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/raid1/www/Hosts/bankrupt/TCR_Public/041115.mbx T R O U B L E D C O M P A N Y R E P O R T E R Monday, November 15, 2004, Vol. 8, No. 250 Headlines ARMSTRONG: Bear Stearns and 13 Trade Creditors Sell Claims ATA AIRLINES: Wants to Pay Fuel & In-Plane Vendors' Claims ATA AIRLINES: Wants to Pay Taxes, Fees & PFCs to Authorities AUSTIN BOULEVARD: Case Summary & 20 Largest Unsecured Creditors BLOCKBUSTER: S&P Places BB Corporate Credit Rating on CreditWatch BLOCKBUSTER: Purchase Plan Prompts Fitch to Review Low-B Ratings BOMBARDIER: Moody's Pares Senior Unsecured Debt Ratings to Ba2 BURLINGTON: Trust Amends Schedules of Assets & Liabilities CASCADES: Earnings & Cash Flow Decline Cues Moody's to Cut Ratings CATHOLIC CHURCH: Portland Tort Committee Hires Dr. Conte as Expert CATHOLIC CHURCH: A. Butler Appointed as Tucson Unknown Claims Rep. CATHOLIC CHURCH: Spokane to File Chapter 11 Petition by Nov. 29 CONCERT INDUSTRIES: Solicits Consents for CCAA Plan of Arrangement CONGOLEUM CORP: Sept. 30 Balance Sheet Upside-Down by $23.1 Mil. COUNCIL TRAVEL: Court Confirms Second Amended Joint Plan CRESCENT REAL: Moody's Confirms B1 Rating on Senior Unsecured Debt ENRON: Wants Court to Reduce Grupo IMSA's Claim to $17.5 Million ENRON: Gets Court Nod on $4,000,000 Settlement with NNGC Parties ENRON CORP: Objects to Two Silver Oak Claims Totaling $143 Million EXIDE TECH: Awards Options & Shares to Eight Executives FINOVA GROUP: Pension Plans Will Terminate Effective Dec. 31 FRANK'S NURSERY: Can Continue Hiring Ordinary Course Professionals FRANK'S NURSERY: Committee Hires Otterbourg Steindler as Counsel GLOBAL CROSSING: Court Approves Broadview Settlement Agreement GWENADELE INC: List of 30 Largest Unsecured Creditors HAYES LEMMERZ: Gets Approval to Establish Securitization Program INTEGRATED ALARM: Moody's Rates Planned $125M Sr. Sec. Notes B3 INTEGRATED ELECTRICAL: Limiting Current Bond Issues INTEGRATED ELECTRICAL: Lack of Info Cues S&P to Withdraw Ratings INTERSTATE BAKERIES: Hires Kurtzman Carson as Claims Agent INTERSTATE BAKERIES: Wants Court Nod to Retain Kutak as Co-Counsel INTERWAVE COMMS: First Quarter Net Loss Widens to $6.3 Million J.H. WHITNEY: Fitch Upgrades Ratings After Review JETBLUE AIRWAYS: S&P Assigns BB+ Rating to Class C Certificates KAISER ALUMINUM: Court Approves Settlement with Federal Agencies KINETICS GROUP: Moody's Junks $17 Million Senior Secured Facility KMART CORP: Court Allows Serrano's Claim for $500K LAGUARDIA: Wants to Use SunTrust & Shaner Cash Collateral LAGUARDIA: Hires Dilworth Paxson as Bankruptcy Counsel LEAP WIRELESS: S&P Puts B- Corp. Credit Rating with Stable Outlook LUCENT TECHNOLOGIES: McGinn & Heindel Get "Wells" Notices from SEC MARSH SUPERMARKETS: S&P Places B+ Rating on CreditWatch Negative MICROTEC ENTERPRISES: Files for CCAA Protection in Quebec MICROTEC ENTERPRISES: Obtains Initial CCAA Stay Order MURRAY INC: Wants to Employ Bass Berry as Co-Counsel NEW LIFE HOLINESS: List of 8 Largest Unsecured Creditors NORTHWEST ALUMINUM: Case Summary & 33 Largest Unsecured Creditors NSG HOLDINGS: Moody's Puts B1 Rating on Senior Secured Facilities OSHKOSK TRUCK: Moody's Withdraws Low-B Ratings PARMALAT USA: Wants Former VP F. Ferrante to Produce Documents PG&E NAT'L: Wants Exclusive Plan Filing Period Extended to Mar. 1 RECEIVABLES STRUCTURED: Moody's Pares 7.44% Notes' Rating to Caa2 RIGGS NATIONAL: S&P Slices Long-Term Counterparty Rating to B- RLI: Moody's Withdraws Ba1 Sub. Debt & Pref. Securities Ratings SECOND CHANCE: U.S. Trustee Meeting With Creditors on November 18 SENETEK PLC: Gets $1.76M Settlement from U.S. Int'l. Trading Corp. SI CORPORATION: Moody's Withdraws Junk Ratings SIX FLAGS: High Debt Burden Cues Moody's to Junk Unsecured Debt SOLUTIA INC: Has Until March 11 to Remove State Court Actions SOVEREIGN SPECIALTY: Moody's Reviewing Ratings & May Upgrade STANDARD COMMERCIAL: Merger Plans Prompt Moody's to Review Ratings STELCO INC: Inks New $900 Million Financing with Deutsche Bank TRICO MARINE: Solicits Consents for Pre-Packaged Chapter 11 TRICO MARINE: Gets Second Delisting Notice from Nasdaq US AIRWAYS: Court Bars Enforcement of Illinois Liquor Law US AIRWAYS: Teamsters Want to Conduct Rule 2004 Examination US AIRWAYS: Seeks to Reject Labor Pacts to Continue Restructuring US LEC: Court Approves StarNet Asset Acquisition VANGUARD HEALTH: Reports $110.1 Million of Net Loss in 1st Qtr. VESTA INSURANCE: Negative Events Prompt Fitch to Junk Ratings VLASIC: Seven Experts Testify in $250M Campbell Spin-Off Suit W.R. GRACE: Files Chapter 11 Plan of Reorganization in Delaware WILMOT MOUNTAIN INC: Case Summary & 20 Largest Unsecured Creditors Z-TEL TECH: Sept. 30 Balance Sheet Upside-Down by $166.2 Million * Alvarez & Marsal Opens New Office in Sao Paulo, Brazil * BOND PRICING: For the week of November 15 - November 19, 2004 ********* ARMSTRONG: Bear Stearns and 13 Trade Creditors Sell Claims ---------------------------------------------------------- Between September 2 and October 6, 2004, the Clerk of U.S. Bankruptcy Court for the District of Delaware recorded 23 claim transfers in Armstrong World Industries and its debtor-affiliates' chapter 11 cases. Bear Stearns & Co., Inc., sold nine claims aggregating $10,425,493 to three different entities: Claim Amount Transferee ------------ ---------- $2,929,529 OZF Credit Opportunities Master Fund 1,554,838 OZF Credit Opportunities Master Fund 155,241 OZF Credit Opportunities Master Fund 1,219,838 King Street Capital, Ltd. 1,017,111 King Street Capital, Ltd. 527,875 King Street Capital, Ltd. 521,061 King Street Capital, Ltd. 1,500,000 Loews Corp. 1,000,000 Loews Corp. Amroc Investments purchased 14 claims from these trade creditors: * Shadowlight Group, * Spraying Systems Company, * Zentz Industrial Services, * Steffy Cranes, Inc., * Allied Industrial Products, * Georgia Automation, Inc., * Crystal Spring, * McKesson Water Products Company (2 claims), * Triad Mechanical, Inc., * Trac-Work, Inc., * Airmatic, Inc., * Wells Phillips 66, and * McGoff-Bethune, Inc. Headquartered in Lancaster, Pennsylvania, Armstrong World Industries, Inc. -- http://www.armstrong.com/-- the major operating subsidiary of Armstrong Holdings, Inc., designs, manufactures and sells interior finishings, most notably floor coverings and ceiling systems, around the world. The Company and its debtor-affiliates filed for chapter 11 protection on December 6, 2000 (Bankr. Del. Case No. 00-04469). Stephen Karotkin, Esq., at Weil, Gotshal & Manges LLP, and Russell C. Silberglied, Esq., at Richards, Layton & Finger, P.A., represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $4,032,200,000 in total assets and $3,296,900,000 in liabilities. (Armstrong Bankruptcy News, Issue No. 68; Bankruptcy Creditors' Service, Inc., 215/945-7000) ATA AIRLINES: Wants to Pay Fuel & In-Plane Vendors' Claims ---------------------------------------------------------- ATA Airlines and its debtor-affiliates seek the United States Bankruptcy Court for the Southern District of Indiana's authority to pay certain prepetition claims of vendors critical to their operations. Absent the payments, there is a high risk that the vendors will refuse to provide essential services, may be placed in a position in which they are unable to provide services, or that may cause a default under an existing contract that would trigger price increases of almost 200%. The Debtors have identified less than 15 vendors they consider to be both critical to their businesses and at risk of refusing or becoming unable to provide essential goods and services. The Debtors have kept the list confidential to prevent an "automatic" refusal to provide services. The Debtors have filed the list under seal. (1) Fuel Vendors The maintenance of a steady supply of fuel for the aircraft is essential to the Debtors' ability to continue in business. Disruption to the supply or the loss of preferential pricing on their fuel buys, especially in this environment of ever rising fuel prices, poses serious consequences to the Debtors. The Debtors want to pay prepetition amounts owed to certain critical fuel vendors to avoid being forced to pay price increases of nearly 200%. The Debtors explain that the critical fuel vendor may be a sole source provider at a location that is essential to any proposed restructuring effort, or a sole source provider to multiple locations and have already related information to the Debtors that services will be discontinued absent payment or reduction of the debt. The Debtors estimate that critical fuel vendor payments would aggregate not more than $750,000. The Debtors also ask the Court to allow the fuel vendors to apply any prepayments or credits made by or owed to the Debtors occurring after the Petition Date against the prepetition obligations. The Debtors also seek permission to continue participating in the Fuel Consortia in accordance with established practice and in the ordinary course of business. The Debtors want to ensure a steady supply of fuel and a reliable place to store the fuel. (2) Ground Services Relationships Ground services are an essential element of major airlines' operations. Grounds services include "ramp services," like the loading and unloading of baggage, cargo and mail and interior cleaning of airplanes between and following flights, as well as passenger services, like check-in and boarding. Unlike most of the other major domestic carriers, the Debtors do not directly perform the ramp services at most of their scheduled service stations. Instead, the Debtors obtain these services from third party ground service providers pursuant to certain ground services contracts. Four ground service providers handle ramp services for the Debtors at 20 of the 28 domestic airports, including high traffic locations, from which the Debtors provide scheduled service. By using the Ground Handling Servicers, the Debtors save an aggregate of $2,000,000 annually from preferred pricing. The Ground Service Contracts have no fault termination clauses in which either side may terminate upon 60 days' notice. If the services were terminated, however, the Debtors would not only lose the annual savings, but also incur significant costs to replace the services. The Debtors estimate that the aggregate prepetition amount outstanding under the Ground Handling Contracts is $500,000. (3) Navigation and Communication Vendors The Debtors have identified certain navigation and communication vendors (i) that are both critical to the continued operation of the airline and (i) that the Debtors' failure to pay relatively small prepetition amounts may cause these Navigation Vendors to fail. The Navigation Vendors provide, among other things, pre-flight weather data for the pilot and crew, critical navigation and other data feeds to pilots in-flight, and maintenance of the Debtors' online booking databases ensuring accurate passenger booking counts. Each of the Navigation Vendors uses its own and the Debtors' proprietary software to perform the services. The Navigation Vendors are small companies and the Debtors have been told by at least one of the Navigation Vendors that it will not be able to fund the Debtors' prepetition debt and will most likely fail. The aggregate amount due prepetition to the Navigation Vendors is estimated to aggregate $31,300. (4) In-Flight Food Providers The Debtors want to pay certain vendors that provide in-flight food services to critical routes, or may be a sole provider in certain of their busiest locations, where no alternative exists. Some of the vendors have informed the Debtors that they may refuse to continue service because of prepetition debts owed. The Debtors estimate that the aggregate amount owed to the In-flight Food Providers aggregates approximately $225,000. * * * Judge Lorch will consider the payment of prepetition obligations to the Critical Vendors on a case-by-case basis. Judge Lorch establishes these procedures by which the Debtors may seek the Court's authority to make a prepetition payment to a Vendor: (a) If a Vendor demands payment of prepetition obligations before providing postpetition services to the Debtors and the refusal to provide the postpetition services presents a legitimate threat to health or public safety, or, where the refusal to provide the services would cause a disruption in the Debtors' operations, the Debtors will immediately contact the Court and seek authority to pay the prepetition obligation; (b) The Court may, at its discretion, conduct an emergency ex parte hearing, to consider evidence or testimony to determine whether it will allow payment by the Debtors of the prepetition obligations to the Vendors; and (c) The banks are authorized and directed to honor any prepetition checks drawn, or to fund transfers made, for an Authorized Payment. 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. 3; Bankruptcy Creditors' Service, Inc., 215/945-7000) ATA AIRLINES: Wants to Pay Taxes, Fees & PFCs to Authorities ------------------------------------------------------------ In the ordinary course of business, ATA Airlines and its debtor- affiliates: (a) incur property taxes, fuel taxes, corporate income and franchise taxes, collect sales and incur use taxes, collect liquor taxes, and collect or incur payroll and employment-related taxes on behalf of various taxing authorities; (b) collect excise tax on: (i) the amount paid for domestic air transportation; (ii) each domestic segment, international departure, and international arrival, pursuant to Section 4261 of the Internal Revenue Code, charged to the Debtors' passengers, which if not paid may become a liability of the Debtors; and (iii) the sale of frequent flyer miles, and property transported by air; (c) are charged fees by various federal governmental agencies; and (d) collect passenger facility charges on passenger tickets charged by airports for general passenger facilities. The Taxes, Transportation Taxes, Fees and PFCs are paid to various taxing, licensing and airport authorities on a periodic basis. Before the Petition Date, the Debtors established special purpose trust accounts to facilitate the payment of the Transportation Taxes, Fees and PFCs. As of the Petition Date, the Debtors held in Tax Escrow the Transportation Taxes, Fees and PFCs incurred and collected from prepetition services provided and sales to their customers, which had not yet been paid to the Authorities. The Debtors have collected: $9,003,933 in Taxes from operations; $8,710,807 in Transportation Taxes incurred from services and sales; $4,073,984 in Fees incurred for services and sales; and $4,372,752 in PFCs. The Taxes are not held in the Tax Escrow. However, the Debtors believe that some, if not all, of the Authorities may cause the Debtors to be audited and subjected to various administrative proceedings if the Taxes are not paid immediately. According to Terry E. Hall, Esq., at Baker & Daniels, in Indianapolis, Indiana, audits and administrative proceedings and the accompanying disruption in business activities would materially and adversely affect the Debtors' reorganization prospects and unnecessarily divert the Debtors' attention away from the successful prosecution of the Chapter 11 cases. Moreover, the Debtors do not have any legal or equitable interest in the funds held in the Tax Escrow. Consequently, the Debtors sought and obtained the United States Bankruptcy Court for the Southern District of Indiana's authority to pay, in their sole discretion, the Taxes, Transportation Taxes, Fees and PFCs to the relevant Authorities in the ordinary course of business. 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. 3; Bankruptcy Creditors' Service, Inc., 215/945-7000) AUSTIN BOULEVARD: Case Summary & 20 Largest Unsecured Creditors --------------------------------------------------------------- Debtor: Austin Boulevard Restaurant Corporation 4160 Austin Boulevard Island Park, New York 11558 Bankruptcy Case No.: 04-87163 Type of Business: The Company is a spare rib restaurant franchisee. Chapter 11 Petition Date: November 10, 2004 Court: Eastern District of New York (Central Islip) Judge: Stan Bernstein Debtor's Counsel: Marc A Pergament, Esq. Weinberg Gross & Pergament LLP 400 Garden City Plaza Garden City, New York 11530 Tel: (516) 877-2424 Total Assets: $202,550 Total Debts: $1,509,868 Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Commerce Bank $1,138,000 1100 Lake Street Ramsey, New Jersey 07446 Nixon Peabody $40,000 437 Madison Avenue New York, New York 10022 Internal Revenue Service $33,634 Special Procedures 10 Metrotech Center 625 Fulton Street Brooklyn, New York 11201 New York State Department of Tax $29,012 Bankruptcy Unit Special Procedures PO Box 5300 Albanym New York 12205 Landmark Food Corporation $21,314 PO Box 2001 Holtsville, New York 11742 Janowski's Hamburgers, Inc. $11,648 L & M Poultry & Beef Corporation $9,395 LIPA $6,051 Meadowbrook Distributing Corporation $6,041 V. Garofalo Carting, Inc. $5,664 Keyspan $4,662 The Customer Connection, Inc. $4,563 Burke Supply Systems $3,996 Bakers of All Nations $3,054 Gold "N" Farms Produce $3,042 Creamosa Food Company, LLC $2,317 All Service Kitchen Equipment Corporation $2,122 Long Island American Water $1,780 Terrace Dairy $1,618 Quality Linen Supply $1,309 BLOCKBUSTER: S&P Places BB Corporate Credit Rating on CreditWatch ----------------------------------------------------------------- Standard & Poor's Ratings Services placed its ratings for Blockbuster, Inc., including the 'BB' corporate credit rating, on CreditWatch with negative implications. The CreditWatch placement followed Blockbuster's announcement that it has offered to purchase Hollywood Entertainment Corp. for total consideration of $1.05 billion ($700 million purchase price and the assumption of $350 million of debt). At the same time, Standard & Poor's revised its CreditWatch status on Hollywood to developing from negative. The transaction is subject to shareholder and regulatory approval. "The CreditWatch listing on Blockbuster reflects the possibility that ratings could be lowered based on a potential deterioration in Blockbuster's business and financial profile post-merger," said Standard & Poor's credit analyst Diane Shand. The CreditWatch developing listing for Hollywood means that the ratings could be raised, affirmed, or lowered. It reflects the possibility that its credit profile could improve if the merger with Blockbuster is completed. It is too soon to determine if the transaction with Blockbuster will be consummated, as Blockbuster has announced no financing plans for the transaction, it is unclear whether the U.S. Federal Trade Commission will approve it, and Hollywood has an existing offer from Leonard Green & Partners LP. Also, Hollywood can solicit other bids. If the merger with Blockbuster does not go through, the company may complete its merger agreement with Leonard Green, which could deteriorate the company's credit profile if it adds a substantial amount of debt to its already-leveraged balance sheet. Hollywood's ratings could be affirmed if no transaction is consummated and its business and credit profiles remain unchanged. Dallas, Texas-based Blockbuster is a leading global provider of in-home movie and game entertainment, with approximately 8,900 stores throughout the Americas, Asia, and Australia. Blockbuster is already the No. 1 player in the mature and fragmented $8.2 billion U.S. video rental market, with a 39% share in 2003. If the transaction were completed, Blockbuster would have about a 50% share of the market. The acquisition would add more than 1,900 stores to Blockbuster's existing U.S. store base of 5,000 and substantially increase its game retail and rental business. Wilsonville, Oregon-based Hollywood is the second-largest video rental company in the U.S., with 12% market share in 2003. It operates more than 1,900 Hollywood Video stores in 47 states and approximately 600 Game Crazy video game specialty stores. Both Blockbuster's and Hollywood's operating performance have been under pressure because of: (1) overall weakness in the video rental industry; (2) increased competition from discounters, big box retailers, and online rental services; and (3) the companies' own growth initiatives. Profitability is expected to remain under pressure in the near term, given the weakness in the overall video rental industry. BLOCKBUSTER: Purchase Plan Prompts Fitch to Review Low-B Ratings ---------------------------------------------------------------- Fitch Ratings has placed Blockbuster, Inc.'s 'BB' senior secured and 'B+' senior subordinated ratings on Rating Watch Negative. Approximately $1.1 billion of debt is affected by this action. The action follows Blockbuster's announcement that the company had expressed an interest in purchasing Hollywood Entertainment Corporation for a 17% premium over yesterday's closing price, resulting in a cash offer of $1.1 billion, including $350 million of existing debt. The Rating Watch Negative reflects the potential for meaningfully higher leverage for Blockbuster, even though Fitch recognizes that the acquisition will strengthen Blockbuster's market share in the video-rental market, allow the company to compete more effectively with the mass merchants that are now big sellers of low-priced DVDs, and improve the company's position with the movie studios. Resolution of the Rating Watch will follow a review of the financing plans for the proposed transaction and the resultant impact on the capital structure, as well as an in-depth review of the combined operations. BOMBARDIER: Moody's Pares Senior Unsecured Debt Ratings to Ba2 -------------------------------------------------------------- Moody's Investors Service downgraded the senior unsecured debt ratings of Bombardier, Inc., and its wholly owned captive finance subsidiary, Bombardier Capital, Inc., to Ba2 from Baa3. A SGL-2 Speculative Grade Liquidity Rating and a Senior Implied Ratings were assigned to the company. The rating outlook is negative. The downgrades reflect Moody's expectation of continued weak levels of cash flow generation relative to indebtedness as a result of ongoing poor operating performance and financial returns in the company's aerospace unit as well as the potential need for further reduction of regional jet production capacity if deferrals or cancellations of regional jet orders were to occur. The downgrades also consider the slow pace of recovery in the company's rail systems unit, and the potential for demands on cash flow due to pension funding requirements and/or a more difficult than anticipated economic and competitive environment in the company's primary markets. Moody's notes that special charges, losses and deficit free cash flow have eroded the company's equity base and balance sheet strength over the past several years, and that the company has responded by restructuring its core businesses, issuing new equity and monetizing assets, including its recreational products division and portions of the receivable portfolio at Bombardier Capital. The rating acknowledges the actions the company has taken to strengthen its liquidity profile, its current substantial balance sheet liquidity and unused lines of credit, the continued orderly liquidation of assets at Bombardier Capital, the return of the transportation unit to profitability and the strength of the business jet and turboprop segments of the company's aerospace segment. The negative outlook considers the various risks facing each business unit. The segment most subject to uncertainty is aerospace where an economic downturn, a cancellation of orders, or the decision to proceed with the development of a new aircraft model could represent substantial additional stress on the company's financial profile. While the transportation segment has demonstrated improved performance, it will be challenged to improve margins sufficiently to provide adequate returns on the capital invested in the business -- including goodwill. This business faces reduced demand in Europe and the need to effectively manage bidding practices to avoid the large contract losses that precipitated previous charges. Bombardier Capital continues to monetize certain receivable portfolios but could see increased loan losses in the event of an economic downturn. Bombardier has gone through a substantial change in its primary business model in the past three years including the sale of its recreational products business, a rebuilding of its troubled transportation business, a refocus of the activities of Bombardier Capital, and a downsizing of the regional jet portion of its aerospace business. Overall, cash flow to debt metrics, although improved, are not reflective of an investment grade risk profile. Free cash flow to debt at Bombardier Inc. for the last twelve months ended July 2004 was 7% and interest coverage before charges was 0.9 times. The transportation business seems to be on a slow path to recovery after substantial writedowns. Due to the long cycle nature of this business, Moody's expects that recovery will be accomplished over the next several years. However, Moody's notes that orders have slowed as the company restructures its contracting process. The backlog has declined to $22.1 billion as of June 2004 from $23.7 billion as of the end of January 2004. As a result, although this segment is expected to provide increased positive cash flow to the overall enterprise, the amounts will not be sufficient to, in and of themselves, continue to justify an investment grade rating. Bombardier's core aerospace businesses benefits from currently strong demand in the business jet segment which is expected to continue for the intermediate term. The turboprop business is expected to continue at its current profitable production rate. It is in the area of commercial regional jets that the company faces, in Moody's opinion, its largest challenges. Production rates have been cut to levels that should be sustainable over the near term but the order book remains heavily dominated by airlines facing severe financial difficulties. Should it be necessary to further reduce production rates, the company will, in Moody's opinion, be required to take an additional charge and could face added cash flow pressures. Bombardier is contemplating the development of a new larger aircraft type (100+ seats) that would require substantial cash investment. While important for Bombardier's long-term competitiveness, such an investment could increase risk while further reducing cash flow available for debt service. The wind-down of the majority of the portfolios at Bombardier Capital continues and, to date, this process has been successful. Moody's expects that, absent a near term economic downturn, this process should continue without undue difficulties. The financial results at Bombardier Capital have been positively impacted by a strong economic environment and any substantial weakening of the overall economy could lead to increased delinquencies and reduced asset valuations. Moody's notes that the company's bank lines of credit, partly used for letters of credit to support its contracting businesses, contain a covenant limiting net debt to capital to less than 50%. The current net debt to capital is reported to be approximately 40%. Although it is unlikely that this covenant will be tested in the near term, an unexpected reduction in equity from either an asset writedown or a special charge could pose a challenge to the company. Current liquidity is adequate based on cash balances of $2.2 billion and unused lines of credit of $2.2 billion as of July 2004. However, Moody's notes that to meet its debt obligations Bombardier Capital is dependent on cash held at its parent, Bombardier, Inc. The rating downgrade will trigger several potential calls on cash over the next six months that could amount to as much as $431 million. Moody's considers the current cash balances available to the company to be sufficient to meet such calls as well as scheduled debt maturities over the next twelve months. The SGL-2 rating reflects the support provided by current balance sheet liquidity and the unused portion of the company's line of credit offset by the cash demands created by the ratings trigger, near term debt maturities at Bombardier, Inc. and at Bombardier Capital. The Ba2 ratings and the negative outlook reflect the current uncertain environment in which the company is operating and incorporates the potential for modest additional negative events in the aerospace segment. The rating also anticipates a slow but steady reduction in uncertainty surrounding the company's core businesses. The rating would be negatively affected if further charges to equity were to test the bank loan covenant and constrain the company's liquidity profile, the company were to sustain negative free cash flow over an extended period of time because of any faltering in the recovery of the transportation segment or because of any further meaningful reductions in regional jet production, and/or the continued runoff of finance assets at Bombardier Capital were to be impaired. The rating or the outlook would be favorably affected by greater stability in each of the company's primary businesses leading to a sustained increase in profits and return on capital and a ratio of retained cash flow to debt at levels in excess of 20%. The ratings affected are: * Bombardier Inc. -- Issuer rating downgraded to Ba2 from Baa3 -- Senior unsecured debt downgraded to Ba2 from Baa3 -- Speculative Grade Liquidity Rating of SGL-2 assigned -- Senior Implied Rating of Ba2 assigned * Bombardier Capital Inc. -- Senior unsecured debt downgraded to Ba2 from Baa3 -- Short term rating downgraded to Not Prime from Prime-3 All ratings at Bombardier Capital, Inc. benefit from a support agreement provided by Bombardier Inc. * Bombardier Capital Funding Ltd Partnership -- Senior unsecured debt downgraded to Ba2 from Baa3 (Guaranteed by Bombardier Capital Inc.) * Bombardier Coordination Center S.A. -- Short-term rating downgraded to Not Prime from Prime-3 (Guaranteed by Bombardier Inc.) Bombardier, Inc., headquartered in Montreal, Quebec, is a diversified company involved primarily in the aerospace, transportation, and financial services markets. BURLINGTON: Trust Amends Schedules of Assets & Liabilities ---------------------------------------------------------- As of October 2004, 54 creditors hold unsecured non-priority claims, aggregating $595,315, for accounts payable. The BII Distribution Trust, on Oct. 28, 2004, amended Schedule F of Burlington Industries, Inc.'s Schedules of Assets and Liabilities to reflect the claims. The 54 Claimants are: Allenberg Cotton Co. $21,041 American Superba, Inc. 21,596 Apollo Chemical Corporation 77,752 Aramark Corporation 4,848 Aramark Servicemaste 1,909 Automation International 6,998 B & B Consultants 4,185 Bacova Guild, Ltd. 5,450 Bank of New York 8,294 Batson's Interiors 2,511 Blank Organization 1,565 C H Robinson Company 10,476 Carter Traveler Co. 7,508 Cigna International 8,524 CIT Croup 12,232 Clayton Utz Lawyers 898 Commercial Steel Erection 4,078 Copen Associates, Inc. 3,200 Cyborg Systems, Inc. 11,250 Daniels Electric Motor Service 12,172 Dean Witter Reynolds 2,672 Design Library 6,000 Dominion Virginia Power 83,323 Du-Re Textiles, Ltd. 14,891 Electrotek, Inc. 4,718 Five Star Food Service 6,711 Frankl & Thomas/Spinnerettes 3,956 Friends You Can Count On 3,000 Govmark Corporation 5,110 HK Systems 2,629 IBM Corp 0 IBM Corporation 0 Levitz Furniture Corp 5,842 Macshore Classic, Inc. 22,085 McDermott Will & Emery 3,673 Patent And Trademark 3,250 Q S T Industries, Inc. 4,600 Quiknit Crafting, Inc. 2,571 Radio Communications 6,145 Rana Razi Wolf 3,634 Salem Printing Company 4,519 Sedgefield Div Omnov 8,235 Shelyn, Inc. 2,950 Simtek, Inc. 10,324 Southern Door Systems, Inc. 2,343 Sulzer Textil AG 36,214 Swift Transportation Co 2,138 Technimark, Inc. 2,833 Travelers Food Insurance Program 3,330 USA Waste of VA 5,506 Wright of Thomasville, Inc. 15,596 XL Flooring 75,732 Yellow Label Designs 8,000 Young, MS 01 King 6,300 Headquartered in Greensboro, North Carolina, Burlington Industries, Inc. -- http://www.burlington-ind.com/-- was one of the world's largest and most diversified manufacturers of soft goods for apparel and interior furnishings. The Company filed for chapter 11 protection in November 15, 2001 (Bankr. Del. Case No. 01-11282). Daniel J. DeFranceschi, Esq., at Richards, Layton & Finger, and David G. Heiman, Esq., at Jones Day, represent the Debtors. WL Ross & Co. LLC purchased Burlington Industries and then sold the Lees Carpets business to Mohawk Industries, Inc. Combining Burlington with Cone Mills, WL Ross created International Textile Group. Burlington's chapter 11 Plan confirmed on October 30, 2003, was declared effective on Nov. 10, 2003. (Burlington Bankruptcy News, Issue No. 56; Bankruptcy Creditors' Service, Inc., 215/945-7000) CASCADES: Earnings & Cash Flow Decline Cues Moody's to Cut Ratings ------------------------------------------------------------------ Moody's Investors Service downgraded Cascades Inc.'s senior implied rating to Ba2. The ratings were also downgraded on Cascades Inc.'s secured revolver, to Ba1 from Baa3, and on its senior unsecured notes, to Ba3 from Ba1. The downgrade was prompted by a significant deterioration in Cascades' operating earnings and cash flow over the past eighteen months, and Moody's expectations that performance, while currently beginning to improve, due in part to recent business acquisitions, is not likely, over the near term, to return to a level that would support the previous ratings. In particular, the combination of a strong Canadian dollar and continuing high costs, particularly those related to recycled fibers, and energy, make it unlikely that the recent improvement in pricing will be sufficient to return the company's debt protection measurements to levels sufficient to support its former ratings in the near term. The senior unsecured rating was downgraded two notches reflecting Moody's view that the secured revolver may, at times, continue to be significantly utilized, reducing the pool of collateral available to unsecured creditors. The company has indicated that the proceeds from currently contemplated asset sales, if executed, will be used to reduce revolver outstandings. The rating outlook is stable. These ratings were downgraded. * Senior implied rating, to Ba2 from Ba1 * C$500 million guaranteed senior secured revolver due 2007, to Ba1 from Baa3 * US$550 million 7.25% senior unsecured notes, to Ba3 from Ba1 * Issuer rating, to B1 from Ba1 Cascades Ba2 