond sub-facility of the EDC Support Facility will not become committed support until the Delayed Reports and the Third Quarter Reports are filed with the SEC and NNL obtains a permanent waiver of the Related Breaches. As of October 28, 2004, there was approximately US$288 million of outstanding support utilized under the EDC Support Facility, approximately US$204 million of which was outstanding under the small bond sub- facility. 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.nortelnetworks.com/media_center/ * * * As reported in the Troubled Company Reporter on June 25, 2004, Standard & Poor's Ratings Services said that its long-term corporate credit rating and other long-term ratings on Nortel Networks Corp. and Nortel Networks Ltd. remain on CreditWatch with developing implications, where they were placed Apr. 28, 2004. As previously reported, Standard & Poor's lowered its 'B' long- term corporate credit rating and other long-term ratings on Nortel Networks Corp. and Nortel Networks Ltd. to 'B-'. NORTEL NETWORKS: Optical Design Biz Transferred to Flextronics -------------------------------------------------------------- Nortel Networks (NYSE:NT)(TSX:NT) has completed as scheduled the transfer of certain optical design operations and related assets in Ottawa, Ontario and Monkstown, Northern Ireland to Flextronics (Nasdaq:FLEX) as part of the larger transaction contemplated by the agreement and offer announced by the two companies on June 29, 2004. "This is a milestone for both companies as we take our growing relationship to a new level," said Sue Spradley, president, Global Operations, Nortel Networks. "With Flextronics now focusing on product cost reduction and fast-tracking the development of new features related to our well-established optical products, Nortel Networks will be better positioned to concentrate on next- generation optical architectures, products and solutions -- areas where we believe we can gain the most competitive advantage." "We are happy to officially welcome this world-class design group with broad experience in telecommunications and optical networks to Flextronics," said Michael Marks, chief executive officer, Flextronics. "We believe hardware design, software design and manufacturing are converging, which makes the addition of the Nortel Networks design group an excellent fit with our strategy of providing the lowest total cost solutions to customers in each of the market segments that we serve." As previously announced, the balance of the divestiture, whereby Nortel Networks will sell to Flextronics certain manufacturing operations and related assets, is anticipated to close in the first half of 2005, subject to completion of the required information and consultation processes with the relevant employee representatives. Headquartered in Singapore, Flextronics is the leading Electronics Manufacturing Services (EMS) provider focused on delivering operational services to technology companies. With fiscal year 2004 revenues of US$14.5 billion, Flextronics is a major global operating company with design, engineering, manufacturing, and logistics operations in 29 countries and five continents. This global presence allows for manufacturing excellence through a network of facilities situated in key markets and geographies that provide customers with the resources, technology, and capacity to optimize their operations. Flextronics' ability to provide end-to- end operational services that include innovative product design, test solutions, manufacturing, IT expertise, network services, and logistics has established the Company as the leading EMS provider. For more information, please visit http://www.flextronics.com/ About the Company 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.nortelnetworks.com/media_center/ * * * As reported in the Troubled Company Reporter on June 25, 2004, Standard & Poor's Ratings Services said that its long-term corporate credit rating and other long-term ratings on Nortel Networks Corp. and Nortel Networks Ltd. remain on CreditWatch with developing implications, where they were placed Apr. 28, 2004. As previously reported, Standard & Poor's lowered its 'B' long- term corporate credit rating and other long-term ratings on Nortel Networks Corp. and Nortel Networks Ltd. to 'B-'. NORTH AMERICAN: Case Summary & 40 Largest Unsecured Creditors ------------------------------------------------------------- Lead Debtor: North American Bison Cooperative dba North American Provisioner, Inc. dba Bison Exports dba US Bison dba New West Foods dba Denver Buffalo Company dba Native Game Company dba Great Plains Foods Company 1658 Highway 281 New Rockford, North Dakota 58356 Bankruptcy Case No.: 04-31915 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- North American Provisioner, Inc. 04-31916 Type of Business: The Company is a cooperative with approximately 330 rancher members. The Company processes and markets bison meat. See http://www.newwestfoods.com/ Chapter 11 Petition Date: November 1, 2004 Court: North Dakota (Fargo) Debtor's Counsels: Steven J Heim, Esq. Dorsey & Whitney 50 South Sixth Street Minneapolis, Minnesota 55402 Tel: (612) 340-5696 Fax: (612) 340-2643 Total Assets Total Debts ------------ ----------- North American Bison Cooperative $8,541,385 $24,480,905 North American Provisioner, Inc. $5,138,489 $3,403,448 North American Bison Cooperative's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Turner Enterprises, Inc. Patronage Account/ $6,899,023 Russell Miller Note 1123 Research Drive Bozeman, Montana 59718 Rodney J. Sather Patronage Account $1,641,672 One Bison Loop 29469 228th Street Vivian, South Dakota 57576 Dick Ruby Patronage Account $1,622,249 14100 Highway 13 Milnor, North Dakota 58060 Throlson, Kenneth DVM & Patronage Account $851,173 Marlys 1397 6th Avenue Northeast New Rockford, North Dakota 58356 Silver Creek Bison Ranch Patronage Account $651,036 Lorne Miller PO Box 355 Binscarth, MB ROJ OGO Canada Bucholz Ranch Patronage Account $480,937 Wayne & Neil Bucholz H.C. Box 33 Rhame, North Dakota 58651 Double Diamond Ltd. Patronage Account $464,142 Wade & Maxine Miller PO Box 116 Bowman, North Dakota 58623 Slim Buttes Buffalo Inc. Patronage Account $453,901 HC 65 Box 6 Buffalo, South Dakota 57720 Bennett, Daren Patronage Account $421,073 7027 10th Street Southeast Pingree, North Dakota 58476 Great Plains Value of Security: $366,164 2626 McKenzie Drive $25,000 Loveland, Colorado 80537 Iron Mtn Bison Ranch Patronage Account $329,734 PO Box 3170 Cheyenne, Wyoming 82003 Minnie Ha Ha Bison Ranch Patronage Account $299,485 Benson CO Cooperative CR Union 5211 38th Street Northeast Maddock, North Dakota 58348 Rockwood Bison Ranch Patronage Account $274,677 Burghard Wohlers 7800 Roblin Boulevard Headingly, MB R4H 1B6 Canada First International Bank & Patronage Account $253,235 Trust Attn: Mark J. Friedt PO Box 245 Harvey, North Dakota 58341 Rossow Buffalo Ranch Patronage Account $249,036 A Serle hanson Farms Ltd. Patronage Account $242,067 Farm Credit Services of Patronage Account $235,394 Mandan Glenn & Mary Walz Patronage Account $226,285 Ken W. Johnson Patronage Account $207,673 Jon Grunefelder Patronage Account $194,471 North American Provisioner, Inc.'s 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Federal Express 1062 Trade Debt $20,867 Sprint Press Denver Trade Debt $17,931 A.C.H. Robinson Trade Debt $15,421 Plastilite Corporation Trade Debt $10,290 American Airlines Cargo Trade Debt $8,168 Fee Transportation Services Trade Debt $7,942 Rose Distributing Inc. Trade Debt $5,597 Atlas Cold Storage Trade Debt $4,380 McLeod USA Trade Debt $3,740 Booth Delivery Service Trade Debt $3,537 Federal Express 1736 Trade Debt $3,428 Davis Trucking Inc. Trade Debt $3,295 Minolta Business Solution Trade Debt $3,107 Pennsylvania King Soopers Trade Debt $2,661 Atlas Cold Storage MN Trade Debt $2,396 Minolta Business Solutions Trade Debt $1,984 Texas NSF Cook & Thunder Trade Debt $1,550 IRM Corporation Trade Debt $1,500 Sugarbabies Trade Debt $1,480 McCandless International Trade Debt $1,362 NORTHROP GRUMMAN: Names B. Niland as Newport News Sector CFO & VP ----------------------------------------------------------------- Northrop Grumman Corporation (NYSE: NOC - News) has appointed Barbara A. Niland chief financial officer and vice president of business management for the company's Newport News sector, effective Nov. 1. In this role, she reports to C. Michael Petters, corporate vice president and president of the Newport News sector, and on a matrixed basis reports to Charles H. Noski, Northrop Grumman corporate vice president and chief financial officer. Ms. Niland, 46, who most recently served as vice president of finance and controller for the company's Electronic Systems sector in Baltimore, is responsible for directing the Virginia-based Newport News sector's business strategy and processes in support of business growth and profitability goals. She also has responsibility for sector business management functions such as contracts, estimating and pricing, accounting, financial reporting and planning, and analysis, rates and budgets, and program cost control. Ms. Niland succeeds Linda M. Leukhardt who was recently named the chief financial officer for the Electronic Systems sector. "Barbara brings a strong financial and business management background to this position and has demonstrated experience in a variety of areas critical to our success," said Petters. "She will be a key member of the Newport News team as we focus on contract execution and customer satisfaction." Ms. Niland joined the company in 1979 and has held a number of financial and business management positions at company locations, primarily in Baltimore. In 1995, she was appointed business manager for a number of space systems programs in Baltimore. Later, she was named program director of business management for space systems. Ms. Niland was promoted to vice president of finance and controller for Electronic Systems in 2002. Ms. Niland earned a bachelor's degree in finance from Towson State University and a master's degree in business administration from the University of Maryland. Northrop Grumman Newport News, headquartered in Newport News, Va., is the nation's sole designer, builder and refueler of nuclear- powered aircraft carriers and one of only two companies capable of designing and building nuclear-powered submarines. Newport News also provides after-market services for a wide array of naval and commercial vessels. The Newport News sector employs about 19,000 people. * * * As reported in the Troubled Company Reporter on Oct. 6, 2004, Fitch Ratings affirmed the 'BBB' ratings on Northrop Grumman Corporation's senior unsecured debt and bank facility. The 'BBB' rating also applies to the senior unsecured debt of Northrop Grumman's subsidiaries, including Litton Industries and Northrop Grumman Space & Mission Systems Corporation (formerly TRW Inc.). Fitch has raised the rating on Northrop Grumman's convertible preferred stock to 'BBB-' from 'BB+'. The Rating Outlook has been revised to Positive from Stable for all classes of debt. Approximately $6 billion of securities is affected by these rating actions. NORTHWESTERN CORP: Completes Debt Offering & Inks New Bank Loan --------------------------------------------------------------- NorthWestern Corporation (Nasdaq: NWEC) d/b/a NorthWestern Energy has completed the sale of $225 million of its Senior Secured Notes due 2014 in a Rule 144A private offering. The Senior Notes are due Nov. 1, 2014, and bear annual interest of 5-7/8% paid semi-annually. The Senior Notes are collateralized by two series of existing first mortgage bonds secured by NorthWestern's regulated utility assets in Montana, South Dakota and Nebraska. The Senior Notes were priced at par and will have five years of call protection. According to Gary G. Drook, President and Chief Executive Officer of the Company, the net proceeds of the offering were used to repay a portion of the amounts outstanding under the Company's $390 million term loan credit facility and to pay related fees and expenses. "We are extremely pleased with the support this offering received from investors," said Mr. Drook. "This financing is one of the lowest priced callable notes sold recently in the high-yield market. We believe this reflects investors' strong interest in NorthWestern as we emerge from Chapter 11." Credit Suisse First Boston and Lehman Brothers acted as joint book-running managers, and Deutsche Bank Securities was co- manager. New $225 Million Credit Facility Closed In addition, NorthWestern has entered into a new $225 million secured Credit Facility consisting of a $125 million five-year revolving tranche and a $100 million seven-year term tranche. According to Brian B. Bird, NorthWestern's Chief Financial Officer, proceeds of the Revolver will be used to replace existing letters of credit initially issued under the Company's debtor-in- possession financing and to provide borrowing capacity for general corporate purposes. The Term B Loan was used to repay the remainder of the Company's $390 million term loan facility. The Revolver and the Term B Loan were priced at the London InterBank Offered Rate (LIBOR) plus 175 basis points. "Our financing strategy as we emerge from Chapter 11 was to replace our undrawn DIP facility with a revolver to assure adequate liquidity for utility operations while refinancing some of our near-term debt to reduce interest expense and extend maturities," Bird said. "We have successfully met those goals, and we have been able to reduce debt through the use of available cash. We remain focused on further reducing debt to become a strong investment grade company." The Credit Facility was arranged by Lehman Brothers and Deutsche Bank. Headquartered in Sioux Falls, South Dakota, NorthWestern Corporation (Pink Sheets: NTHWQ) -- http://www.northwestern.com/ -- provides electricity and natural gas in the Upper Midwest and Northwest, serving approximately 608,000 customers in Montana, South Dakota and Nebraska. The Debtors filed for chapter 11 protection on September 14, 2003 (Bankr. Del. Case No. 03-12872). Scott D. Cousins, Esq., Victoria Watson Counihan, Esq., and William E. Chipman, Jr., Esq., at Greenberg Traurig, LLP, and Jesse H. Austin, III, Esq., and Karol K. Denniston, Esq., at Paul, Hastings, Janofsky & Walker, LLP, represent the Debtors in their restructuring efforts. On the Petition Date, the Debtors reported $2,624,886,000 in assets and liabilities totaling $2,758,578,000. The Court entered a written order confirming the Debtors' Second Amended and Restated Plan of Reorganization, which took effect on Nov. 1, 2004. NORTHWESTERN CORP: Board Names Dr. E. Linn Draper as Chairman ------------------------------------------------------------- NorthWestern Corporation (Nasdaq: NWEC - News) d/b/a NorthWestern Energy said its newly constituted Board of Directors has chosen Dr. E. Linn Draper, Jr. as non-executive Chairman of the Board. Dr. Draper recently retired as Chairman, President and Chief Executive Officer of American Electric Power Co., Inc. (AEP), one of the nation's largest public utility holding companies, based in Columbus, Ohio. Dr. Draper led AEP from 1993 until his retirement as Chairman of the Board on Feb. 24, 2004. Prior to leading AEP, Dr. Draper served as Chairman of the Board, President and Chief Executive Officer of Gulf States Utilities Company, Beaumont, Texas. Dr. Draper also serves on the board of directors of Sprint, Temple-Inland and Borden Chemicals and Plastics, LP. Dr. Draper currently splits his time between Ohio and Texas. He holds a bachelor's and master's degree in chemical engineering from Rice University and a PhD in nuclear science and engineering from Cornell University. Also, the Board has organized the following committees: -- Audit Committee, chaired by Stephen P. Adik, with Corbin A. McNeill, Jr. and Jon S. Fossel as committee members; -- Human Resources Committee, chaired by Philip L. Maslowe, with Mr. McNeill and Julia L. Johnson as committee members; and -- Governance Committee, chaired by Mr. Fossel, and with Ms. Johnson and Dr. Draper as committee members. For more information on NorthWestern's Board of Directors, please visit the Corporate Governance section of http://www.northwesternenergy.com/ Headquartered in Sioux Falls, South Dakota, NorthWestern Corporation (Pink Sheets: NTHWQ) -- http://www.northwestern.com/ -- provides electricity and natural gas in the Upper Midwest and Northwest, serving approximately 608,000 customers in Montana, South Dakota and Nebraska. The Debtors filed for chapter 11 protection on September 14, 2003 (Bankr. Del. Case No. 03-12872). Scott D. Cousins, Esq., Victoria Watson Counihan, Esq., and William