senior implied rating reflects high financial leverage as well as the company's exposure to the stronger Canadian dollar, to cyclical pricing, particularly in the containerboard, boxboard, and paper segments, and to volatile raw material costs, including recycled fibers, energy, chemicals and virgin fiber. Moody's notes that increases in recycled fibers and other input prices have historically been passed through to consumers over a cycle. However, with the significantly increased purchase of recycled containers by China, without a concurrent increase in consumer demand in Cascades' end-markets, it is questionable whether the historic trend of cost pass-through will continue. The rating also considers Cascades solid market share in its packaging and tissue products businesses and, through its 50% interest in Norampac (Ba2), in the Canadian containerboard segment. The rating also considers the relatively stable earnings and cash flow from the company's tissue business, which comprises approximately 18% of consolidated revenue and 27% of EBITDA. Moody's notes that approximately 29% of Cascades' consolidated EBITDA is derived from its interest in Norampac. The stable outlook assumes a continued improvement in operating performance, and that the proceeds from anticipated asset sales (the distribution and fine papers businesses) will be applied to debt reduction. The rating could be lowered or the outlook changed to negative if the company suffers further erosion in its operating earnings and cash flow, if it fails to de-lever as it has indicated it intends to do, or if it undertakes additional debt financed acquisitions. The ratings could be raised if the company's consolidated debt protection measurements return to previous levels, when, during the 2000 to 2002 period, EBIT /interest and debt/EBITDA averaged 3.1x and 2.9x respectively. These ratios, on a LTM September 30, 2004, basis were 1.1x and 5.3x respectively. Cascades' principal operations are located in Canada, the U.S. and Europe, with consolidated sales (including the company's 50% interest in Norampac, which is proportionately consolidated) to Canada (45%), the U.S. (40%), and Europe/others (15%). Cascades' boxboard segment comprises approximately 33% of consolidated revenue and 28% of EBITDA, its share of Norampac's containerboard business comprises 17% and 29% of revenue and EBITDA respectively, specialty products, 14% and 16%, tissue papers 18% and 27%, fine papers, 10% and (4%) and its distribution business, which serves both tissues and fine papers, 13% and 4%. Cascades Inc. is a Quebec-based packaging and paper company producing boxboard, containerboard, packaging products, tissue and fine papers. Consolidated revenues in 2003 were C$3.2 billion. CATHOLIC CHURCH: Portland Tort Committee Hires Dr. Conte as Expert ------------------------------------------------------------------ The Official Committee of Tort Claimants in the Archdiocese of Portland in Oregon's case wants to retain Jon Robert Conte, Ph.D., as expert. Dr. Conte will provide professional services to the Portland Tort Committee with respect to issues relating to: (a) the trauma suffered by an abuse victim and the manner in which an abuse victim recognizes and understands the connection between an act of abuse and its impact or damage; and (b) effective methods by which to identify and give meaningful notice to abuse victims. The Archdiocese of Portland in Oregon plans to serve and publish a notice to unknown priest abuse claimants. The Portland Tort Committee finds it essential to retain an expert on the effects of sexual abuse on children to assist it in formulating a response to Portland's action relating to notice to unknown child abuse victims. It is also essential that the Committee has an opportunity to present evidence relating to the effects of sexual abuse on children to assist the U.S. Bankruptcy Court for the District of Oregon in developing appropriate, meaningful and effective methods of identifying and notifying unknown priest abuse claimants. Dr. Conte is a Professor at the School of Social Work, University of Washington. He has been on the faculty of the University of Washington since 1990. Between 1979 and 1990, Dr. Conte was on the faculties of the University of Illinois at Chicago and the University of Chicago. He teaches courses on social work practice, child abuse, interpersonal violence, psychological trauma and psychotherapy. Dr. Conte has evaluated over 4,500 youth and adults complaining of psychological damages as a result of trauma. He is the author of approximately 50 scientific and academic publications in peer-reviewed journals or book chapters. He is the immediate past president of the American Professional Society on the Abuse of children. Dr. Conte's services will be billed to Portland's estate for payment as an administrative expense under Sections 503(b) and 507(a)(1) of the Bankruptcy Code. No other arrangement or agreement exists between the Tort Committee and Dr. Conte with respect to the payment of Dr. Conte's fees and disbursements. Dr. Conte's current hourly rate is $300. Dr. Conte does not represent any other entity having an adverse interest in connection with the Chapter 11 case, or have any connection with Portland, its creditors, any other party-in- interest, their attorneys and accountants, the United States Trustee or any person employed in the office of the U.S. Trustee, or any District of Oregon bankruptcy judge. * * * Judge Perris approves the Portland Tort Committee's application. Dr. Conte's compensation will be limited to $5,000. 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., and 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., at Sussman Shank LLP, represent the Portland Archdiocese in its restructuring efforts. In its 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) CATHOLIC CHURCH: A. Butler Appointed as Tucson Unknown Claims Rep. ------------------------------------------------------------------ The Diocese of Tucson's proposed Plan of Reorganization contemplates that a certain portion of the "pool" to be established to compensate allowed Tort Claims will be set aside for Future Tort Claims. Tucson, accordingly, believes that it is appropriate for a representative to be appointed to represent the interest of the holders of Future Tort Claims while its bankruptcy case proceeds. Susan G. Boswell, Esq., at Quarles & Brady Streich Lang, LLP, in Tucson, Arizona, asserts that the Future Tort Claimants are parties-in-interest who may hold "claims" within the meaning of that term under the Bankruptcy Code and applicable 9th Circuit precedent. Therefore, they are entitled to representation in Tucson's Chapter 11 case. The Future Claims Representative will: -- appear before the U.S. Bankruptcy Court for the District of Arizona on the Future Tort Claimants' behalf; -- file pleadings; and -- take other actions or perform other duties as the Court may authorize. Nature of Future Tort Claims Arizona law began recognizing the so-called Repressed Memory Doctrine in 1998 in a certain Doe v. Doe opinion. In the Doe v. Doe case, the Arizona Supreme Court held that an alleged victim of childhood sexual abuse could overcome the statute of limitations and bring a tort action as an adult by proving that he or she suffered from a psychological condition commonly referred to as "Repressed Memory" which prevented the alleged victim from discovering his or her injury within the statute of limitations. In other words, Arizona courts have accepted the notion that childhood sexual abuse can create a latent psychological injury that is only discovered many years later. Moreover, a person suffering from a lack of capacity could argue that the statute of limitations on his or her claim does not begin to run until the person is no longer incapacitated. Most of the Tort Claimants base their claims on the "Repressed Memory Doctrine." The triggers that cause an individual victim to "recover" their memory of abuse or regain their capacity are particular to the individual victim, and not easy to predict. Future Tort Claimants Possess "Claims" The Tort Claimants' theory of liability against Tucson alleges that the Diocese inadequately supervised or inadequately responded to the knowledge of clergy or other workers associated with the Diocese having sexually abused children. Under applicable law, Tort Claimants must bring suit within two years of the abuse unless the Tort Claimants can establish that the abuse was too traumatic to cope with. Therefore, the abuse was involuntarily blocked from memory as a defense mechanism, or the Tort Claimant was suffering from some other recognized incapacity so that applicable law excuses him or her from being bound by the applicable statute of limitations. Tucson's Plan seeks to address both the Tort Claimants and Future Tort Claimants by creating a Settlement Trust and a Litigation Trust which will be funded with assets from the Diocese and other sources and will provide mechanisms for adjudicating the validity of Tort Claims and liquidating and adequately compensating those Tort Claims. Appointment is Necessary and Proper According to Ms. Boswell, the appointment of a Future Claims Representative will enable the Court to render valid and binding judgments against persons determined to be Future Tort Claimants by enabling them, through their duly appointed representative, to participate in the reorganization process. "The appointment of a representative to protect the interest of future claimants in Title 11 cases related to mass tort litigation is well established," Ms. Boswell informs Judge Marlar. "This course of action was pioneered in the asbestos cases and ultimately codified as to asbestos claims under Section 524(g) of the Bankruptcy Code." Although the Tort Claimants and Future Tort Claimants have many interests that coincide in Tucson's case, there may be other instances where their interests are not entirely identical or may otherwise diverge. Tucson's Plan seeks to balance the rights and needs of all prepetition creditors, including Future Tort Claimants, with the continued ministry and mission of the Diocese, taking into account its limited assets. Although Tucson does not believe that the universe of Future Tort Claimants is significant, they still should be represented. Ms. Boswell notes that Tucson has a very limited set of resources upon which it can draw to satisfy the present and future claims resulting from the sexual abuse by clergy and others in the Diocese. The very essence of Tucson's case is to attempt to fairly compensate all creditors holding Tort Claims, regardless of whether those claims were scheduled for trial or whether a putative abuse victim's memory of the abuse is repressed today. By this motion, Tucson asks Judge Marlar to: (a) declare that Future Tort Claimants are parties-in-interest in its Chapter 11 case; and (b) appoint a Future Claims Representative. Pacific Employers Insurance Objects Pacific Employers Insurance Company asserts that the party representing the alleged repressed memory claimants should not be labeled as a "Future Claims Representative." Donald L. Gaffney, Esq., at Snell & Wilmer LLP, in Tucson, Arizona, contends that the term "Future Claims Representative" holds legal significance under Bankruptcy Law distinguishable from Tucson's case. Mr. Gaffney argues that the alleged repressed memory claimants do no have "future claims" in that they do not have an "injury that has not yet become manifest" at the time Tucson filed for bankruptcy. Rather, the alleged repressed memory claimants have an existing claim under Section 101(5) of the Bankruptcy Code and under the Ninth Circuit standard. Pacific Employers Insurance suggests that the representative be called "Unknown Claims Representative." Additionally, Pacific Employers Insurance asks Judge Marlar to refrain from making any findings or determinations regarding the validity or recognition of the "Repressed Memory" theory, which has not been adopted by the Arizona Supreme Court. St. Paul Travelers agrees with Pacific Employers Insurance. * * * Judge Marlar appoints A. Bates Butler, Esq., at Fennemore Craig, PC, in Tucson, Arizona, as the Unknown Claims Representative in Tucson's Chapter 11 case. Mr. Butler will participate in Tucson's case as a Court-appointed professional and will file requests for compensation, applications for employment, and disclosures of disinterestedness. Mr. Butler will be compensated in the same manner and on the same terms as all other Court- appointed professionals. 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., and 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., at Sussman Shank LLP, represent the Portland Archdiocese in its restructuring efforts. In its 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) CATHOLIC CHURCH: Spokane to File Chapter 11 Petition by Nov. 29 --------------------------------------------------------------- The Catholic Diocese of Spokane in Washington state will begin preparations immediately to file for Chapter 11 Reorganization in Federal Bankruptcy Court on or before Nov. 29, 2004, at the recommendation of the Bishop's Finance Council. The announcement came after settlement talks with 28 alleged victims of a former priest, who has admitted sexually abusing boys, failed. "Chapter 11 Reorganization will provide a fair, just, and equitable mechanism for the payment of valid claims against the Catholic Diocese of Spokane, while allowing us to maintain the historic mission of the Catholic Church in Eastern Washington," Bishop William S. Skylstad, who oversees the Diocese of Spokane, said in a press statement dated Nov. 10, 2004. "These two goals have been, are, and will continue to be our primary goals." The Diocese of Spokane reportedly faces at least 19 lawsuits involving 58 plaintiffs who have accused nine diocesan priests and two Jesuits. "We have identified approximately 125 potential claimants who believe they were victimized by priests serving in Eastern Washington. Approximately half of those 125 have retained legal counsel. Those claims are in various stages of litigation. Chapter 11 means that all of the individuals who have suffered actual harm by the Church can be brought to the same stage, regardless of when the claim was discovered or where it is in the claims process. Chapter 11 protects those who have been harmed from losing a race to the courthouse," Bishop Skylstad said. "In the end, Chapter 11 Reorganization will give everyone -- both the victims and the diocese -- a sense of finality and closure." Total damage claims, which was disclosed to be in the tens of millions of dollars, far exceeds the net worth of the diocese. The Diocese has maintained insurance coverage with several different carriers over the years. The defense of most of the claims -- including the payment of the majority of the attorney's fees in defending the Diocese -- have, at least to this point, been covered by the insurance carriers. The Diocese continues to work with its various carriers towards the full resolution of the claims. Bishop Skylstad added that the chapter 11 bankruptcy proceeding would protect the Diocese's assets that serve more than 97,000 parishioners. "Let me reassure you that the contributions to the recent Campaign for the Education of Seminarians, "Here I Am, Lord," are completely safe and unaffected by this process. Those funds are part of the Catholic Foundation, which is a non-profit 501(c)(3) corporation, a separate corporation from the Catholic Diocese of Spokane. Likewise, our employee retirement funds are separate and safe. Catholic Charities, too, is a non-profit 501(c)(3) corporation, separate from the diocese," Bishop Skylstad says. Shaun M. Cross, Esq., represents the Diocese in the Chapter 11 Reorganization. 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., and 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., at Sussman Shank LLP, represent the Portland Archdiocese in its restructuring efforts. In its 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. CONCERT INDUSTRIES: Solicits Consents for CCAA Plan of Arrangement ------------------------------------------------------------------ Concert Industries Ltd. (TSX:CNG) provided a CCAA update and reported its financial results for the third quarter ended Sept. 30, 2004. CCAA Update On Aug. 5, 2003, the Company and certain of its North American subsidiaries obtained an order from the Quebec Superior Court of Justice providing creditor protection under Companies' Creditors Arrangement Act. The Company's European operations were excluded from the CCAA proceedings. On Nov. 4, 2004, Concert Fabrication Ltee, Concert Airlaid Ltee and Advanced Airlaid Technologies Inc., under the CCAA proceedings, filed a motion to order a meeting of their creditors to consider and vote on a final plan of compromise and arrangement. The Superior Court for the District of Montreal on Monday, Nov. 8, 2004, ordered the Canadian operating subsidiaries to call and hold a meeting on Dec. 10, 2004, and that during the interim period, creditors will submit proof of their claims against the Canadian operating subsidiaries. Concert's Board of Director's have unanimously approved this plan as the best alternative available to the Company, providing the greatest value to the stakeholders and maintaining the ongoing operations of the Canadian operating subsidiaries. The Canadian operating subsidiaries' plan would entail a significant restructuring of Concert's Canadian operations. The Company's European operations will continue to be unaffected by the plan, as they are excluded from the CCAA proceedings. The plan is part of a comprehensive reorganization of the business and affairs of Concert's Canadian operating subsidiaries and is designed to enable them to be restructured and repositioned on a long-term basis as a viable business in the development and manufacture of specialty pulp based absorbent latex, thermal and multi-bonded airlaid fabrics. The Canadian operating subsidiaries have developed the plan, which they believe is in the best interest of all stakeholders including creditors, suppliers and employees. As previously announced, Tricap Restructuring Fund acquired the senior secured debt, and these Canadian operating subsidiaries have since been involved in ongoing discussions concerning the plan and the restructuring of their operations with the support of this senior lender. Certain other major creditors that are affected by the plan have agreed to vote in favor of and support the plan. Shareholders and creditors of the legal entity Concert Industries Ltd. will not be entitled to vote on, or participate in, the plan of the Canadian operating subsidiaries. If the creditors of the Canadian operating subsidiaries accept the plan of arrangement and the resultant implementation of the plan, Concert Industries Ltd. will no longer have ownership or control of any of its operating companies. Shareholders and unsecured creditors of Concert Industries Ltd. should not expect to receive any value following this transaction. The implementation of the plan is likely to result in the delisting of Concert's shares from the TSX. Third Quarter Results Results for the third quarter of 2004 showed a net loss of $4.8 million compared to a net loss of $ 30.8 million for the same period last year. For continuing operations, the Company recorded a net loss of $4.8 million compared to a net loss of $28.8 million in the prior year. Included in the net loss for the third quarter of 2004 are $1.6 million of reorganizing expenses, incurred as a result of the CCAA Proceedings and primarily consisting of professional fees, compared to $6.9 million for the same period last year for reorganizing expenses, refinancing expenses, write- down of deferred costs and write-down of goodwill. Revenues increased by $3.3 million to $46.1 million or 7.7 % compared to the third quarter in 2003, due to higher volumes in the European segment, partially offset by competitive pricing pressures in the over supplied North American segment and a weakened United States dollar. Gross margin was down $0.4 million to $6.9 million. This decrease in gross margin was a result of lower operating efficiencies in the North American segment combined with a weakened United States dollar, partially offset by increased volumes and improved throughput in the European segment. As a percentage of revenue, the gross margin declined to 14.9 % from 17.1 %, compared to the third quarter of 2003. Operating expenses, excluding amortization and interest, were $5.1 million, down 5.6 % compared to the third quarter last year. Cost reductions in the areas of administration, selling and marketing reflect the effects of the Turnaround Plan that included the relocation of the corporate office and reduction in overhead at the Gatineau facility. Cash Flow & Financial Position Cash from operating activities exceeded cash used in investing activities by $3.8 million during the quarter. As at Sept. 30, 2004, the Company had net borrowings under the DIP financing of $7.5 million and had drawn $0.6 million under its German bank line of credit. About the Company Concert Industries Ltd. is a company specializing in the manufacture of cellulose fiber-based non-woven fabrics using airlaid manufacturing technology. Concert's products have superior absorbency capability and are key components in a wide range of personal care consumer products, including feminine hygiene and adult incontinence products. Other applications include pre- moistened baby wipes, disposable medical and filtration applications and tabletop products. The Company has manufacturing facilities in Canada, in Gatineau and Thurso, Quebec, and in Germany, in Falkenhagen, Falkenhagen-Prignitz. On August 5, 2003, the Company and certain of its North American subsidiaries obtained an order from the Quebec Superior Court of Justice providing creditor protection under CCAA Proceedings. The Company's European operations are excluded from the CCAA Proceedings. PricewaterhouseCoopers Inc., was appointed by the Court to act as the Monitor, and this order is currently in effect until December 17, 2004. The entire text of the Court orders and the Monitor's reports are available at http://www.concert.ca/and at http://www.pwc.com/brs-concertgroup/or by calling (613) 755-5981. CONGOLEUM CORP: Sept. 30 Balance Sheet Upside-Down by $23.1 Mil. ---------------------------------------------------------------- Congoleum Corporation (AMEX:CGM) reported its financial results for the third quarter ended Sept. 30, 2004. Sales for the three months ended September 30, 2004, were $58.9 million, compared with sales of $61.1 million reported in the third quarter of 2003, a decrease of 3.6%. Net income for the quarter ended September 30, 2004, was $1.2 million compared with net income of $1.3 million in the third quarter of 2003. Results in the third quarter of 2003 included $1.6 million from the recognition of tax benefit realized as a result of net operating loss carry back claims received. Sales for the nine months ended September 30, 2004, were $173.8 million, compared with sales of $169.7 million reported in the first nine months of 2003, an increase of 2.4%. Net income for the nine months ended September 30, 2004, was $2.1 million, versus a net loss of $3.3 million in the first nine months of 2003. Roger S. Marcus, Chairman of the Board, commented "Third quarter results showed solid margin improvement despite the most severe inflationary pressure on resins and other raw materials in three decades. The margin improvement was achieved through a more profitable sales mix and the cost reduction steps we have taken over the past year. While volume of some less profitable products declined, pipeline sales of our new high end sheet product Xclusive more than compensated for the decline. The margin improvement is all the more impressive given the raw material situation. Despite the increases in material costs, as well as greater expenses for energy and freight, operating income has improved significantly for the quarter and year to date over year ago levels. Had the raw material cost environment been more stable, we would have had an excellent quarter." Mr. Marcus continued, "While we do not expect any improvement in the raw material situation near term, there are a number of positive factors as we look ahead. We have additional price increases in process that will offset some, but not all, of the increased raw material costs. We anticipate continued sales and margin benefits from products introduced this year, as well as new products and programs we plan for early 2005. Finally, we remain intensely focused on improving manufacturing efficiency and reducing costs. These steps should all help our future performance." Mr. Marcus concluded, "We are also encouraged that our reorganization is moving forward. As we announced earlier this week, we have concluded negotiations with representatives of the Asbestos Creditors' Committee, the Future Claimants representative, and other asbestos claimant representatives and filed a modified plan of reorganization and related documents with the Bankruptcy Court. While the modified plan will require a re- solicitation process, we are confident that this modified plan will have widespread support. Our goal is to have our plan confirmed during the second quarter of 2005." About the Company Headquartered in Mercerville, New Jersey, Congoleum Corporation -- http://www.congoluem.com/-- manufactures and sells resilient sheet and tile floor covering products with a wide variety of product features, designs and colors. The Company filed for chapter 11 protection on December 31, 2003 (Bankr. N.J. Case No. 03-51524). Domenic Pacitti, Esq., at Saul Ewing, LLP, represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $187,126,000 in total assets and $205,940,000 in total debts. At Sept. 30, 2004, Congoleum Corp.'s balance sheet showed a $23,148,000 stockholders' deficit, compared to a $25,777,000 deficit at Dec. 31, 2003. * * * As reported in the Troubled Company Reporter on Nov. 9, 2004, Congoleum Corporation has filed a modified plan of reorganization and related documents with the Bankruptcy Court. The modifications reflect negotiations with representatives of the Asbestos Creditors' Committee, the Future Claimants representative and other asbestos claimant representatives. A hearing to consider approval of the disclosure statement and plan voting procedures has been scheduled for Dec. 9, 2004. COUNCIL TRAVEL: Court Confirms Second Amended Joint Plan -------------------------------------------------------- The Honorable Robert E. Gerber of the U.S. Bankruptcy Court for the Southern District of New York confirmed Council Travel Services, Inc., and its debtor-affiliates' Second Amended Joint Plan of Liquidation filed in May. Judge Gerber concluded that the Debtors' Plan complies with the applicable provisions of the Bankruptcy Code and Rule 3016 of the Federal Rules of Bankruptcy Procedure. The Plan provides, among other things: * for the full payment on the Effective Date of priority and miscellaneous claims; * that general unsecured creditors will receive the pro rata share of their claims and are expected to recover from 5% to 15% of their claims; * that convenience claim holders get an amount equal to 40% of their allowed claims; and * for the cancellation of all equity interests. Headquartered in Manhattan, New York, Council Travel Services, Inc., provides student and budget travel packages. The Company and its debtor-affiliates filed for chapter 11 protection on February 5, 2002 (Bankr. S.D.N.Y. Case No. 02-10509). Schuyler Glenn Carroll, Esq., at Olshan Grundman Frome Rosenzweig & Wolosky LLP, represents the Debtors in their restructuring efforts. When the Debtor filed for protection from its creditors, it listed an estimated $10 million in assets and $21 in debts. CRESCENT REAL: Moody's Confirms B1 Rating on Senior Unsecured Debt ------------------------------------------------------------------ Moody's Investors Service confirmed the B1 rating of Crescent Real Estate Equities Limited Partnership's senior unsecured debt, concluding a review. The rating outlook is negative, reflecting Moody's expectation that recently announced joint ventures will be closed successfully and that the company uses the proceeds to pay down and defease $710 million in debt. It also reflects the continuing absence of any cushion in Crescent's debt covenants for some time, and that the performance of the REITs' core office portfolio will deteriorate further. Moody's is also concerned with the uncertain re-deployment of proceeds from slated transactions, near-term debt maturities, and a prolonged dividend shortfall, which the REIT has struggled to address. The rating also takes into account the high quality of Crescent's core office portfolio, its diverse tenant base and progress in disposition of non-core residential and hotel assets. These positive factors are offset by high geographic concentration of the portfolio in Texas, higher volatility associated with some of the REIT's businesses, weak profit performance, and a transitioning strategy aimed at fund management rather than direct property ownership. Crescent maintains a high quality Class-A core office portfolio with a laddered lease schedule and a diverse tenant mix, in which no single tenant accounts for more than 5% of annualized revenue. The REIT will also be supported by sufficient liquidity (approximately $50 million in cash and a $300 million revolver) and has targeted secured debt retirement resulting from a recently announced large joint venture. In addition, Crescent appears to have achieved meaningful advancement towards divesting AmeriCold, its cold-storage logistics joint venture, and also has indicated that it hopes to simplify the Canyon Ranch structure, whereby it would receive additional cash. Moody's noted that these positives were offset by unabated and material deterioration in operating profit performance, producing a virtually nonexistent cushion in bond and, especially, bank line covenants. Also worrisome is the significant management attention required for the complex joint ventures, and the complicated corporate hierarchy, which structurally subordinates the operating partnership's notes to the liabilities of subsidiaries, which hold most of the assets. Moody's also views cautiously the earnings volatility associated with the REIT's residential development and resort/lodging businesses. Within the core office portfolio, geographic concentrations in two underperforming markets, Houston and Dallas, represent weaknesses. Moody's cited a number of potential reasons for a downgrade, including any covenant breach or continued operating weakness in Crescent's core portfolio. A negative rating action would also be taken if further deterioration of the key credit metrics (total and secured leverage, fixed charge coverage) moved beyond current levels. Further, Moody's would view negatively any further new investments outside of the core office portfolio. A failure to divest the AmeriCold business within the next 12 -- 18 months, any additional equity contributions to this segment, stock repurchases beyond $100 million or failure to refinance the revolver would also result in a downgrade. To have its rating removed from negative outlook, Moody's determined that Crescent would need to demonstrate a sustained commitment to re-focusing on the core office portfolio, as evidenced by the achievement of the target asset allocation to the office portfolio of 85% and the divestiture of non-core businesses to a combined 15% of assets. Improvements in portfolio occupancy to above 90% and stabilization at that level would also be viewed positively. Additionally, Moody's would like to see the both GLA and base rent attributable to Houston and Dallas closer to 25%, each. Crescent could also return to a stable outlook with these improvements in its credit profile: (1) reduced overall leverage to 50% of gross assets, (2) secured debt to 30% of gross assets, and (3) increased fixed charge coverage to 1.8X. An expansion of the unencumbered pool to cover unsecured debt by at least 2.0X with higher quality assets and sustained reduction in dividend payout ratio to 90% of AFFO would also be positives. These ratings were placed under negative outlooks: * Crescent Real Estate Limited Partnership -- Senior unsecured debt at B1 * Crescent Real Estate Equities, Inc. -- Preferred stock at B3; preferred stock shelf at (P)B3 Crescent Real Estate Equities Company (NYSE:CEI) is an UPREIT based in Fort Worth, Texas, USA, that primarily invests in Class A office properties in the Southwest, and also has holdings in resorts, spas and upscale residential developments. CEI's holdings incorporated 75 owned and managed office properties totaling 29.9 million square feet as of September 30, 2004, and its total assets were $4.6 billion. As of third quarter 2004, office assets comprised 67% of gross book value of real estate assets, followed by residential development (16%), resorts/hotels (12%) and temperature controlled logistics (5%). The company had total market capitalization including debt of $5.1 billion. ENRON: Wants Court to Reduce Grupo IMSA's Claim to $17.5 Million ---------------------------------------------------------------- Edward A. Smith, Esq., at Cadwalader, Wickersham & Taft LLP, in New York, tells the U.S. Bankruptcy Court for the Southern District of New York that on October 3, 2002, Grupo IMSA, S.A. de C.V. filed Claim No. 6101 against Enron North America Corp. for $28,353,334. Mr. Smith relates that the IMSA Claim arises out of natural gas commodities transactions between ENA and IMSA, which are governed by an ISDA Master Agreement, dated as of February 22, 2001. The Debtors have reviewed the IMSA Claim and their records, and have found that the IMSA Claim cannot be substantiated because of IMSA's incorrect Early Termination Payment calculations and insufficient support for the amount claimed. Pursuant to the ISDA Master Agreement, Mr. Smith says, the parties entered into financial transactions involving the exchange of "fixed-for-floating" payments referenced to the price of natural gas. In addition, the parties agreed under the Master Agreement that if a party's conduct causes an Event of Default, the non-defaulting party may designate an Early Termination Date, whereby all outstanding Transactions become terminated, and one party would have to pay the other an Early Termination Payment. Additionally, under the terms of the ISDA Master Agreement, if certain other specified events occurred, an Automatic Early Termination would occur and the Early Termination Date would automatically be determined as of the date of that occurrence. Pursuant to the terms of the ISDA Master Agreement, the agreement automatically terminated on December 2, 2001. The Early Termination Payment is largely a function of movements in the market price of natural gas during the term of an underlying Transaction. With respect to the transactions that are the subject of the IMSA Claim, if at the Early Termination Date, the Floating Price curve was lower than the Fixed Price curve, then IMSA would owe ENA the Early Termination Payment. On the other hand, if the Floating Price curve was higher, then ENA would owe IMSA the Early Termination Payment. The ISDA Master Agreement provides that the Early Termination Payment must be paid to whomever it is owed, regardless of which party is the Defaulting Party. This provision is commonly referred to as a "full two-way payment" clause, Mr. Smith says. The Debtors have determined that the termination payment due pursuant to the ISDA Master Agreement and related Confirmations is $17,500,000, not $28,353,334 as alleged in the IMSA Claim. Additionally, pursuant to Section 502(B)(ii) of the Bankruptcy Code, once a bankruptcy is filed, interest no longer accrues, despite any provisions in the Master Agreement or other provisions of state law. The Debtors, therefore, object to the IMSA Claim, to the extent that the proof of claim is based in part on the improper inclusion of interest charges arising after the Petition Date. The Debtors ask Judge Gonzalez to reduce and allow the IMSA Claim for $17,500,000. 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) ENRON: Gets Court Nod on $4,000,000 Settlement with NNGC Parties ---------------------------------------------------------------- Debtor Enron Operations Services, LLC, sought and obtained the U.S. Bankruptcy Court for the Southern District of New York's approval to enter into a settlement agreement with Northern Natural Gas Company, MidAmerican Energy Holdings Company, and NNGC Acquisition. The NNGC Parties are companies that engage in the production of energy from diversified fuel sources including geothermal, natural gas, hydroelectric, nuclear, and coal. They also supply and distribute energy in the United States and United Kingdom consumer markets. In connection with the divestiture of Northern Natural Gas, the NNGC Parties entered into a Transition Services Agreement, under which EOS was to provide certain services to the NNGC Parties. Upon the cessation of the services under the Transition Agreement, EOS was to issue a final invoice to the NNGC Parties. In March 2003, EOS issued to Northern Natural Gas a Final Invoice for $8,896,085. In addition to charges for routine services, the Final Invoice included a $6,799,977 charge as a result of an allocation by Enron Corp. under the Court-ordered methodology and a $913,986 charge related to cash balance plan obligations under the Transition Agreement. Northern Natural Gas disputed the Final Invoice in its entirety. EOS and the NNGC Parties conducted discussions to resolve the dispute. Subsequently, EOS issued several revised invoices. The most recent invoice issued to the NNGC Parties was for $5,876,647. Individually, the NNGC Parties filed contingent and unliquidated claims related to the Transition Services Agreement: NNGC Party Claim No. ---------- --------- Northern Natural Gas 23688 NNGC Acquisition 23979 MEHC each filed a proof 23980 To resolve all claims arising in connection with the Transition Services Agreement, including issues relating to the Final Invoice, as revised, EOS and the NNGC Parties entered into the Settlement Agreement. The salient terms of the Settlement Agreement are: (a) As consideration and release for all claims and the settlement of the Final Invoice, the NNGC Parties will pay EOS $4,000,000; (b) All claims filed by the NNGC Parties arising from or related to the Transition Services Agreement will be deemed irrevocably withdrawn with prejudice and, to the extent applicable, expunged and disallowed in their entirety; and (c) EOS and the NNGC Parties will release each other from any and all claims, obligations, actions, causes of action, and liabilities which arise from or relate in any way to the Final Invoice. 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) ENRON CORP: Objects to Two Silver Oak Claims Totaling $143 Million ------------------------------------------------------------------ On Oct. 11, 2002, Silver Oak Capital, LLC, acting as agent for AG Capital Recovery Partners III, LP -- successor-in-interest to the claims of ONEOK Energy Marketing and Trading Company, L.P. -- filed multiple proofs of claim in Enron Corporation and its debtor-affiliates' chapter 11 cases. Claim No. 11322, filed as an unsecured claim for not less than $73,793,751 against Enron North America Corp., is based on: (a) that certain ISDA Master Agreement dated April 9, 1996, between ENA f/k/a Enron Capital & Trade Resources Corp. and ONEOK f/k/a ONEOK Gas Marketing Company; and (b) that certain GISB Base Contract for Short-Term Sale and Purchase of Natural Gas dated December 1, 1999, as amended on July 1, 2001, between ENA and ONEOK f/k/a KN Marketing, LP. On June 25, 2004, Silver Oak, pursuant to Rule 3001(e)(2) of the Federal Rules of Bankruptcy Procedure, transferred to Bear Stearns Investment Products, Inc., all of its right, title and interest in and to Claim No. 11322. Bear Stearns, by Notices of Partial Transfer of Claim Pursuant to FRBP Rule 3001(e)(2), transferred interests in Claim No. 11322 to: (1) Quantum Partners LDC -- $15,000,000 (2) King Street Acquisition Company, L.L.C. -- $36,793,751 Claim No. 11317, filed as an unsecured claim for not less than $70,000,000 against Enron, is based on: (a) that certain Guaranty dated November 8, 2000, and amended on November 8, 2000, and June 22, 2001, issued by Enron in ONEOK's favor in an amount that ultimately was not to exceed $20,000,000; and (b) that certain Guaranty dated April 9, 1996, and as amended on April 17, 2000, May 10, 2000, October 26, 2001, and October 30, 2001, issued by Enron in ONEOK's favor in an amount that ultimately was not to exceed $50,000,000, and covering all obligations of ENA under one or more swap, option or other financially-settled derivative transactions, which transactions were to be evidenced by one or more swap agreements, confirmations and or master agreements including without limitation the ISDA. On April 20, 2004, Silver Oak, pursuant to Rule 3001(e)(2), transferred $25,000,000 of Claim No. 11317 to ONEOK. On June 25, 2004, Silver Oak, pursuant to Rule 3001(e)(2), transferred $45,000,000 of Claim No. 11317 to Bear Stearns. Bear Stearns, by Notices of Partial Transfer of Claim Pursuant to FRBP Rule 3001(e)(2), has since transferred interests in Claim No. 11317 to: (1) Quantum Partners LDC -- $9,147,116 (2) King Street Acquisition Company, L.L.C. -- $22,437,114 On November 28, 2003, the Debtors filed an avoidance action under Section 548 of the Bankruptcy Code with respect to Claim No. 11317. The Silver Oak Adversary Proceeding seeks to avoid Enron's obligations under the Guaranty. In the event that the U.S. Bankruptcy Court for the Southern District of New York determines that the Guaranty is valid and enforceable against Enron, Claim No. 11317 is nonetheless overstated and should be reduced. The Debtors have reviewed the Silver Oak Claims and their books and records, and have concluded that: (a) the Silver Oak Claims are significantly overstated by at least $15 million, and (b) Silver Oak has miscalculated the amounts due, if any, under the applicable transactional documents. According to the Debtors' books and records, Claim No. 11322 should be reduced and allowed for $55,867,734. With regard to Claim No. 11317, if Enron prevails in the Silver Oak Adversary Proceeding, Claim No. 11317 should be disallowed; otherwise, Claim No. 11317 should be disallowed as filed, and allowed as a general unsecured claim for $53,132,470. 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) EXIDE TECH: Awards Options & Shares to Eight Executives ------------------------------------------------------- On Oct. 13, 2004, pursuant to its 2004 Stock Incentive Plan, Exide Technologies awarded options and shares of restricted stock to eight executives: Name Position No. of Options No. of Shares ---- -------- -------------- ------------- J. Timothy Executive 50,000 10,000 Gargaro Vice President and Chief Financial Officer Ian J. Harvie Vice President 28,000 3,500 and Controller Mitchell President, 20,000 3,000 Bregman Industrial Energy Americas Neil Bright President, 12,500 3,000 Industrial Energy Randolph Siuda Vice President & 20,000 3,000 General Manager -- Transportation Americas David Jackson Vice President & 20,000 3,000 General Manager -- Transportation Europe Stuart Executive 30,000 7,000 Kupinsky Vice President, General Counsel and Secretary Janice Jones Executive 15,000 3,000 Vice President -- Human Resources Mr. Gargaro, in a regulatory filing with the Securities and Exchange Commission, discloses that the options are subject to a three-year vesting schedule: -- 33.3% on October 13, 2005, -- 33.3% on October 13, 2006, and -- 33.4% on October 13, 2007. Shares of restricted stock are subject to a five-year vesting schedule: -- 20% on October 13, 2005, -- 20% on October 13, 2006, -- 20% on October 13, 2007, -- 20% on October 13, 2008, and -- 20% on October 13, 2009. A full-text copy of Exide's 2004 Stock Incentive Plan is available for free at: http://sec.gov/Archives/edgar/data/813781/000095014404009817/g91322exv10w1.txt According to Mr. Gargaro, the vesting schedules are subject to certain change in control provisions, including full vesting if an employee is terminated within 12 months of a change in control. The per share exercise price for the options was calculated based on a 10-day trailing average closing price of Exide Technologies common stock as listed on the NASDAQ National Market immediately prior to the grant date. Furthermore, pursuant to the Stock Incentive Plan and as part of their annual compensation, each non-employee member of Exide's Board of Directors will receive 2,112 options valued at $20,000 and 1,264 shares of restricted stock valued at $20,000. Awards are subject to a one-year vesting period and will vest on October 13, 2005. If a Class I director is not re-elected at the Exide's annual meeting of shareholders in August 2005, that director's options and restricted stock will fully vest as of the date of the annual meeting. The per share exercise price for the options and the restricted stock price were calculated based on a 10-day trailing average closing price of the Exide common stock as listed on the NASDAQ National Market immediately prior to the grant date. Mr. Gargaro notes that all awards will be governed by the terms of the Stock Incentive Plan and applicable award agreements. The SIP and all awards granted are subject to shareholder approval at the Exide's annual meeting scheduled for August 2005. Headquartered in Princeton, New Jersey, Exide Technologies is the worldwide leading manufacturer and distributor of lead acid batteries and other related electrical energy storage products. The Company filed for chapter 11 protection on April 14, 2002 (Bankr. Del. Case No. 02-11125). Matthew N. Kleiman, Esq., and Kirk A. Kennedy, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. Exide's confirmed chapter 11 Plan took effect on May 5, 2004. On April 14, 2002, the Debtors listed $2,073,238,000 in assets and $2,524,448,000 in debts. (Exide Bankruptcy News, Issue No. 55; Bankruptcy Creditors' Service, Inc., 215/945-7000) FINOVA GROUP: Pension Plans Will Terminate Effective Dec. 31 ------------------------------------------------------------ The FINOVA Group sponsors a trusteed, non-contributory pension plan that covers substantially all of the company's employees. Benefits are based primarily on final average salary and years of service. FINOVA's funding policy for the pension plan is to make at least the minimum annual contribution required by applicable regulations. During the second quarter of 2004, FINOVA's Board of Directors approved the termination of the pension plan effective December 31, 2004. Hence, no pension benefits will accrue beyond December 31, 2004, and participant benefits under the plan will be fully vested and not forfeitable as of that date. The Board also approved discretionary contributions, which are expected to be sufficient to fully fund and enable the plan to pay all of its obligations to each participant. "[FINOVA] has no minimum funding requirement for its pension plan in 2004; however, [FINOVA] continues to evaluate the current funded status of the plan, its investment strategy and the pending termination of the plan," Richard A. Ross, FINOVA's Senior Vice-President and Chief Financial Officer and Treasurer, relates in a regulatory filing with the Securities and Exchange Commission. According to Mr. Ross, FINOVA made a $3.0 million discretionary contribution during July 2004 to improve the funded status of the plan. FINOVA anticipates making further discretionary contributions in 2004 or 2005. Headquartered in Scottsdale, Arizona, The Finova Group, Inc., provides commercial financing to small and midsized businesses; other services include factoring, accounts receivable management, and equipment leasing. The firm has three segments: Commercial Finance, Specialty Finance, and Capital Markets. FINOVA targets such markets as transportation, wholesaling, communication, health care, and manufacturing. Loan write-offs had put the firm on shaky ground. The Company and its debtor-affiliates and subsidiaries filed for Chapter 11 protection on March 7, 2001 (Bankr. Del. Case No. 01-00697). Daniel J. DeFranceschi, Esq., at Richards, Layton & Finger, P.A., represents the Debtors. FINOVA has since emerged from Chapter 11 bankruptcy. Financial giants Berkshire Hathaway and Leucadia National Corporation (together doing business as Berkadia) own FINOVA through the almost $6 billion lent to the commercial finance company. (Finova Bankruptcy News, Issue No. 52; Bankruptcy Creditors' Service, Inc., 215/945-7000) FRANK'S NURSERY: Can Continue Hiring Ordinary Course Professionals ------------------------------------------------------------------ The Honorable Prudence Carter Beatty of the U.S. Bankruptcy Court for the Southern District of New York gave Frank's Nursery & Crafts, Inc., permission to continue to retain, employ and pay professionals it turns to in the ordinary course of its business without bringing formal employment applications to the Court. In the Debtor's day-to-day operations of its business, it regularly calls upon certain professionals, including auditors, accountants, attorneys and tax advisors, to assist the Debtor in a variety of matters affecting its day-to-day business operations. Due to the number and geographic diversity of the Ordinary Course Professionals that the Debtor wishes to retain, it would be unwieldy and burdensome on both the Debtor and the Court to request each Ordinary Course Professional to apply separately for approval of its employment and compensation. The Debtor explains that the uninterrupted services of its Ordinary Course Professionals are vital to its ability to reorganize. The Debtor assures the Court that: a) no Ordinary Course Professional will be paid in excess of $20,000 per month, and would not exceed $100,000 per month for all the Ordinary Course Professionals to be retained by the Debtor; b) in the event that an Ordinary Course Professional's fees and expenses exceeds $20,000 in any given month, that Professional would be required to apply for formal approval of compensation to the Court; c) each Ordinary Course Professional would file an Affidavit with the Court, and serve to the U.S. Trustee and the Debtor's counsel, that contains: (i) information on the nature of the Professional's services, (ii) the Professional's billing procedures and practices, and (iii) a disclosure whether the Professional holds any interest adverse to the Debtor or its estate; and d) the Ordinary Course Professionals will not be involved in the administration of the Debtor's Chapter 11 case. Headquartered in Troy, Michigan, Frank's Nursery & Crafts, Inc. -- http://www.franks.com/-- specializes in nursery products, lawn and garden hardlines, floral decor, custom bows & floral arrangements, and Christmas merchandise, and is running GOB sales at all of its locations at this time. Frank's Nursery and its parent company, FNC Holdings, Inc., each filed a voluntary chapter 11 petition in the U.S. Bankruptcy Court for the District of Maryland on February 19, 2001. The companies emerged under a confirmed chapter 11 plan in May 2002. Frank's Nursery filed another chapter 11 petition on September 8, 2004 (Bankr. S.D.N.Y. Case No. 04-15826). In the Company's second bankruptcy filing, it listed $123,829,000 in total assets and $140,460,000 in total debts. FRANK'S NURSERY: Committee Hires Otterbourg Steindler as Counsel ---------------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of New York gave the Official Committee of Unsecured Creditors of Frank's Nursery & Crafts, Inc., permission to employ Otterbourg, Steindler, Houston & Rosen, P.C., as its counsel. Otterbourg Steindler will: a) assist and advise the Committee in its consultation with the Debtor relative to the administration of the Debtor's bankruptcy case; b) attend meetings and negotiate with the representatives of the Debtor; c) assist and advise the Committee in its examination and analysis of the conduct of the Debtors' affairs; d) assist the Committee in the review, analysis and negotiation of any plan of liquidation that may be filed and assist the Committee in the review, analysis and negotiation of the disclosure statement accompanying any plan of liquidation; e) assist the Committee in the review, analysis and negotiation of any financing agreements; f) take all necessary action to protect and preserve the interests of the Committee, including: (i) the prosecution of actions on its behalf, (ii) negotiations concerning all litigation in which the Debtor is involved, and (iii) if appropriate, review and analysis of claims filed against the Debtor's estate; g) prepare on the Committee's behalf all necessary motions, applications, answers, orders, reports and papers in support of positions taken by the Committee; h) protect the interests of the Committee by appearing before the Bankruptcy Court, the Appellate Courts, and the United States Trustee; and i) perform all other necessary legal services for the Committee in the Debtor's chapter 11 case. Glenn B. Rice, Esq., a member of Otterbourg Steindler, is the lead attorney for the Committee. Mr. Rice discloses that the Firm will charge the Debtor's estate for its fees and expenses. Mr. Rice reports Otterbourg Steindler professionals bill: Designation Hourly Rate ----------- ----------- Partner/Counsel $445 - 675 Associate 225 - 485 Paralegal/Legal Assistant 175 Otterbourg Steindler does not represent any interest adverse to the Committee, the Debtor or its estate. Headquartered in Troy, Michigan, Frank's Nursery & Crafts, Inc. -- http://www.franks.com/-- specializes in nursery products, lawn and garden hardlines, floral decor, custom bows & floral arrangements, and Christmas merchandise, and is running GOB sales at all of its locations at this time. Frank's Nursery and its parent company, FNC Holdings, Inc., each filed a voluntary chapter 11 petition in the U.S. Bankruptcy Court for the District of Maryland on February 19, 2001. The companies emerged under a confirmed chapter 11 plan in May 2002. Frank's Nursery filed another chapter 11 petition on September 8, 2004 (Bankr. S.D.N.Y. Case No. 04-15826). In the company's second bankruptcy filing, it listed $123,829,000 in total assets and $140,460,000 in total debts. GLOBAL CROSSING: Court Approves Broadview Settlement Agreement -------------------------------------------------------------- Broadview Networks Holdings, Inc., on behalf of itself and its affiliates, including Broadview Networks, Inc., and Broadview NP Acquisition Corp., provides a variety of telecommunications services to the GX Debtors and their reorganized debtor subsidiaries, including but not limited to, originating and terminating calls on Broadview Networks' telecommunications network. On March 22, 2002, Broadview Networks also purchased certain claims and receivables against Global Crossing from Network Plus Corp. and Network Plus, Inc., in their Chapter 11 bankruptcy proceedings. On September 30, 2002, Broadview Networks timely filed a $2,201,757 proof of claim against the Debtors with respect to both the claims it purchased and its own claims for prepetition services provided to the Debtors. Broadview Networks also contends that the Debtors owe approximately $555,968 for postpetition services as of January 31, 2004. The Debtors provide a variety of telecommunications services to Broadview Networks, including but not limited to, long distance telecommunications services. The Debtors contend that Broadview Networks owes them $1,585,909 on account of these telecommunications services. Broadview Networks disputes all but $489,689 of that amount, asserting it has a valid right to offset for the difference with certain of its prepetition claims against the Debtors. After extensive arm's-length negotiations, the Debtors and Broadview Networks have reached a settlement which, among other things: (i) resolves the disputes between the Parties; (ii) provides for Broadview Networks' payment to Global Crossing of $785,897 -- of which $435,897 has already been paid; (iii) releases or offsets other claims between the Parties; (iv) establishes guidelines for the resolution of certain postpetition disputes; and (v) withdraws all of Broadview Networks' prepetition claims against the Debtors in their Chapter 11 cases. A free copy of the Settlement Agreement is available at: http://bankrupt.com/misc/Broadview_Settlement_Agreement.pdf Subsequently, the parties entered into a stipulation confirming the provisions of the Settlement Agreement. * * * Judge Gerber approves the stipulation. Headquartered in Florham Park, New Jersey, Global Crossing Ltd. -- http://www.globalcrossing.com/-- provides telecommunications solutions over the world's first integrated global IP-based network, which reaches 27 countries and more than 200 major cities around the globe. Global Crossing serves many of the world's largest corporations, providing a full range of managed data and voice products and services. The Company filed for chapter 11 protection on January 28, 2002 (Bankr. S.D.N.Y. Case No. 02- 40188). When the Debtors filed for protection from their creditors, they listed $25,511,000,000 in total assets and $15,467,000,000 in total debts. Global Crossing emerged from chapter 11 on Dec. 9, 2003. (Global Crossing Bankruptcy News, Issue No. 69; Bankruptcy Creditors' Service, Inc., 215/945-7000) GWENADELE INC: List of 30 Largest Unsecured Creditors ----------------------------------------------------- Gwenadele, Inc., released a list of its 30 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Showlodge Franchise $287,000 c/o Paul Mirabile, Esq. 201 Saint Charles Avenue, Suite 3100 New Orleans, Louisiana 70170 McQuay International $19,136 1056 Solutions Center Chicago, Illinois 60677 Entergy $10,909 [Address Not Provided] Days Inn $8,387 9919 Gwenadele Avenue Baton Rouge, Louisiana 70816 Parish & City Treasurer $5,218 Louisiana Department of Revenue & Tax $4,171 Bell South $1,715 The Home Depot Supply $1,700 Antex International Linen $1,658 Cox Communications $1,140 Louisiana Department of Revenue & Tax $1,010 Office of Reg. Services $833 World Cinema $781 Economical $714 Lofton Security Service $714 LEMIC Insurance $578 Waste Management $450 Sysco $333 AT&T $292 Premier Source $234 Community Coffee Company $216 Annette C. Crawford $200 Chapter 13 Trustee James A. Freeman & Associates $169 Gumboland Doughnuts $158 C&A On Site Storage $130 Kustom Key $128 World Choice Travel $64 Sam's Club $60 Kleinpeter Farms Diary $50 USA Today $44 Headquartered in Baton Rouge, Louisiana, Gwenadele, Inc., is a Days Inn and Suites franchisee. The Company filed for chapter 11 protection on October 22, 2004 (Bankr. M.D. La. Case No. 04-13541). Pamela G. Magee, Esq., in Baton Rouge, Louisiana, represents the company in its restructuring efforts. When the Debtor filed for protection from its creditors, it estimated debts of over $1 million. HAYES LEMMERZ: Gets Approval to Establish Securitization Program ---------------------------------------------------------------- Hayes Lemmerz International, Inc. (NASDAQ: HAYZ) reported that it has obtained approval from lenders under its $450 million Senior Secured Term Loan and its $100 million Senior Secured Revolving Credit Facility of an amendment to its Credit Agreement dated as of June 3, 2003, to allow the company to establish an accounts receivable securitization program of up to $100 million and to modify certain financial covenants contained in the Credit Agreement. The Company intends to begin immediately the process of establishing a securitization program. Liquidity provided by the securitization program is expected to be used to replace early payment programs discontinued by the domestic automakers and for general corporate purposes. Although the Company expects to finalize the securitization program prior to year end, there can be no assurance as to if or when the program will be completed. (Hayes Lemmerz Bankruptcy News, Issue No. 56; Bankruptcy Creditors' Service, Inc., 215/945-7000) INTEGRATED ALARM: Moody's Rates Planned $125M Sr. Sec. Notes B3 --------------------------------------------------------------- Moody's Investors Service assigned a B3 rating to the proposed $125 million senior secured second lien notes of Integrated Alarm Services Group, Inc., and concurrently withdrew the rating on the proposed $125 million of senior unsecured notes. All other credit ratings of the company were affirmed. The ratings reflect the company's significant leverage, small size, high industry attrition rates, financial and operational risks related to acquisitions and weak liquidity. The ratings also take into account the recurring revenue stream from the company's alarm contract portfolio, solid EBITDA margins and limited capital expenditure requirements. The ratings outlook is stable. Moody's assigned these rating: * $125 million Senior Secured Second Lien Notes, rated B3, Moody's affirmed these ratings: * Senior Implied, rated B3, * Issuer Rating, rated Caa1, * Speculative Grade Liquidity Rating, rated SGL-4. Moody's withdrew these rating: * $125 million Senior Unsecured Notes (Guaranteed), rated B3, Proceeds from the proposed $125 million Secured Notes to be issued pursuant to Rule 144A of the Securities Act are expected to be used to repay $48 million of existing debt, acquire substantially all of the assets and assume certain of the liabilities of National Alarm Computer Center, Inc. -- NACC, a subsidiary of Tyco International Ltd., for about $51 million, pay fees and expenses, and provide additional liquidity to the company. The acquisition of NACC includes contracts to monitor alarm systems on behalf of dealers, a retail portfolio of contracts to monitor alarm systems for residential and commercial subscribers, an alarm monitoring facility and a dealer loan portfolio. The company expects to close on a new $30 million revolving credit facility due 2007 (not rated by Moody's) concurrent with the issuance of the Secured Notes. Proceeds from the revolver are expected to be used primarily to fund acquisitions and for general corporate purposes. The ratings recognize: (1) significant leverage relative to the company's small revenue base; (2) larger and better capitalized competitors; intense competition to secure relationships with dealers and acquire alarm monitoring contracts; (3) significant attrition rates of residential and commercial subscribers; and (4) financial and operational risks related to the NACC acquisition and other prospective acquisitions. The company has increased its revenues from about $21 million in 2001 to about $60 million in the latest twelve months -- LTM -- period ended June 30, 2004, primarily through acquisitions. The NACC acquisition will be the company's largest acquisition to date. Projected debt to revenues at December 31, 2004 is expected to exceed 1.5 times. Moody's expects that the company will continue to focus on growth through acquisition of alarm monitoring contracts for its own portfolio and contracts monitored on behalf of dealers. The success of this strategy will depend on such factors as purchase multiples, the quality of assets purchased, attrition rates and management's ability to integrate acquisitions and manage a fast growing company. Positive factors reflected by the ratings include: (1) the company's strong position in the business of monitoring alarm systems on behalf of dealers, (2) recurring revenue streams from the company's dealer and retail alarm contract portfolio, (3) solid EBITDA margins, (4) potential margin expansion from increases in the company's portfolio of alarm monitoring contracts, and (5) limited capital expenditure requirements. The stable ratings outlook reflects Moody's expectation that debt levels will continue to increase as the cost of alarm contract acquisitions exceeds free cash flow from operations. The ratings or outlook will likely benefit if the company demonstrates the success of its acquisition strategy through increased revenues, operating margins and improved leverage ratios. The outlook or ratings would likely come under pressure if the company fails to execute on its acquisition strategy as evidenced by growing attrition rates and deteriorating leverage ratios. Obligations under the proposed Secured Notes will have a second lien on substantially all of Integrated Alarm's tangible and intangible property. The B3 rating on the Secured Notes, notched at the senior implied level, reflects the preponderance of Secured Notes in the capital structure. The Secured Notes will be effectively subordinated to all first lien debt of the company and its subsidiaries. The notes will be senior to all existing and future unsecured indebtedness. In addition to incurrence based covenants, the Secured Notes are expected to have a covenant that provides that if the weighted average retail attrition rate for the trailing three quarters exceeds 18%, within forty five days after the filing of its quarterly report on Form 10-Q the company will be required to make an offer to purchase 10% of the Secured Notes at par. In addition, the company's purchase of retail contracts will be limited to a maximum of $2 million per quarter if retail attrition exceeds 18% for the latest one or three fiscal quarters. The proposed $30 million revolving credit facility will be secured by a first priority security interest in substantially all tangible and intangible assets of the company and a pledge of 100% of the stock of its operating subsidiaries. Availability under the revolving credit facility is subject to a borrowing base based on a multiple of recurring monthly revenues from certain retail alarm monitoring contracts. The assignment of the SGL-4 rating reflects the company's weak liquidity profile over the next twelve months. The company has significant projected cash needs including amounts required for projected alarm monitoring contract acquisitions, required debt amortization and capital expenditures. These cash needs are expected to exceed the company's cash on hand and free cash flows from operations in the next twelve months. If the company completes expected contract acquisitions and does not obtain additional financing, the company will need to rely on its $30 million revolving credit facility. Liquidity could be constrained if the integration of acquisitions is not completed successfully and in a timely manner or the company is required to fund certain loan commitments assumed in connection with the NACC acquisition. The SGL-4 rating also reflects the liquidity risks in the event retail attrition rates increase significantly. If weighted average retail attrition rates for the trailing three quarters increase to 18%, the company will be required by the terms of the indenture to make an offer to purchase 10% of the Secured Notes at par. The indenture, however, will limit the purchase of retail contracts to a maximum of $2 million per quarter if retail attrition exceeds 18% for the latest one or three fiscal quarters. Integrated Alarm's revolver is expected to contain a minimum fixed charge coverage ratio covenant. Moody's expects the company to be in compliance with this covenant for the next twelve months while maintaining adequate cushion under the covenant for each quarter. The SGL rating will be sensitive to the timing and amount of contract acquisitions, attrition rates and the company's ability to grow free cash flow from operations. For the LTM period ended June 30, 2004, free cash flow (defined as cash flow from operations less capital expenditures) to total debt was 9.8%. Moody's projects that free cash flow to total debt will improve to over 15% in 2005. For the LTM period, EBITDA to interest was 2.1 times and total debt to EBITDA was 3.4 times. Headquartered in Albany, New York, Integrated Alarm is a provider of alarm monitoring services. Revenue for the LTM period ended June 30, 2004 was approximately $60 million. INTEGRATED ELECTRICAL: Limiting Current Bond Issues --------------------------------------------------- Integrated Electrical Services, Inc. (NYSE: IES) plans to limit its use of bonds on projects that do not meet certain financial criteria. IES said current conditions in the surety bonding industry are adversely affecting IES' ability to obtain surety bonding consistent with historical terms. Losses experienced by the surety industry in the past two years have caused surety providers to limit capacity and increase prices for all participants, including IES, even though IES has incurred no surety losses on any project in its history. IES believes that the overall surety industry will continue to be challenged by fewer providers of surety bonds and a difficult re-insurance environment. IES continues to obtain surety bonds and has issued approximately $60 million in bonds during the last 90 days; however, the financial terms have become increasingly unattractive. IES currently has