E. Chipman, Jr., Esq., at Greenberg Traurig, LLP, and Jesse H. Austin, III, Esq., and Karol K. Denniston, Esq., at Paul, Hastings, Janofsky & Walker, LLP, represent the Debtors in their restructuring efforts. On the Petition Date, the Debtors reported $2,624,886,000 in assets and liabilities totaling $2,758,578,000. The Court entered a written order confirming the Debtors' Second Amended and Restated Plan of Reorganization, which took effect on Nov. 1, 2004. ORDERPRO LOGISTICS: Major Shareholder Alleges Management Fraud -------------------------------------------------------------- A major shareholder of OrderPro Logistics, Inc. (OTC Bulletin Board: OPLO) has filed a lawsuit and motion for preliminary injunction in the District Court of the State of Nevada in and for the County of Douglas (Case No. 04-CV-0287) seeking to force the company to comply with its legal duty to hold an annual meeting to elect directors and appoint new management. State law requires annual meetings to elect corporate directors. The shareholders did not elect current management, and management has refused to acknowledge the rights of shareholders to hold an annual meeting as required by law. The following represent grievances alleged in the proposed injunction and affidavit filed in Nevada: Failure to Maintain Share Value: Shareholder confidence and OPLO's market price are at an all- time low. The company has lost 90% of its value, and the share price has fallen from around $0.20 at the time Smuda took over management earlier this year to around $0.02 currently. Fraud: OPLO's current CEO, Jeffrey Smuda, filed for relief under Chapter 7 of the Federal Bankruptcy Code in June of this year. In this filing, he did not disclose among his assets any shares of OPLO, although he owned at least 6 million shares at the time. Upon revelation of this fact by shareholders, Smuda subsequently amended his declarations, but declared the value of the shares to be "0." This was in spite of the fact that the shares traded on the open market at around $0.02, giving them a value of at least $120,000. Misrepresentation: Smuda hired a felon convicted of forgery, one Suzanne Wojner, to assume a top management position without disclosing the criminal background of this person. Smuda has an ongoing romantic relationship with this person. Mismanagement: Smuda has committed waste against the corporation by allowing its assets and opportunities to dissipate. Smuda and the current board of directors failed to provide ongoing management and financial support to JBP Express, their primary subsidiary based in Indianapolis, Indiana. According to numerous press release information issued by management, JBP Express was expected to contribute 3-4 million in revenues during 2004. As a result of Smuda's failure to recognize the importance of the JBP Express operation and to provide it funding, it is no longer in operation. Smuda and the current board of directors have caused to be paid approximately $500,000.00 for accounting and legal fees during 2004. Those payments are far in excess of amounts normally charged for these services. OPLO has lost a significant business opportunity in Europe due to management's failure to act promptly. OPLO's website is currently not operational. Customers and shareholders are deprived of information concerning the activities of the company. Sexual Harassment: Smuda has engaged in acts that may constitute sexual harassment against former employees of OPLO, and the company may incur additional costs in resolving them. Board of Directors: Patricia L. Green and Joel K. Windorski as directors have been fully aware of and complicit in specific egregious events and the obvious mismanagement of OrderPro Logistics, Inc., and have failed to carry out their fiduciary responsibilities as OPLO employees and board members exhibiting total disregard for the company and the shareholders. The failure of Patricia L. Green and Joel K. Windorski is actionable by shareholders, the State of Nevada and certain State and Federal regulatory bodies. The company has not answered the complaint in this action, and a motion for entry of default judgment will be set for Tuesday, Nov. 9, 2004, at 1:30 P.M. in Minden, Nevada. The court will hear the motion for preliminary injunction, which when granted, and will force management to convene a meeting of shareholders, at which time the shareholders may select a new board of directors. About the Company OrderPro Logistics, Inc. is a customer-oriented provider of innovative and cost-effective logistics solutions. With expertise in multi-modal transportation management, OrderPro provides complete supply chain management, including transportation services, freight brokerage, on-site logistics management, packaging assessment, process improvement consulting, claims management, private fleet management and procurement management. * * * As reported in the Troubled Company Reporter on August 24, 2004, OrderPro Logistics, Inc.'s consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the Company's condensed consolidated financial statements, the Company has a net loss of $6,313,458, a negative cash flow from operations of $714,627 and a working capital deficiency of $1,019,391. These factors raise substantial doubt about its ability to continue as a going concern. OWENS CORNING: Has Until Dec. 31 to Solicit Votes for Plan ---------------------------------------------------------- Judge Fitzgerald gave Owens Corning and its debtor-affiliates until December 31, 2004 the exclusive right to solicit acceptances for their Fourth Amended Plan of Reorganization. As reported in the Troubled Company Reporter on June 30, 2004, the Debtors asked the Court to further extend their Exclusive Solicitation Period through and including December 31, 2004, to permit adequate time to complete the necessary procedures to gain approval by the U.S. District Court for the District of Delaware of their amended Disclosure Statement and solicit acceptances of the Amended Plan. The Delaware Bankruptcy Court already conditionally approved the Debtors' Disclosure Statement. But since the Debtors' bankruptcy involves asbestos claims and litigation, the Delaware District Court also needs to put its stamp of approval for the Debtors to be fully authorized to use the Disclosure Statement to solicit votes for their Chapter 11 Plan. Norman L. Pernick, Esq., at Saul Ewing, LLP, in Wilmington, Delaware, explained that the developments in the Debtors' Chapter 11 cases, beyond the control of the Debtors or the other Plan Proponents but largely within the control of the Bank Debt Holders and the Official Committee of Unsecured Creditors, impacted the timing of the Bankruptcy Court's final approval of the Disclosure Statement and the voting procedures that will govern the solicitation of acceptances or rejections of the Plan. These developments include the Petition for Writ of Mandamus filed in the U.S. Court of Appeals for the Third Circuit, seeking the recusal of Judge Wolin. In light of the stay imposed by the Third Circuit and the District Court, and despite the conditional approval of the Disclosure Statement by the Bankruptcy Court, the District Court has been prohibited from taking any actions in the Debtors' asbestos cases to move them towards confirmation for the last six months. The Third Circuit later recused Judge Wolin and appointed Judge John Fullam of the U.S. District Court for the Eastern District of Pennsylvania to handle the Debtors' cases. Headquartered in Toledo, Ohio, Owens Corning -- http://www.owenscorning.com/-- manufactures fiberglass insulation, roofing materials, vinyl windows and siding, patio doors, rain gutters and downspouts. The Company filed for chapter 11 protection on October 5, 2000 (Bankr. Del. Case. No. 00-03837). Mark S. Chehi, Esq., at Skadden, Arps, Slate, Meagher & Flom represents the Debtors in their restructuring efforts. At June 30, 2004, the Company's balance sheet shows $7.3 billion in assets and a $4.3 billion stockholders' deficit. (Owens Corning Bankruptcy News, Issue No. 87; Bankruptcy Creditors' Service, Inc., 215/945-7000) PACIFIC ENERGY: Impending Sale Prompts S&P to Watch 'BB+' Rating ---------------------------------------------------------------- Standard & Poor's Ratings Services placed its 'BB+' corporate credit rating on Pacific Energy Partners L.P. on CreditWatch with negative implications following the announcement of the impending sale of its general partner by The Anschutz Corp. About $330 million of debt is outstanding at the Long Beach, California-based master limited partnership. "The sale of crude oil transporter Pacific Energy's general partner to Lehman Brothers Merchant Banking Group raises numerous governance, strategic, and financial issues that could affect the company's credit profile," said Standard & Poor's credit analyst Todd Shipman. "The CreditWatch listing will be resolved after a thorough review of the effect of the transaction on Pacific Energy." Lehman will also acquire another approximate 35% stake in Pacific Energy, through subordinated equity units now held by Anschutz. Chief among Standard & Poor's concerns is the possibility that a new general partner will redirect corporate strategy to emphasize expansion opportunities and diversify into commodities other than the core crude oil activities. While such growth and diversification could lead to improved credit quality, the execution of possible new strategic plans could raise Pacific Energy's business and financial risk. As an MLP's general partner can exercise significant influence over the business activities of the partnership, the ratings assessment will include consideration of the creditworthiness of the owner of the general partner, and its commitment to credit quality. Any additional debt introduced into the composite partnership structure as a result of the purchase will also be important in Standard & Poor's analysis of the deal. PACIFIC GAS: Dynegy Power Sets Record Straight on $1 Mil. Claim --------------------------------------------------------------- On July 9, 2004, Dynegy Power Marketing, Inc., filed an administrative expense claim against PG&E, in which, Dynegy Power asked for a $1,000,000 enhancement fee for its substantial contributions in PG&E's reorganization efforts. The Fee Enhancement Claim has been the subject of much interpretation by Pacific Gas & Electric Company, the Office of the United States Trustee, and the Official Committee of Unsecured Creditors. According to Philip S. Warden, Esq., at Pillsbury Winthrop, LLP, in San Francisco, California, it appears that in their haste to object to the Fee Enhancement Claim, PG&E, the U.S. Trustee, and the Creditors Committee misunderstood why Dynegy Power believes it is entitled to a fee enhancement for its substantial contribution to PG&E's Chapter 11 case. Most of the arguments asserted by the Objectors are in response to alleged factual assertions and claims, which Dynegy Power does not assert or does not dispute. Contrary to the apparent misconceptions of the Objectors, Dynegy Power does not believe that it alone carried PG&E on its back through the gates of confirmation. "That assertion in a case of this size and complexity would be absurd," Mr. Warden said. Dynegy Power readily acknowledges that numerous parties played an important role in PG&E's unique and unprecedented reorganization. The fact that Dynegy Power chose to file an administrative claim seeking payment for its substantial contribution and reimbursement of its legal fees paid to Pillsbury Winthrop, LLP, while others, for whatever reason, chose not to do so, has no bearing on whether Dynegy Power's contribution was substantial or warrants payment under Section 503 of the Bankruptcy Code. Neither the statute nor case law require a court to limit reimbursement under Section 503(b) to only one creditor. In other words, it is not a contest where only one award can be made among those who claim a "substantial contribution." With respect to the U.S. Trustee's citation of the Ninth Circuit decision in In re Cellular 101, Inc., 377 F. 3d 1092 (9th Cir. 2004), Mr. Warden clarifies that the Ninth Circuit, in Cellular 101, did not find that the claimant's actions -- drafting a successful reorganization plan and waiving its $58,730 prepetition claim -- constituted the minimum standard that a party must show to satisfy the substantial contribution test of Section 503(b)(3). Instead, the court's ruling suggests that the efforts expended by the applicant so far exceed the minimum requirement that the court did not need to determine whether the applicant, if acting in its own interest in proposing a reorganization plan, precluded reimbursement for its substantial contribution. Moreover, the legislative history of Section 503 cited by the Cellular 101 Court provides that "the phrase 'substantial contribution' . . . does not require a contribution that leads to confirmation of a plan, for in many cases, it will be a substantial contribution if the person involved uncovers facts that would lead to a denial of a confirmation." Mr. Mistry points out, Dynegy Power's actions clearly serve to "foster and "enhance" the progress of reorganization. To recall specific significant events, Mr. Warden notes that in February 2003, the confirmation hearing appeared to bog down due to the excessive wrangling by the parties over PG&E's attempt to disaggregate its business operations. The Creditors Committee suggested the installation of a Chapter 11 trustee to break the "log jam". Dynegy Power argued vehemently with the Creditors Committee that any attempt to install a Chapter 11 trustee would be disastrous and would only create vitriolic opposition and additional hurdles in the case and delay confirmation even further. Ultimately, Dynegy Power was able to derail the Creditors Committee's proposal to seek the Chapter 11 trustee appointment and as a result, Dynegy Power's idea for mandatory settlement conference was generally bought into, and approved and presented to the Court by the Creditors Committee. In March 2004, the Court ordered the California Public Utilities Commission and PG&E to participate in a mandatory settlement conference before Judge Newsome. While Dynegy Power was not part of the Settlement Conference, Dynegy Power's actions in conceiving of a concept and lobbying the Creditors Committee to press the interested parties and the Court to require the plan proponents to engage in that effort, substantially contributed by accelerating PG&E's reorganization. In contrast to the Objectors' assertions, Dynegy Power, like the successful applicant in Cellular 101, agreed to waive its prepetition claim against PG&E -- a $300,000,000 claim. In that regard, Mr. Warden explains that the Fee Enhancement Claim provided that, "[the] settlement clearly paves the way for similarly situated class 6 claimants and the Debtor to resolve their respective claims and counter-claims against one another. Such consensual resolutions will save the Debtor, and ultimately the ratepayers, hundreds of millions of dollars." Furthermore, Dynegy Power worked with other Class 6 counsel, including that of Reliant, the California Power Exchange, and Williams Co., to form an unofficial committee of sorts to resolve issues that affected all Class 6 members. Due to the size of the Class 6 claims and the severity of the treatment that PG&E sought to impose on the class, the consensual resolution reached with PG&E prevented the Class 6 issues from potentially endangering a successful confirmation. For example, the establishment of a $1,600,000,000 claims reserve for Class 6 creditors was a particularly contentious issue that required several Class 6 members to play key roles in negotiating, and ultimately drafting, a stipulation and escrow instructions agreeable to all of the interested parties. The Creditors Committee as a whole was not involved in the issue, nor was its counsel. Instead, several of the Class 6 creditors, including Dynegy Power, took the collective responsibility of reaching a consensual resolution with PG&E's ratepayers, hundreds of thousands, if not millions, of dollars and innumerable skirmishes. Moreover, Mr. Warden argues that Dynegy Power's contribution is not adequately measured by time listed on an attorney's time sheet, nor is an accounting required by the Bankruptcy Code or case law. Dynegy Power is not required to demonstrate that its request for professional fees are "actual" and "necessary," only that those fees requested for legal services are "reasonable". It is clear that Dynegy Power has provided the estate with a demonstrable benefit for which it should be compensated. Indeed, all creditors have benefited from Dynegy Power's proactive participation with respect to the