placed collateral in the amount of $22.5 million with its surety provider and currently has approximately $200 million in costs to complete on bonded jobs. Since September 9, 2004, IES has posted $17.5 million of the $22.5 million and has received $51 million in additional bonding. IES' CEO, Roddy Allen stated, "As a result of the increased financial requirements from the providers of our surety bonds, we have determined that certain projects are no longer economically attractive after considering the additional capital cost associated with surety bonds. Discussions with our current surety provider have not resulted in surety terms that allow IES to pursue some larger new project opportunities on a basis we deem to be financially acceptable. IES does intend to provide bonds on projects it deems attractive and is in discussions with its surety provider and, through its broker, with other providers to achieve a more cost effective program, and those discussions are ongoing. There is no assurance that the company will be able to obtain other surety alternatives on acceptable terms. Mr. Allen continued, "IES is pursuing a strategy that minimizes the utilization of surety bonds and has determined that it is in the best interest of the company to sell certain additional subsidiaries in addition to those previously disclosed because they depend heavily upon access to surety bonds. IES is aggressively moving forward with the previously announced divestitures and will provide more details on the new divestitures as we finalize our plans." On August 13, 2004, the company issued a press release announcing that it had identified certain issues regarding reported results at two of its operating subsidiaries, had been conducting an on- going evaluation of the reported results, and that its Audit Committee had engaged special counsel to conduct an investigation of those matters. Shortly after this announcement, five putative class action lawsuits were filed against IES and certain of its officers in the United States District Court for the Southern District of Texas, and one shareholder derivative action was filed against its directors in the District Court of Harris County, Texas. The putative class action lawsuits generally allege that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making false and misleading statements concerning the company's financial results during the period November 10, 2003 to August 13, 2004 and by employing inadequate internal controls. The complaints allege that the defendants engaged in a scheme to defraud so they could sell their company stock at inflated prices and close a $175 million senior credit facility. The complaints seek unspecified monetary damages. On October 19, 2004, a motion was filed to consolidate the putative class action lawsuits, to appoint Central Laborer's Pension Fund as lead plaintiff, and to appoint lead counsel. A scheduling conference has been set for November 17, 2004 in the first-filed case. The company anticipates that the cases will be consolidated and that a consolidated amended complaint will be filed after lead plaintiff and lead counsel are appointed. Defendants expect to file a motion to dismiss the consolidated amended complaint and to otherwise vigorously defend against these actions. Under the Private Securities Litigation Reform Act of 1995, all discovery will not begin in the putative class action lawsuits until the defendants' motion to dismiss is resolved. On September 3, 2004, a shareholder derivative action was filed against the company's Board of Directors and certain of its officers. It alleges that the company's Board of Directors and certain of its officers breached their fiduciary duties, abused their control, grossly mismanaged, wasted corporate assets, and unjustly enriched themselves based on the same conduct alleged in the putative class action lawsuits. Counsel for plaintiff in this action has stated its intention to file an amended petition no later than January 31, 2005. Accordingly, the parties have agreed to extend the deadline for all defendants to file their answer or otherwise respond until 30 days after the amended petition is filed. The defendants intend to vigorously defend against this action as well. The Company also received a letter on August 31, 2004 from the Staff of the United States Securities Exchange Commission requesting voluntary production of certain documents relating to its internal investigation, the investigation conducted by counsel to the Audit Committee of the Company's Board of Directors, and the material weaknesses identified by IES' auditors. The SEC has not advised the Company as to either the reason for the inquiry or its scope. The SEC's notice states that it should not be construed as an indication of any improper or unlawful conduct. The SEC has not issued a formal order, and the Company has voluntarily agreed to cooperate fully with the inquiry. On Oct. 4, IES announced a jury verdict in a pending lawsuit. The court ordered mediation related to the verdict previously discussed in the company's October 4, 2004 press release, concluded without the parties reaching a settlement. IES is hopeful that further discussions may still result in a satisfactory resolution of this matter. If the parties do not reach a settlement, the company intends to appeal any judgment entered. As previously disclosed, IES has made an accrual for a potential judgment; however, no judgment has been entered in the case to date. About the Company Integrated Electrical Services, Inc. is the leading national provider of electrical solutions to the commercial and industrial, residential and service markets. The company offers electrical system design and installation, contract maintenance and service to large and small customers, including general contractors, developers and corporations of all sizes. * * * As reported in the Troubled Company Reporter on Oct. 12, 2004, Moody's Investors Service downgraded the ratings of Integrated Electrical Services, Inc., and maintained the company on review for possible further downgrade following various events including the continued postponement of release of the company's fiscal 2004 third quarter 10-Q, concerns surrounding the timing of future filings, the resignation of the company's Chief Financial Officer, and the decision by its Chief Operating Officer to step down, an adverse decision in recent litigation, and concern that recent events may impact the company's surety bonding. The downgrade also reflects difficulty in accessing the company's recent financial performance as a result of the continued delay in filing its audited financials for the third quarter of 2004. Moody's has downgraded these ratings and left them on review for further possible downgrade: * Senior Implied, downgraded to B1 from Ba3; * Senior Unsecured Issuer Rating, downgraded to B2 from B1; * $173 million (remaining balance) of 9.375% senior subordinated notes due 2009 (in two series), downgraded to B3 from B2. On August 2, 2004, Integrated Electrical said it was rescheduling its fiscal 2004 third quarter earnings release and conference call due to its ongoing evaluation of certain large and complex projects at one subsidiary that experienced project management changes in the latter part of the third quarter. On Aug. 13, 2004, the company announced that it would be delaying the filing of its fiscal 2004 third quarter 10-Q. On Aug. 16, 2004, the company disclosed that it had identified potential problems at one of its subsidiaries and an additional issue in one contract at another subsidiary. This review resulted in adjustments to operating income of $5.7 million. Integrated Electrical's auditors, Ernst & Young, advised the company that as a result of these issues, there were material weaknesses in complying with Sarbanes-Oxley and that the filing of the 10-Q would occur simultaneously with the release of the fiscal 2004 year-end audit, which is expected to occur on or before Dec. 15, 2004. Furthermore, although the company received a waiver from the senior subordinated bond holders through Dec. 15, 2004, failure to file its fiscal 2004 third quarter 10-Q by this date could trigger a default. A notice of default under the senior subordinated notes triggers a cross default under the bank credit agreement. Integrated Electrical announced on September 29, 2004, that Richard L. China has resigned his position as Chief Operating Officer to accept the appointment of Senior Vice President, Strategic Business Development. The company also announced on the same day that Jeffrey Pugh, Chief Financial Officer since June 7, 2004, resigned to pursue other opportunities. Although these factors on their own may not be a concern, these announcements have occurred during a period of turmoil and could suggest that other issues are brewing or that the problems run deeper than is currently obvious. Seemingly unrelated, a verdict against the company was announced in a case pending in the 133rd District Court of Harris County, Texas that arose out of the proposed sale of a subsidiary of the Company and an employment claim by a former officer of the subsidiary. Potential losses were initially estimated not to exceed $30 million and may be much lower if the judge reduces the amount, the company settles, or wins upon appeal. Irrespective of the eventual outcome, this is additional uncertainty that comes during a tough time in the company's history. Moody's is concerned that these factors may affect future negotiations with its insurance providers and thereby result in higher surety bonding costs or reduced availability. Recent events could also affect the company's contract win rates adversely. Integrated Electrical already seen its borrowing base (as a percent of receivables) adjusted slightly as a result of recent events. Although the lack of audited financial results makes the ratings decision more difficult, the company's last twelve months results through March 31, 2004, had placed the company weakly within its previous ratings category. Specifically, for this period, earnings before interest and taxes (EBIT) to total assets was under 8.5%, EBITDA less capital expenditures to interest was only about 2.6 times and EBIT margin was under 5%. Furthermore, free cash flow after capital expenditures to debt of 8% is more indicative of a B1 Senior Implied rating than a Ba3. Moody's continued review will focus on Integrated Electrical's progress in addressing weaknesses in its internal controls, including integrating many disparate subsidiary companies into a smoothly functioning national corporation and the methods employed in properly estimating revenues, costs and percentage of completion on contracts. In addition, the review will address Integrated Electrical's continuing relationships with its bank group and surety provider, litigation risks, and the company's ongoing liquidity. Total liquidity, comprised of unrestricted cash and revolver availability, is believed to currently total over $50 million. INTEGRATED ELECTRICAL: Lack of Info Cues S&P to Withdraw Ratings ---------------------------------------------------------------- Standard & Poor's Ratings Services withdrew its ratings, including the 'BB-' corporate credit rating, on Houston, Texas-based Integrated Electrical Services Inc. The ratings had been on CreditWatch with negative implications since June 23, 2004. At March 31, 2004, the electrical contracting services provider had about $254 million of total debt (including present value of operating leases) outstanding. "The rating withdrawals reflect Standard & Poor's belief that there is insufficient information available to support a ratings opinion at this time," said Standard & Poor's credit analyst Heather Henyon. Integrated Electrical has yet to file financial statements for its third fiscal 2004 quarter ended June 30, 2004, and currently indicates that it will file its fiscal 2004 10K by December 14, 2004. Additionally, since the ratings were placed on CreditWatch, a series of events, including IES lowering earnings guidance (before eventually dropping it altogether), delays in providing timely financial statements, and acknowledgement of internal accounting and control issues, led Standard & Poor's to lower the ratings. Integrated Electrical most recent announcements that its access to the surety market has been become increasingly unattractive, undermines a key rating consideration that at least fair liquidity was being maintained. Since the company has not specified its full access to capital resources, the news makes us increasingly concerned about the company's financial flexibility and business prospects, although it is impossible to quantify how material the issues are without further detail. As a result, S&P believes that withdrawing a ratings opinion is appropriate at this point in time. Following the resolution of these items, it is possible that S&P will reinitiate coverage. Integrated Electrical is a leading electrical contractor in the domestic U.S. commercial and residential construction markets. INTERSTATE BAKERIES: Hires Kurtzman Carson as Claims Agent ---------------------------------------------------------- The U.S. Bankruptcy Court for the Western District of Missouri gave Interstate Bakeries Corporation and its debtor-affiliates permission to employ Kurtzman Carson Consultants, LLC, as their claims, noticing and balloting agent. At the request of the Debtors or the Bankruptcy Court Clerk's Office, Kurtzman will: (A) assist the Debtors in the preparation and filing of their Schedules of Assets and Liabilities and Statement of Financial Affairs; (B) prepare and serve required notices in the Debtors' Chapter 11 cases, including: (i) A notice of commencement of the bankruptcy cases and the initial meeting of creditors under Section 341(a) of the Bankruptcy Code; (ii) A notice of the claims bar date; (iii) Notices of objections to claims; (iv) Notices of any hearings on a disclosure statement and confirmation of a reorganization plan; (v) Other miscellaneous notices as the Debtors or the Court may deem necessary or appropriate for an orderly administration of these Chapter 11 cases; and (vi) Assist with the publication of required notices, as necessary; (C) within five business days after the service of a particular notice, prepare for filing with the Clerk's Office an affidavit of service that includes: (i) A copy of the notice served; (ii) An alphabetical list of persons on whom the notice was served, along with their addresses; and (iii) The date and manner of service; (D) maintain copies of all proofs of claim and proofs of interest filed; (E) maintain official claims registers by docketing all proofs of claim and proofs of interest in a claims database that includes these information for each claim or interest asserted: (i) The name and address of the claimant or interest holder and any agent, if the proof of claim or proof of interest was filed by an agent; (ii) The date the proof of claim or proof of interest was received by Kurtzman and the Court; (iii) The claim number assigned to the proof of claim or proof of interest; and (iv) The asserted amount and classification of the claim; (F) implement necessary security measures to ensure the completeness and integrity of the claims registers; (G) transmit to the Clerk's Office a copy of the claims registers on a weekly basis, unless requested by the Clerk's Office on a more or less frequent basis; (H) maintain a current mailing list for all entities that have filed proofs of claim or proofs of interest, and make the list available to the Clerk's Office or any party-in- interest by request; (I) provide access to the public for examination of copies of the proofs of claim or proofs of interest filed, without charge during regular business hours; (J) create and maintain a public access website setting forth pertinent case information and allowing access to certain documents filed in the Debtors' Chapter 11 cases; (K) record all transfers of claims pursuant to Rule 3001(e) of the Federal Rules of Bankruptcy Procedure and provide notice of these transfers as required by Rule 3001(e); (L) assist the Debtors in the reconciliation and resolution of claims; (M) comply with applicable federal, state, municipal and local statutes, ordinances, rules, regulations, orders and other requirements; (N) provide temporary employees to process claims, as necessary; (O) promptly comply with further conditions and requirements as the Clerk's Office or the Court may at any time prescribe; (P) provide balloting and solicitation services, including producing personalized ballots and tabulating creditor ballots on a daily basis; and (Q) provide other claims processing, noticing, balloting and related administrative services as may be requested from time to time by the Debtors. Kurtzman will also serve as the Debtors' solicitation and disbursing agent in connection with their Chapter 11 plan process. The Debtors will compensate and reimburse Kurtzman in accordance with the payment terms, procedures and conditions set forth in the employment agreement for services rendered and expenses incurred. If any dispute arises between the parties with respect to fees and expenses, this dispute will be presented to the Court for resolution. Headquartered in Kansas City, Missouri, Interstate Bakeries Corporation is a wholesale baker and distributor of fresh baked bread and sweet goods, under various national brand names, including Wonder(R), Hostess(R), Dolly Madison(R), Baker's Inn(R), Merita(R) and Drake's(R). The Company employs approximately 32,000 in 54 bakeries, more than 1,000 distribution centers and 1,200 thrift stores throughout the U.S. The Company and seven of its debtor-affiliates filed for chapter 11 protection on September 22, 2004 (Bankr. W.D. Mo. Case No. 04-45814). J. Eric Ivester, Esq., and Samuel S. Ory, Esq., at Skadden, Arps, Slate, Meagher & Flom LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,626,425,000 in total assets and $1,321,713,000 (excluding the $100,000,000 issue of 6.0% senior subordinated convertible notes due August 15, 2014 on August 12, 2004) in total debts. (Interstate Bakeries Bankruptcy News, Issue No. 5; Bankruptcy Creditors' Service, Inc., 215/945-7000) INTERSTATE BAKERIES: Wants Court Nod to Retain Kutak as Co-Counsel ------------------------------------------------------------------ The Official Committee of Unsecured Creditors seeks the U.S. Bankruptcy Court for the Western District of Missouri's authority to retain Kutak Rock, LLP, effective as of Sept. 30, 2004, as its co-counsel with regard to the Debtors' Chapter 11 cases. The Committee believes that Kutak Rock is well qualified to represent it in the Debtors' Chapter 11 cases in an efficient and timely manner because of the firm's: * experience and expertise in the field of business reorganizations under Chapter 11 of the Bankruptcy Code; * experience practicing before the Court; and * ability to respond quickly to legal issues that may arise in the Debtors' bankruptcy cases. As co-counsel for the Committee, Kutak Rock will: (a) advise the Committee with respect to its powers and duties under Section 1103 of the Bankruptcy Code; (b) take all necessary action to preserve, protect and maximize the value of the Debtors' estate for the benefit of the Debtors' unsecured creditors, including, but not limited to, investigating the acts, conduct, assets, liabilities, and financial condition of the Debtors, the operation of the Debtors' businesses and the desirability of the continuance of the business, and any other matters relevant to the Debtors' bankruptcy cases or to the formulation of a plan; (c) prepare, on the Committee's behalf, motions, applications, answers, orders, reports and papers that may be necessary to the Committee's interests in the Debtors' cases; (d) participate in the formulation of a plan as may be in the best interests of the Committee and the unsecured creditors of the Debtors' estates; (e) advise the Committee in connection with any sales or proposed sales of the Debtors' assets; (f) appear before the Court, any appellate court, and the United States Trustee to protect the Committee's interests and the value of the Debtors' estates before the courts and the United States Trustee; (g) consult with the Debtors' counsel, on the Committee's behalf, regarding tax, intellectual property, labor and employment, real estate, corporate and litigation matters, and general business operational issues; and (h) provide any and all other necessary legal advice to the Committee in connection with the Debtors' cases. Kutak Rock will be paid these hourly rates: Professional Rate per hour ------------ ------------- Partners and Of Counsel $220-325 Associates 135-200 Paralegals 80-125 Paul D. Sinclair, a partner at Kutak Rock, assures the Court that the firm does not hold or represent any interest adverse to the Debtors' estates or to the Committee. Headquartered in Kansas City, Missouri, Interstate Bakeries Corporation is a wholesale baker and distributor of fresh baked bread and sweet goods, under various national brand names, including Wonder(R), Hostess(R), Dolly Madison(R), Baker's Inn(R), Merita(R) and Drake's(R). The Company employs approximately 32,000 in 54 bakeries, more than 1,000 distribution centers and 1,200 thrift stores throughout the U.S. The Company and seven of its debtor-affiliates filed for chapter 11 protection on September 22, 2004 (Bankr. W.D. Mo. Case No. 04-45814). J. Eric Ivester, Esq., and Samuel S. Ory, Esq., at Skadden, Arps, Slate, Meagher & Flom LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,626,425,000 in total assets and $1,321,713,000 (excluding the $100,000,000 issue of 6.0% senior subordinated convertible notes due August 15, 2014 on August 12, 2004) in total debts. (Interstate Bakeries Bankruptcy News, Issue No. 6; Bankruptcy Creditors' Service, Inc., 215/945-7000) INTERWAVE COMMS: First Quarter Net Loss Widens to $6.3 Million -------------------------------------------------------------- interWAVE(R) Communications International, Ltd. (Nasdaq: IWAV), a pioneer in compact wireless voice and data communications systems, reported financial results for its first fiscal 2005 quarter ended Sept. 30, 2004. Revenues for the quarter of $4.1 million compare to $10.7 million in the comparable quarter last year. interWAVE reported a net loss of $6.3 million, compared to a net loss of $3.4 million in the comparable quarter last year. Erwin Leichtle, president and chief executive officer of interWAVE, observed, "While we are disappointed with our revenue results for the quarter ended September 30, 2004, we believe our mid-to-longer-term order outlook and customer pipeline remain strong. It appears a number of factors combined to impact our revenues for this most recent quarter, including some of our customers experiencing a longer internal capital expenditure approval cycle and other customers delaying their orders due to our pending amalgamation with Alvarion." interWAVE's operating expenses for the quarter ended September 30, 2004 decreased 29% to $5.6 million from the $7.8 million incurred in the comparable quarter of the prior fiscal year as the company continued its efforts to achieve cost savings. interWAVE's combined cash balances at the end of the first quarter of fiscal 2005 were $2.5 million. A special meeting of interWAVE's shareholders is scheduled to be held on Dec. 8, 2004 to consider and vote upon the proposal to approve the Agreement and Plan of Amalgamation, as amended. interWAVE filed a definitive proxy statement in connection with the special meeting with the Securities & Exchange Commission on Monday, Nov. 8, 2004. Assuming all closing conditions have been satisfied, interWAVE expects the amalgamation to be completed as soon as practicable following the special meeting. As reported in the Troubled Company Reporter on Oct. 19, 2004, Alvarion Ltd. and interWAVE Communications International, Ltd. have amended the Amalgamation Agreement between the two companies and interWAVE shareholders will be asked to approve revised terms. The amended agreement calls for Alvarion to provide additional interim financing and to acquire interWAVE for $4.18 per share in cash, for total consideration of approximately $40.5 million. About the Company interWAVE Communications International, Ltd. (Nasdaq: IWAV) is a global provider of compact network solutions and services that offer innovative, cost-effective and scalable networks allowing operators to "reach the unreached." interWAVE solutions provide economical, distributed networks intended to minimize capital expenditures while accelerating customers' revenue generation. These solutions feature a product suite for the rapid and simple deployment of end-to-end compact cellular systems. interWAVE's portable, mobile cellular networks provide vital and reliable wireless communications capabilities for customers in over 50 countries. The Company's U.S. subsidiary is headquartered at 2495 Leghorn Street, Mountain View, California, and can be contacted at http://www.iwv.com/or at (650) 314-2500. * * * Going Concern Doubt In its Form 10-K for the fiscal year ended June 30, 2004, filed with the Securities and Exchange Commission, interWAVE(R) Communications' auditors express substantial doubt in the Company's ability to continue as a going concern. The Company has had recurring net losses, including net losses of $6.7 million, $28.3 million and $64.3 million for the years ended June 30, 2004, 2003 and 2002, respectively, and the Company also had net cash used in operations of $5.6 million, $12.9 million, and $28.8 million for the years ended June 30, 2004, 2003 and 2002, respectively. J.H. WHITNEY: Fitch Upgrades Ratings After Review ------------------------------------------------- Fitch Ratings upgrades all of the rated notes issued by J.H. Whitney Mezzanine Fund, L.P. The upgrade of these notes is a result of Fitch's annual rating review process. These rating actions are effective immediately: -- $26,000,000 class A notes upgraded to 'AAA' from 'AA'; -- $125,000,000 class B notes upgraded to 'A' from 'BBB'; -- $60,000,000 class C notes upgraded to 'BBB' from 'BB'; -- $15,000,000 class D notes upgraded to 'BB' from 'B'. The fund is a collateralized debt obligation -- CDO -- managed by J.H. Whitney & Co that closed July 30, 1998. The fund was established to issue approximately $650 million in fixed- and floating-rate notes and invest the proceeds in a portfolio of primarily private mezzanine debt. Fitch has reviewed in detail the portfolio performance of the fund and discussed the current state of the portfolio with the asset manager. The collateral pool is in its amortization period and it is static at this time. Since the last rating action on December 18, 2003, the overcollateralization -- OC -- ratio has increased from 119.0% to 127.4% (excluding industry concentration haircuts) as reported on the Oct. 1, 2003, and Oct. 31, 2004, trustee reports, versus a trigger of 105%. The interest coverage ratio is currently 120.9%, compared with its required test level of 110% (excluding paid in kind interest). Since the previous review, the A-1 notes have been paid down by approximately $268 million, or 91% of the total balance. Currently, there is over $279.8 million of collateral to cover $226 million of rated notes excluding any credit for valuation on existing warrants. 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. 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 at http://www.fitchratings.com. As a result of this analysis, Fitch has determined that the current ratings assigned to the class A, B, C, and D notes no longer reflect the current risk to noteholders and has subsequently improved. JETBLUE AIRWAYS: S&P Assigns BB+ Rating to Class C Certificates --------------------------------------------------------------- Standard & Poor's Ratings Services assigned its preliminary 'AAA' rating to JetBlue Airways Corp.'s (BB-/Negative/--) Class G-1 and G-2 pass-through certificates series 2004-2, and its preliminary 'BB+' rating to the Class C pass-through certificates: Class Amount Maturity ----- ------ -------- Class G-1 $176.8 million February 15, 2018 Class G-2 $185.4 million May 15, 2018 Class C $136.1 million May 15, 2010 "The 'AAA' rating on the Class G-1 and G-2 certificates is based on a guarantee insurance policy provided by MBIA Insurance Corp. (AAA/Stable/--); the 'BB+' rating on the Class C certificates is based on JetBlue's credit and the added protections of overcollateralization and structural features of the certificates," said Standard & Poor's credit analyst Betsy Snyder. The pass-through certificates are aircraft-backed securities whose credit quality benefits from substantial overcollateralization, favorable legal treatment under the U.S. Bankruptcy Code, and dedicated liquidity facilities. New York, New York-based JetBlue, a low-cost airline, has grown substantially while maintaining high, although recently reduced, margins, in the weak airline environment that began in late 2000. KAISER ALUMINUM: Court Approves Settlement with Federal Agencies ---------------------------------------------------------------- The United States of America, on behalf of the Department of Homeland Security, U.S. Customs and Border Protection, finds that it owes Kaiser Aluminum & Chemical Corporation four prepetition refunds totaling $390,857 for liquidated customs entries. Moreover, the Government, on behalf of the Environmental Protection Agency, timely filed Claim No. 7135 against Kaiser and its debtor-affiliates for $149,853, representing past response costs with respect to the Kaiser Aluminum Mead Superfund Site in Mead, Washington. The Debtors and the EPA, among others, are parties to a Consent Decree relating to the Mead Aluminum Reduction Works and Kaiser Aluminum Mead Superfund Site, which specifically reserves the Government's right to set off the Customs Refund against the Past Response Costs. On September 29, 2003, the U.S. Bankruptcy Court for the District of Delaware granted the Government, on behalf of the Bonneville Power Administration, a power marketing administration within the Department of Energy, an allowed unsecured non-priority claim for $3,544,943 for its claims arising under: (a) the March 1998 Service Agreement for Point-to-Point Transmission Service with KACC; and (b) the January 1978 lease agreement with KACC for the lease of certain transmission equipment. The Government contends that it is entitled to set off the Customs Refund against the Federal Agencies Claims. The Debtors and the Federal Agencies desire to resolve their differences with respect to the Claims. In a Court-approved Stipulation, the parties agree that: (a) U.S. Customs and the Federal Agencies are granted relief from the automatic stay of Section 362 of the Bankruptcy Code to set off the Customs Refund against the Federal Agencies Claims: -- $149,853 of the Customs Refund will be set off against, and extinguish, the EPA's claim for the Past Response Costs for the Kaiser Aluminum Mead Superfund Site; and -- the $241,004 balance of the Customs Refund will be set off against Bonneville Power's $3,544,943 Claim arising under the PTP Agreement and Capacitor Lease reducing that allowed claim to $3,303,938; (b) Upon the execution of the Set-off, the Customs Refund will be completely extinguished, and the U.S. Customs will have no liability to the Debtors for the Customs Refund; (c) Upon execution of the Set-off, the Debtors' claims and noticing agent, Logan & Company, is authorized and empowered to: -- withdraw as satisfied that portion of Claim No. 7135 for the Past Response Costs for the Kaiser Aluminum Mead Superfund Site; and -- reduce Bonneville Power's allowed unsecured non- priority Claim under the PTP Agreement and Capacitor Lease to $3,303,938; (d) The amount received by the EPA under the Set-off will be deposited in a site-specific account for the Kaiser Aluminum Mead Superfund Site within the EPA Hazardous Substances Superfund to be retained and used to conduct or finance response action at or in connection with that Site or be transferred by the EPA to the EPA Hazardous Substances Superfund; and (e) The U.S. Customs' Claim No. 7152 will not be affected by the Stipulation. Headquartered in Houston, Texas, Kaiser Aluminum Corporation -- http://www.kaiseral.com/-- operates in all principal aspects of the aluminum industry, including mining bauxite; refining bauxite into alumina; production of primary aluminum from alumina; and manufacturing fabricated and semi-fabricated aluminum products. The Company filed for chapter 11 protection on February 12, 2002 (Bankr. Del. Case No. 02-10429). Corinne Ball, Esq., at Jones Day, represent the Debtors in their restructuring efforts. On June 30, 2004, the Debtors listed $1.619 billion in assets and $3.396 billion in debts. (Kaiser Bankruptcy News, Issue No. 53; Bankruptcy Creditors' Service, Inc., 215/945-7000) KINETICS GROUP: Moody's Junks $17 Million Senior Secured Facility ----------------------------------------------------------------- Moody's Investors Service downgraded The Kinetics Group's senior secured and senior implied ratings to Caa1 and Caa2, respectively, from B3. This action concludes the review initiated on September 2, 2004. The outlook on the ratings is negative. This downgrade reflects the company's continued unsuccessful attempts to secure a comprehensive capital restructuring solution, compounded by its ongoing, unprofitable operating results and Moody's expectation for no near term recovery. Together with the company's inadequate liquidity and sustained cash flow burn, there is increasing risk over the serviceability of the rated, secured indebtedness, not to mention the material interest expense incurred from the outstanding second lien and subordinated debt balances (totaling approximately $160 million). Finally, the company's niche business model, operating within the volatile semiconductor industry that has begun to show prominent signs of deceleration for Q4 2004 and through 2005, possesses questionable recovery capabilities. Ratings downgraded were: (i) The Kinetics Group, Inc.'s $55 million guaranteed senior secured revolving credit facility, due 2006, downgraded to Caa1 from B3; (ii) The Kinetics Group, Inc.'s $17 million guaranteed senior secured term loan facility, due 2005, downgraded to Caa1 from B3; (iii) Senior implied rating downgraded to Caa2 from B3; and (iv) Senior unsecured issuer rating downgraded to Caa3 from Caa1. Dating back to the technology bubble collapse, the company has reported weak profit margins and negative free cash flow generation due to some combination of reduced semiconductor OEM demand, unfavorable (competitive intensity) pricing pressures and a taxing capital structure. In an effort to address its liquidity challenges, the company has pursued various recapitalization alternatives ranging from an unsuccessful summer 2004 initial public equity offering to more recent attempts securing new private capital contributions combined with some form of existing debt for equity exchanges. With no success to date, the company is confronted by this very limited access to alternative capital markets. The negative rating outlook reflects Moody's expectation that the company's sales will not materially improve for Q4 and through 2005 as operational issues, deteriorating demand and a softened pricing environment will lead to continued weak (negative) cash flow generation into the foreseeable future. The outlook also incorporates the increasing challenges confronting the company as it attempts to support the existing capital structure, characterized by material near-term debt maturities, inadequate liquidity support and limited financial flexibility. The credit facilities are supported by a first priority, perfected security interest in substantially all the assets of Kinetics and each of its direct and indirect domestic subsidiaries. Further, the facilities receive guarantees from each of the borrower's direct and indirect domestic subsidiaries. Taking into account this beneficial first priority position as well the aggregate outstanding borrowings ($54.5 million, excluding $17 million revolver commitment residual currently pledged to support outstanding letters of credit) in relation to the pledged tangible assets, the facilities' rating has been rated one notch above the senior implied rating of Caa2. As of June 30, 2004, Kinetics reported approximately $215 million of debt, translating into an exceptionally high 53x multiple to the company's TTM EBITDA (adjusted to exclude non-recurring charges). Following the bursting technology bubble, the company experienced 2002 and 2003 20%+ sales declines as well as very modest EBITDA. While gross margins have recovered in recent quarters to the 20% area, the necessary operational infrastructure (R&D, sales and marketing) to sustain its market position has made it a nearly insurmountable obstacle for the company to generate anything more than modest EBITDA levels. As a result, the associated debt protection measures are very weak, with EBITDA to interest expense of 0.05x and negative EBITDA less capital expenditures. The Kinetics Group, Inc., headquarter in Milpitas, California, is a leader in: (i) the design and manufacture of high performance gas and chemical delivery process modules integral to equipment used in the manufacture of semiconductors; and (ii) turnkey chemical delivery process systems and operating services utilized by electronics, pharmaceutical and biotechnology manufacturers. KMART CORP: Court Allows Serrano's Claim for $500K -------------------------------------------------- On April 10, 2002, Serrano, LLC, filed Claim No. 22983 for $2,500,000. Subsequently, Kmart Corporation filed several omnibus objections to the Claim. Serrano filed responses or otherwise contested the omnibus objections. Pursuant to an Assignment and Cooperation Agreement entered into on April 12, 2002, Serrano assigned to Gerber Trade Finance, Inc., all of its rights, title, and interest to any and all contract rights, receivables and claims against Kmart. Pursuant to the Assignment Agreement, however, the proof of claim and all litigation will be filed and prosecuted in Serrano's name. Thus, Serrano represents that it has the full legal right to resolve and compromise, although the Claim has been assigned to Gerber and all payments made in connection with the Claim will be made to Gerber. In a Court-approved stipulation, the parties agree that: (a) Claim No. 22983 is allowed as a Class 6 unsecured nonpriority prepetition claim for $500,000. This amount will constitute full and final satisfaction of Claim No. 22983 and of all current and future claims against Kmart by Serrano; and (b) Serrano and each of its affiliates, successors, assigns, and designees, releases Kmart from all claims and causes of action arising under or in connection with the Claim either on or before October 15, 2004. Headquartered in Troy, Michigan, Kmart Corporation (n/k/a KMART Holding Corporation) -- http://www.bluelight.com/-- is the nation's second largest discount retailer and the third largest merchandise retailer. Kmart Corporation currently operates approximately 2,114 stores, primarily under the Big Kmart or Kmart Supercenter format, in all 50 United States, Puerto Rico, the U.S. Virgin Islands and Guam. The Company filed for chapter 11 protection on January 22, 2002 (Bankr. N.D. Ill. Case No. 02-02474). Kmart emerged from chapter 11 protection on May 6, 2003. John Wm. "Jack" Butler, Jr., Esq., at Skadden, Arps, Slate, Meagher & Flom, LLP, represented the retailer in its restructuring efforts. The Company's balance sheet showed $16,287,000,000 in assets and $10,348,000,000 in debts when it sought chapter 11 protection. (Kmart Bankruptcy News, Issue No. 84; Bankruptcy Creditors' Service, Inc., 215/945-7000) LAGUARDIA: Wants to Use SunTrust & Shaner Cash Collateral --------------------------------------------------------- LaGuardia Associates, L.P., and its debtor-affiliate, Field Hotel Associates, LP, ask the U.S. Bankruptcy Court for the Eastern District of Pennsylvania for permission to use cash collateral held by SunTrust Bank and Shaner Management Group. The Debtors need access to the cash collateral to avoid serious and irreparable harm to their estates and to finance their payroll and ongoing operating expenses. The Debtors explain to the Court that certain of their cash were sent to SunTrust pursuant to a Cash Management Agreement dated April 23, 2004. The funds were intended to pay for certain operating expenses. Despite the Debtors' repeated requests to SunTrust, they have not been allowed access to their funds. The Debtors relate that on October 15, 2004, SunTrust obtained, on an ex-parte basis, Shaner Management, as a receiver for the Debtors, whose function included collecting certain of the Debtors' cash and receivables that arose after October 15, 2004. The Debtors believe Shaner Management possesses several hundred thousand dollars of their funds. The Debtors specifically ask the Court to compel SunTrust to turn over the funds to them, and to suspend their obligations under the Cash Management Agreement to pay certain of their revenues over to SunTrust. The Debtors also ask the Court to direct Shaner Management to forward to them all the cash and receivables it possesses that it collected from the Debtors after October 15, 2004. The Debtors propose to use the cash collateral in accordance with their operating budget for a 13-week period from October 29, 2004, up to January 21, 2005. A full-text copy of the Cash Collateral Budget is available for a fee at: http://www.researcharchives.com/download?id=040812020022 To protect SunTrust's principal claim of less than $50 million and any interest it has for the Debtors' use of the cash collateral, the Debtors offer to provide SunTrust a replacement lien having the same prepetition extent, validity and priority. Headquartered in King of Prussia, Pennsylvania, LaGuardia Associates, L.P., owns and operates the 358-room Crowne Plaza Hotel located at 104-04 Ditmars Boulevard in East Elmhurst, New York. The Company filed for chapter 11 protection on October 29, 2004 (Bankr. E.D. Pa. Case No. 04-34514). When the Company filed for protection from its creditors, it estimated assets and liabilities of $10 to $50 million. LAGUARDIA: Hires Dilworth Paxson as Bankruptcy Counsel ------------------------------------------------------ The U.S. Bankruptcy Court for the Eastern District of Pennsylvania gave LaGuardia Associates, L.P., and its debtor-affiliate, Field Hotel Associates, LP, permission to employ Dilworth Paxson LLP as their general bankruptcy counsel. Dilworth Paxson will: a) provide the Debtors legal services with respect to its powers and duties as debtors-in-possession; b) assist the Debtors in preparing all necessary pleadings, motions, applications, complaints, answers, responses, orders, United States Trustee reports, and other legal papers; c) represent the Debtors in any matter involving contests with secured or unsecured creditors, including the claim reconciliation process; d) assist the Debtor in providing legal services required to prepare, negotiate and implement a plan of reorganization; and e) perform all other legal services for the Debtors which may be necessary other than those requiring specialized expertise for which special counsel may be employed. Lawrence G. McMichael, Esq., a Partner at Dilworth Paxson, discloses that the Firm received a $381,500 retainer. For his professional services, Mr. McMichael will bill the Debtors $500 per hour. Martin J. Weis, Esq., and Jennifer L. Maleski, Esq., are the other lead attorneys for the Debtors. Mr. Weis will bill the Debtors $330 per hour, while Ms. Maleski will charge at $150 per hour. To the best of the Debtors' knowledge, Dilworth Paxson is "disinterested" as the term is defined in Section 101(14) of the Bankruptcy Code. Headquartered in King of Prussia, Pennsylvania, LaGuardia Associates, L.P., owns and operates the 358-room Crowne Plaza Hotel located at 104-04 Ditmars Boulevard in East Elmhurst, New York. The Company filed for chapter 11 protection on October 29, 2004 (Bankr. E.D. Pa. Case No. 04-34514). When the Company filed for protection from its creditors, it estimated assets and liabilities of $10 to $50 million. LEAP WIRELESS: S&P Puts B- Corp. Credit Rating with Stable Outlook ------------------------------------------------------------------ Standard & Poor's Ratings Services assigned its 'B-' corporate credit rating to San Diego, California-based wireless telecom carrier Leap Wireless International Inc. The outlook is stable. At the same time, Standard & Poor's assigned its 'B-' bank loan rating to subsidiary Cricket Communications Inc.'s $650 million in senior secured bank facilities (guaranteed by Leap), based on preliminary documentation. A recovery rating of '3' also was assigned to the loan, indicating an expectation for a meaningful recovery of principal (50%-80%) in the event of a default. Borrowings under the bank loan will primarily be used to repay $350 million of debt issued to existing secured creditors under the company's reorganization in bankruptcy. "The ratings are constrained by the very high degree of business risk facing Leap given the limited mobility of the company's product offering compared with that of its competitors," explained Standard & Poor's credit analyst Catherine Cosentino. Leap uses 1.9 GHz spectrum to offer an unlimited calling service within a designated local franchise area for $29.99 (before taxes and fees) within 39 separate market clusters across the U.S. Leap also offers additional services and functionality for incremental monthly fees, including calling features and long-distance services, but does not provide any roaming capability currently. Pricing is not substantially lower than that for the lower-end offerings of the company's competitors (which also offer roaming), making Leap's growth prospects uncertain. Leap currently has about 1.5 million customers. The company's target market is a less mobile consumer group that utilizes the wireless phone as an inexpensive wireline alternative. As such, average minutes of use for the Leap subscriber is about twice that of other wireless companies, at 1,500 monthly minutes. However, because the company does not require a credit check or long-term contracts, the resultant demographics of its customer base are generally less attractive than those of many other cellular and PCS carriers. Wireless usage by this customer segment is, therefore, more sensitive to changes in macroeconomic factors. LUCENT TECHNOLOGIES: McGinn & Heindel Get "Wells" Notices from SEC ------------------------------------------------------------------ Lucent Technologies, Inc., has been informed that its former Chairman and Chief Executive Officer, Richard McGinn, the former head of the Company's Saudi Arabian operations, John Heindel, and a third former employee received "Wells" notices from the staff of the U.S. Securities and Exchange Commission. These Wells notices state that the staff of the SEC is considering recommending that civil actions be taken against the three former employees for violations of the Foreign Corrupt Practices Act. The allegations against these individuals include violations of the anti-bribery provisions of the FCPA and aiding and abetting the Company's alleged violations of requirements under the FCPA to keep accurate books and records and to maintain a proper system of internal accounting controls. These actions are the result of the previously disclosed investigation by the SEC and the U.S. Department of Justice into possible FCPA violations in connection with the Company's operation in Saudi Arabia during the period of 1997 to 2000. The Company has not received a Wells notice at this time, but the investigation is continuing. About Lucent Technologies Lucent Technologies designs and delivers the systems, services and software that drive next-generation communications networks. Backed by Bell Labs research and development, Lucent uses its strengths in mobility, optical, software, data and voice networking technologies, as well as services, to create new revenue-generating opportunities for its customers, while enabling them to quickly deploy and better manage their networks. Lucent's customer base includes communications service providers, governments and enterprises worldwide. For more information on Lucent Technologies, which has headquarters in Murray Hill, N.J., USA, visit http://www.lucent.com/ * * * As reported in the Troubled Company Reporter on Sept. 14, 2004, Moody's Investors Service raised the senior implied debt rating of Lucent Technologies, Inc., to B2 from Caa1 and affirmed the SGL-2 short-term ratings. The rating outlook is positive. The current rating takes into consideration the risks inherent in the volatile communications equipment market, including weakened capital spending by carriers, intense competitive pressure from existing and new entrants like Huawei Technologies and rapidly evolving technology standards. The positive outlook reflects the fact that Lucent's rating could be upgraded to the extent the company is able to sustain profitable revenue growth and positive free cash flow generation that result in further improvement in credit metrics. Alternatively, the rating outlook could face downward pressure to the extent revenues show material decline, the company is unable to sustain improvements in profitability and cash generation, future acquisitions consume a substantial amount of cash or the company adopts a materially less conservative approach towards its internal liquidity profile or the use of vendor financing. MARSH SUPERMARKETS: S&P Places B+ Rating on CreditWatch Negative ---------------------------------------------------------------- Standard & Poor's Ratings Services placed its ratings on Marsh Supermarkets Inc., including the 'B+' corporate credit rating, on CreditWatch with negative implications. Marsh had $214 million of debt outstanding as of June 19, 2004. "The CreditWatch placement reflects our concern regarding the company's lack of progress in improving its profitability levels and credit measures," said Standard & Poor's credit analyst Stella Kapur. At June 19, 2004, total lease-adjusted debt to EBITDA was 6.1x and last-12-month lease-adjusted EBITDA interest coverage was 1.8x. Credit measures could remain at a level consistent with a 'B' corporate credit rating over the intermediate term, especially considering the competitive nature of the supermarket industry. Standard & Poor's will resolve the CreditWatch listing after further discussions with management regarding the company's financial plans. Ratings might be lowered by one notch. MICROTEC ENTERPRISES: Files for CCAA Protection in Quebec --------------------------------------------------------- Microtec Enterprises, Inc. (TSX:EMI) has filed a motion with the Superior Court of the Province of Quebec requesting an order for protection under the Companies' Creditors Arrangement Act in order to facilitate its financial restructuring. The filing includes the Company and all its subsidiaries. This filing is necessary because the bankers of Company have refused to extend the forbearance that was in place until recently and in order to allow the Company to complete a recapitalization plan. The purpose of this filing is to: -- provide the Company with additional time to finalize and complete the recapitalization plan already being negotiated, -- facilitate the proposal of an arrangement, including with its lenders, and -- obtain adequate protection for directors and officers of the Company by Court order. The hearing of the filing will continue in the Superior Court and the Company anticipates that a decision will be issued following the hearing. This filing does not affect the operations and services offered by the Company. No lay-offs are anticipated. About the Company Solidly established in Canada, Microtec Enterprises Inc. -- http://www.microtecsecuri-t.com/-- provides a wide range of security and home automation services that ensure the protection and well-being of its residential and commercial customers. The Company is building on its strong position in the industry by developing new products and services, expanding its subscriber base, and creating strategic alliances. MICROTEC ENTERPRISES: Obtains Initial CCAA Stay Order ----------------------------------------------------- Microtec Enterprises, Inc. (TSX:EMI) has obtained an order from the Superior Court of the Province of Quebec for protection under the Companies' Creditors Arrangement Act in order to facilitate its financial restructuring. The filing includes the Company and all its subsidiaries. The order provides the Company with additional time to finalize and complete the recapitalization plan already being negotiated, facilitate the proposal of an arrangement, including with its lenders, and obtain adequate protection for directors and officers of the Company in the course of their duties. The Court has appointed Raymond Chabot, Inc., as monitor for the restructuring. Requests for information intended to the monitor should be directed to Jean Gagnon 514-878-2691 or Jean Chiasson 418-647- 3151. This order does not affect the operations and services offered by the Company. No lay-offs are anticipated. Solidly established in Canada, Microtec Enterprises, Inc., provides a wide range of security and home automation services that ensure the protection and well-being of its residential and commercial customers. About the Company Solidly established in Canada, Microtec Enterprises, Inc. -- http://www.microtecsecuri-t.com/-- provides a wide range of security and home automation services that ensure the protection and well-being of its residential and commercial customers. The Company is building on its strong position in the industry by developing new products and services, expanding its subscriber base, and creating strategic alliances. The Company filed on Nov. 10, a motion with the Superior Court of the Province of Quebec requesting an order for protection under the Companies' Creditors Arrangement Act in order to facilitate its financial restructuring. MURRAY INC: Wants to Employ Bass Berry as Co-Counsel ---------------------------------------------------- Murray, Inc., asks the U.S. Bankruptcy Court for the Middle District of Tennessee for permission to employ Bass Berry & Sims, PLC, as co-counsel of Pachulski, Stang, Ziehl, Young, Jones & Weintraub PC. Bass Berry will: a) provide legal advice with respect to the Debtor's powers and duties as debtor-in-possession in the continued management of its assets and properties; b) prepare and pursue confirmation of Debtor's plan and approval of the Debtor's disclosure statement; c) prepare necessary applications, motions, answers, orders, and other legal papers on behalf of the Debtor; d) appear in Court and protect the interest of the Debtor before the Court; and e) perform all other legal services for the Debtor which may be necessary and proper in this case and related proceedings. The principal attorneys and paralegals of Bass Berry and their standard hourly rates are: Professional Rate ------------ ---- J. Andrew Goddard $330 Paul G. Jennings $325 Fritz Richter, III $325 Gene L. Humphreys $295 Philip G. Young $205 Wendy Hall $175 Russell E. Stair $155 Linda Privette $140 LeAnn Lewis $85 Paul G. Jennings, Esq., discloses that the Firm received $63,755 as initial payment from Murray for expenses incurred and services rendered related to restructuring and commercial matters. Bass Berry professionals will closely coordinate with Pachulski Stang to avoid duplication of efforts and services. To the best of the Debtor's knowledge, Bass Berry is a "disinterested person" as that term is defined in Section 101(14) of the Bankruptcy Code. Headquartered in Brentwood, Tennessee, Murray Inc. -- http://www.murray.com/-- manufactures lawn tractors, mowers, snowthrowers, chipper shredders, and karts. The Company filed for chapter 11 protection on Nov. 8, 2004 (Bankr. M.D. Tenn. Case No. 04-13611). When the Debtor filed for protection from its creditors, it estimated more than $100 million in total debts and assets. NEW LIFE HOLINESS: List of 8 Largest Unsecured Creditors -------------------------------------------------------- New Life Holiness Church released a list of its 8 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Sam's Club Credit card $3,800 P.O. Box 4596 Carol Stream, IL 60197 Simplex Leasing Credit account $2,400 c/o Paul Mendelson 799 Estate Place P.O. Box 17235 Memphis, TN 38187 Home Depot Credit Services Credit card $800 P.O. Box 6029 The Lakes, NV 88901 Community Television Advertisement $600 Office Depot Credit card $600 Bellsouth Regional Bankruptcy Phone services $225 ABC Waste, Inc. Maintenance service $60 ADT Security Alarm services $33 Headquartered in Millington, Tennessee, New Life Holiness Church operates a church. The Debtor filed for chapter 11 protection (Bankr. W.D. Tenn. Case No. 04-37391) on November 5, 2004. Jerome C. Payne, Esq., in Memphis, Tennessee, represents the Company in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed $1,045,000 in assets and $938,518 in debts. NORTHWEST ALUMINUM: Case Summary & 33 Largest Unsecured Creditors ----------------------------------------------------------------- Lead Debtor: Northwest Aluminum Company 3313 West 2nd Street The Dalles, Oregon 97058 Bankruptcy Case No.: 04-42061 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- Northwest Aluminum Specialties, Inc. 04-42059 Type of Business: The Debtor is a subsidiary of Golden Northwest Aluminum, Inc., engaged in the production of aluminum billet for hot extrusion, hot or cold impact extrusion, and hot or cold forging stock in most aluminum alloys. See http://www.nwaluminum.com/ Chapter 11 Petition Date: November 10, 2004 Court: District of Oregon (Portland) Judge: Randall L. Dunn Debtor's Counsel: Richard C. Josephson, Esq. Stoel Rives LLP 900 South West 5th Avenue #2600 Portland, OR 97204 Tel: 503-294-9537 Estimated Assets: $10 Million to $50 Million Estimated Debts: More than $100 Million A. Northwest Aluminum Company's 13 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ The Bank of New York Loan - Partially $168,000,000 Attn: Mr. Martin Feig, VP undersecured, 101 Barclay St., 8 West value of collateral New York, NY 10286 unknown Norsk Hydro North America, Subordinated Loan; $20,000,000 Inc. undersecured; Attn: Jim Waters value of collateral 801 International Dr., unknown Ste 200 Linthicum Heights, MD 21090 Reliant Building Products, Preference Claim $709,977 Inc. 3010 LBJ Freeway, Ste. 400 Dallas, TX 75235 Bonneville Power Transmission charges $453,117 Administration Attn: Mr. Scott Wilson 905 NE 11th Avenue Portland, OR 97232 Brett Wilcox Wages, salaries, $7,528 and commissions Thomas Turner Wages, salaries, $5,012 and commissions David Reed Wages, salaries, $4,267 and commissions James Ballinger Wages, salaries, $2,492 and commissions Galen May Wages, salaries, $2,473 and commissions William R. Reid Wages, salaries, $2,096 and commissions Perkins & Company PC $1,931 Terrie Methvin Wages, salaries, $1,878 and commissions Stewart Title of Houston $1,624 B. Northwest Aluminum Specialties' 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ The Bank of New York Loan - Partially $168,000,000 Attn: Mr. Martin Feig, VP undersecured, 101 Barclay St., 8 West value of collateral New York, NY 10286 unknown Norsk Hydro North America, Subordinated Loan; $20,000,000 Inc. undersecured; Attn: Jim Waters value of collateral 801 International Dr., unknown Ste 200 Linthicum Heights, MD 21090 US Magnesium LLC Trade Debt $77,306 P.O. Box 371288M Pittsburgh, PA 15251 Northern Wasco County PUD Power Supply $73,281 Quantum Resource Recovery, Trade Debt $32,663 LLC Hyrdro Aluminum Metal Trade Debt $23,819 Products Brown & Carls LLP Legal Fees incurred $21,213 in connection with Bersinger case Pyrotek, Inc. Trade Debt $18,202 Liberty Northwest Insurance Insurance $14,111 Co. BOC Gases Trade Debt $12,496 Vesuvlus Trade Debt $11,832 Wagstaff Engineering Trade Debt $10,830 R.E. Powell Distributing Co. Trade Debt $9,355 Daniel Gnall Wages, salaries, $8,363 and commissions Saint-Gobain Ceramics Trade Debt $8,200 Sherman Bergsma Wages, salaries, $7,687 and commissions Rex Roto Corporation Trade Debt $5,546 HTP Security, Inc. Trade Debt $5,478 Mercer Transportation Co. Trade Debt $5,477 Kevin Brokaw Wages, salaries, $4,616 and commissions NSG HOLDINGS: Moody's Puts B1 Rating on Senior Secured Facilities ----------------------------------------------------------------- Moody's Investors Service assigned a B1 rating to the senior secured credit facilities of NSG Holdings II LLC. The facilities are comprised of a $150 million senior secured term loan B due 2011 and a $10 million secured revolving credit facility due 2009. The rating outlook is stable. The term loan facilities will be used to finance approximately 46% of the cost of acquiring various equity interests in a portfolio of seven power projects that were previously held by El Paso Merchant Energy. The balance will be financed with approximately $175 million of cash equity from NSG II's parent, Northern Star Generation, LLC. Northern Star is owned equally by AIG Highstar Generation, LLC, and a subsidiary of the Ontario Teachers' Pension Plan Board. AIG Highstar Generation, LLC is controlled by AIG Highstar Capital II, L.P., a private equity fund sponsored by AIG Global Investment Group, which invests in projects and operating companies in the energy sector. Ontario Teachers' Pension Plan Board is responsible for the administration and investment of the Ontario Teachers Pension Fund. The projects have a total output capacity of approximately 1,580 MW, of which approximately 1,040 MW is owned by NSG II. There is one wholly owned project that comprises 680 MW of the portfolio. All of the projects are located in the United States; all are currently operating and have contracts to sell their power output. The ratings for the credit facilities of NSG II consider the following strengths: 1) The geographic diversity of the portfolio; 2) Cash flow stability provided by the currently existing power purchase agreements between the underlying projects and various counterparties; 3) The natural portfolio hedge that exists after the expiry of the fixed priced period of several of the contracts; 4) A reasonable amount of leverage/refinancing risk; 5) A $10 million cash funded debt service reserve; and 5) Sponsors who have provided significant equity to NSG II as well as credit/liquidity support at the individual project level. However, the B1 rating also reflects these areas of credit concern: 1) The credit quality of the project off-takers, whose weighted average rating is Ba3; 2) Limited diversity of the sources of cash flow. Over 50% of the cash flows to NSG II are generated by one project that relies upon a contract with the lowest rated off-taker; 3) The normal operating risk associated with power project assets; 4) The structurally subordinated position of the lenders to the holding company, in relation to debt at the underlying projects; 5) The lack of some traditional project finance structural enhancements, including a cash flow waterfall that is administered by a trustee; and 6) The limited hard asset security that is available to the lenders. The facilities will be secured by all of the assets of the borrower, which consists mainly of stock of subsidiaries, which hold equity interests in the underlying project companies. The security package also includes a pledge of the common stock of the subsidiary that owns NSG II's only wholly owned project -- Vandolah. The lack of hard asset collateral reflects: 1) debt outstanding at three of the projects, 2) the first lien position granted to the tolling counterparty of the Vandolah project, and 3) the shared ownership of the projects. The stable outlook reflects the expectation that NSG II will experience relatively stable cash flows due to the predominately contractual nature of the underlying cash flow streams. The stable outlook assumes near term stability in the credit quality of the contractual off-takers and anticipates that the projects will continue to be operated in a manner that allows them to achieve high availability factors. NSG II's rating considers the geographic diversification of its portfolio of power projects. The seven projects are located in five different U.S. states and have eight different off-takers, with one project having two off-takers. The projects burn coal, waste coal and gas and include a combination of peaking, mid-merit and base load units. The rating also reflects the limited fuel price exposure of the portfolio. In the near term, the portfolio has very little fuel price risk. All of the contracts are either tolling agreements or have established fuel hedges. Beginning in 2006 and 2007 the energy payments for the two California coal-fired projects' energy payments will be based upon the utilities' short run avoided cost -- SRAC, which will vary with gas prices. Another West Coast gas project in the portfolio receives energy payments based on a CPI index and currently has gas contracts expiring between 2007 and 2012. These contractual arrangements effectively constitute a substantial natural hedge for the total portfolio of generating assets. As a result, it is expected that the amount of debt outstanding at maturity of the term loan would not change substantially under different scenarios for natural gas prices. The issuer's initial debt/capitalization ratio is 46%; and the proportional consolidated debt ratio (counting the NSG II term loan plus debt at the underlying project level in an amount that is proportionate to NSG II's ownership interest) is 66%. The average annual funds from operations -- FFO -- is expected to equal close to 20% of the initial term loan; and estimated consolidated proportional (based on NSG II's ownership interest) FFO is expected to be approximately 10% of proportional consolidated debt. FFO to interest is expected to be over 4 times for NSG II; while proportional consolidated coverage (counting debt at the underlying project level) is projected to be approximately 2.7x. The NSG II sponsors have provided significant cash equity as well as support to several of the underlying projects in the form of letters of credit or guarantees in support of the project's commercial obligations. The B1 rating also considers the credit quality of the contractual off-takers. The off-takers are varied and located in different parts of the country, providing some degree of diversity. However, their weighted average credit quality is Ba3. The B1 rating also reflects the cash flow concentration risk inherent in the portfolio. Approximately 55% of the cash distributions to NSG II over the life of the term loan are expected to come from the Vandolah project. The Vandolah project has a tolling agreement with Reliant Energy Services, which is guaranteed by Reliant Energy Inc. The project is a peaking plant located in central Florida, which ran approximately 4% of the time in 2003. The Florida market has historically experienced very strong growth, and this is expected to continue for the foreseeable future. However, the Florida market has not opened up to competition as quickly as Reliant and other merchant generators who have made investments in this market had anticipated. NSG II relies heavily upon cash from Vandolah, which is dependent upon capacity payments from Reliant Energy Services. Although the project is one of the more efficient peaking plants in Florida, it is still only needed at peak periods. The rating recognizes that all of the projects use relatively simple proven technology, and that they will continue to be operated by the existing experienced personnel. However, the projects must achieve projected availability and capacity factors in order for NSG II to receive its anticipated cash flows. The projects are susceptible to normal planned and unplanned outages or increased expenses that could increase cash flow volatility, particularly at the equity level of the NSG II financing. For example, one of the projects was not able to make a distribution in 2004 due to its failure to pass a 1.15x lease coverage test as a result of an unplanned outage in 2003. It's lease coverage ratio was 1.11x. The B1 rating recognizes that the NSG II lenders are structurally subordinate to debt at the operating projects. Three of the seven projects have outstanding debt or leases that contain covenants that could restrict cash dividends to NSG II. Covenants at the underlying project level include debt service coverage ratio tests, lease coverage ratio tests, and requirements for fully funded debt service and or maintenance reserves or letters of credit. The NSG II financing will not benefit from some of the structural enhancements that are often found in similar transactions, such as a debt service coverage ratio test for distributions, and control of cash via trustee held accounts with a waterfall payment structure. However, the lenders will benefit from