proposal of a mandatory settlement conference and its work with Class 6 creditors and PG&E on an acceptable claims reserve. As the Court noted on the record at the August 13, 2004, status conference, "an assassin is paid by the bullet, not the time spent tracking its target." To that, Mr. Warden adds, "Dynegy [Power]'s idea was the bullet that hit its intended target and Dynegy [Power] seeks to be paid accordingly." Headquartered in San Francisco, California, Pacific Gas and Electric Company -- http://www.pge.com/-- a wholly owned subsidiary of PG&E Corporation (NYSE:PCG), is one of the largest combination natural gas and electric utilities in the United States. The Company filed for Chapter 11 protection on April 6, 2001 (Bankr. N.D. Calif. Case No. 01-30923). James L. Lopes, Esq., William J. Lafferty, Esq., and Jeffrey L. Schaffer, Esq., at Howard, Rice, Nemerovski, Canady, Falk & Rabkin represent the Debtors in their restructuring efforts. On June 30, 2001, the Company listed $23,216,000,000 in assets and $22,152,000,000 in debts. Pacific Gas and Electric emerged from chapter 11 protection on April 12, 2004, paying all creditors 100 cents-on- the-dollar plus post-petition interest. (Pacific Gas Bankruptcy News, Issue No. 85; Bankruptcy Creditors' Service, Inc., 215/945-7000) PARMALAT: Citigroup Files Detailed Response to Claims Rejection --------------------------------------------------------------- Citigroup (NYSE:C) has filed with the Court of Parma's Bankruptcy Division a detailed response refuting the basis for the Parmalat Extraordinary Commissioner's proposed rejection of Citigroup claims. Citigroup released a summary of its response, believing that the well-publicized but factually baseless allegations that accompanied the Extraordinary Administrator's rejection of its claims and those of the securitisation companies Eureka and Archimede compelled Citigroup to demonstrate that the Extraordinary Commissioner's view of Citigroup's complicity in the Parmalat fraud is unfounded and completely false. Citigroup's filing shows that the Extraordinary Commissioner has presented no credible evidence that substantiates his allegations of wrongdoing -- nor could he. The accounting investigation conducted by Ms. Stefania Chiaruttini, on which the Extraordinary Commissioner's allegations appear to be based, is flawed and misleading. William J. Mills, CEO of Citigroup's Global Corporate and Investment Banking Group for Europe, Middle East and Africa, commented: "We are pleased to present the facts in response to the baseless allegations against us and to reiterate that Citigroup did nothing wrong and is itself a major victim of the Parmalat fraud. Citigroup will defend itself vigorously against unwarranted attacks, and will pursue all opportunities for fair redress of its losses." The Parmalat Extraordinary Commissioner's decision to reject Citigroup's claims is expressly based on allegations made in a lawsuit he filed last July in the U.S. state of New Jersey. That suit alleges without any legitimate factual support that Citigroup knew about Parmalat's conduct and precarious financial position and helped Parmalat conceal the truth from the investing public. The basis for this allegation as set forth in the lawsuit makes plain that the Extraordinary Commissioner has relied on a collection of fundamental misrepresentations, misunderstandings and factual errors, as highlighted in the attached summary submitted as part of Saturday's filing with the Court of Parma. Archimede/Eureka Securitisation The allegation that Citigroup was aware of a fraudulent manipulation of Parmalat's invoicing structure and therefore complicit in Parmalat's fraud is nonsense. There is no credible evidence and, not surprisingly, none is offered by the Extraordinary Commissioner to show that Citigroup knew Parmalat was using and manipulating this invoicing structure to double- count sales and generate additional financing from various financial institutions. Furthermore, at no stage were the receivables purchased from Parmalat by Archimede sold on to investors. In fact it is Citigroup --not investors in Eureka-- that has sustained these losses from fraudulent invoicing at Parmalat. Buconero/Geslat transaction The Buconero/Geslat transaction was not, as is maintained, a disguised loan. To the contrary, the transaction was disclosed in Geslat's accounts and the structure was fully compliant with the requirements of Italian law. Similar structures have been used by other leading Italian companies to obtain low cost financing. Parmalat Canada Citigroup took a shareholding in Parmalat Canada with a right to sell its shares to Parmalat at pre-determined prices. The allegation that this was a disguised loan is flat wrong. Nothing about this transaction was disguised -- both Citigroup and Parmalat disclosed that Citigroup could sell its shares under certain conditions. Zini accounts Finally, the Extraordinary Commissioner's allegation that Citigroup should have known that accounts opened by Mr Gian Paolo Zini (Parmalat's counsel) were used for irregular transactions is pure makeweight. Mr. Zini was a reputable lawyer at the time and there was nothing about the operation of his accounts that suggested he was using them for unlawful purposes. Headquartered in Wallington, New Jersey, Parmalat USA Corporation -- http://www.parmalatusa.com/-- generates more than 7 billion euros in annual revenue. The Parmalat Group's 40-some brand product line includes milk, yogurt, cheese, butter, cakes and cookies, breads, pizza, snack foods and vegetable sauces, soups and juices and employs over 36,000 workers in 139 plants located in 31 countries on six continents. The Company filed for chapter 11 protection on February 24, 2004 (Bankr. S.D.N.Y. Case No. 04- 11139). Gary Holtzer, Esq., and Marcia L. Goldstein, Esq., at Weil Gotshal & Manges LLP represent the Debtors in their restructuring efforts. On June 30, 2003, the Debtors listed EUR2,001,818,912 in assets and EUR1,061,786,417 in debts. PRIMUS TELECOM: Sept. 30 Balance Sheet Upside-Down by $112.9 Mil. ----------------------------------------------------------------- PRIMUS Telecommunications Group, Incorporated (Nasdaq:PRTL), an integrated communications services provider, reported its results for the quarter ended September 30, 2004. Key Quarterly Performance Highlights: -- $334 Million Net Revenue, Up 1% Sequentially -- $6 Million Income from Operations -- $29 Million Adjusted EBITDA -- $18 Million Cash Provided by Operating Activities -- $9 Million Free Cash Flow -- $21 Million in Debt Reduction PRIMUS reported third quarter 2004 net revenue of $334 million, up 2% from $328 million in the third quarter of 2003, and up 1% sequentially from $332 million in the second quarter 2004. The Company reported net income for the quarter of $16 million (including $10 million in net gains from foreign currency transactions and a $3 million gain on early extinguishment of debt) compared to net income of $6 million (including a $1 million loss on early extinguishment of debt) in the third quarter 2003. As a result, the Company reported basic and diluted income per common share of $0.18 and $0.16, respectively, for the third quarter 2004, compared to basic and diluted income per common share of $0.09 and $0.06, respectively, in the year-ago quarter. As expected, the Company's operating results in the third quarter 2004 reflect the continuing negative impact of increased competition from pricing and product bundling affecting core services in virtually all of its markets. The results also reflect the anticipated increase in expenditures to support PRIMUS's vigorous competitive response through the rapid deployment and introduction of an array of new cellular, broadband and local service initiatives. "The competitive challenges to our core long distance voice and dial-up Internet businesses remained intense throughout the quarter, and we are expecting that pressure to persist," said K. Paul Singh, Chairman and Chief Executive Officer of PRIMUS. "However, we have taken assertive action designed to protect current revenue levels in the short term, and provide a foundation for renewed revenue growth in the longer term. In that regard, we are encouraged by our success in stabilizing revenue in the current period. We set an aggressive target at the beginning of the quarter, and we were able to achieve it. We are targeting similar revenue success in the fourth quarter." Although PRIMUS's new initiatives are still in the early stages of active deployment, these indications to date are encouraging: -- in Canada, a new local offering launched in June, has already generated over 10,000 lines in service, with over 90% also adding the bundled long distance offering resulting in ARPU's (Average Revenue Per User) significantly more than that of stand-alone long distance customers; -- in Australia, an innovative "Primus One" unlimited local offering bundled with long distance and either broadband or dial-up services has attracted over 35,000 customers to date at an ARPU significantly greater than that of stand-alone long distance customers; -- on the broadband front, in Australia, the Company now has over 30,000 DSL customers, representing approximately 3% of a rapidly expanding market; -- retail VOIP services, led by the well-recognized Lingo brand, have grown to over 25,000 customers, and within the last few weeks Lingo announced innovative unlimited VOIP calling plans to Asia and a distribution agreement with D- Link(R), a leading equipment manufacturer; and -- by the end of the current quarter, Primus expects to have launched cellular services in virtually all of the major countries it serves. These services will be primarily targeted at customers who wish to make international calls using their mobile phones. "In sum, by year-end 2004, PRIMUS expects to have accomplished one of its critical near term objectives--the development and launch of new products to accelerate its transformation from a long distance voice and dial-up ISP carrier into an integrated wireline, cellular and broadband services provider. These are the products that we will rely on to ensure our future growth and profitability. Our current challenge is to grow revenue from them at a rate which more than compensates for the current erosion of revenue and margin from our core long distance and dial-up ISP businesses," Singh stated. "Achieving that goal, particularly in the short term, will require us to continue to make incremental investments in marketing and advertising to protect our current revenue levels, while we ramp up our array of new product initiatives as rapidly as possible." Third Quarter 2004 Financial Results Net revenue for the third quarter 2004 was $334 million, up 2% from $328 million in the third quarter 2003, and up 1% sequentially from $332 million in the prior quarter. "The sequential quarterly revenue increase was primarily a result of stronger foreign currencies," stated Neil L. Hazard, Chief Operating Officer and Chief Financial Officer. "On a constant currency basis, net revenue was stable in the third quarter 2004, relative to the second quarter 2004." Net revenue from data/Internet and VOIP services was up 27% from the year-ago quarter to a record high of $63 million (a new high of 19% of total net revenue), and up 3% sequentially from the second quarter of 2004. Net revenues from cellular handsets and services was $6 million in the third quarter 2004, representing 2% of total net revenues and up sequentially from $5 million in the second quarter 2004. On a geographic basis, net revenue remained balanced with 36% coming from North America, 34% from Europe and 30% from Asia-Pacific. The mix of net revenue by customer type remained consistent from the second quarter at 81% retail (56% residential and 25% business) and 19% carrier. Selling, general and administrative (SG&A) expenses for the quarter were $100 million (30.0% of net revenue), as compared to $87 million (26.6% of net revenue) for the third quarter of 2003 and $95 million (28.8% of net revenue) in the prior quarter. The sequential and year-over-year increase in SG&A expenses are due primarily to the previously announced incremental spending on the Company's new product initiatives, increased marketing expenditures associated with defense of the Company's core businesses and increased spending for Sarbanes-Oxley ("SOX") readiness efforts. Income from operations was $6 million in the third quarter of 2004, versus $24 million in the year-ago quarter, and $12 million (including a $2 million loss on sale of fixed assets) in the prior quarter. The decline year-over-year and sequentially is the result of higher cost of sales as a percentage of net revenue due to shifts in product mix and price competition and to higher SG&A expenses. Adjusted EBITDA, as calculated in the attached schedules, was $29 million for the third quarter of 2004, a decline of $16 million from the third quarter of 2003 and a decline of $8 million sequentially. The $8 million sequential decline in Adjusted EBITDA reflects $4 million of increased SG&A spending to support the Company's new initiatives, $3 million as the result of higher cost of sales as a percentage of net revenue due to continued pricing pressure and a shift in product mix, and $1 million of higher professional fees primarily for SOX efforts. "In the fourth quarter 2004, depending upon the level of incremental advertising spending on the new products and the effectiveness of the campaigns, our Adjusted EBITDA goal is in the range of $25 million to $30 million," stated Mr. Hazard. Interest expense for the third quarter 2004 was $11 million, down from $12 million in the prior quarter as a result of the reduction of the Company's outstanding debt. Interest and other income for the quarter was $10 million which includes a non-cash item of $9 million related to a previously accrued tax obligation which was reversed as a result of a favorable ruling by a taxing authority. Net income for the quarter was $16 million (including $10 million in net gains from foreign currency transactions and a $3 million gain on early extinguishment of debt) compared to net income of $6 million (including a $1 million loss on early extinguishment of debt) in the third quarter of 2003, and a net loss of ($15) million (including $15 million in losses from foreign currency transactions and a $2 million loss on sale of fixed assets) in the prior quarter. Adjusted Net Income, as calculated in the attached schedules, for the third quarter 2004 was $4 million, as compared to $7 million for the third quarter 2003, and $1 million in the prior quarter. Basic and diluted income per common share were $0.18 and $0.16, respectively, for the third quarter 2004, compared to basic and diluted income per common share of $0.09 and $0.06 for the third quarter of 2003, and basic and diluted loss per common share of ($0.17) in the second quarter of 2004. Basic and diluted weighted average common shares outstanding for the third quarter 2004 were 90 million and 106 million, respectively. Adjusted Diluted Income Per Common Share, as calculated in the attached schedules, was $0.04 for the third quarter 2004, compared to Adjusted Diluted Income Per Common Share of $0.07 in the year- ago quarter, and Adjusted Diluted Income Per Common Share of $0.01 for the second quarter of 2004. Liquidity and Capital Resources PRIMUS ended the third quarter of 2004 with a cash balance of $69 million, including $17 million of restricted funds. During the quarter the Company generated $18 million in cash from operating activities. Capital expenditures for the quarter were $9 million and free cash flow, as calculated in the attached schedules, was $9 million. During the third quarter of 2004 the Company repurchased $8 million principal amount of its 12.75% senior notes and $4 million principal amount of its 5.75% convertible subordinated debentures. Additionally, the Company settled a $6 million debt obligation for a $5 million cash payment. In April, the Company's Canadian subsidiary established a $42 million Canadian dollar term loan facility with an interest rate of 7.75%, which is currently not drawn upon. In October 2004 the maturity of this facility was extended for one year to April 2007. PRIMUS's long-term debt obligations as of September 30, 2004 were $561 million, a reduction of $21 million from the prior quarter. The Company and/or its subsidiaries will evaluate and determine on a continuing basis, depending upon market conditions and the outcome of events described as "forward-looking statements" in this release and its SEC filings, the most efficient use of the Company's capital, including investment in the Company's network and systems, lines of business