the existence of a $10 million cash funded debt service reserve, which is equivalent to one year of interest and scheduled principal payments. Additional proportional debt will be permitted at the underlying project level, in order to allow for the acquisition of additional holdings in existing projects. Distributions for payment of partner taxes and investment in subsidiaries will be allowed prior to the calculation of excess cash available to prepay debt. Financial covenants include: 1) borrower cash flow/interest minimum of 4.0x; 2) maximum borrower debt to cash flow, decreasing from 4.5x to 2.0x; and 3) maximum borrower debt plus proportionate project debt to proportionate acquired EBITDA less borrower expenses, decreasing from 6.5x to 4.0x. The term loan is scheduled to be repaid 1% per year under the amortization schedule. In addition, the term loan will be prepaid once per year with 60% of cash available for distribution after payment of expenses, scheduled debt service, partner taxes, and permitted advances to subsidiaries. The rating is predicated upon the final structure and documentation being consistent with Moody's current understanding of the transaction. NSG Holdings II LLC is a holding company that owns equity interests in seven electric power projects located in the western, southeastern and northeastern United States. NSG II is owned 100% by Northern Star Generation, LLC, which is owned equally by AIG Highstar Generation, LLC and a subsidiary of the Ontario Teachers' Pension Plan Board. OSHKOSK TRUCK: Moody's Withdraws Low-B Ratings ---------------------------------------------- Moody's Investors Service has withdrawn its Ba2 senior implied and Ba3 senior unsecured issuer ratings for Oshkosk Truck Corporation. The company, whose only publicly rated debt instrument was redeemed in full in late 2003, is not expected to issue new public debt instruments in the foreseeable future and maintenance of the ratings is no longer required. Moody's has withdrawn the ratings for business reasons. Refer to Moody's Withdrawal Policy on http://moodys.com/ Oshkosk Truck company makes heavy-duty vehicles for the defense, fire and emergency, and commercial industries. Oshkosh's commercial and emergency/rescue vehicles include concrete carriers and refuse trucks (McNeilus brand), snow blowers, and aircraft rescue and fire-fighting vehicles (Pierce brand). Oshkosh's vehicles are used in institutional, airport, and municipal markets. The company also makes heavy-payload tactical trucks for the US Department of Defense (DOD) and has acquired Jerr-Dan, the towing equipment manufacturer, from Littlejohn & Co. for a reported $80 million. PARMALAT USA: Wants Former VP F. Ferrante to Produce Documents -------------------------------------------------------------- Before the bankruptcy petition date, Frank Ferrante acted as Vice President and General Manager of the northeast operations for Parmalat USA Corp. and Farmland Dairies L.L.C. Mr. Ferrante held this position from the time Parmalat USA acquired Farmland in December 1999, up until his resignation on January 5, 2004. Following his resignation, Mr. Ferrante assumed a position at Tuscan/Lehigh Dairies, Inc., and one of its affiliates, a significant competitor of Farmland in the New York and New Jersey area. Mr. Ferrante also induced his assistant Artan Zuta and salesman Steven Kane to leave Farmland and join him at Tuscan. On January 5, 2004, Mr. Zuta hand-delivered to Farmland's offices copies of resignation letters on behalf of Mr. Ferrante and himself. Mr. Kane left two days later. After having determined that a reorganization of their core business as a going concern would provide greater value to creditors and other parties-in-interest, the U.S. Debtors appointed a new management team to assist them. Specifically, the U.S. Bankruptcy Court for the Southern District of New York approved Farmland's employment of: * James A. Mesterharm as Chief Restructuring Officer; * Martin J. Margherio as President and Chief Operating Officer; * Mikael B. Pederson, as Executive Vice President; and * Teressa E. Webb, as Chief Financial Officer. Following their appointment, the New Management Team commenced a review of Parmalat USA's financial records and business affairs and discovered certain transactions involving Mr. Ferrante that require further scrutiny. Bonus Payments to Mr. Ferrante Gary Holtzer, Esq., at Weil, Gotshal & Manges, LLP, in New York, relates that after a careful examination of the U.S. Debtors' records, the New Management Team learned that Mr. Ferrante received significant payments in addition to his annual salary throughout his employment with Parmalat USA. Mr. Ferrante's actual yearly compensation totaled more than $1,000,000 -- an amount which is far in excess of market levels for individuals with similar positions at comparable companies and greater than the annual rate of compensation received by Parmalat USA's current Chief Executive Officer. Furthermore, company records reveal that the manner in which the bonus payments were paid also departed from standard practice. Each bonus payment that Mr. Ferrante received was set at an even dollar amount and then grossed-up to account for tax withholdings. While the New Management Team continues to investigate Mr. Ferrante's compensation, to date, it has been unable to ascertain any business rationale for the bonus payments. Mr. Ferrante's Use of Corporate Funds It has also come to the New Management Team's attention that Mr. Ferrante incurred hundreds of thousands of dollars in expenses annually for customer gifts and entertainment that were paid for with corporate funds. Mr. Holtzer tells the Court that in 2003 alone, Mr. Ferrante spent more than $200,000. These expenses included $60,000 in undocumented advances, a $6,000 trip to the Venetian Hotel & Casino in Las Vegas with a Farmland customer, a $10,000 receipt from the Venetian Hotel & Casino for unexplained entertainment expenses for Farmland customers, a total of $10,000 in sporting event tickets for which no documentation was submitted, and numerous other reimbursement requests that appear to have been submitted twice or with altered receipts. The Tuscan Supply Agreement As Vice President and General Manager of Northeast operations, Mr. Ferrante negotiated and entered into numerous contracts on Parmalat USA's behalf before his resignation. On May 30, 2003, Parmalat USA and Tuscan entered into a supply agreement, pursuant to which Parmalat USA agreed, inter alia, to process, package and load fluid milk products under the Tuscan label or private labels at Farmland's Sunnydale Plant in Brooklyn, New York, for delivery to Tuscan customers in the New York area. A specified processing fee, among other fees, was to be paid by Tuscan to Parmalat USA for the co-packing services to be performed at Sunnydale. Parmalat USA further agreed to purchase and load other products as requested by Tuscan. The initial term of the Tuscan Supply Agreement was from May 30, 2003, through June 30, 2016, with provisions for automatic renewal. Pursuant to the Supply Agreement, the parties contemplated that on June 30, 2004, or, at Tuscan's option, on July 1, 2004, the volume of fluid milk products to be processed, packaged and loaded for Tuscan would increase significantly. In addition to the Co-Packing Services to be performed pursuant to the Supply Agreement, Parmalat USA also agreed to provide to Tuscan or its designees certain of its parking, office space and storage facilities at no additional charge. According to Mr. Holtzer, a number of the Supply Agreement provisions which Mr. Ferrante negotiated on Parmalat USA's behalf, render it a commercially burdensome contract to the U.S. Debtors. The Supply Agreement obligates the Debtors to perform the Co-Packing Services for Tuscan at a below market and below cost price since their production costs exceed the per gallon charge fixed in the Supply Agreement. The Supply Agreement also does not contain any provision which would allow the Debtors to effectively pass on labor and other production costs as they increase over the lengthy duration of the Supply Agreement. Moreover, the Supply Agreement requires the Debtors to devote roughly 50% of the Sunnydale plant's capacity to the Co-Packing Services, and severely limits their flexibility in operating their facilities. In addition, Sunnydale is not equipped to handle the services increase contemplated in the Supply Agreement without a major investment in capital equipment. The U.S. Debtors incur a loss on each gallon that they process for Tuscan pursuant to the Supply Agreement. The commercial terms of the Supply Agreement require the Debtors to make significant capital expenditures to contain these unusually high production costs. In fact, if the Debtors were required to perform under the Supply Agreement after the Services Increase without the benefit of the capital expenditures, the costs per gallon would be significantly higher than usual, resulting in extraordinary losses to the detriment of the Debtors and their estates. In addition to its burdensome economic terms, the Supply Agreement includes certain provisions that are vague and, depending on interpretation, could result in extraordinary losses for the Debtors in the long term, and costly and time-consuming litigation. In a Court-approved stipulation, Parmalat USA and Tuscan agreed that: (i) Parmalat USA will reject the Supply Agreement effective as of November 30, 2004; and (ii) they will perform under the Supply Agreement beginning June 30, 2004, until November 30, 2004, on certain modified terms. Mr. Ferrante's Post-Resignation Conduct Since he resigned from Parmalat USA, Mr. Ferrante has induced a number of large customers to discontinue their business relationships with Farmland and enter into supply agreements with Tuscan, Mr. Holtzer informs the Court. Mr. Ferrante made false, misleading, disparaging, and defamatory statements to Farmland customers regarding Farmland's business to hinder the company's efforts to seek contract extensions with substantial customers and secure these accounts for Tuscan. Rule 2004 Discovery is Proper Mr. Holtzer asserts that the U.S. Debtors are entitled to examine Mr. Ferrante pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure. The discovery falls squarely within the scope of Rule 2004 because it relates to issues that may affect the Debtors' property and the administration of the Debtors' estates. Mr. Holtzer explains that the U.S. Debtors must be in a position to evaluate the fairness of the transactions and assess the value of any claims that they and their creditors may have against Mr. Ferrante with respect to his conduct, as well as any claims that they and their creditors may have against other entities who were the beneficiaries of any gifts, payments or agreements that Mr. Ferrante entered into on Parmalat USA's behalf. Moreover, it is in the best interests of the U.S. Debtors, their estates, creditors, and all parties-in-interest to investigate: (1) the nature of the bonus payments; (2) the excessive expenses that were paid for with corporate funds; (3) the facts and circumstances surrounding Mr. Ferrante's negotiation of the Supply Agreement; (4) the extent of Mr. Ferrante's relationship with Tuscan or any of its agents prior to his resignation; and (5) any tortious conduct Mr. Ferrante has engaged in since he resigned from his position at Parmalat USA. To fully understand whether and to what extent Mr. Ferrante's conduct has harmed the U.S. Debtors and their creditors, it is critical that the U.S Debtors obtain access to certain documents and information within Mr. Ferrante's possession and control. Without the discovery, the Debtors will be unable to properly evaluate the merits of potential claims that could result in significant recoveries to them and to their creditors, and positively impact their ability to administer and reorganize their estates for the benefit of all parties-in-interest. Accordingly, at the U.S. Debtors' request, Judge Drain directs Mr. Ferrante to: (i) immediately produce all documents and records requested by the Debtors; and (ii) submit to a deposition upon oral examination on the matters at issue. * * * The U.S. Debtors also sought and obtained a Court order directing Mr. Zuta to produce certain documents for inspection and copying without further delay. 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. (Parmalat Bankruptcy News, Issue No. 36; Bankruptcy Creditors' Service, Inc., 215/945-7000) PG&E NAT'L: Wants Exclusive Plan Filing Period Extended to Mar. 1 ----------------------------------------------------------------- USGen New England, Inc., asks Judge Mannes of the U.S. Bankruptcy Court for the District of Maryland to extend its Exclusive Periods to: -- file a plan through and including March 1, 2005, and -- solicit acceptances of that plan through May 1, 2005. John Lucian, Esq., at Blank Rome, LLP, in Baltimore, Maryland, relates that USGen has consistently engaged in detailed consultations with its Creditors' Committee on all major issues, and of particular note, on asset sale and reorganization issues. In addition, USGen needs to resolve through negotiation or litigation a number of sizeable claims that will have a direct and significant impact on creditor recoveries. These include resolution of the claims asserted by Algonquin Gas Transmission Company, claims asserted under a certain tax sharing agreement, and certain intercompany claims of USGen's affiliates. Furthermore, a number of significant claims disputes remain unresolved. USGen is in negotiations with respect to many of these claims, including the claims asserted by New England Power, and claims arising under various power purchase agreements and gas transportation contracts which have been rejected. Moreover, the largest claim in USGen's case is asserted by the Bear Swamp counterparties, with respect to which the Debtor has been immersed in protracted discovery and litigation, and is now in mediation. "Until these issues can be brought closer to resolution, it would be premature to conclude plan formulation because the plan could not resolve consensually all competing interests (including the interests of equity, as the prospective asset sales may garner sufficient value for payment in full on allowed claims and a return to equity). Thus, it is appropriate to grant the Debtor some additional time to try to achieve a consensual plan," Mr. Lucian says. USGen anticipates that during the prospective exclusivity extension period a confluence of events will occur which will enable the Debtor to emerge from chapter 11: -- the Bear Swamp mediation will be concluded, hopefully with a settlement agreement among the parties; -- failing a settlement, the Court will have concluded additional testimony, if any, and will be poised to rule on the Bear Swamp issues; -- the Debtor's proposed sales of its Fossil and Hydro Assets will have been considered and hopefully approved; and -- the Debtor's draft plan will be completed so as to be reflective of the outcome of the mediation or the litigation and the asset sales. Consequently, Mr. Lucian adds, within the extended exclusivity period the Debtor has every expectation of filing its plan and moving its case to conclusion. "A further 120-day extension of the Exclusive Periods is fair and reasonable because it will enable the Debtor to determine the success of the bankruptcy sales process with the current stalking horses, or such other prospective purchasers who may submit higher and better offers, and integrate the resolution of the Bear Swamp dispute in the Debtor's plan formulations. In the meantime, the Debtor has been hard at work on and has drafted a proposed plan and disclosure statement, albeit subject to certain critical contingencies. However, the Debtor has intentionally refrained from precipitously filing these documents, as such would be premature and disruptive of the mediation and sale process, and would thus jeopardize ongoing efforts to achieve a consensus," Mr. Lucian relates. In stark contrast, Mr. Lucian notes, a denial of a further exclusivity extension potentially endangers USGen's asset values and possible sale price because a premature plan or a competing plan would disrupt its pending sales transactions and the strategy of the ongoing sale process designed to determine the maximum value of USGen's assets. In fulfilling its fiduciary duties to the estate, the Debtor's focus must be on the pending asset sale process and on resolving the Bear Swamp disputes. The Court can ensure a level playing field by further extending the Exclusive Periods so that the Debtor is not diverted by expensive and wasteful litigation concerning the potential for multiple competing plans of reorganization, which would only further the goals of parochial interests. * * * Judge Mannes will convene a hearing on Nov. 18, 2004, to consider USGen's request. Pursuant to the Order for Complex Chapter 11 Bankruptcy Case dated July 9, 2003, USGen's Exclusive Filing Period is automatically extended, without the necessity of a bridge order, until the conclusion of that hearing. Headquartered in Bethesda, Maryland, USGen New England, Inc., an affiliate of PG&E Generating Energy Group, LLC, owns and operates several electric generating facilities in New England and purchases and sells electricity and other energy-related products at wholesale. The Debtor filed for Chapter 11 protection on July 8, 2003 (Bankr. D. Md. Case No. 03-30465). John E. Lucian, Esq., Marc E. Richards, Esq., Edward J. LoBello, Esq., and Craig A. Damast, Esq., at Blank Rome, LLP, represent the Debtor in their restructuring efforts. When it sought chapter 11 protection, the Debtor reported assets amounting to $2,337,446,332 and debts amounting to $1,249,960,731. RECEIVABLES STRUCTURED: Moody's Pares 7.44% Notes' Rating to Caa2 ----------------------------------------------------------------- Moody's downgraded from Caa1 to Caa2 the rating of the 7.44% Notes issued by Receivables Structured Trust 2001-Calpoint. The downgrade was due to a downgrade of the rating of Qwest Communications International, Inc., which guarantees certain payments to the Trust. The complete rating action is as follows: Issuer: Receivables Structured Trust 2001-Calpoint Securities: 7.44% Notes, downgraded from Caa1 to Caa2 Moody's rating of the Notes is based solely on the rating of Qwest, which guarantees certain payment obligations of Qwest Communications Corporation to the Trust. The main assets of the Trust are: (i) an agreement by the Contractor to make certain monthly payments in exchange for telecommunication services to be performed by Calpoint LLC, and (ii) the guarantee of the Contractor's payment obligations by Qwest. The guaranteed payments are "hell or high water" obligations of the Contractor; that is, they do not depend on the quality of services provided by Calpoint or on any other conditions. The guaranteed monthly payments are in an amount sufficient to make payments of principal and interest on the Notes, after deducting fees. Because payments of principal and interest on the Notes depend ultimately on the Qwest guarantee of the Contractor's payment obligations, the rating of the Notes is based entirely on Qwest's rating. The Notes were sold pursuant to Rule 144A of the Securities Act. UBS Warburg acted as placement agent. RIGGS NATIONAL: S&P Slices Long-Term Counterparty Rating to B- -------------------------------------------------------------- Standard & Poor's Ratings Services lowered its ratings on Washington D.C.-based Riggs National Corp. (Riggs, NASDAQ:RIGS), including Riggs' long-term counterparty rating, which was lowered to 'B-' from 'B+'. The ratings on Riggs' banking subsidiary, Riggs Bank N.A., were also lowered. At the same time, the long- term counterparty credit ratings of both entities were placed on CreditWatch Developing. "The ratings downgrade reflects Standard & Poor's expectation that Riggs' operating results will remain under severe pressure due to ongoing and significant legal expenses," said Standard & Poor's credit analyst Michael Driscoll. "Additionally, Standard & Poor's is concerned that Riggs' exit from its core embassy business is having an adverse impact on its funding profile." The CreditWatch Developing hinges on the outcome of the proposed merger with PNC Financial Services Group, which is scheduled to close during first-quarter 2005. Should the proposed merger be completed in a timely manner, Riggs' ratings would be raised. If, for whatever reason, the acquisition is voided, Riggs' ratings could be lowered. The extent of any ratings downgrade will depend on Standard & Poor's assessment of Riggs' deteriorating operating fundamentals, as well as the ongoing financial and business impact of the bank's legal/regulatory issues. RLI: Moody's Withdraws Ba1 Sub. Debt & Pref. Securities Ratings --------------------------------------------------------------- Moody's Investors Service has withdrawn the provisional ratings on RLI Corp.'s outstanding shelf registration. Moody's A3 insurance financial strength ratings on RLI's operating subsidiaries and Baa3 rating on RLI's $100 million of 5.95% Senior Notes due 2013 remain outstanding. The outlook for the ratings is stable. Moody's has withdrawn the ratings on RLI's shelf registration for business reasons. Refer to Moody's Withdrawal Policy on http://moodys.com/ These ratings have been withdrawn: * RLI Corp. -- provisional senior unsecured debt at (P)Baa3, -- provisional subordinated debt at (P)Ba1; and * RLI Capital Trust I -- provisional preferred securities at (P)Ba1. Moody's insurance financial strength ratings are opinions of the ability of insurance companies to repay punctually senior policyholder claims and obligations. SECOND CHANCE: U.S. Trustee Meeting With Creditors on November 18 ----------------------------------------------------------------- The United States Trustee for Region 9 will convene a meeting of Second Chance Body Armor, Inc.'s creditors at 10:00 a.m., on November 18, 2004, at the Office of the U.S. Trustee, Logan Place West, 3249 Racquet Club Drive in Traverse City, Michigan. This is the first of creditors required under U.S.C. Sec 341(a) in all bankruptcy cases. All creditors are invited, but not required, to attend. This Meeting of Creditors offers the opportunity in a bankruptcy proceeding for creditors to question a responsible office of the Debtor under oath about the company's financial affairs and operations that would be of interest to the general body of creditors. Based in Central Lake, Michigan, Second Chance Body Armor, Inc. -- http://www.secondchance.com/-- manufactures wearable and soft concealable body armor. The Company filed for chapter 11 protection on Oct. 17, 2004 (Bankr. W.D. Mich. Case No. 04-12515). Stephen B. Grow, Esq., at Warner Norcross & Judd, LLP, represents the Company in its restructuring. The company estimates assets and liabilities of $10 million to $50 million. SENETEK PLC: Gets $1.76M Settlement from U.S. Int'l. Trading Corp. ------------------------------------------------------------------ Senetek PLC (OTC Bulletin Board: SNTK), a healthcare technologies company focused on developing and co-marketing products for the anti-aging markets worldwide, has reached an agreement to restructure a defaulted $2.3 million, six-year amortizing note of U.S. International Trading Corporation, under which only $188,000 had been paid through July 2004, all allocated to interest income. Under the terms of the restructuring, Senetek has received $240,000 since August 1, 2004, and will receive additional payments totaling $1,120,000 before the end of 2004. Senetek has also received a $400,000, two and one half year, secured amortizing note bearing interest at 8% per annum. Under the terms of the agreement, if USITC fails to pay any of the $1,120,000 due in 2004 or misses any quarterly payment under the new $400,000 note, all of its obligations under the original $2.3 million note will be reinstated and subject to acceleration for non- performance. The original note had been issued as part of the price for U.S. International Trading Corporation's purchase of trademarks acquired by Senetek in 1995, which had been carried on Senetek's balance sheet at no value. Since collection of the original note had been uncertain, no amounts had been taken into income pending payment and all payments received by Senetek will be recorded as interest income or gain from discontinued operations in the period received. Frank J. Massino, Chairman and Chief Executive Officer of Senetek PLC, commented, "We are gratified that this situation has been resolved. This restructuring will generate $1,360,000 of cash in 2004, further strengthening Senetek's balance sheet for investment in building the business, and all of this cash will drop to our bottom line in 2004 as gain on the transaction, as will payments on the $400,000 promissory note in 2005 through 2007." Senetek PLC -- http://www.senetekplc.com/-- is a science-driven biopharmaceutical company engaged in developing and marketing its own products related to aging. At Sept. 30, 2004, the Company's balance sheet showed a $1,658,000 stockholders' deficit, compared to a $2,929,000 deficit at Dec. 31, 2003. SI CORPORATION: Moody's Withdraws Junk Ratings ---------------------------------------------- Moody's Investors Service withdrew all ratings of SI Corporation because of the company's decision not to proceed with a publicly rated transaction. These ratings were withdrawn: * Proposed $230 million issue of senior secured notes due 2012, rated Caa1; * Senior Implied Rating of Caa1; * Senior Unsecured Issuer Rating of Caa2; * Speculative Grade Liquidity Rating of SGL-3; * Stable Outlook. SI Corporation, based in Chattanooga, Tennessee, is one of the largest North American manufacturers and marketers of synthetic fabrics and fibers that provide support, strength and stabilization solutions for the furnishings (69% of sales) and construction materials markets (31% of last twelve months ended June 27, 2004). The company is a wholly owned subsidiary of SIND Holdings, Inc., which is controlled by Investcorp. SIX FLAGS: High Debt Burden Cues Moody's to Junk Unsecured Debt --------------------------------------------------------------- Moody's Investors Service downgraded Six Flags, Inc.'s senior unsecured debt to Caa1 from B3, its preferred stock to Caa2 from Caa1, and Six Flags Theme Parks Inc.'s secured bank credit facilities to B1 from Ba3. The company's SGL-2 liquidity rating was affirmed. The senior implied rating was also lowered to B2 from B1, and the senior unsecured issuer rating was lowered to Caa1 from B3. All ratings and rating actions are outlined below. The rating outlook remains negative. Moody's took these rating actions: * Lowered $1.5 billion of Six Flags, Inc. senior unsecured notes to Caa1; * Lowered $282 million (redemption value) of Six Flags, Inc. preferred securities -- PIERS -- to Caa2; * Lowered $1 billion of Six Flags Theme Parks Inc. secured bank facilities to B1; * Lowered the senior implied rating to B2; * Lowered the senior unsecured issuer rating to Caa1; * Affirmed the SGL-2 liquidity rating. The downgrade reflects Moody's ongoing concern over the company's weak free cash flow characteristics and high debt burden. Moody's believes the company will have a very limited ability to reduce debt with free cash flow from operations over the next 2 years due to potentially volatile operating performance, an increase in capital expenditures, high interest expense, cash dividends on preferred securities and partnership distributions. Operating results have underperformed Moody's expectations for several years due to factors that include poor weather patterns, economic malaise, national security concerns, and pricing, promotion and, marketing mistakes. Moody's believes that despite a significant increase in capital spending for the 2005 operating season, the company could continue to experience volatile operating performance due to unpredictable economic conditions and the fragmentation of consumer leisure habits and its corresponding effect on attendance levels, which declined 4.5% in the first nine months of 2004 over the comparable period of 2003. Six Flags' leadership position in the regional theme park industry, high barriers to entry, and the benefits of geographic diversity continue to support the company's ratings. Moody's believes that in a liquidation scenario, while asset values provide bank debt holders ample coverage, bondholders have minimal cushion. Aside from cash balances, the company's assets are relatively illiquid as there are only a small handful of logical buyers for its park properties. Buyers might include Busch Gardens and Cedar Fair, who bought the recently sold Ohio amusement park, as well as possible financial players. Moody's affirmed Six Flags, Inc.'s SGL-2 liquidity rating, which is supported by the company's strong cash position and adequate borrowing cushion under the covenants of its bank facilities for working capital needs in the first and second quarters. Aside from modest amortization payments, its first significant maturity does not occur until 2009. In 2005, Moody's forecasts that the company's gross cash flow will be insufficient to finance increased extraordinary capital expenditures of approximately $130 million, working capital and fixed charge needs. Consequently, in 2005 the company will need to utilize a significant portion of the more than $175 million in cash that was on the balance sheet as of September 30, 2004. Moody's expects the company will remain inside the financial covenants of the Six Flags Theme Parks credit facility, since it recently entered into an amendment that relaxed the financial leverage ratio through 2006 and the fixed charge ratio through 2007. Six Flags' assets are substantially committed to its bank lenders, somewhat limiting its alternate liquidity options. To meet modest cash shortfalls, the company could defer a portion of its upgrade capital expenditures, which are expected to increase in 2005. However, Moody's believes that the larger amount of capital investment is an extremely important component of management's strategy to reverse attendance declines and increase attendance levels in the long term. The negative outlook reflects Moody's concern that Six Flags' increased capital expenditures for the 2005 operating season might not result in improved operating performance, with no corresponding improvement in free cash flow generation in 2006, given that the company still remains exposed to many of the risk factors that diminished operating results in the past. Moody's believes the rating could be downgraded if the operating underperformance of recent years is not reversed, cash flow breakeven is not achieved, and Moody's no longer expects that key credit metrics will improve over the intermediate-term rating horizon (specifically, that by the end of the 3rd quarter of 2006 fully-loaded financial leverage will be below 8.0x total adjusted debt (including preferred stock)-to-EBITDAR and EBITDA-to-interest is covered at least 1.7x). Conversely, the outlook would revert to stable if by that time the company achieves strong operating results, including positive free cash flow, and reduces financial leverage below 8.0x and interest coverage to 1.7x. In fiscal 2004, Moody's expects that Six Flags' financial leverage will be very high at 9.5x and EBITDA interest coverage will be extremely modest at approximately 1.3x, however would be more than 1.4x on a full-year, pro forma basis when taking into consideration the $260 million in debt reduction, resulting from the proceeds of asset sales, that has occurred since the end of the 1st quarter. While there is some room for EBITDA margin improvement, Moody's does not expect it to return to the historical 35% levels given the company's needs to increase expenditures on improved services in order to improve the customer experience. Six Flags Theme Parks' B1 senior secured debt, which currently comprises approximately 27% of total debt and preferred stock, benefits from ample collateral security and structural advantages, whereas Six Flags, Inc.'s Caa1 senior unsecured holding company notes remain contractually and structurally disadvantaged to the bank facilities, and thereby in a much more risky position from a relative recovery perspective in a downside scenario, as reflected in the Caa ratings. Six Flags, Inc., headquartered in Oklahoma City, Oklahoma, is the world's largest regional theme park company. SOLUTIA INC: Has Until March 11 to Remove State Court Actions ------------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of New York extended the period within which Solutia, Inc., and its debtor- affiliates can remove actions through and including March 11, 2005. The Debtors are parties to numerous Civil Actions and are represented by many different law firms in each of them. During the first nine months of their Chapter 11 cases, the Debtors and their professional restructuring advisors have been focused primarily on stabilizing and maintaining day-to-day operations, developing and implementing an overall business plan to serve as the basis for a reorganization plan, analyzing complex contracts and relationships in connection with the implementation of the business plan, preparing and amending the Debtors' schedules of assets and liabilities and statements of financial affairs, and addressing certain litigation matters that are critical to the reorganization. The Debtors believed that the extension will afford them additional time to make fully informed decisions concerning the removal of the Civil Actions and will assure that their valuable rights pursuant to Section 1452 of the Bankruptcy Code can be exercised in the appropriate manner. 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) SOVEREIGN SPECIALTY: Moody's Reviewing Ratings & May Upgrade ------------------------------------------------------------ Moody's Investors Service placed the ratings of Sovereign Specialty Chemicals, Inc.'s under review for possible upgrade due to the pending acquisition of Sovereign by Henkel Corporation for approximately $575 million. This transaction is expected to close by year-end 2004. Ratings placed under review for possible upgrade: * Sovereign Specialty Chemicals, Inc. -- Guaranteed Senior Secured Revolving Credit Facility: B1 -- Guaranteed Senior Secured Term Loan A: B1 -- Guaranteed Senior Secured Term Loan B: B1 -- Senior Subordinated Notes: Caa1 -- Senior Implied: B2 -- Issuer Rating: B3 The senior subordinated notes have a change of control provision however the notes are not likely to be tendered as they are currently trading above this level. The notes can be called in March of 2005 at a price of 105.94. Sovereign portfolio of niche adhesives and coatings will be complementary to Henkel's existing portfolio of products and likely provide a reasonable level of synergies over time. Sovereign Specialty Chemicals, Inc., headquartered in Chicago, Illinois, produces adhesives, sealants and coatings primarily for the commercial and construction markets. Revenues were roughly $400 million for the LTM ended September 30, 2004. STANDARD COMMERCIAL: Merger Plans Prompt Moody's to Review Ratings ------------------------------------------------------------------ Moody's Investors Service placed the ratings of Standard Commercial Corporation and Dimon Incorporated under review with direction uncertain, following the announcement by the two companies of a definitive merger agreement. The transaction remains subject to shareholders and regulatory approvals. Ratings placed under review with direction uncertain: * Standard Commercial Corporation -- Senior implied, at Ba3 -- Senior unsecured, at Ba3 -- Issuer rating, at B1 * Standard Commercial Tobacco Company -- Bank Credit facility, at Ba3 * Dimon Incorporated -- Senior guaranteed unsecured, at B1 -- Issuer rating, at B2 Dimon and Standard Commercial have announced their intent to merge. Under the terms of the agreement, Standard Commercial common shareholders would receive three shares of Dimon common stock per each share of Standard Commercial common stock, making Dimon the surviving entity. The merged company should have proforma annual revenue of approximately $1.9 billion, based on combined results for the twelve months ended June 30, 2004. The direction of the review reflects uncertainty on the final level of the senior implied rating of the new entity at conclusion of the review. Moody's does not believe that it has sufficient information at this stage to determine a higher likelihood for a Ba3 senior implied rating than for a B1. The direction of the review also reflects uncertainty about the ultimate structure of the new company, whether this new structure will create structural subordination of some debt, and whether -- as Dimon has indicated it might be a possibility -- Dimon's debt will be tendered. Moody's views an upgrade of Dimon's senior implied rating to Ba2 at conclusion of the review highly unlikely in view of the difficult environment in which all industry players operate, as evidenced by weak metrics for both companies in recent quarters. At the end of the last twelve months ended June 30, 2004, Dimon's retained cash flow to debt was at 2.2%; Standard Commercial's was at 11%. In its review, Moody's will focus on these factors: -- Final structure of the new company post-merger and impact on the seniority status of each category of debt -- Cost saving benefits expected from the merger. -- Expected gains or losses of clients for Dimon due to the merger. -- Expected evolution of the fundamentals of the leaf trading industry. About Standard Commercial Corporation Headquartered in Wilson, North Carolina, Standard Commercial Corporation is the world's third-largest dealer of leaf tobacco with operations in more than 30 countries. About Dimon Incorporated Headquartered in Danville, Virginia, Dimon Incorporated is the world's second largest dealer of leaf tobacco with operations in more than 30 countries. STELCO INC: Inks New $900 Million Financing with Deutsche Bank -------------------------------------------------------------- Stelco, Inc.'s (TSX:STE) Board of Directors unanimously approved a term sheet with Deutsche Bank Securities, Inc., and Deutsche Bank AG. The term sheet provides for a recapitalization of Stelco, Inc., involving a financing of $900,000,000. The financing includes an asset-based loan facility co-underwritten by Deutsche Bank AG and CIT Business Credit Canada, for which Deutsche Bank Securities will act as Lead Arranger, and a purchase commitment by Deutsche Bank Securities of Stelco, Inc., convertible notes and bridge notes. The terms of the financing do not include any requirement for wage, benefit or pension concessions from any of the Company's union locals, other employees or retirees. The compensation of current employees and related benefits together with pension benefits and post-retirement benefits will not be reduced under the financing. Based on discussions with General Motors, Stelco believes that it will receive General Motors' support for the financing. General Motors' support will mean significant General Motors business for at least the last three quarters of 2005. Detailed contract discussions are now underway with General Motors. The arrangements with Deutsche Bank flow from the court approved process dated Oct. 19, 2004, further to which Stelco was authorized to receive proposals from its bondholders of which Deutsche Bank is one. Consistent with this process and the related court order, the Company may now move forward with its capital raising process which will include soliciting other capital raising opportunities with the reasonable assurance that it can emerge from creditor protection. Proceeds from the financing will be used among other things to underwrite the capital costs associated with the Company's strategic capital expenditure program which is an important part of its previously announced four point strategy for the future. Stelco, Inc., will retire its existing operating credit line with the new facilities and will proceed with its previously announced sales of various businesses. Existing shareholders will receive warrants exchangeable into a modest portion of the new equity of Stelco Inc. created upon emergence from court protection with such warrants being exercisable at a premium to the market value of the new equity shares of Stelco at the time of emergence from court protection. Details of the financing will be provided along with materials expected to be filed with the Ontario Superior Court of Justice early in the week. The approval of the Board of Directors was given subject to court approval of the term sheet and related commitment letters. A number of significant conditions govern the Company's ability to draw on the package of credit facilities including a new collective agreement with the United Steelworkers of America Local 8782 on terms substantially the same as the existing collective agreement. Other conditions apply to accessing the facilities including the absence of any material adverse change pending closing and various other tests applicable to the financial condition of the Company. Courtney Pratt, Stelco President and Chief Executive Officer, said, "This transaction will benefit the Company and its stakeholders in a number of ways. It would assist us in exiting our Court-supervised restructuring, preserve the income of our employees and the pension and other benefits of our retirees, and provide significant assurance to General Motors. We are encouraged by General Motors' preliminary positive reaction to this financing. We will continue to seek a collective agreement with Local 8782 so that we can meet one of the key conditions of Deutsche Bank and provide the assurance GM requires in order to continue our important relationship." Hap Stephen, the Company's Chief Restructuring Officer, said, "The recapitalization proposal from Deutsche Bank gives Stelco the financing it needs to emerge from CCAA protection with an improved balance sheet and the necessary capital to move ahead with its critical capital expenditure program. Creditors will receive significant recoveries in cash and new equity shares. Our focus now will be to move ahead with the capital raising process in earnest which will include actively soliciting other proposals." About Deutsche Bank With roughly Euro 845 billion in assets and approximately 65,400 employees, Deutsche Bank (NYSE: DB) -- http://www.deutsche-bank.com/-- offers unparalleled financial services in 74 countries throughout the world. Deutsche Bank competes to be the leading global provider of financial solutions for demanding clients creating exceptional value for its shareholders and people. Deutsche Bank ranks among the global leaders in corporate banking and securities, transaction banking, asset management, and private wealth management, and has a significant private & business banking franchise in Germany and other selected countries in Continental Europe. Deutsche Bank Securities Inc. is the investment banking and securities arm of Deutsche Bank AG in the United States. About Stelco Stelco, Inc. -- http://www.stelco.ca/-- which is currently undergoing CCAA restructuring proceedings, is a large, diversified steel producer. Stelco is involved in all major segments of the steel industry through its integrated steel business, mini-mills, and manufactured products businesses. Consolidated net sales in 2003 were $2.7 billion. TRICO MARINE: Solicits Consents for Pre-Packaged Chapter 11 ----------------------------------------------------------- Trico Marine Services, Inc. (Nasdaq: TMAR) has commenced the formal process of soliciting approvals for a consensual financial restructuring of the Company from holders of the Company's $250 million 8-7/8% senior notes due 2012. If the Company receives the expected approvals from sufficient holders of the Senior Notes, it will implement the financial restructuring through a voluntary, pre-packaged bankruptcy proceeding under Chapter 11 of the bankruptcy code. The Company expects to commence its pre-packaged bankruptcy case in mid- December, with an objective of consummating the restructuring in late January or early February of 2005. Trico also reported that, in connection with the restructuring, the Company's current U.S. senior secured lenders have committed to provide a $75 million debtor-in-possession financing facility, comprised of: -- a $55 million term loan, which will be used to pay all of the outstanding indebtedness under the Company's existing U.S. secured term loan, and -- a new $20 million revolving credit facility. Upon effectiveness of the restructuring, and the satisfaction of certain conditions precedent, the facility will convert into a $75 million exit financing facility, composed of a $55 million term loan and a $20 million revolving credit facility, which will provide the reorganized Company with liquidity for working capital and other general corporate purposes. The Company previously announced on Sept. 10, 2004, that holders of more than 67% of the Company's Senior Notes executed a binding Plan Support Agreement, pursuant to which those holders agreed to approve the proposed restructuring. The supporting noteholders represent a sufficient amount to implement the restructuring through a voluntary pre-packaged plan of reorganization. The agreement by the holders of the Senior Notes was subject to the finalization of definitive agreements and related documentation and the satisfaction of certain specified conditions. Since that announcement, the Company has reached agreement with the advisors to the supporting noteholders on the definitive terms of a plan of reorganization and related documents. Based on the extensive negotiation and coordination with, and input from, the noteholders' advisors, the Company is of the opinion that the plan of reorganization and all definitive agreements and related documentation fully comply with the terms and conditions set forth in the Plan Support Agreement, and that all conditions to effectiveness set forth in the Plan Support Agreement have been met. The advisors to the noteholder group have represented to the Company and its advisors that they will convene a meeting with the noteholder group, at which they will present the terms of the plan of reorganization and all definitive documentation, and recommend that the members of the noteholder group tender their votes to accept the plan, pursuant to the terms of the Plan Support Agreement. As part of the plan of reorganization, the holders of the Senior Notes will receive, in exchange for their total claims (including principal and accrued and unpaid interest), 100% of the fully diluted new common stock of reorganized Trico Marine Services, Inc., before giving effect to: (i) the exercise of warrants to be distributed to the Company's existing holders of common stock pursuant to the plan; and (ii) a new employee option plan. On the effective date of the plan of reorganization, the sole equity interests in the reorganized Company will consist of the new common stock issued to the holders of the Senior Notes, the warrants, and options to be issued to employees. Copies of the plan of reorganization, disclosure statement and related documents will be available shortly at http://www.kccllc.net/trico/ The Company's obligations under existing operating leases, or trade credit extended to the Company by its vendors and suppliers, will be unaffected by the restructuring and will be paid in full. Under the terms of the restructuring agreement, Thomas Fairley will continue as TMAR's Chief Executive Officer and Trevor Turbidy will continue as TMAR's Chief Financial Officer. Joseph Compofelice will remain as TMAR's non-executive Chairman of the Board of Directors. The Company has fixed Nov. 5, 2004, as the voting record date for the determination of holders of record of eligible claims entitled to receive the solicitation package and vote on the plan of reorganization. The voting deadline to accept or reject the plan of reorganization is 5:00 p.m. Eastern Standard Time on Dec. 13, 2004, unless the solicitation is terminated early or extended by the Company prior to the voting deadline. The Company reserves the right to terminate the solicitation period early, including without limitation, upon receipt of the requisite votes approving the plan. In order to be counted, properly completed ballots must be received by the solicitation agent by the voting deadline. In connection with the proposed financial restructuring of the Company, the Company has been represented by Lazard Freres & Co. LLC as financial advisors and Kirkland & Ellis LLP as legal advisors. The supporting noteholders have been represented by Houlihan Lokey Howard & Zukin Capital, Inc., as financial advisors and by Bingham McCutchen LLP as legal advisors. About the Company Trico provides a broad range of marine support services to the oil and gas industry, primarily in the Gulf of Mexico, the North Sea, Latin America, and West Africa. The services provided by the Company's diversified fleet of vessels include the marine transportation of drilling materials, supplies and crews, and support for the construction, installation, maintenance and removal of offshore facilities. Trico has principal offices in Houma, Louisiana, and Houston, Texas. Please visit our Web site at http://www.tricomarine.com/ * * * As reported in the Troubled Company Reporter on Sept. 22, 2004, Trico Marine Services, Inc., reported the issuance of a notice of default and guarantee demand by Bear Stearns Corporate Lending, Inc. Bear Stearns is an administrative agent under the $55 million term loan issued by a group of bank lenders to Trico's two primary domestic subsidiaries in February 2004. The Company is a guarantor of its subsidiaries' obligations under certain provisions of the Term Loan. Bear Stearns' notice of default and guarantee demand was issued on the basis of an earlier default arising from the Company's non-payment of interest due on its $250 million 8.875% Senior Notes due 2012 in June 2004. As reported in the Troubled Company Reporter on August 19, 2004, Trico Marine Services, Inc.'s independent registered public accounting firm re-issued its report on the Company's financial statements for the year ended December 31, 2003, with a going concern explanatory paragraph in the Company's amendment to its Form 10-K for the fiscal year ended December 31, 2003. The Company originally filed its 2003 Form 10-K on March 15, 2004, and filed the Form 10-K amendment on August 9, 2004, in order to respond to comments received from the staff of the Securities and Exchange Commission regarding the classification of indebtedness under the Company's Norwegian revolving credit facility. Due to the Company's 10-K amendment, the Company's independent registered public accounting firm was required to reissue its 2003 audit report. During the second quarter of 2004, the Company defaulted under its $250 million senior unsecured notes indenture and, due to cross-default provisions, its $55 million secured term loan facility. In the opinion of the Company's independent registered public accounting firm, these events raised substantial doubt about the Company's ability to continue as a going concern. TRICO MARINE: Gets Second Delisting Notice from Nasdaq ------------------------------------------------------ Trico Marine Services, Inc. (Nasdaq: TMAR) received notice from the NASDAQ Listing Qualifications Staff that the Company has not maintained the minimum market value of publicly held shares of $5 million as required for continued inclusion under Marketplace Rule 4450(a)(2). If the Company cannot demonstrate compliance with the minimum market value for publicly held shares requirement for 10 consecutive days before Feb. 1, 2005, the NASDAQ Listing Qualifications Staff will provide written notice that the Company's common stock will be delisted. On June 14, 2004, the Company announced receipt of a previous notice from the NASDAQ Listing Qualifications Staff that the Company's common stock had closed below the minimum $1.00 per share requirement for continued inclusion under Marketplace Rule 4450(a)(5). If the Company cannot demonstrate compliance with the minimum bid price requirement rule or meet certain other requirements on or before Dec. 6, 2004, the NASDAQ Listing Qualifications Staff will provide written notice that the Company's common stock will be delisted or moved to The NASDAQ SmallCap Market. As of November 12, 2004, the Company has not demonstrated compliance with the minimum bid price requirement, and it is unlikely that the requirement will be met before Dec. 6, 2004. The Company is currently evaluating its options with respect to the NASDAQ notices in light of its previous announcement on Sept. 10, 2004, that it had reached an agreement in principle with more than 67% of the holders of its $250 million 8-7/8% senior notes due 2012, pursuant to which the holders of the Senior Notes have agreed to support a consensual financial restructuring of the Company. As part of the proposed consensual financial restructuring, it is anticipated that the Company would commence a voluntary petition for reorganization under Chapter 11 of Title 11 of the United States Code. Under Marketplace Rule 4450(f), if a company files a petition for reorganization under any section of the Bankruptcy Code, NASDAQ may suspend or terminate the company's securities "unless it is determined that the public interest and the protection of investors would be served by continued designation." About the Company Trico provides a broad range of marine support services to the oil and gas industry, primarily in the Gulf of Mexico, the North Sea, Latin America, and West Africa. The services provided by the Company's diversified fleet of vessels include the marine transportation of drilling materials, supplies and crews, and support for the construction, installation, maintenance and removal of offshore facilities. Trico has principal offices in Houma, Louisiana, and Houston, Texas. Please visit our Web site at http://www.tricomarine.com/ * * * As reported in the Troubled Company Reporter on Sept. 22, 2004, Trico Marine Services, Inc., reported the issuance of a notice of default and guarantee demand by Bear Stearns Corporate Lending, Inc. Bear Stearns is an administrative agent under the $55 million term loan issued by a group of bank lenders to Trico's two primary domestic subsidiaries in February 2004. The Company is a guarantor of its subsidiaries' obligations under certain provisions of the Term Loan. Bear Stearns' notice of default and guarantee demand was issued on the basis of an earlier default arising from the Company's non-payment of interest due on its $250 million 8.875% Senior Notes due 2012 in June 2004. As reported in the Troubled Company Reporter on August 19, 2004, Trico Marine Services, Inc.'s independent registered public accounting firm re-issued its report on the Company's financial statements for the year ended December 31, 2003, with a going concern explanatory paragraph in the Company's amendment to its Form 10-K for the fiscal year ended December 31, 2003. The Company originally filed its 2003 Form 10-K on March 15, 2004, and filed the Form 10-K amendment on August 9, 2004, in order to respond to comments received from the staff of the Securities and Exchange Commission regarding the classification of indebtedness under the Company's Norwegian revolving credit facility. Due to the Company's 10-K amendment, the Company's independent registered public accounting firm was required to reissue its 2003 audit report. During the second quarter of 2004, the Company defaulted under its $250 million senior unsecured notes indenture and, due to cross-default provisions, its $55 million secured term loan facility. In the opinion of the Company's independent registered public accounting firm, these events raised substantial doubt about the Company's ability to continue as a going concern. US AIRWAYS: Court Bars Enforcement of Illinois Liquor Law --------------------------------------------------------- In their normal business operations, US Airways, Inc., and its debtor-affiliates sell liquor and other alcoholic beverages to their passengers. The Debtors buy alcoholic beverages from a distributor based in Illinois. Brian P. Leitch, Esq., at Arnold & Porter, in Denver, Colorado, explains that Section 6.5 of the Illinois Liquor Control Act prohibits Illinois liquor licensees, which are 30 days or more delinquent on payments to their vendors, from purchasing alcoholic liquors. The Illinois Liquor Contract Commission will not allow Illinois distributors to sell alcoholic beverages to the Debtors unless the Court stays enforcement of this state law restriction. The Liquor Contract Commission says that the Illinois Liquor Control Act is not preempted by the Bankruptcy Code, because the Twenty-First Amendment to the U.S. Constitution grants the states control over the sale of liquor. However, the Commission is willing to work with the Debtors and agrees that the Court should stay enforcement of Section 6.5 of the Illinois Liquor Control Act. Mr. Leitch asserts that the Court has jurisdiction to enter a stay order as the Bankruptcy Code preempts the Illinois Liquor Control Act. If no action is taken, the Debtors will purchase alcoholic beverages outside of Illinois for distribution at their own expense, a costly practice. Mr. Leitch insists that the Debtors' request is necessary to secure the performance of the Debtors' primary liquor vendor. Judge Mitchell agrees with the rationale and suspends the enforcement of Section 6.5 during the pendency of the Debtors' cases. 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) US AIRWAYS: Teamsters Want to Conduct Rule 2004 Examination ----------------------------------------------------------- Pursuant to Rule 2004 of the Federal Rules of Bankruptcy Procedure and Rule 2004-1 of the Local Bankruptcy Rules for the U.S. Bankruptcy Court for the Eastern District of Virginia, the International Brotherhood of Teamsters asks Judge Stephen Mitchell to compel Debtors US Airways, Inc., and Piedmont Airlines, Inc., to produce documents, as requested in a subpoena duces tecum. The Teamsters also wants Piedmont Airlines to submit to examination. William R. Wilder, Esq., at Baptiste & Wilder, in Washington, D.C., says the requested examination and documents relate to "the acts, conduct, or property or to the liabilities and financial condition" of the Debtors as well as to matters "which may affect the administration of the Debtor['s] estate[s]." The Union wants US Airways CEO Bruce R. Lakefield to produce and permit inspection and copying of all documents: (1) provided to US Airways by America West Airlines concerning rates of pay, rules and working conditions for America West customer service representatives; and (2) containing information provided to US Airways by America West Airlines concerning rates of pay, rules and working conditions for America West customer service representatives. The Union also wants Keith Houk, President and CEO of Piedmont Airlines, to appear and testify at an examination to be conducted at 2000 N. 14th Street, #210, in Arlington, Virginia, today, November 15, 2004, at 10:00 a.m. The Teamsters also seek production of all documents concerning: (1) the hiring and recall of mechanics and related employees of Piedmont Airlines from January 2004 to the present; (2) the furlough of mechanics and related employees of Piedmont Airlines from January 2004 to the present; (3) the transfer of aircraft maintenance work between stations of Piedmont Airlines, the subcontracting of any aircraft maintenance work, and the closure of any stations in the Piedmont Airlines system from January 2004 to the present; (4) the transfer of aircraft from the former Allegheny Airlines to Piedmont Airlines; and (5) the return of aircraft to lessors by Piedmont Airlines. 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. 71; Bankruptcy Creditors' Service, Inc., 215/945-7000) US AIRWAYS: Seeks to Reject Labor Pacts to Continue Restructuring ----------------------------------------------------------------- US Airways Group, Inc., has filed a comprehensive motion with the U.S. Bankruptcy Court for the Eastern District of Virginia to: -- initiate proceedings for rejection of collective bargaining agreements with the: -- Association of Flight Attendants, -- Communications Workers of America, and -- International Association of Machinists and Aerospace Workers, and -- reduce retiree health benefits and terminate the remaining defined benefit pension plans for US Airways mainline employees. US Airways President and Chief Executive Officer Bruce R. Lakefield said the filing does not preclude the company from obtaining consensual agreements with the three unions and other interested parties. US Airways is in various stages of negotiations with the AFA, CWA and IAM, and has already reached cost-savings agreements with the Air Line Pilots Association and the three units of the Transport Workers Union, all of which have also been approved by the Bankruptcy Court. "Our overwhelming preference is that we continue to negotiate and reach agreements with all of our unions. We would also like to avoid litigation concerning our retiree and pension benefits, but in light of the financial issues facing the company early in 2005, this filing is an unfortunate but necessary step to keep our restructuring on track and allow us to implement permanent cost reductions quickly," said Mr. Lakefield. On Oct. 15, Judge Stephen S. Mitchell granted US Airways emergency relief in the form of 21 percent pay cuts, reduction in pension plan contributions and the temporary relaxation of other contractual provisions as they relate to the AFA, CWA and IAM. Under the procedural rules established for the company's Chapter 11 restructuring, issues can be heard before the court on 20 days notice. The Bankruptcy Court has scheduled the proceedings on the application to begin on Thursday, Dec. 2, 2004, at 9:30 a.m. "We continue to implement those elements of our Transformation Plan that we can control, including new operating and scheduling efficiencies, reduced management headcount and related costs, and more direct and online distribution, but we still need to obtain the permanent relief to labor, pension and benefit costs," said Lakefield. "Our financial partners have made it very clear that we cannot expect their support and continued participation in our restructuring without a competitive cost structure, and competitive labor, pension and benefit costs are critical components of the cost structure at every successful airline. Our negotiating position is that we are seeking costs that are consistent with those at low-cost carriers that have now become the defining force in the marketplace." The court filing seeks relief for the company in three areas: * Rejection of the collective bargaining agreements for the airline's flight attendants (represented by the AFA), airport customer service and reservations agents (represented by the CWA), and mechanics, airport ramp workers, aircraft cleaners, stock clerks and maintenance training specialists (represented by the IAM). If the request for rejection is granted by the court, the company would then put in place its most recent offer and both parties would still be obligated to continue to negotiate a new agreement under the terms of the Railway Labor Act. * Substantial reductions or elimination of company-paid retiree health benefits for all employee groups, including management. * Termination of the defined benefit pension plans currently in place for employees represented by the AFA and the IAM mechanics and related employees. In addition, the company would terminate the defined benefit plan frozen in the early 1990s that covered employees in the management, administrative, airport customer service and reservations, ramp, crew scheduling, dispatch, flight crew training instructors and flight simulator engineers work groups. Following termination of the defined benefit plans, the company would then work with the Pension benefit Guaranty Corporation in the administration of plan assets and benefits. US Airways intends to only have defined contribution pension plans for all employees. "We have not lost sight of the hardships that furloughs, lower pay and reduced benefits will mean for our employees and retirees, but we are faced with a series of difficult choices as we work to restructure the company and try to save thousands of jobs of veteran US Airways employees," said Mr. Lakefield. "We can complete this process more quickly and with a much better outcome for employees if we can reach labor agreements prior to going to court on this motion. This filing represents a final request to union leaders to work with us, and to convey to their members the serious predicament our company faces." Flight Attendants Slam Abandonment of Labor Pacts Flight attendants reacted with outrage to US Airways' motion to abrogate its collective bargaining agreements with three of its organized work groups, including the Association of Flight Attendants-CWA. "Management is moving to shred its contracts, while at the same time claiming that it would prefer a consensual agreement with its workers," said Perry Hayes, president of the AFA Master Executive Council at US Airways. "This naked attempt at intimidation demonstrates the company's contempt for its workers and for the collective bargaining process." US Airways' motion, filed in federal bankruptcy court in Alexandria, Virginia, is a three-pronged attack on employees. It seeks to: * Scrap its collective bargaining agreements under Section 1113 of the U.S. Bankruptcy code, * Slash retiree health benefits under Section 1114; and * Terminate its defined benefit pension plans. In addition to the AFA, work groups represented by the Communications Workers of America and the International Association of Machinists and Aerospace Workers have also been targeted by the legal action. "It remains our desire to reach an agreement that will ensure this company's survival while protecting our members' rights," said Mr. Hayes. More than 46,000 flight attendants, including 5,200 at US Airways, 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.afanet.org/ 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 LEC: Court Approves StarNet Asset Acquisition ------------------------------------------------ US LEC Corp. (Nasdaq: CLEC), a telecommunications carrier serving businesses and enterprise organizations throughout the Eastern United States, will acquire the assets of StarNet, Inc., a nationwide provider of dial-up Internet access and telephony services to Internet Service Providers (ISPs). In a sale order signed on Nov. 10, 2004, the United States Bankruptcy Court for the Northern District of Illinois approved the purchase of StarNet's assets, including its popular MegaPOP ISP service. "We are pleased to add StarNet and its MegaPOP offering to our data services portfolio, and we know that StarNet's customers will immediately begin enjoying the stability and improvements that US LEC provides," said Aaron Cowell, president and CEO for US LEC. "As one of StarNet's largest vendors, we will leverage our familiarity with their organization, in addition to our experience assimilating Fastnet's data assets, to make this an ideal integration opportunity. The resulting combination will raise the quality of these Internet services to standards that competitors will be hard pressed to meet." Mr. Cowell continued, "The StarNet acquisition expands our commitment to growing our data capabilities, and it strengthens US LEC's business model. The transaction is expected to be almost immediately accretive to US LEC's bottom line, adding nearly 400 new customers and more than seven million dollars in annual revenue. We anticipate positive impacts on US LEC's revenue and EBITDA results." StarNet currently supplies its wholesale MegaPOP Internet service to nearly 400 ISPs across the United States. With the acquisition complete, US LEC will provide local dial-up Internet access across one seamless network covering all 50 states, as well as assume ownership and management of more than 50 StarNet Points of Presence (POPs), StarNet's servers, equipment and Network Operations Center (NOC) in Palatine, Ill. US LEC will retain the majority of StarNet's current staff to ensure uninterrupted technical and support operations. "The StarNet team is excited to move forward in our relationship with US LEC. StarNet has always strived for a high level of customer satisfaction, and now we have the opportunity to show customers what we can do with the support and commitment of US LEC behind our network and MegaPOP services," said Russ Intravartolo, the former CEO of StarNet, who will manage StarNet's nationwide ISP service for US LEC. "Knowing US LEC's reputation as a leading competitive carrier, it's easy to see that our current customers will recognize an even greater commitment to excellence." About