and new products, potential acquisitions, purchasing, refinancing, exchanging or retiring certain of the Company's outstanding debt securities in privately negotiated transactions, open market transactions or by other direct or indirect means to the extent permitted by its existing covenants. The management of PRIMUS Telecommunications Group, Incorporated will conduct a conference call and Web cast to discuss third quarter 2004 results today, November 1, 2004, at 5:00 PM Eastern. Participants should dial 866-814-1913 (domestic) or 703-639-1357 (international) for telephone access or go to www.primustel.com for Web cast access about ten minutes prior to the start-time. Replay information will be available following the conclusion of the live broadcasts on the Company's Web site. Primus Telecommunications Group, Incorporated (Nasdaq:PRTL) an integrated communications services provider offering bundled voice, data, Internet, DSL, VOIP, wireless, Web hosting, enhanced VPN applications and other value added services. PRIMUS operates an extensive global backbone network of owned and leased transmission facilities, including VOIP connections to over 150 countries and over 550 points-of-presence (POPs) throughout the world, ownership interests in 23 undersea fiber optic cable systems, 18 international gateway and domestic switches, and a variety of operating relationships that allow it to deliver traffic worldwide. PRIMUS also has deployed a global broadband fiber optic ATM+IP network and operates data centers to offer customers Internet, data, hosting and e-commerce services. Founded in 1994 and based in McLean, Virginia, PRIMUS serves corporate, small- and medium-sized businesses, residential and data, ISP and telecommunications carrier customers primarily located in the North America, Europe and Asia-Pacific regions of the world. News and information are available at PRIMUS's Web site at http://www.primustel.com/ At Sept. 30, 2004, Primus' balance sheet showed a $112,941,000 stockholders' deficit. * * * As reported in the Troubled Company Reporter on Oct. 19, 2004, Standard & Poor's Ratings Services revised its outlook on McLean, Virginia-based international long-distance carrier Primus Telecommunications Group Inc. to developing from positive. The ratings on the company, including the 'B-' corporate credit rating, were affirmed. "The outlook revision reflects the expectation that competition in the international long-distance residential and business telecommunications markets will accelerate over the next year," said Standard & Poor's credit analyst Catherine Cosentino. "In particular, incumbent telephone carriers are expected to aggressively vie for customers in the face of increased competition in their local telephone markets." RYERSON TULL: Moody's Reviewing Single-B Ratings & May Downgrade ---------------------------------------------------------------- Moody's Investors Service placed its ratings for Ryerson Tull, Inc. under review for possible downgrade in connection with Ryerson's planned acquisition of Integris Metals Inc. from Alcoa and BHP Billiton. The review anticipates that the acquisition will increase Ryerson's leverage beyond levels associated with its current Ba3 senior implied rating. Ryerson is acquiring Integris for $660 million, comprising $410 million in cash and the assumption of approximately $250 million of debt. Ryerson has indicated that the initial funding for the acquisition will come from cash on hand and borrowings under a new secured credit facility. Subject to market conditions, a portion of these borrowings may be refinanced through a debt or equity offering. The acquisition is expected to close in early 2005. These ratings were placed under review for possible downgrade: * Ba3 senior implied, * B1 senior unsecured issuer rating, and * B1 for the $100 million of 9.125% senior unsecured notes due 2006. Moody's review for possible downgrade will consider: (1) developments in the global metals markets, especially pricing trends, (2) working capital demands in the current environment of rising, but perhaps peaking, metal prices, (3) pro forma debt levels and interest expense upon the closing of the Integris transaction, (4) pro forma sources of liquidity, (5) potential benefits of the acquisition in terms of cost savings, diversification, and overhead cost absorption, (6) plans regarding the management and integration of the two companies, (7) the status and compatibility of the two companies' information technology systems, and (8) Ryerson's anticipated role as an acquirer and consolidator. Moody's expects to meet with the company as part of its full-scale review of the business combination. Pro forma for the Integris acquisition, Ryerson's debt will be slightly above $1.1 billion, with the potential to be greater if working capital investment continues to require additional borrowings, as has been the case in 2004 at both Ryerson and Integris. Based on Moody's analysis, we do not think Ryerson will be able to issue more than approximately $125 million of additional equity given its current market capitalization. Therefore, Moody's anticipates Ryerson's debt more than doubling from the $441 million it had as of September 30, 2004. Even at the much-improved earnings levels realized thus far in 2004, and after consideration of the $30 million of cost savings Ryerson has targeted, the company's leverage and its heightened pro forma interest expense make a one-notch downgrade possible. Moody's will conclude its review as quickly as possible, but in any case upon the closing of the Integris transaction. Ryerson Tull, headquartered in Chicago, is the largest steel service, distribution and materials processing company in North America with a primary focus on carbon flat rolled and stainless steel. For the twelve months ended September 30, 2004, it had net sales of $2.9 billion. In the first nine months of 2004, Ryerson reported EBITDA of $108 million. Integris Metals Inc., based in Minneapolis, Minnesota, is the fourth largest metals service center in North America with leading market positions in aluminum and stainless steel. For the twelve months ended July 2, 2004, it had net sales of $1.7 billion. In the first half of 2004, Integris reported EBITDA of $65 million. SAN JOAQUIN: Moody's Withdraws Ratings After Notes Redemption ------------------------------------------------------------- Moody's Investors Service had withdrawn the ratings of six classes of notes issued by San Joaquin CDO I, Limited. The classes affected are: (1) the U.S. $168 million of Class A Floating Rate Notes Due 2013; (2) the U.S. $19.55 million of Class B-1 Floating Rate Notes Due 2013; (3) the U.S. $3.25 million of Class B-2 Fixed Rate Notes Due 2013; (4) the U.S. $5.7 million of Class C-1 Floating Rate Notes Due 2013; (5) the U.S. $7 million of Class C-2 Fixed Rate Notes Due 2013 and (6) the U.S.$12.5 million of Class D Fixed Rate Notes Due 2013. According to Moody's, the ratings had been withdrawn due to the full redemption of the Notes on October 25, 2004. The transaction closed in October 25 of 2001. Rating Action: Rating Withdrawn Issuer: SAN JOAQUIN CDO I, LIMITED. Class Description: U.S. $168 million of Class A Floating Rate Notes Due 2013 Prior Rating: Aaa Current Rating: Withdrawn Class Description: U.S. $19.55 million of Class B-1 Floating Rate Notes Due 2013 Prior Rating: A3 Current Rating: Withdrawn Class Description: U.S. $3.25 million of Class B-2 Fixed Rate Notes Due 2013 Prior Rating: A3 Current Rating: Withdrawn Class Description: U.S. $5.7 million of Class C-1 Floating Rate Notes Due 2013 Prior Rating: Baa2 Current Rating: Withdrawn Class Description: U.S. $7 million of Class C-2 Fixed Rate Notes Due 2013 Prior Rating: Baa2 Current Rating: Withdrawn Class Description: U.S.$12.5 million of Class D Fixed Rate Notes Due 2013 Prior Rating: Ba2 Current Rating: Withdrawn SCHLOTZSKY'S: Wants Grant Thornton as Auditors & Accountants ------------------------------------------------------------ Schlotzsky's, Inc., and its debtor-affiliates ask the U.S. Bankruptcy Court for the Western District of Texas, San Antonio Division, for authority to retain Grant Thornton LLP as their auditors and accountants. Grant Thornton will: a) audit the Debtors' financial statements for the year ending Dec. 31, 2004; b) perform a review of the financial statements for the three months ending June 30 and September 30, 2004; and c) audit the Debtors' 401(k) plan for the year ending Dec. 31, 2003. The Firm's professionals will bill for services at their customary hourly rates: Designation Rate ----------- ---- Partner $315 Senior Manager $245 Manager $180 Senior $150 Staff $125 Louis J. Grabowsky, a partner at Grant Thornton, assures the Court of the Firm's "disinterestedness" pursuant to Section 327 of the Bankruptcy Code. Headquartered in Austin, Texas, Schlotzsky, Inc. -- http://www.schlotzskys.com/-- is a franchisor and operator of restaurants. The Debtors filed for chapter 11 protection on August 3, 2004 (Bankr. W.D. Tex. Case No. 04-54504). Amy Michelle Walters, Esq. and Eric Terry, Esq., at Haynes & Boone, LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from its creditors, they listed $111,692,000 in total assets and $71,312,000 in total debts. SEPRACOR INC: Sept. 30 Balance Sheet Upside-Down by $379.6 Million ------------------------------------------------------------------ Sepracor Inc. (Nasdaq: SEPR) reported consolidated financial results for the third quarter 2004. For the three months ended September 30, 2004, Sepracor's consolidated revenues were approximately $80.1 million, of which revenues from pharmaceutical product sales (XOPENEX(R) brand levalbuterol HCl inhalation solution) were approximately $60.1 million. The net loss for the third quarter of 2004 was approximately $130.4 million, or $1.40 per share. Included in the net loss for the three months ended September 30, 2004 is a charge of approximately $69.8 million, or approximately $0.75 per share, representing inducement costs incurred in connection with the conversion of convertible subordinated notes into shares of Sepracor common stock. These consolidated results compare with consolidated revenues of $70.8 million, of which revenues from pharmaceutical product sales (XOPENEX) were approximately $53.1 million, and a net loss of $38.5 million, or $0.45 per share, for the three months ended September 30, 2003. For the nine months ended September 30, 2004, Sepracor's consolidated revenues were $249.5 million, of which revenues from pharmaceutical product sales (XOPENEX) were approximately $202.6 million, and the net loss was $261.9 million, or $2.97 per share. Included in the net loss for the nine months ended September 30, 2004 is a charge of approximately $69.8 million, or approximately $0.79 per share, representing inducement costs incurred in connection with the conversion of convertible subordinated notes into shares of Sepracor common stock. These consolidated results compare with consolidated revenues of $231.7 million, of which revenues from pharmaceutical product sales (XOPENEX) were approximately $186.6 million, and a net loss of $102.0 million, or $1.21 per share, for the nine months ended September 30, 2003. As of September 30, 2004, Sepracor had approximately $791.0 million in cash, cash equivalents and short- and long-term investments. Recent Highlights Between August 30 and September 8, 2004, Sepracor entered into separately negotiated agreements with certain holders of its 0% convertible senior subordinated notes due 2008 and 2010, pursuant to which, such holders agreed to convert approximately $529.2 million aggregate principal amount of the 0% notes due 2024 in exchange for an aggregate of approximately 17.4 million shares of Sepracor common stock and, as an inducement for such conversions, approximately $69.8 million in cash. Also in September 2004, Sepracor issued $500 million in aggregate principal amount of 0% convertible senior subordinated notes due 2024, and in connection with this offering, Sepracor repurchased $99.9 million of its common stock concurrently with the offering. In connection with its sale of the 0% convertible senior subordinated notes due 2024, Sepracor granted Morgan Stanley & Co. Incorporated, the initial purchaser of the notes, an option to purchase up to an additional $100 million aggregate principal amount of 0% notes due 2024 on or before October 17, 2004. On October 15, 2004, Sepracor agreed to extend until November 29, 2004 the date by which the initial purchaser may exercise its option to purchase such additional notes. Commercial Operations XOPENEX(R) brand levalbuterol HCl - XOPENEX brand levalbuterol HCl inhalation solution is marketed through Sepracor's sales force. XOPENEX is a short-acting bronchodilator indicated for the treatment or prevention of bronchospasm in patients 6 years of age and older with reversible obstructive airway disease, such as asthma. XOPENEX is available for use in a nebulizer at 0.31 mg and 0.63 mg dosage strengths for routine treatment of children 6 to 11 years old, and in 0.63 mg and 1.25 mg dosage strengths for patients 12 years of age and older. Asthma is a chronic lung disorder characterized by reversible airway obstruction and the pathologic finding of airway inflammation. According to the American Lung Association, approximately 26 million Americans have been diagnosed with asthma in their lifetime. It is the most common childhood illness and affects approximately 8.6 million children in the U.S. under the age of 18. ASTELIN(R) brand azelastine HCl - On October 1, 2004, Sepracor terminated its co-promotion agreement with MedPointe, Inc. for the co-promotion of ASTELIN (azelastine HCl), a nasal-spray antihistamine. Such termination was not for cause and was in accordance with the terms of the agreement. Pursuant to the terms of the agreement, as of July 1, 2004, Sepracor was only responsible for providing ASTELIN samples to doctors and, as of October 1, 2004, both parties had the right to unilaterally terminate the agreement without cause. In connection with the termination of the agreement, Sepracor is entitled to receive a payment from MedPointe of $6,950,000, less any amount earned and received for sample coverage services provided for MedPointe from July 1, 2004 through the October 1, 2004 termination of the agreement. ALLEGRA(R) brand fexofenadine HCl - Sepracor earns royalties from Aventis for sales of ALLEGRA, a nonsedating antihistamine, in the U.S. and other countries where Sepracor holds patents relating to fexofenadine (including Japan, Europe, Canada and Australia). CLARINEX(R) brand desloratadine - Sepracor earns royalties from Schering- Plough Corporation on sales of all formulations of CLARINEX brand desloratadine in the U.S. and in other countries where Sepracor holds patents relating to desloratadine. CLARINEX is indicated for the treatment of allergic rhinitis and chronic idiopathic urticaria (CIU), also known as hives of unknown cause, in patients 12 years of age and older. XYZAL(R)/ XUSAL(TM) brand levocetirizine - Sepracor earns royalties from UCB on sales of levocetirizine in European countries where the product is sold. Levocetirizine is marketed as XUSAL in Germany and is marketed under the brand name XYZAL in other member states of the European Union. A single isomer of ZYRTEC(R), levocetirizine is indicated for the treatment of symptoms of seasonal and perennial allergic rhinitis and CIU, in adults and children aged 6 years and older. Sepracor NDA Programs Under FDA Review ESTORRA(TM) brand eszopiclone - The Prescription Drug User Fee Act (PDUFA) date for the resubmitted ESTORRA brand eszopiclone New Drug Application (NDA) is December 15, 2004. A PDUFA date is the date by which the U.S. Food and Drug Administration (FDA) is expected to review and act on an NDA submission. On February 27, 2004, Sepracor received an "approvable" letter from the FDA for its NDA for ESTORRA for the treatment of insomnia characterized by difficulty falling asleep and/or difficulty maintaining sleep during the night and early morning. Contingent upon approval from the FDA of the ESTORRA NDA, Sepracor would expect the recommended dosing to achieve sleep onset and maintenance to be 2 mg and 3 mg for adult patients, 2 mg for elderly patients with sleep maintenance difficulties, and 1 mg for sleep onset in elderly patients whose primary complaint is difficulty falling asleep. The FDA has not requested additional clinical or preclinical trials for approval. Sepracor recently completed expansion of its sales force to approximately 1,250 sales professionals in anticipation of the launch of ESTORRA. The ESTORRA NDA contains a total of 24 clinical trials, which included more than 2,700 adult and elderly subjects, and more than 60 preclinical studies. Sepracor conducted six randomized, placebo-controlled Phase III studies for the treatment of chronic or transient insomnia in both adult and elderly patients and included these studies as part of the NDA package. An estimated 100 million adult Americans suffer from either chronic or occasional insomnia.(1) Symptoms of insomnia include difficulty falling asleep, awakening frequently during the night, waking up too early, an inability to fall back to sleep, or awakening feeling unrefreshed. According to the National Sleep Foundation's (NSF) Sleep in America Poll 2003, 37 million older Americans suffer from frequent sleep problems that, if ignored, can complicate the treatment of several other medical conditions, from arthritis to diabetes, heart and lung disease and depression. This NSF poll shows that poor sleep among older adults often goes unnoticed by the medical community. Although the majority of older adults (67%) report frequent sleep problems, only about seven million elderly patients have been diagnosed. The U.S. market for prescription sleep products, not including off-label (not indicated for the treatment of insomnia) use of central nervous system (CNS) agents for the treatment of insomnia, was approximately $1.8 billion in 2003. The U.S. prescription sleep agent market grew at a rate of approximately 20 percent from 2002 to 2003, according to IMS Health information. XOPENEX HFA(TM) MDI - XOPENEX HFA (levalbuterol tartrate HFA) Inhalation Aerosol, a hydrofluoroalkane (HFA) metered-dose inhaler (MDI) for the treatment or prevention of bronchospasm in adults, adolescents and children 4 years of age and older with reversible obstructive airway disease, such as asthma and chronic obstructive pulmonary disease (COPD), is currently under FDA review. The PDUFA date for the NDA for XOPENEX HFA MDI is March 12, 2005. The MDI development program included approximately 1,870 pediatric and adult subjects and 54 studies (preclinical and clinical). In 2003, Sepracor completed its Phase III studies of XOPENEX HFA. In each of the three, large- scale, pivotal Phase III trials that Sepracor conducted, the XOPENEX HFA MDI was well tolerated and met the targeted efficacy endpoints in both adults and children with asthma. In the primary airway function measure, FEV1 (a test of lung function that measures the amount of air forcefully exhaled in one second), the XOPENEX HFA MDI produced statistically and clinically significant improvements relative to placebo (p<0.001). Approximately 95 percent of the short-acting beta-agonist inhalers sold in 2003 contained chlorofluorocarbon (CFC) propellants, according to IMS Health information. Under provisions in the Montreal Protocol on Substances that Deplete the Ozone Layer, an international agreement that requires the phase- out of substances that deplete the ozone layer, MDIs containing CFC propellants would qualify for removal from the marketplace. In June 2004, the FDA issued a proposed rule for the removal of the essential use exemption for albuterol, which currently permits the use of CFC- containing albuterol inhalers despite environmental concerns. Removal of this essential use exemption would prevent albuterol products containing CFC propellants, including MDIs, from being marketed in the U.S. The XOPENEX MDI uses HFA technology and does not contain a CFC propellant. Sepracor expects that the XOPENEX HFA MDI, if approved by the FDA, will be sold through the company's sales force. Currently, the U.S. short-acting bronchodilator MDI market potential at branded prices, assuming parity pricing to branded PROVENTIL(R) HFA, is approximately $1.6 billion. Sepracor's Phase III Development Program Arformoterol - Sepracor has completed more than 100 preclinical studies and has initiated or completed 16 clinical studies for arformoterol inhalation solution as a maintenance treatment for COPD. Sepracor has recently completed two pivotal Phase III studies of arformoterol. In these studies, patients treated with arformoterol demonstrated a significant improvement in FEV1 immediately after dosing and a duration of action of up to 24 hours, versus those taking placebo. Sepracor is planning a pre-NDA meeting with the FDA to discuss submission of the arformoterol NDA. Bronchodilators have the potential to improve lung function, decrease symptoms, help increase mucus clearance and reduce the number of exacerbations in patients suffering from COPD. The U.S. market for long-acting bronchodilators was approximately $2.8 billion in 2003, according to IMS Health information. Sepracor's Phase II and Additional Clinical Candidates (S)-Amlodipine - Sepracor is investigating (S)-amlodipine as a potential treatment for hypertension aelopment and regulatory approval of ESTORRA and XOPENEX HFA MDI and the company's other pharmaceuticals under development, and expectations with respect of co- promotion agreements. Among the factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: the results of clinical trials with respect to products under development; the timing and success of submission, acceptance, and approval of regulatory filings; the scope of Sepracor's patents and the patents of others; the commercial success of Sepracor's products; the ability of the company to attract and retain qualified personnel; the performance of Sepracor's licensees and other collaboration partners; the availability of sufficient funds to continue research and development efforts; the continued ability of Sepracor to meet its debt obligations when due; and certain other factors that may affect future operating results and are detailed in the company's quarterly report on Form 10-Q for the quarter ended June 30, 2004 filed with the Securities and Exchange Commission. At Sept. 30, 2004, Sepracor's balance sheet showed a $379,564,000 stockholders' deficit, compared to a $619,211,000 deficit at Dec. 31, 2003. Purchase Agreement On September 17, 2004, Sepracor Inc. entered into a purchase agreement, pursuant to which it agreed to sell $500 million in aggregate principal amount of 0% convertible senior subordinated notes due 2024 to Morgan Stanley & Co. Incorporated at a discount of 2.75%. In connection with the offering of the Notes, the Company also intends to repurchase $99.9 million of its common stock, $.10 par value per share. The sale of the Notes was expected to close on September 22, 2004. Pursuant to the Agreement, Sepracor has also granted to the Initial Purchaser an option to purchase an additional $100 million of Notes within 30 days of the date of the Agreement. In connection with the offering of the Notes, the Company will enter into a registration rights agreement with the Initial Purchaser of the Notes on the date the offering closes, which was expected to be September 22, 2004. Marlborough, Massachusetts-based Sepracor specializes in the development and marketing of medications to treat respiratory and central nervous system disorders. * * * As reported in the Troubled Company Reporter on Sept. 21, 2004, Standard & Poor's Ratings Services assigned a 'CCC+' subordinated debt rating to $500 million in proposed zero-coupon convertible senior subordinated notes to be issued by specialty pharmaceutical company Sepracor, Inc. The amount of the notes, which are due 2024, could be increased by $100 million. The first put date is Oct. 15, 2009. At the same time, Standard & Poor's affirmed its 'B' corporate credit rating on Sepracor. Although the new notes are senior to the company's existing subordinated debt issues, future senior debt could be added, and this effectively subordinates the new issue in the company's debt structure. Sepracor would use proceeds of the new issue for general corporate purposes, though up to $100 million would be used to purchase shares of company common stock. Sepracor's pro forma debt balance, including this issue and other recent debt conversion transactions, is projected to be roughly $1.17 billion. "The speculative-grade ratings on emerging specialty pharmaceutical company Sepracor, Inc., reflect its operating losses, which are due mainly to its significant R&D expenditures and increasing marketing costs," said Standard & Poor's credit analyst Arthur Wong. " The ratings also reflect Sepracor's heavy debt burden." These negative factors are only modestly offset by the growing sales of Sepracor's asthma drug Xopenex, the promise of its insomnia medication Estorra, and the adequate liquidity provided by on-hand cash. SHREVEPORT CAPITAL: Case Summary & 20 Largest Unsecured Creditors ----------------------------------------------------------------- Lead Debtor: Shreveport Capital Corporation 5601 Bridge Street, Suite 300 Fort Worth, Texas 76112 Bankruptcy Case No.: 04-13936 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- HCS I, Inc. 04-13937 HWCC-Louisiana, Inc. 04-13938 HCS II, Inc. 04-13939 Type of Business: The Debtors operate casinos. HCS I, Inc., is the managing general partner for Hollywood Casino Shreveport. An acquisition agreement signed on Oct. 18, 2004, contemplates the sale of the reorganized company to Eldorado Resorts LLC of Reno, Nev., before the end of the year. Under the proposed restructuring, holders of the Company's existing secured notes are to receive $140 million of new first mortgage notes and interest in a corporation that will hold a $20 million preferred equity interest and a 25% non-voting equity interest in the reorganized Company, and cash in an amount to be determined, in exchange for existing secured notes in the principal face amount of $189 million plus accrued interest. Eldorado would acquire a 75% voting equity interest in the reorganized Company. A full- text copy of the Investment Agreement underpinning this restructuring is available at no charge at: http://www.sec.gov/Archives/edgar/data/1096352/000110465904031464/a04-11795_1ex2d1.htm Chapter 11 Petition Date: October 30, 2004 Court: Western District of Louisiana (Shreveport) Judge: Stephen V. Callaway Debtor's Counsels: Richard Levin, Esq. Glenn Walter, Esq. Skadden, Arps, Slate, Meagher & Flom LLP 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071 - and - R. Patrick Vance, Esq. Corinne G. Huff, Esq. Jones, Walker, Waechter, Poitvant, Carrere & Denegre, LLP 201 Street Charles Avenue New Orleans, Louisiana 70170-5100 Tel: (504) 582-8000 Fax: (504) 8194 Investment Banker & Financial Advisor: Libra Securities, LLC Restructuring Advisors & Accountants: Deloitte & Touche LLP Auditor & Tax Advisor: BDO Seidman, LLP Estimated Assets: $0 to $50,000 Estimated Debts: More than $100 Million Debtor's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ U.S. Bank National Indenture Trustee $150,000,000 Association First Mortgage c/o Michael B. Fisco Notes Faegre & Benson, LLP 2200 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402 AIG Global Investment Holder of First $80,526,500 Corporation Mortgage Notes Attn: Tom Reeg 2929 Allen Parkway, A37-01 Houston, Texas 77019 U.S. Bank National Indenture Trustee $39,000,000 Association Senior Secured c/o Michael B. Fisco, Esq. Notes Faegre & Benson, LLP 2200 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402 Black Diamond Capital Holder of First $28,250,000 Management LLC Mortgage Notes and c/o Brown Rudnick Berlack Senior Secured Israels LLP Notes Jeffrey L. Jones One Financial Center Boston, Massachusetts 02111 Trust Company of the West Holder of First $24,678,000 Attn: C. Shawn Bookin Mortgage Notes 111000 Santa Monica Boulevard Suite 2000 Los Angeles, California 90025 Columbia Management Holder of First $14,230,000 Advisors Mortgage Notes Attn: T.J. Gaylord One Financial Center 12 Floor Boston, Massachusetts 02111 Eaton Vance Management Holder of First $11,000,000 Linda Carer 255 State Street Boston, Massachusetts 02109 The Northwestern Mutual Holder of Senior $9,075,000 Life Insurance Company Secured Notes Attn: Elizabeth Lentini 720 East Wisconsin Avenue Milwaukee, Wisconsin 53202 Nomura Corporate Research & Holder of First $9,075,000 Asset Management Inc. Mortgage Notes Attn: Steven J. Rosenthal 2 World Financial Center Building B, 17th Floor New York, New York 10281 John Hancock Funda Holder of First $7,850,000 Attn: Lee Crockett 101 Huntington Avenue Boston, Massachusetts 02199 Broadmoore/Roy Anderson Construction $6,700,000 Corporation Litigation c/o Kingsmill Riess, LLC Marguerite K. Kingsmill 201 Street, Charles Avenue Suite 3300 New Orleans, Louisiana 70170 Landmark CDO (Aladdin) Holder of Senior $2,000,000 c/o Ad Hoc Committee Secured Notes Robert Moore, Esq. Milbank, Tweed, Hadley & McCloy 601 South Figueroa Street Los Angeles, California 90017 Shreveport Paddlewheels, LLC Marine Services $450,000 c/o Law Offices of Robert G. Agreement Harvey, Sr. 12609 Camel Street, 5th Floor New Orleans, Louisiana 70119 Greenwich Insurance Company Construction $148,000 XL Reinsurance America, Inc. Litigation Wilhite Electric Company Inc Construction $103,113 Litigation Pendleton Products, LLC Trade $83,438 Richard Meek Litigation Unknown Dan Touchstone Litigation Unknown Mary Galvin Litigation Unknown Nelson W. Cameron Litigation Unknown SOLUTIA INC: Has Until January 10 to File Plan of Reorganization ---------------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of New York extended the period within which Solutia Inc. and its debtor- affiliates has the exclusive right to file a reorganization plan to January 10, 2005. The Court also gave the Debtors until March 10, 2005 to solicit acceptances of that plan. As reported in the Troubled Company Reporter on Sept. 20, 2004, The Debtors have identified a short list of next steps aimed ultimately to negotiation and proposal to the Court of a Chapter 11 plan, including: (a) continuing to implement and refine their business plan, including using the tools of bankruptcy to reduce or eliminate operating liabilities and improve cash flows; (b) identifying and quantifying their potential liabilities embodied in the proofs of claim filed by creditors pursuant to the bar date motion, including considering the best way to proceed toward an effective and appropriate discharge of those liabilities; (c) continuing preliminary discussions concerning a framework of a Chapter 11 plan with key constituencies; (d) evaluating the potential for asset sales; and (e) working toward a more firm valuation of their domestic and foreign businesses. The Debtors have been working diligently toward completing these steps and anticipate significant further work and progress in these areas. Headquartered in St. Louis, Missouri, Solutia, Inc. -- http://www.solutia.com/-- with its subsidiaries, make and sell a variety of high-performance chemical-based materials used in a broad range of consumer and industrial applications. The Company filed for chapter 11 protection on December 17, 2003 (Bankr. S.D.N.Y. Case No. 03-17949). When the Debtors filed for protection from their creditors, they listed $2,854,000,000 in assets and $3,223,000,000 in debts. (Solutia Bankruptcy News, Issue No. 24; Bankruptcy Creditors' Service, Inc., 215/945-7000) SOLUTIA INC: Wants to Sell Axio Research Assets for $200,000 ------------------------------------------------------------ Axio Research Corporation is one of three operating Debtors, with a business that is quite distinct from those of Solutia, Inc., and CPFilms, Inc. While Solutia and CPFilms are in the business of manufacturing and sale of goods, Axio's primary business is to conduct research for corporate, academic and government clients, on a contract basis, to determine the viability of newly developed pharmaceuticals. Axio's business has been a part of the Solutia Group's pharmaceutical services division, which has primary operations in Europe. The European operations are owned by non- debtor entities. M. Natasha Labovitz, Esq., at Gibson, Dunn & Crutcher, LLP, in New York, tells the Court that Axio's business is small in the context of Solutia's Chapter 11 cases, with less than $4,000,000 in yearly gross revenues and less than $300,000 in scheduled unsecured prepetition claims. Axio has 31 employees and owns no real property and minimal amounts of personal property. Axio was acquired by Solutia after Solutia's spin-off from Monsanto Company and Axio has not indemnified Monsanto or Pharmacia Corporation with respect to historical liabilities. Other than the Pharma business, the Solutia Group's business divisions have been able to handle the impact of operating under Chapter 11. Ms. Labovitz discloses that the Debtors -- other than Axio -- have been operating generally successfully since the Petition Date, have met targets in their business plan and have improved liquidity since the Chapter 11 filing. By contrast, operating in Chapter 11 has had a strong negative impact on Axio's ability to generate new business and to be cash flow positive. Axio historically has a high rate of winning contracts when it makes proposals for new business, that rate has fallen significantly since it filed for Chapter 11. Even previously secure recommendation channels for new business appear now to have been disrupted by the Chapter 11 filing. Axio learned that many of its customers have a firm policy of avoiding doing business with debtors operating under Chapter 11. Because most of Axio's business is based on short-term project contracts, this policy is preventing Axio from securing new business that will enable it to be cash flow positive and profitable. Furthermore, Axio lost a number of its employees as a result of their concerns over the Chapter 11 impact on the business. This has degraded Axio's ability to provide services to its clients. Axio is concerned that these difficulties may snowball if customers lose confidence in its ability to meet its obligations or if its critical employees seek other opportunities as a result of the uncertainty surrounding the business. Axio's financial results have degenerated, and projections of future results look worse. To avoid further degeneration of the business, the Debtors found it is necessary to pursue a sale of Axio's business. Projections of Axio's financial condition and cash flow are sufficiently dire that unless a sale of Axio's assets can be immediately completed, liquidation and administrative insolvency are distinct possibilities, if not probabilities, Ms. Labovitz says. The Debtors believe that Axio's business will be worth much more in the hands of a new owner operating outside Chapter 11 than it will be worth to the Solutia Group during their Chapter 11 cases. Marketing Process On July 12, 2004, the Solutia Group disclosed in a Form 8-K filing with the Securities and Exchange Commission that Solutia Europe SA/NV retained Rothschild, Inc., and that the Solutia Group was considering a potential sale of the Pharma business. As a result, interested parties have contacted the Solutia Group regarding the potential purchase of Axio. Rothschild and the Solutia Group conducted an extensive search for potential purchasers of Axio on a stand-alone basis and of the Pharma division in general. Before deciding to sell Axio as a stand-alone business, the Solutia Group and its advisors explored the option of including Axio in the sale of the entire Pharma business. However, after a market review it appeared that buyers did not view the small, U.S.-based Axio business as adding value to the European Pharma business. Thus, it appeared that buyers either would not purchase Axio's assets as part of a larger Pharma acquisition or, if they were willing to take Axio's assets, they would be unwilling to provide additional value for those assets. Furthermore, Solutia is still considering its options with respect to the Pharma division and has not yet determined that a sale of its European non-debtor subsidiaries is the best course of action. Thus, the Solutia Group and its advisors decided that it would achieve the maximum success by selling Axio separately from the European non- debtor subsidiaries. Based on their marketing efforts, Rothschild and the Solutia Group identified eight parties who expressed interest or were potentially interested in purchasing Axio. Axio and its advisors sent an overview of Axio's business and a form of confidentiality agreement to each of the parties. Six of the potential buyers signed confidentiality agreements and received an informational memorandum. Four parties elected to proceed to the next marketing phase, in which each potential purchaser was given access to an electronic data room for due diligence purposes and received a draft purchase agreement and a bid proposal request. One party indicated that it would not be able to prepare a bid in the proposed timeframe, but the remaining three parties attended management presentations and continued to express interest in pursuing the Sale. Ultimately, Axio received two bids. After a thorough review of the bids, Axio and its advisors have determined that the bid by Axio Research Acquisition Company, LLC, represents the highest and best offer for the purchase of Axio's business. According to Ms. Labovitz, the Purchaser is managed by one of the former owners of Axio and therefore is familiar with Axio's business. The Purchaser has indicated to Axio that it has the financial resources to undertake the Sale and to operate the business. Sale Agreement As a result of good faith arm's-length negotiations, Axio and the Purchaser entered into a Sale Agreement, subject to Court approval and the submission of higher and better offers. The Sale Agreement provides for the sale of Axio's business for $200,000, plus: (a) 10% of the net yearly profits of the Business; (b) the assumption of certain liabilities; and (c) the payment of cure costs in connection with certain assumed contracts; and (d) the assumption and payment of severance payments owed pursuant to Axio's severance plan to employees not receiving a qualifying employment offer from the Purchaser at or before the Closing. A full-text copy of the Sale Agreement is available for free at: http://bankrupt.com/misc/Axio_Sale_Agreement.pdf By this motion, Solutia and Axio ask the Court to: A. approve and authorize the Sale of substantially all of Axio's assets free and clear of all claims and other interests, liens, mortgages, pledges, security interests, rights of first refusal, obligations and encumbrances of any kind whatsoever, to: -- Axio Research Acquisition Company, LLC, in accordance with the Share and Asset Purchase Agreement dated as of October 25, 2004; or -- the maker of the ultimate highest and best offer for the Acquired Assets as may result from an Auction; B. approve the assumption and assignment by Axio to the Purchaser or Successful Bidder of certain executory contracts and unexpired leases; and C. determine that the Sale is exempt from any stamp, transfer, recording or similar tax as a sale in anticipation of a Chapter 11 reorganization plan. Bidding Procedures The Sale Agreement contemplates that Axio Research Corporation may accept a higher and better offer for its assets if one is received. Axio proposes to accept a competing offer if it is received before November 15, 2004, the deadline for filing objections. Axio proposes to use a very simple bidding and auction process. Axio is willing to provide a potential bidder with access to additional information to assist in the preparation of its bid, subject to that potential bidder executing an appropriate confidentiality agreement. While there is no minimum overbid requirement to be considered to be a higher and better offer, Axio requires that any competing bid be accompanied by a form of purchase agreement that contains substantially the same terms and conditions as those set forth in the Sale Agreement and that is not materially more burdensome than the terms of the Sale Agreement. In addition, the bidder must confirm that it has all necessary corporate or other organizational governance approvals, that the bid is not conditioned on the outcome of unperformed due diligence and that the bid is fully financed. Because time is of the essence, any conditions placed on the bid will factor into Axio's determination of whether or not that bid is a qualified Competing Offer. If Axio determines that it has received a Competing Offer, Axio will hold an auction and will be free to sell the Acquired Assets to the Successful Bidder on the terms of the bidder's purchase agreement. The Auction will take place at 10:00 a.m., Eastern Standard Time, on November 15, 2004, at the offices of Gibson, Dunn & Crutcher, LLP, 200 Park Avenue, in New York, New York 10166-0193 or at a later time or other place as Axio will notify all bidders who have made a Competing Offer. Only the Purchaser and bidders who have submitted Competing Offers will be eligible to participate at the Auction. At the Auction, bidders will be permitted to increase their bids, and Axio will select the highest and best offer set forth during the Auction, as determined by Axio in its business judgment. Axio believes that the proposed bidding and auction process will ensure that Axio receives the highest and best offer for the Acquired Assets. If Axio does not receive any Competing Offers, Axio will not conduct an Auction. If, however, the Auction is held, Axio will present the results of the Auction and the Alternate Sale Agreement on November 17, 2004, and will ask the Court to approve the Sale of the Acquired Assets to the Successful Bidder on the terms and conditions of the Alternate Sale Agreement. Headquartered in St. Louis, Missouri, Solutia, Inc. -- http://www.solutia.com/-- with its subsidiaries, make and sell a variety of high-performance chemical-based materials used in a broad range of consumer and industrial applications. The Company filed for chapter 11 protection on December 17, 2003 (Bankr. S.D.N.Y. Case No. 03-17949). When the Debtors filed for protection from their creditors, they listed $2,854,000,000 in assets and $3,223,000,000 in debts. (Solutia Bankruptcy News, Issue No. 25; Bankruptcy Creditors' Service, Inc., 215/945-7000) SOUTHWALL TECH: Sept. 26 Balance Sheet Upside-Down by $3 Million ---------------------------------------------------------------- Southwall Technologies Inc. (OTCBB:SWTX) released its financial results for the third quarter fiscal 2004 following the close of market on November 1, 2004. Southwall's third quarter 2004 net income was $2.1 million, a gain of $0.07 per fully diluted share, compared with net income of $1.2 million, a gain of $0.04 per fully diluted share, for the second quarter of 2004 and with a net loss of $22.8 million, or $1.82 per share, for the same quarter a year ago. During the third quarter of 2004, Southwall incurred a non-cash charge of $0.5 million associated with the financing completed during the first quarter. "Southwall's revenues during the third quarter of 2004 grew sequentially for the third consecutive quarter and grew on a year to year basis as well," said Thomas G. Hood, Southwall's president and chief executive officer. "Three of our four business segments experienced growth. Our balance sheet is improving as we continue to generate cash from operations and pay down our debt. We also held a successful shareholder meeting in October culminating the refinancing activities we began late last year. With this behind us, the management team will now increase its focus on improving operating efficiencies and longer term profitable growth plans." About the Company Southwall Technologies Inc. designs and produces thin film coatings that selectively absorb, reflect or transmit light. Southwall products are used in a number of automotive, electronic display and architectural glass products to enhance optical and thermal performance characteristics, improve user comfort and reduce energy costs. Southwall is an ISO 9001:2000-certified manufacturer and sells advanced thin film coatings to over 25 countries around the world. Southwall's customers include Audi, BMW, DaimlerChrysler, Hewlett-Packard, Mitsubishi Electric, Mitsui Chemicals, Peugeot-Citroen, Philips, Pilkington, Renault, Saint- Gobain Sekurit, and Volvo. At Sept. 26, 2004, Southwall Technologies' balance sheet showed a $3,012,000 stockholders' deficit, compared to $1,721,000 in positive equity at Dec. 31, 2003. SPIEGEL INC: Wants to Reject Fleet Capital Equipment Lease ---------------------------------------------------------- Spiegel, Inc. and its debtor-affiliates want to walk away from an equipment lease with Fleet Capital Leasing-Technology Finance. Pursuant to the Lease, the Debtors obtained from Fleet Capital: -- 16 Hitachi copiers; -- one Hitachi printer each for a term of 60 months commencing on January 20, 2001 at a monthly rate for all of the equipment totaling $12,481; and -- an additional Hitachi printer for a term of 55 months commencing on June 25, 2001 at a monthly rate of $1,115.00. The Fleet Lease provides that, on the expiration of the initial term, the Lease will renew for successive one-month terms unless and until the Debtors send Fleet Capital a written termination notice of at least 60 days prior to the end of any term. If the Debtors elect to terminate, at the expiration of the final term, they are required under the Fleet Lease to return the Equipment in good working condition. In light of the recent contraction in the overall size of their business enterprises over the past year, the Debtors no longer require the use of the Equipment. The Debtors also do not wish to waste their resources by keeping and maintaining the Equipment. Marc B. Hankin, Esq., at Shearman & Sterling, LLP, in New York, relates that Fleet Capital filed Claim No. 2527 amounting $438,353 for payments allegedly due and owing under the Lease. The Debtors have examined their books and records and determined that: (i) they owe Fleet $7,618 in prepetition amounts; (ii) they are current on all postpetition payments under the Fleet Lease; and (iii) the total payments due and owing for the remainder of the term of the Fleet Lease total $334,325. Headquartered in Downers Grove, Illinois, Spiegel, Inc. -- http://www.spiegel.com/-- is a leading international general merchandise and specialty retailer that offers apparel, home furnishings and other merchandise through catalogs, e-commerce sites and approximately 560 retail stores. The Company filed for Chapter 11 protection on March 17, 2003 (Bankr. S.D.N.Y. Case No. 03-11540). James L. Garrity, Jr., Esq., and Marc B. Hankin, Esq., at Shearman & Sterling, represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $1,737,474,862 in assets and $1,706,761,176 in debts. (Spiegel Bankruptcy News, Issue No. 33; Bankruptcy Creditors' Service, Inc., 215/945-7000) TENET HEALTHCARE: Completes Sale of Four L.A. Hospitals to AHMC --------------------------------------------------------------- Several of Tenet Healthcare Corporation's (NYSE:THC) subsidiaries have completed the sale of four acute care hospitals in the Los Angeles area to AHMC, Inc. The hospitals are 210-bed Garfield Medical Center and 101-bed Monterey Park Hospital in Monterey Park; 117-bed Greater El Monte Community Hospital in South El Monte, and 181-bed Whittier Hospital Medical Center in Whittier. Net after-tax proceeds, including the liquidation of working capital retained by the company, are estimated to be approximately $95 million. The company expects to use the proceeds of the sale for general corporate purposes. Under the sales agreement, the company received $50 million of cash proceeds upon closing and entered into a $50 million senior secured loan agreement with the buyer. The $50 million loan due from the buyer matures on December 16, 2004, and is collateralized by all the properties of the sold hospitals. The four Los Angeles-area hospitals are among 27 hospitals Tenet announced it was divesting on Jan. 28, 2004. With today's announcement, Tenet has completed the divestiture of seven of the 27 facilities and has entered into definitive agreements to divest an additional 13 hospitals. Discussions and negotiations with potential buyers for the remaining seven hospitals slated for divestiture are ongoing. Separately, a company subsidiary has completed the return of Suburban Medical Center, a 182-bed acute care hospital in Paramount, Calif., to its owner. The company had previously disclosed that it would not renew its lease of the facility, which expired Oct. 31. In an agreement with the hospital's owner, Promise Healthcare, Inc. has assumed operation of Suburban as a community hospital with an added emphasis on provision of extended acute care services, effective yesterday, Nov. 2. About the Company Tenet Healthcare Corporation, through its subsidiaries, owns and operates acute care hospitals and related health care services. Tenet's hospitals aim to provide the best possible care to every patient who comes through their doors, with a clear focus on quality and service. Tenet can be found on the World Wide Web at http://www.tenethealth.com/ * * * As reported in the Troubled Company Reporter on June 21, 2004, Standard & Poor's Ratings Services said that the ratings and outlook on Tenet Healthcare Corp. (B/Negative/--) will not be affected by an increase in the size of the company's new senior unsecured note issue due in 2014, to $1 billion from $500 million. Tenet used $450 million of the proceeds to repay debt due in 2006 and 2007, and the balance will be retained in cash reserves. Despite the additional debt and interest costs, Standard & Poor's considers the additional liquidity provided by the cash, as well as the effective extension of maturities, to be offsetting factors. The ratings already consider expectations of weak operating performance and cash flow over the next year while the negative outlook incorporates the risk of ongoing litigation and investigations related to the hospital chain's operations. TOM'S FOODS: Non-Repayment Causes S&P to Tumble Rating to 'D' ------------------------------------------------------------- Standard & Poor's Ratings Services lowered its corporate credit rating on privately owned regional snack food manufacturer and distributor Tom's Foods Inc. to 'D' from 'CCC', as well as its senior secured notes rating to 'D' from 'CCC-'. The rating action follows the company's disclosure that it will not repay the $60 million 10.5% senior secured notes and $3.15 million interest payment due November 1, 2004. As a result, after Nov. 1, 2004, the company will be in default under the notes. Standard & Poor's estimates that Tom's Foods had about $66.4 million of total debt outstanding at Sept. 11, 2004. Columbus, Georgia-based Tom's Foods is a regional snack food manufacturing and distribution company. Its product categories include chips, sandwich crackers, baked goods, nuts, and candy. UAL CORPORATION: Court Approves Novare & ARC Application -------------------------------------------------------- Within 90 days of the Petition Date, UAL Corporation and its debtor-affiliates made payments aggregating $75,000 or less to thousands of transferees that provided goods and services. The Debtors have decided to pursue recovery of 90-Day Payments made to about 2,100 Transferees. These 90-Day Payments are potential preferential transfers under Sections 547 and 550 of the Bankruptcy Code. The Debtors have until December 8, 2004, to commence any lawsuits to collect these payments. There are a large number of Transfers and a short period of time to pursue, settle or resolve them, James H.M. Sprayregen, Esq., at Kirkland & Ellis, explains. As a result, the Debtors would like to employ Novare, Inc., of Crystal Lake, Illinois, and Account Resolution Corporation of Chesterfield, Missouri, as collection consultants. The duties of the firms will not overlap. The Debtors will divide the Transferee list between Novare and ARC. In view of the looming statutory deadline, Novare and ARC commenced work shortly after executing near-identical Collection Service Agreements, on September 20, 2004. Therefore, the Debtors want Novare and ARC to be retained retroactively to September 20, 2004. Novare and ARC will: (a) verify the addresses of the Transferees; (b) establish and staff a dedicated preferences hotline to answer questions from the Transferees; (c) prepare and mail demand letters and make follow-up telephone calls to the Transferees; (d) maintain files and detailed logs recording all oral and written communications with the Transferees; (e) prepare settlement agreements and negotiate and settle Transfer Claims; and (f) prepare weekly status reports that detail the status of all open and settled Transfers. Both Novare and ARC have extensive experience providing preferential recovery and administration services to firms experiencing financial and operating difficulties in Chapter 11 reorganization. Novare and ARC were chosen pursuant to a competitive bidding process. Novare and ARC will not bill on an hourly basis. Both firms have agreed to a contingency fee percentage based on the amount collected in connection with accounts pursued by each firm. The contingency fee includes all out-of-pocket expenses incurred in performance of the collections. The contingency fee arrangement is confidential. Mr. Sprayregen says these are sensitive pricing issues, which could impact the Debtors' ability to negotiate favorable rates from similar service providers in the future. * * * Judge Wedoff agrees that the Debtors need extra staff to pursue the large number of Transferees and approves the Application. 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. 63; Bankruptcy Creditors' Service, Inc., 215/945-7000) UAL CORP: Hires Bridge Associates to Analyze Business Plan ---------------------------------------------------------- The Association of Flight Attendants and the International Association of Machinists sought the appointment of a trustee of the cases of United Airlines, Inc., and its debtor-affiliates. The AFA and IAM agree to withdraw their requests if the Debtors employ Bridge Associates, LLC, of New York City, to analyze their business plan and prepare a confidential report detailing that analysis. As a result, the Debtors ask the Court for permission to employ Bridge. Bridge is a nationally recognized business turnaround, operational and financial consulting, and restructuring and management firm. Bridge is well qualified to provide the services to the Debtors in an efficient manner. The Debtors seek to retain Bridge for 30 days commencing on the latter of: (a) November 1, 2004; or (b) the date the Court approves the Bridge Application. James H.M. Sprayregen, Esq., at Kirkland & Ellis, in Chicago, Illinois, informs the Court that Bridge will have access to all relevant information relevant to the Debtors' business plan. Bridge will vet the business plan and test the related underlying assumptions. During the Engagement Period, the IAM's and AFA's professionals will have full access to the relevant Bridge professionals, subject to confidentiality agreements. Bridge's engagement will automatically terminate once the business plan- related work is completed. Bridge will: (1) review the Debtors' Business Plan; (2) provide an independent evaluation of the Business Plan; and (3) report on the feasibility of implementation. Bridge will prepare a preliminary version of the report by November 22, 2004. The final report will be delivered by November 30, 2004. Bridge's fees during the Engagement Period will approximate $500,000. Bridge will be paid on an hourly basis, plus reimbursement of actual, necessary expenses. The hourly rates Bridge charges are: Principals and Senior Consultants $300 - 450 Senior Associates or Consultants 250 - 300 Associates or Consultants 200 - 275 The hourly rates for specific professionals are: Anthony Schnelling $450 Frederick Kragel 450 Dean Vomero 400 Sidney Harris 350 John Pidcock 300 Alpesh Amin 250 AFA's Statement As reported in the Troubled Company Reporter on Oct. 25, 2004, the Association of Flight Attendants-CWA achieved its core objective in filing its motion to appoint a trustee through an agreement under which United Airlines will hire Bridge Associates LLC, an independent restructuring firm selected in consultation with AFA, to analyze United's business plan. In early September, AFA filed a motion in the bankruptcy court to appoint a trustee to oversee United Airlines' development of a viable business plan that would allow the company to successfully exit bankruptcy. The International Association of Machinists and Aerospace Workers had also filed a motion to appoint a trustee. AFA has continually worked to ensure that the core issue raised in its trustee motion -- the direction and future of United -- would be addressed. The union is encouraged that an agreement has been reached that directly deals with our primary concern. Within the next few days the court will be asked to approve the retention of Bridge Associates LLC to conduct an independent evaluation of United's business plan. As part of this agreement, upon the court approving the retention of the restructuring firm, AFA will withdraw the trustee motion. Over a 30-day period, Bridge Associates will examine the business plan and provide a confidential written report to United with copies to AFA and the IAM. "United Airlines flight attendants have been a powerful advocate for a successful reorganization and we will continue to work toward that goal," stated AFA United Master Executive Council President Greg Davidowitch. "The magnitude of contributions and sacrifices made by our members to the success of United Airlines is immeasurable. AFA will utilize this agreement and any other available tools to see that flight attendant sacrifices are prudently, fairly and meaningfully applied to a plan that returns United Airlines to premier status in the aviation industry." More than 46,000 flight attendants, including the 21,000 flight attendants at United, join together to form AFA, the world's largest flight attendant union. AFA is part of the 700,000 member strong Communications Workers of America, AFL-CIO. Visit us at http://www.unitedafa.org/ Bridge Associates LLC -- http://www.bridgellc.com/-- is a restructuring and turnaround management firm headquartered in New York City and with offices in Cleveland, Tampa, Houston, and Chicago. Wickes, Inc., and Redback Networks, Inc., hired Bridge earlier this year to serve as their Crisis Manager. 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. 64; Bankruptcy Creditors' Service, Inc., 215/945-7000) US AIRWAYS: Wants to Decide on Leases Until Plan Confirmation ------------------------------------------------------------- Under Section 365(d)(4) of the Bankruptcy Code, US Airways, Inc., and its debtor-affiliates have 60 days from the Petition Date, or until November 11, 2004, to assume or reject non-residential real property leases. The Debtors are lessees or sublessors to approximately 500 unexpired non-residential real property leases. The Debtors are evaluating all owned and leased real estate to determine whether to assume, assume and assign, or reject the Unexpired Leases. Given the large number of Unexpired Leases, the Debtors require more time to make lease decisions. Without sufficient time to make a reasoned decision, the Debtors may be compelled to either assume long-term liabilities or to forfeit the benefits associated with certain Unexpired Leases. Any hastiness may be to the detriment of the Debtors' ability to operate and preserve the going-concern value of their business for the benefit of creditors and other parties-in-interest. Brian P. Leitch, Esq., at Arnold & Porter, in Denver, Colorado, relates that the Debtors have started assessing several Unexpired Leases to determine the optimum course of action. However, given the size of their Chapter 11 cases, the number of Unexpired Leases and the primary objective of stabilizing the business, the Debtors need more time to assess the most advantageous fate of each Unexpired Lease. The Debtors' decision on the Unexpired Leases depends in large part on whether the location will play a future role under their Transformation Plan, namely whether the Debtors will continue operations at that location. The Debtors have made great progress in formulating their Transformation Plan, but specific locations are still being evaluated. As a result, it is not possible to determine which locations will remain a part of the Debtors' business. The Debtors are also analyzing certain locations to determine whether there is value in an assignment. Accordingly, the Debtors ask the Court to extend the time within which they may assume, assume and assign, or reject the Unexpired Leases through the earlier of April 30, 2005, or the date of confirmation of a plan of reorganization. Headquartered in Arlington, Virginia, US Airways' primary business activity is the ownership of the common stock of: * US Airways, Inc., * Allegheny Airlines, Inc., * Piedmont Airlines, Inc., * PSA Airlines, Inc., * MidAtlantic Airways, Inc., * US Airways Leasing and Sales, Inc., * Material Services Company, Inc., and * Airways Assurance Limited, LLC. Under a chapter 11 plan declared effective on March 31, 2003, USAir emerged from bankruptcy with the Retirement Systems of Alabama taking a 40% equity stake in the deleveraged carrier in exchange for $240 million infusion of new capital. US Airways and its subsidiaries filed another chapter 11 petition on September 12, 2004 (Bankr. E.D. Va. Case No. 04-13820). Brian P. Leitch, Esq., Daniel M. Lewis, Esq., and Michael J. Canning, Esq., at Arnold & Porter LLP, and Lawrence E. Rifken, Esq., and Douglas M. Foley, Esq., at McGuireWoods LLP, represent the Debtors in their restructuring efforts. In the Company's second bankruptcy filing, it lists $8,805,972,000 in total assets and $8,702,437,000 in total debts. (US Airways Bankruptcy News, Issue No. 69; Bankruptcy Creditors' Service, Inc., 215/945-7000) US AIRWAYS: U.S. Bank Seeks Adequate Protection on Aircraft Deals ----------------------------------------------------------------- U.S. Bank National Association and U.S. Bank Trust National Association, act as: (1) Trustee of certain Pass Through Trusts; (2) Loan Trustee under Indenture and Security Agreements; (3) Owner Trustee under Trust Agreements; and (4) Liquidating Trustee under Liquidating Trust Agreements. U.S. Bank asks the U.S. Bankruptcy Court for the Eastern District of Virginia to condition the use of US Airways, Inc., and its debtor-affiliates of its collateral upon the provision of adequate protection pursuant to Sections 361 and 363(e) of the Bankruptcy Code. Ira H. Goldman, Esq., at Shipman & Goodwin, in Hartford, Connecticut, outlines the financial transactions that U.S. Bank has helped the Debtors arrange: (A) Publicly Placed Transactions The Debtors sold Pass Through Certificates to finance aircraft they owned or leased. The Debtors formed separate Pass Through Trusts with U.S. Bank as Pass Through Trustee. The Certificate Holders are beneficiaries of the issuing Pass Through Trust with a pro rata interest in the property of the Trust. (B) Privately Placed Transactions U.S. Bank serves as Loan Trustee and Owner Trustee in several privately placed Leveraged Lease and Owned Aircraft transactions: 1. Owned Aircraft Transactions The Debtors financed owned Aircraft by issuing Private Owned Notes. The Private Owned Notes were issued under a separate indenture and security agreement between the Debtors and U.S. Bank, as Loan Trustee, relating to the subject Aircraft. 2. Leveraged Lease Transactions In the Leveraged Lease transactions, one or more entities formed an Owner Trust to acquire an Aircraft, which in turn leased it to the Debtors. To finance the Aircraft, the Owner Participant contributed a portion of the purchase price to the Owner Trust. The remainder of the purchase price was financed through the issuance of Private Leased Notes. To secure its obligation to pay principal, premium and interest on the Private Leased Notes, the Owner Trustee assigned its rights to the lease, to receive basic rent, to certain other payments and to the subject Aircraft, to U.S. Bank as Loan Trustee. 3. Single Investor Lease Transactions In a Single Investor Lease, one or more entities formed an Owner Trust to acquire an Aircraft, which in turn leased it to the Debtors. The Owner Participant is the only investor in the Aircraft. The Owner Trustee issued no notes or associated debt to finance the Aircraft. (C) Liquidating Trusts U.S. Bank serves as Liquidating Trustee for 29 Liquidating Trusts formed in connection with the restructuring of Pass Through transactions in the first US Air bankruptcy. Each Liquidating Trust is a Connecticut Statutory Trust, administered by a Liquidating Trust Agreement. The Liquidating Trusts take and hold title to, and ultimately to dispose of, those Aircraft involved in the pass through transactions that were either: -- originally owned by the Debtors and returned during the first bankruptcy, or -- were subject to leases rejected by the Debtors during the first bankruptcy. Mr. Goldman explains that the underlying Aircraft and engines that secure the Notes and Private Notes constitute U.S. Bank's Collateral. This Collateral is at risk. The Debtors are presently using the Collateral in revenue producing service. This diminishes its value as each day, hour and cycle of operation brings the airframes and components closer to their next scheduled maintenance events. The value of a commercial jet depends on where in the maintenance cycle the airframe, landing gears, Auxiliary Power Units and engines are. Even if the Debtors are performing maintenance, the accrual of days, hours and cycles diminishes the value. U.S. Bank assumes an additional risk due to the Debtors' potential failure to make rent and other payments under the Liquidating Trusts, the Pass Through Trusts, the Single Investor Leases and the Leveraged Leases. Mr. Goldman insists that U.S. Bank is entitled to adequate protection under Section 363. A secured creditor and lessor like U.S. Bank is entitled to adequate protection as compensation for depreciation, deterioration or diminution in the value of its collateral. Adequate protection maintains the status quo between the Petition Date and before confirmation or rejection of the Debtors' restructuring plan. According to Mr. Goldman, to adequately protect U.S. Bank's interests in the Collateral, the Debtors should: (a) comply with the Federal Aviation Act regulations and any other laws with respect to the Collateral; (b) comply with all provisions of the Owned Security Agreements, Leased Security Agreements, Owned Aircraft Indentures, Leased Aircraft Indentures, the Liquidating Trust Leases, Single Investor Leases and other Operative documents concerning the operation, maintenance and use of the Collateral; (c) continue to carry, maintain and pay for sufficient insurance on the Collateral; (d) be enjoined from removing or replacing any component parts; (e) pay postpetition interest on all Financial Transactions; (f) pay U.S. Bank's fees and expenses; (g) confirm whether the Collateral continues to be used and provide evidence that storage and maintenance is consistent with industry practices; and (h) pay monthly cash maintenance reserves to U.S. Bank for the operation of the Collateral from the Petition Date, including: (i) airframe reserves toward the next scheduled heavy structural and system checks; (ii) engine reserves on each engine toward their next shop visit for heavy maintenance and life limited parts replacement based on industry averages; (iii) landing gear reserves based on last overhaul; and (iv) APU reserve based on the Debtors' typical shop visit interval for performance restoration for similar APUs in its fleet. To the extent this provides insufficient protection of U.S. Bank's interests in the Collateral, U.S. Bank should be granted a "super- priority" administrative claim pursuant to Section 507(b), which is higher in priority than all administrative claims. Headquartered in Arlington, Virginia, US Airways' primary business activity is the ownership of the common stock of: * US Airways, Inc., * Allegheny Airlines, Inc., * Piedmont Airlines, Inc., * PSA Airlines, Inc., * MidAtlantic Airways, Inc., * US Airways Leasing and Sales, Inc., * Material Services Company, Inc., and * Airways Assurance Limited, LLC. Under a chapter 11 plan declared effective on March 31, 2003, USAir emerged from bankruptcy with the Retirement Systems of Alabama taking a 40% equity stake in the deleveraged carrier in exchange for $240 million infusion of new capital. US Airways and its subsidiaries filed another chapter 11 petition on September 12, 2004 (Bankr. E.D. Va. Case No. 04-13820). Brian P. Leitch, Esq., Daniel M. Lewis, Esq., and Michael J. Canning, Esq., at Arnold & Porter LLP, and Lawrence E. Rifken, Esq., and Douglas M. Foley, Esq., at McGuireWoods LLP, represent the Debtors in their restructuring efforts. In the Company's second bankruptcy filing, it lists $8,805,972,000 in total assets and $8,702,437,000 in total debts. (US Airways Bankruptcy News, Issue No. 68; Bankruptcy Creditors' Service, Inc., 215/945-7000) USG CORP: Has Until March 1 to Make Lease-Related Decisions ----------------------------------------------------------- The U.S. Bankruptcy Court for the District of Delaware gave USG Corporation and its debtor-affiliates until March 1, 2005 to elect to assume, assume and assign, or reject any prepetition unexpired non-residential real property leases and executory contracts. Headquartered in Chicago, Illinois, USG Corporation -- http://www.usg.com/-- through its subsidiaries, is a leading manufacturer and distributor of building materials producing a wide range of products for use in new residential, new nonresidential and repair and remodel construction, as well as products used in certain industrial processes. The Company filed for chapter 11 protection on June 25, 2001 (Bankr. Del. Case No. 01-02094). David G. Heiman, Esq., and Paul E. Harner, Esq., at Jones Day represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $3,252,000,000 in assets and $2,739,000,000 in debts. (USG Bankruptcy News, Issue No. 74; Bankruptcy Creditors' Service, Inc., 215/945-7000) W.R. GRACE: Wants Until November 15 to File Plan of Reorganization ------------------------------------------------------------------ W.R. Grace & Co., and its debtor-affiliates ask the U.S. Bankruptcy Court for the District of Delaware to extend the time within which they must file a Chapter 11 plan through and including November 15, 2004. David W. Carickhoff, Jr., at Pachulski, Stang, Ziehl, Young, Jones & Weintraub, P.C., in Wilmington, Delaware, tells the Court that the Debtors currently have a Chapter 11 plan and disclosure statement drafted and ready to be filed. Nonetheless, the Debtors have continued to meet with all of the creditors' committees in an attempt to arrive at a consensual plan. In an October 14, 2004, meeting among the Debtors, the Asbestos Personal Injury Committee, and the Asbestos Property Damage Committee, sufficient progress was made for the parties to conclude that additional negotiations could lead to a consensual Chapter 11 plan. "The Debtors and the Asbestos Committees feel that it would hinder the process, if the Debtors' current chapter 11 plan were to be filed and made public at this time," Mr. Carickhoff informs Judge Fitzgerald. Headquartered in Columbia, Maryland, W.R. Grace & Co., -- http://www.grace.com/-- supplies catalysts and silica products, especially construction chemicals and building materials, and container products globally. The Debtors filed for chapter 11 protection on April 2, 2001 (Bankr. Del. Case No: 01-01139). James H.M. Sprayregen, Esq., at Kirkland & Ellis and Laura Davis Jones, Esq., at Pachulski, Stang, Ziehl et al. represent the Debtors in their restructuring efforts. (W.R. Grace Bankruptcy News, Issue No. 73; Bankruptcy Creditors' Service, Inc., 215/945-7000) WEST PENN: Moody's Upgrades Bond Rating to B1 with Stable Outlook ----------------------------------------------------------------- Moody's Investors Service upgraded West Penn Allegheny Health System's bond rating to B1 from B2 and revised the outlook to stable from negative, affecting $488 million of debt. The upgrade reflects: (1) a notable improvement in operating performance in 2004; (2) an increase in absolute cash levels even after a large prepayment of liabilities; and (3) the continuation of operating initiatives that should sustain some, if not most, of the recent improvement. West Penn continues to face challenges including: (1) sizable capital needs that have been deferred and an underfunded pension plan that will require sizable cash contributions; (2) a modest cash position; and (3) a difficult market environment with a large, formidable competitor and a dominant payer. The stable outlook reflects our belief that West Penn will be able to maintain operating performance and cash levels. The current rating upgrade follows a rating downgrade in July 2003 to B2 from B1. Non-investment grade ratings are typically subject to greater volatility than investment grade ratings because the magnitude of the challenges faced by the organization generally result in more variable operating performance and a smaller cushion to withstand unexpected events. Operating Improvement in 2004 Notable West Penn's operating improvement in 2004 was notable, reflecting the organization's ability to overcome a number of the challenges in 2003. We think the improvement reflects a quick response to unexpected developments in the third quarter of 2003, benefits from multiple-year operating strategies, and some favorable shifts in the market environment. In fiscal year 2004, West Penn reported essentially breakeven operations (excluding investment income), compared with a $57 million loss in 2003. Operating cashflow almost doubled to $117 million (9%) in 2004 from $63 million (5%) in 2003. Peak debt service coverage is still modest at 2.0 times, but much improved from 1.2 times in 2003. Management implemented a number of initiatives to respond to unexpected shortfalls that impacted operations in the third quarter of 2003. Admissions grew over 2% system-wide, reflecting physician recruitment and difficulties or service closures at competitors. West Penn was able to achieve rate increases from its largest payer, Highmark, after a number of years of only modest increases. Improvement in 2004 was also driven by the realization of benefits from strategies that the organization has been implementing for several years including renegotiating managed care contracts, productivity and supply chain initiatives, a reduction in agency usage and revenue cycle improvements. Moody's also believe there have been some subtle changes in the market environment over the last year, which have slightly eased operating pressures. The shift from fee-for-service Medicare to Medicare managed care, which was resulting in significantly less reimbursement to West Penn, appears to have slowed as Highmark is increasing premiums for its Medicare product. With higher premiums, West Penn's rates from Highmark for enrollees in this product have improved. West Penn successfully completed its union contract negotiations and wage pressure seems to be softening a bit. Finally, competition has eased slightly compared with the last several years as physician practice acquisition and employment among most of the hospitals in Pittsburgh is finally slowing down. Operating and Competitive Challenges Remain West Penn faces a number of challenges to achieving similar performance levels in 2005, although we believe that a large portion of the improvement attained in 2004 should be sustained. UPMC Health System continues to provide formidable competition with a leading market share in the 6-county area even though aggressive physician recruitment and generous financial offers seem to have slowed. Approximate market share in the 6-county area for WestPenn is 21% compared with 30% for UPMC, with local market share varying. Competition for cardiology is increasing as new programs are added and West Penn's cases continue to decline with 1,352 cases in 2004, compared with 1,987 in 2000. Despite growth in UPMC's health plan, Highmark continues to be the dominant payer in the Pittsburgh area, accounting for a very high 35% of West Penn's total business and largely driving financial performance at many area hospitals. Although West Penn recently negotiated better rates from Highmark, the contract is a long-term contract with annual inflators largely tied to CPI, which may be inadequate to cover the rate of expense growth in light of rising labor and supply costs. West Penn, like other health systems, faces expense increases in pension, supplies and bad debt. The system has successfully managed to keep increases in supplies and bad debt relatively modest through supply chain and revenue cycle initiatives, but escalation in these areas is likely to continue. Finally, providers in Pittsburgh have experienced declines in the Medicare wage index, which resulted in $5 million less reimbursement in 2004 for West Penn, and is expected to continue. Modest Cash Position Challenged by Pension and Capital Needs West Penn was able to grow its cash position in 2004 but remains challenged by capital and pension needs. As of June 30, 2004, the system had $204 million in unrestricted cash, representing a modest 61 days of cash on hand, but an improvement from $193 million at the end of fiscal year 2003. West Penn grew cash from operating improvement, $10 million in land sale proceeds and by reducing capital spending $22 million from the prior year. With a sizable increase in cash, West Penn chose to prepay $50 million in liabilities at the end of 2004, including a $25 million pension payment. In the absence of this prepayment, cash would have increased to 75 days of cash on hand. Going forward, West Penn will need to fund its under funded pension plan, make large debt service payments and fund capital needs at a level to remain competitive. West Penn's pension plan will require approximately $9 million in additional funding in fiscal year 2005, possibly $30 million in fiscal year 2006 and at least $30 million in 2007. Capital spending has been below depreciation and remains low because of liquidity constraints; however, we believe West Penn will need to make at least a minimal level of capital investment in order to remain competitive, further taxing its liquidity position. Key Data and Ratios (based on audited financial statements June 30, 2004; returns adjusted to 6%) Total Hospital Admissions: 82,676 Total Revenues: $1.3 billion Total Outstanding Debt: $659.6 million Net Revenues Available for Debt Service: $128.8 million Days-Cash-on-Hand: 61 days Operating Cash Flow Margin: 9.1% The stable outlook reflects Moody's belief that West Penn will be able to maintain operating performance and cash levels. WESTPOINT STEVENS: U.S. Trustee Amends Creditors' Comm. Membership ------------------------------------------------------------------ The United States Trustee for Region 2 appoints Carlisle Investments and Alma and Gabriel Elias to the Official Committee of Unsecured Creditors of WestPoint Stevens, Inc., effective October 13, 2004. Four members of the Committee -- ESL Investments, GSC Partners, Fidelity Research & Management Company, and Perry Strategic Capital, Inc. -- have stepped down. The Committee is now comprised of: 1. HSBC Bank USA 452 Fifth Ave., New York, NY 10018 Attn: Robert Conrad, Vice President Phone: (212) 525-1314 2. KOSA Charlotte Park Drive, Charlotte, North Carolina 28217 Attn: Ernest Pepe, Credit Manager Phone: (704) 586-7300 3. Imex Discovery Resources Inc. 5311 77 Center Drive, Charlotte, North Carolina 28217 Attn: Eugene P. Smith, Vice President Operations Phone: (704) 527-1785 4. Alma and Gabriel Elias 509 Spring Avenue Elkins Park, PA 19027 Phone: (215) 635-0305 5. Carlisle Investments Via Parigi 11 Rome Italy 00185 Attn: Marco M. Elser Phone: +39 06-4521 1122 Headquartered in West Point, Georgia, WestPoint Stevens, Inc., -- http://www.westpointstevens.com/-- is the #1 US maker of bed linens and bath towels and also makes comforters, blankets, pillows, table covers, and window trimmings. It makes the Martex, Utica, Stevens, Lady Pepperell, Grand Patrician, and Vellux brands, as well as the Martha Stewart bed and bath lines; other licensed brands include Ralph Lauren, Disney, and Joe Boxer. Department stores, mass retailers, and bed and bath stores are its main customers. (Federated, J.C. Penney, Kmart, Sears, and Target account for more than half of sales.) It also has nearly 60 outlet stores. Chairman and CEO Holcombe Green controls 8% of WestPoint Stevens. The Company filed for chapter 11 protection on June 1, 2003 (Bankr. S.D.N.Y. Case No. 03-13532). John J. Rapisardi, Esq., at Weil, Gotshal & Manges, LLP, represents the Debtors in their restructuring efforts. (WestPoint Bankruptcy News, Issue No. 31; Bankruptcy Creditors' Service, Inc., 215/945-7000) * Upcoming Meetings, Conferences and Seminars --------------------------------------------- November 29-30, 2004 BEARD GROUP & RENAISSANCE AMERICAN MANAGEMENT The Eleventh Annual Conference on Distressed Investing Maximizing Profits in the Distressed Debt Market The Plaza Hotel - New York City Contact: 1-800-726-2524; 903-592-5168; or dhenderson@renaissanceamerican.com December 2-4, 2004 AMERICAN BANKRUPTCY INSTITUTE Winter Leadership Conference Marriott's Camelback Inn, Scottsdale, AZ Contact: 1-703-739-0800 or http://www.abiworld.org/ March 9-12, 2005 TURNAROUND MANAGEMENT ASSOCIATION 2005 Spring Conference JW Marriott Desert Ridge, Phoenix, AZ Contact: 312-578-6900 or http://www.turnaround.org/ April 28- May 1, 2005 AMERICAN BANKRUPTCY INSTITUTE Annual Spring Meeting J.W. Marriot, Washington, DC Contact: 1-703-739-0800 or http://www.abiworld.org/ June 2-4, 2005 ALI-ABA Partnerships, LLCs, and LLPs: Uniform Acts, Taxation, Drafting, Securities and Bankruptcy Omni Hotel, San Francisco Contact: 1-800-CLE-NEWS; http://www.ali-aba.org/ July 14 -17, 2005 AMERICAN BANKRUPTCY INSTITUTE Ocean Edge Resort, Brewster, MA Contact: 1-703-739-0800 or http://www.abiworld.org/ July 27- 30, 2005 AMERICAN BANKRUPTCY INSTITUTE Southeast Bankruptcy Workshop Kiawah Island Resort and Spa, Kiawah Island, SC Contact: 1-703-739-0800 or http://www.abiworld.org/ October 19-23, 2005 TURNAROUND MANAGEMENT ASSOCIATION 2005 Annual Convention Chicago Hilton & Towers, Chicago Contact: 312-578-6900 or http://www.turnaround.org/ November 2-5, 2005 NATIONAL CONFERENCE OF BANKRUPTCY JUDGES Seventy Eighth Annual Meeting San Antonio, TX Contact: http://www.ncbj.org/ December 1-3, 2005 AMERICAN BANKRUPTCY INSTITUTE Winter Leadership Conference Hyatt Grand Champions Resort, Indian Wells, CA Contact: 1-703-739-0800 or http://www.abiworld.org/ The Meetings, Conferences and Seminars column appears in the Troubled Company Reporter each Wednesday. Submissions via e-mail to conferences@bankrupt.com are encouraged. ********* 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 ***