US LEC Based in Charlotte, NC, US LEC is a leading telecommunications carrier providing integrated voice, data and Internet services to medium and large businesses and enterprise organizations throughout 15 Eastern states and the District of Columbia. US LEC services include local and long distance calling services, Voice over Internet Protocol (VoIP) service, advanced data services such as Frame Relay, Multi-Link Frame Relay and ATM, dedicated and dial-up Internet services, managed data solutions, data center services and Web hosting. US LEC also provides selected voice services in 27 additional states and selected data services nationwide. For more information about US LEC, visit http://www.uslec.com/ * * * As reported in the Troubled Company Reporter on Sept. 17, 2004, Standard & Poor's Ratings Services assigned its 'B-' corporate credit rating to Charlotte, North Carolina-based competitive local exchange carrier US LEC Corp. The outlook is negative. A 'B-' rating was assigned to the company's proposed $150 million second-priority senior secured floating-rate notes due 2009 to be issued under Rule 144A with registration rights. These notes are rated at the same level as the corporate credit rating because a potential priority obligation, in the form of a carve-out for a maximum $10 million of first-priority lien debt under the indenture for these notes, is nominal relative to asset value. Proceeds from the notes will be used to refinance approximately $120.4 million of bank debt and $6.8 million of subordinated notes at face value. Pro forma for the refinancing, US LEC had total debt of about $150 million ($160 million after adjusting for operating leases) at June 30, 2004. "Ratings primarily reflect concerns over the longer-term viability of small CLECs like US LEC in light of the expected increase in competitive pressure from more formidable rivals," said Standard & Poor's credit analyst Michael Tsao. "As a result, we expect some deterioration in currently modest leverage metrics." US LEC, which has a "smart build" network comprising owned switches and leased loops, focuses on providing voice, data, and Internet services to mid- and large-size enterprises in 107 markets in which either Verizon Communications, Inc., or BellSouth Corp. operates as the incumbent local exchange carrier -- ILEC. VANGUARD HEALTH: Reports $110.1 Million of Net Loss in 1st Qtr. --------------------------------------------------------------- Vanguard Health Systems, Inc., reported results for the first quarter ended Sept. 30, 2004. On Sept. 23, 2004, affiliates of The Blackstone Group completed the purchase of a majority of the equity interests in the Company pursuant to a previously announced merger agreement. As a result of the transaction, Vanguard has a new parent company, VHS Holdings LLC, the equity of which, along with the equity of Vanguard, is approximately 66% owned by Blackstone. Blackstone financed its $494.9 million equity investment with cash. Morgan Stanley Capital Partners rolled over $130.0 million of its existing Vanguard shares for an approximate 17% equity interest. Management and other investors purchased the remaining 17% equity interest by contributing existing Vanguard shares and/or utilizing cash proceeds from the merger. Total revenues for the quarter ended Sept. 30, 2004, were $493.7 million, an increase of $83.8 million or 20.4% from the prior year quarter. Patient service revenues and health plan premium revenues increased $63.3 million and $20.5 million, respectively, from the prior year quarter. For the quarter ended Sept. 30, 2004, the Company reported a loss before income taxes of $161.0 million compared to income before income taxes of $10.5 million during the prior year quarter. The loss before income taxes resulted from costs directly attributable to the Blackstone transaction, including stock compensation of $96.7 million, debt extinguishment costs of $62.2 million and merger expenses of $23.1 million. The net loss for the quarter ended Sept. 30, 2004, was $110.1 million compared to net income of $6.3 million during the prior year quarter. The costs directly attributable to the Blackstone transaction resulted in the net loss during the current year quarter. Adjusted EBITDA was $52.0 million for the quarter ended Sept. 30, 2004, an increase of $17.7 million or 51.6% from the prior year period. A reconciliation of Adjusted EBITDA to net income (loss) as determined in accordance with generally accepted accounting principles for the quarters ended Sept. 30, 2003, and 2004 is included in the attached supplemental financial information. The consolidated operating results for the quarter ended Sept. 30, 2004, reflect a 6.4% increase in discharges and a 9.5% increase in hospital adjusted discharges compared to the prior year quarter. These volume improvements are primarily a result of the Company's service expansion strategies, continued volume growth at West Valley Hospital in Phoenix and volume growth at a hospital in Phoenix that reopened its emergency department during the prior year quarter. Cash flows from operating activities were $70.2 million for the quarter ended Sept. 30, 2004, an increase of $69.8 million from the prior year quarter. The significant increase was due to improved operational performance during the current year quarter combined with a decrease in working capital items of approximately $28.6 million during the quarter. Cash used in investing activities increased during the quarter ended Sept. 30, 2004, by $44.9 million primarily due to the direct acquisition costs paid in connection with the Blackstone transaction. Cash flows used in financing activities were significantly affected by the equity and debt transactions associated with the Blackstone transaction. In addition to its equity investment, Blackstone funded the purchase with a $475.0 million term loan under the Company's new senior secured credit facilities and the issuance of $575.0 million of 9% senior subordinated notes and $216.0 million aggregate principal amount at maturity ($124.7 million in gross proceeds) of 11.25% senior discount notes. In connection with the transactions, the Company repurchased substantially all of its 9.75% senior subordinated notes due 2011 and its 8.18% subordinated convertible notes due 2013 and repaid the $300.0 million term loan outstanding under its previous senior secured credit facilities. The Company has available approximately $223.0 million under its $250.0 revolving loan facility (after outstanding letters of credit) and $325.0 million of additional term loans which may be drawn for specified purposes during periods ranging from five months to one year subsequent to the Blackstone transaction. As previously announced, on October 11, 2004, a subsidiary of Vanguard signed a definitive agreement to acquire three hospitals with a total of 768 licensed beds in Worcester, Massachusetts and suburban Boston, Massachusetts from subsidiaries of Tenet Healthcare Corporation. Vanguard will pay $100.3 million for the property, plant and equipment and will acquire from the sellers or build from operations net working capital for the hospitals of approximately $26.4 million in the aggregate. The Company expects the acquisition to close by December 31, 2004, subject to regulatory approvals and certain other closing conditions. "We are excited to begin our new partnership with Blackstone with solid first quarter operating results," commented Charles N. Martin, Jr., Chairman and Chief Executive Officer. "We remain committed to our service expansion and quality of care initiatives. Our new capital structure will provide us the financial means to expand our presence in existing markets and enter into other markets that fit our corporate strategy, including our potential entrance into the Massachusetts market." About the Company At Sept. 30, 2004, Vanguard Health Systems, Inc., owned and operated 16 acute care hospitals and complementary facilities and services in Chicago, Illinois; Phoenix, Arizona; Orange County, California and San Antonio, Texas. The Company's strategy is to develop locally branded, comprehensive health care delivery networks in urban markets. Vanguard will pursue acquisitions where there are opportunities to partner with leading delivery systems in new urban markets. Upon acquiring a facility or network of facilities, Vanguard implements strategic and operational improvement initiatives including expanding services, strengthening relationships with physicians and managed care organizations, recruiting new physicians and upgrading information systems and other capital equipment. These strategies improve quality and network coverage in a cost effective and accessible manner for the communities it serves. * * * As reported in the Troubled Company Reporter on August 13, 2004, Standard & Poor's Ratings Services assigned its 'B' rating and its recovery rating of '3' to the proposed $1.05 billion senior secured bank credit facility of Vanguard Health Holding Co. II LLC and Vanguard Holding Co. II, Inc. -- the co-borrowers. The facility is due in 2011. Vanguard Holding Co. II, Inc., is a newly formed wholly owned subsidiary of Vanguard Health Holding Co. II LLC. The latter, in turn, is a newly formed wholly owned subsidiary of a new holding company that will be 100% owned by Vanguard Health Systems, Inc. The new facility is rated the same as Vanguard Health Systems, Inc.'s corporate credit rating; this and the '3' recovery rating mean that lenders are unlikely to realize full recovery of principal in the event of a bankruptcy, though meaningful recovery is likely (50%-80%). At the same time, Standard & Poor's assigned its 'CCC+' rating to $560 million in senior subordinated notes due 2014 that are obligations of the same co-borrowers as the bank credit facilities. A 'CCC+' rating has been assigned to $140 million in senior discount notes due 2015, issued by Vanguard Health Holding Co. I LLC and Vanguard Holding Co. I Inc. -- the co-borrowers. Standard & Poor's also lowered its corporate credit rating on hospital operator Vanguard Health Systems Inc. to 'B' from 'B+' and removed it from CreditWatch where it was placed on July 26, 2004. The CreditWatch listing followed the announcement that The Blackstone Group, a private equity firm, would acquire Vanguard Health Systems in a transaction estimated to be about $1.75 billion. As of June 30, 2004, Vanguard's total debt outstanding was $623 million. However, pro forma for the transaction, the debt will increase to approximately $1.2 billion. The outlook is stable. Upon completion of the Blackstone buyout, the ratings on Vanguard Health Systems' existing senior secured credit facility and subordinated notes will be withdrawn. "The downgrade reflects the significant increase in Vanguard's debt leverage pro forma for the Blackstone transaction and Standard & Poor's concern that the company's aggressive business policies will prevent it from soon earning a return consistent with a higher level of credit quality," said Standard & Poor's credit analyst David Peknay. VESTA INSURANCE: Negative Events Prompt Fitch to Junk Ratings ------------------------------------------------------------- Fitch Ratings downgraded the long-term issuer and debt ratings of the Vesta Insurance Group to 'CCC' from 'B-'. This action affects approximately $55.7 million of Vesta's senior debentures. Fitch also downgraded the insurer financial strength ratings of VTA's property/casualty insurance subsidiaries to 'BB-' from 'BB' and the capital securities rating of Vesta Capital Trust I to 'CCC-' from 'CCC'. All ratings were placed on Rating Watch Negative. The rating actions follow VTA's announcement of several events including: * an adverse jury verdict in a reinsurance dispute with an estimated cost of $10 million to $15 million, * an increase in its estimate of third-quarter hurricane losses to $60.6 million; and * a cancellation of the planned sale of its life insurance subsidiary, American Founders Financial Corporation. The sale of the life insurance subsidiary had been expected to generate a gain for statutory accounting purposes. Additionally, Fitch had previously been anticipating net hurricane losses in a range from $45 million to $55 million. The losses recognized from these recent events will likely offset the previously announced gain from the IPO of Vesta's nonstandard auto insurance subsidiary, Affirmative Insurance Holdings, and the $3 million gain on the resolution of another reinsurance dispute, with Dorinco Reinsurance Company. Fitch now expects that statutory surplus has declined moderately in the third quarter of 2004. Fitch understands that Vesta is developing a plan to improve the statutory capitalization of its insurance subsidiaries and is evaluating its alternatives related to its life insurance business. Key factors in resolving the Rating Watch will be Vesta's success in its efforts to restore statutory capital and the economic impact of its ultimate decision regarding the life insurance subsidiary. Vesta Insurance Group, Inc., headquartered in Birmingham, Alabama, is a holding company for a group of insurance companies. The following ratings are downgraded and placed on Rating Watch Negative by Fitch: * Florida Select Insurance Co. * Hawaiian Ins. & Guaranty Co. * Shelby Casualty Insurance Co. * The Shelby Insurance Co. * Vesta Fire Insurance Corporation * Vesta Insurance Corporation * Texas Select Lloyds Insurance Co. -- Insurer financial strength downgraded to 'BB-' from 'BB'. * Vesta Insurance Group, Inc. -- Long-term issuer affirmed downgraded to 'CCC' from 'B-'; -- Senior debentures 8.75% due July 15, 2025, downgraded to 'CCC' from 'B-'. * Vesta Capital Trust I -- Deferrable capital securities 8.525% due Jan. 15, 2027, downgraded to 'CCC-' from 'CCC'. VLASIC: Seven Experts Testify in $250M Campbell Spin-Off Suit ------------------------------------------------------------- Vlasic Foods International, Inc., experts testify before the United States District Court for the District of Delaware in the $250 million lawsuit commenced by VFB, LLC, attacking the spin-off of Vlasic Foods from Campbell Soup Company: A. Robert C. Blattberg Professor Blattberg is a Polk Brothers Distinguished Professor of Retailing at the Kellogg School of Management, Northwestern University. Prof. Blattberg reviewed documents and testimony, interviewed VFI personnel, and looked at some road and trade information to evaluate the state of three major businesses for VFI -- Vlasic Pickles, Swanson Frozen Foods and Open Pit Barbeque Sauce. Prof. Blattberg was also asked to: -- assess shipments and consumer sales trends pre-spinoff and post-spinoff; -- describe the uses of trade promotion and trade promotion practices; -- analyze the degree and implications of product loading for Vlasic and Swanson; -- determine the retail environment faced in the U.S. pre- spinoff and post-spinoff; and -- assess the synergies and lack of synergies in VFI's businesses. During the two-hour examination, Prof. Blattberg was asked to explain several concepts, among them are: (1) Push and Pull Marketing of Consumer Package Goods Products What pull means is that the product is pulled through the channel of distribution by the consumer demanding it. Then the retail channel buys the product from the manufacturer. Those are the manufacturer's shipments. On the push side, the manufacturer pushes the product into the retail channel, and then wants the retail channel to push it to the consumer. (2) Brand Equity The concept of brand equity is the value that the firm places on -- the value that the consumer places on a brand above and beyond its product attributes. What that means is that a product has specific attributes, a car has specific attributes. The value above and beyond just the specific attributes is called brand equity. Brand equity allows the firm or hopefully generates preference by the consumer for that product above and beyond, again, the tangible attributes of the product. And then, in general, it can create higher margins for the firm, higher gross margins for the firm in terms of the price that they can charge to consumers. So when you have strong brand equity you can charge a higher price to the consumer and hopefully it translates to higher preference from a consumer. Brand equity is built through advertising, communicating the benefits of the product to the consumer, communicating the attributes of the product to the consumer, it's done through the product quality. A brand is a promise. You promise the consumer a certain quality level. So delivering that quality level to the consumer is critical in maintaining and building brand equity. Then constantly modifying and updating your product to the consumer so that the products are now more current. Competition can affect brand equity because competitors may be introducing superior products in a category, and if their quality and attributes are superior to the existing brand, then what can happen is that, even though my brand may be staying constant, the equity is shifting to more brands, more updated brands in a category. Discounting can affect [brand equity] adversely. There are some studies that show it. There is some controversy associated with it. The basic principle is when you have brand equity, by promotion, the consumer develops what is called an attribution of why is this brand suddenly promoting. If the brand is being sold at 2.49 and somebody is running it at 99 cents, the consumer is asking him or herself the question, why is that brand discounted? What is the explanation? One explanation is the quality is deteriorating. The products are no longer popular. So heavy promotions can degrade the consumer's equity. As you have more and more people using the product and finding out the quality isn't very good, they move away from buying that product and it is difficult to bring the brand equity back. If a brand's image is so degraded due to poor quality, you may be better off putting all your energy behind HungryMan and saying Swanson is a dying brand and we can't continue to support it, we won't get enough equity back. (3) Loading The trade promotions are the vehicle used to do the loading. So the manufacturer offers a trade promotion. And that trade promotion causes the retailer to take certain actions, forward buy inventories on the basis of forward buying inventories, that's what we are calling loading. (4) Retailer Performance Retailers, when manufacturers run promotions, trade promotions, they often require certain performance. The performance most required is the retailer will discount the product, so they will offer a lower price to the consumer than is the typical price. They will put it in their feature ad or weekly ad, hopefully in a prominent location. And then they will put it on a display in a key location in the store. So that's called performance. The manufacturer wants to have the retailer perform so that they get what is called pass-through or the benefit of the trade funds that they are using or offering. To make the calculation of the Swanson load through March of 1998, Prof. Blattberg built a statistical model, which estimated for each month what the sales would be in a given month as a percentage of the year. "So, for example in August, I might have an estimate that it represented 5% of the volume of the year. I then took the total volume for the year. Fiscal 1998, which is 26 million cases, approximately, I took the 26 million cases, multiplied it by the 5% that August represents, and obtain a number that number would be 1.3 million cases, August is slightly higher than 5%." Then, Prof. Blattberg looked at what actually occurred. "My model predicts 1.486 million cases. What actually occurred was 1.877 million cases. The difference is 391,000 cases. And then I did that for every month. I calculated that difference. The difference between my prorated, which is what it should have been, and the actual, which is what happened. I then cumulated the difference. And that's what cumulative difference means. A key number is 735,000 cases. What that represents is the difference in what actually occurred in fiscal 1998 versus what I would have predicted would have occurred in fiscal 1998, assuming that there are 26 million cases sold. The relevance of it is that because Swanson spent all their trade money in the first eight months of the year, they shifted the volumes that they would have sold in the last four months into the earlier periods. That's what the 735,000 cases represents. It's the loading." For Vlasic Pickles, Prof. Blattberg's calculation generates 540,000 cases. "It is exactly the same methodology, just different data. That assumes there was an additional loading going on because sales from prior periods were loaded, prior years." Prof. Blattberg notes that all the trade money that was supposed to be allocated for Campbell's sales force for the last 12 months was spent for the first eight months. "So when they turned the business over to the brokers and said how much money do we have at the end of the year, the answer was none left." But Vlasic counsel John A. Lee, at Andrews & Kurth, LLP, in Houston, Texas, notes that Campbell's expert, John Best, opined that based on the records he reviewed, VFI had 19 million in trade funds left to promote Swanson during the last four months of fiscal 1998. "I think Mr. Best, if I remember correctly, he took it from the Hyperion reports. I think Mr. Best didn't understand that those weren't real numbers. The way it worked was that they were planned promotional spending numbers on a per-case basis. So if I planned to sell a million cases, and I had $3 per case, then they put into that system $3 million, $3 times a million, it didn't mean that those numbers actually occurred. And so somehow, that was the method that they used in Hyperion. It wasn't about real trade spending. It was about planned, accrued trade spending," Prof. Blattberg says. Prof. Blattberg believes that loading was taking place in the Vlasic and Swanson business before closing at the spinoff. "All the documents keep showing it. My estimates are very conservative. Campbell's documents said, for Swanson, 1.8 million cases, 755,000 or whatever the number was in the other document on Vlasic. And that was in 1997. . . . They are loading. There is no doubt about it." Mr. Lee points out that Campbell has claimed that Swanson was a leading in its category. "Did that persuade you that it had great growth prospects after the spinoff?" Prof. Blattberg says that the statement about leadership in the frozen category is deceptive because there isn't a leader. "I don't think they are the leader. But they are potentially a leader in a subcategory, but not in a category as a whole. Prof. Blattberg adds that Swanson is positioned in segments that aren't growing, affecting its growth prospects. The perception on Swanson's growth prospects after the spinoff poses all kinds of problems because the consumers' image of the Swanson brand is TV dinners, 1950s, serious problems, with respect to being a modern, updated brand when it is up against things like Healthy Choice, Marie Callender and brands like that. To judge the health of the brand, Prof. Blattberg says, he just can't focus on total marketing spending, that would be deceptive because a lot of the highest percentage of marketing spending is on trade promotion and trade promotions are the push vehicles aimed at getting lower prices at the retail level. "If I want to build my brand, it's in consumer brand building, primarily advertising, so I don't want to look at the total; I want to look at the ones that drive brand equity, not just reduced price." Prof. Blattberg notes that Swanson is not introducing a lot of new products and a high percentage of their volume is coming from their existing products. "It's going to have a huge impact [on the post-spin sales trend]. And in the frozen category, it was fueled by new products." Mr. Lee notes that Swanson experienced a margin in creep as described in its 1999 operating plan. According to Prof. Blattberg, margin creep is when the manufacturer keeps the price constant. The retailer raises the price, even though the manufacturer is not raising the price. So retailer's margin is actually growing. "So, even though Swanson was wholly fixed, their price to the retailer, the price to the consumer was going up, the result is that, because prices is an important factor in the marketplace, they're becoming priced less and less competitive. Prof. Blattberg also admits that introducing a new product is difficult because eight out of 10 new products have less than $7.5 million in sales. Moreover, only one out of six advertising campaigns actually pay off. "I think it would take a long time [to reverse the Swanson sales trends]." In Prof. Blattberg's opinion, it was not reasonable to assume at the time of the spinoff that VFI could stem or end the Swanson sales declines that were going on at the time. "I think that those sales trends were going to continue. They had a tired brand. They had a number of factors that were working against them." Based on the actual shipments of Swanson products from September 1993 to December 1997 and taking into account seasonality, Prof. Blattberg calculated a post-spin sales trend of minus 4.19% per year. "The data are trending down, has been trending down. If you look at the documents, it says the base sales are dropping 9%. We're having problems keeping incremental, et cetera, et cetera. And all the evidence is that this is a declining business." The odds that the true trend would be positive 4.6% or higher is virtually zero based on the statistical matter. Prof. Blattberg also projected Vlasic Pickles' post-spin sales trend as declining approximately 2.1%. He observes that the Vlasic household penetration in the 10 years prior to the spinoff was declining 10%. Household penetration is the percentage of households by the category at least once in a given year. For example, in 1987, 79.6% of the households bought pickles, at least once, and it declined to 71.6%. The units per buyer were also declining. At the time of the spinoff, Vlasic sales trending was declining 6% and minus 12% versus its operating plan. The competitive environment included Mount Olive, which was a regional competitor that had a price advantage, and private label brands like Kroger or retailers like Kroger had their own private labels. "They were all growing. There was an enormous price spread between the Vlasic Pickles and these brands, and they were emerging," Prof. Blattberg says. "Private label is very important to retailers. It's part of the reason consumers go to the store. But equally or more importantly, they can make higher absolute margin on private label products." Because Campbell had spent the Vlasic trade fund and not set up the promotions for the summer season in 1998, before the spinoff, it resulted in additional problems for Vlasic during the post-spin period. "For Vlasic, the problem became that during the key selling season, they couldn't promote because they had run out of money and that is when all their key competitors were promoting. That has a lot of long-term implications in terms of allowing consumers to try competitive products because of the displays, features, et cetera," Prof. Blattberg says. Prof. Blattberg believes that Campbell milked Vlasic for earnings before the spinoff. Milking, he explains, is a strategy where one is running the business for earnings. "You do it through things like raising prices and so your margins are going up, you don't invest in new products, you don't invest in advertising. You may increase your trade spending just to keep the product in distribution. So milking is a way to harvest or generate cash out of a business." In effect, Prof. Blattberg says, the brand is not necessarily building equity. "It makes it more difficult to introduce new products and makes it more difficult to advertise, factors you would use if you have a long-term growth building, brand growth-building strategy." Prof. Blattberg emphasizes that at the time of the spinoff, it would be very difficult for VFI to stem the sales decline. "I think it very unlikely it would grow at 9.9%. Statistically, virtually zero probability. Actually, if you look it's declining at $1.1 million, which is about 6.18%. It doesn't have any new products to introduce, except for Hamburger Stackers. It's advertising, that's a risky investment. I think it's virtually impossible to figure out how you are going to get a 10% increase in this brand post-spin." Prof. Blattberg notes that after Stackers, Vlasic started to come down rather rapidly in terms of sales due to competition. Open Pit is the Midwest region barbeque sauce that was one of the businesses included in the spinoff. According to Prof. Blattberg, both General Foods and Campbell had tried to turn Open Pit's sales decline around. "Nobody turned it around." Based on historic shipments before the spinoff and taking into account seasonality, Prof. Blattberg calculated a minus 6.3% trend for Open Pit shipments after the spinoff. On the subject of synergies, Prof. Blattberg explains that the advantage of synergies is that one can lower costs or improve marketing, but the focal point would be on lowering costs. "So if I have synergies and I have the opportunity to take advantage of the same headquarters in one location, plant efficiencies, distribution efficiencies, customer efficiencies, it improves my construct." But Prof. Blattberg notes that he was able to identify very minor distribution, market or sales synergies between the businesses Campbell assembled with VFI. Upon cross-examination, Richard P. McElroy, Esq., at Blank Rome, LLP, in Philadelphia, Pennsylvania, points out that Prof. Blattberg's statistical model did not include any factor for trade promotions, new product innovation, price movement, and competitive moves. Mr. McElroy notes that Prof. Blattberg's trend analysis includes only three things -- is shipments, seasonality and passage of time. Mr. McElroy relates that Prof. Blattberg assumed that: -- the historical pace of new product innovations would continue at the same rate after the spin as before the spin; -- the competitive structure of the markets would remain the same before and after the spin; and -- the seasonal patterns would be the same. Prof. Blattberg's model assumed that there would be no systematic changes in the way VFI was operated after the spinoff as it was before the spinoff. Mr. McElroy relates that one of the principal goals of the spin as confirmed by Mr. Bernstock's trial testimony was to shake up the Swanson and Vlasic businesses and run them in a way that hadn't been run prior to the spinoff. "The question is, can he execute on that?" Prof. Blattberg countered. Mr. McElroy reminds the Court that Prof. Blattberg contended that before the spinoff, the businesses were milked by Campbell. "So your model assumes that after the spinoff, they will continue to milk their businesses?" "Well, I will assume that they are not going to invest significantly in advertising and some of the other factors that they have. That would be the pattern to the trend," Prof. Blattberg responds. Prof. Blattberg asserts that even if management increased the advertising, it doesn't necessarily mean it has an effect. "Management was expecting to increase it. It did not." Mr. McElroy notes that the data, which formed the basis of Prof. Blattberg's consumption trend analysis, came from IRI. Mr. McElroy and Prof. Blattberg argued over the reliability of the data. Prof. Blattberg explains that the data has a lot of variability that is not disclosed in it. He admits that he does not know the degree of reliability of the IRI data regarding consumption of Swanson products because IRI has to do two calculations. "One calculation is they don't take a census, a 100% of the stores. So they have to do a calculation to estimate the market. The second is they have to apply coverage factors for retailers they don't include. I have no idea what the degree of variability or accuracy that is." "So if the data is unreliable, which you don't know, your analysis is unreliable, is that right?" Mr. McElroy asked. Prof. Blattberg says that he didn't rely on the analysis. "I provided shipment data. I looked at all the other facts. This is just one analysis I put in my report." "According to [the] data, Swanson consumption trends are down. When you look at the documents, Swanson consumption trends are down. These data show that Swanson consumption trends are down. I don't know the degree of reliability of these data." Mr. McElroy pressed Prof. Blattberg if he would rely on the data. Prof. Blattberg explains that the data gives him a piece of information that Swanson consumption is declining. "I look at additional factors to try to also ascertain are other factors implying that as well." He adds that the data has some degree of reliability. "I don't know the exact level of reliability." During Mr. Lee's redirect examination, Prof. Blattberg relates that the shipment regression was not dependent in any way on the IRI data. He clarifies that when he referred to IRI data being unreliable, he was referring to data as he used in a different calculation. "The shipments are real data," Prof. Blattberg asserts. B. Peter Faber Mr. Faber is a partner at the law firm of McDermott Will & Emery, in New York City. In his 41 years practicing tax law, Mr. Faber has advised clients who were contemplating or actively pursuing tax-free spinoff transactions on a number of occasions. Mr. Lee notes that Campbell valued Vlasic at $361 million in its April 1997 Project Sweet Pea work, PTX-174, and then used a $575 million valuation in its tax basis calculations at PTX- 767. Mr. Lee asked Mr. Faber about the impact on the tax basis calculation of using the $575 million value as set instead of the $371 million value. Mr. Faber replied that it had the effect of increasing the basis by about $56 million. Mr. Lee recounts that Ralph Harris at Campbell testified that he came up with the $575 million valuation after about a one- hour sit-down with no written work product to retain behind evidence of calculation. In effect, the value of the business was raised by 60% six months after an earlier valuation. Mr. Faber comments that it's a very sharp increase to take place in a short period of time. "I would have asked some pretty probing questions to determine whether the old valuation was wrong or whether events had occurred that might have led to an increase in value. Frankly, if I didn't get good answers, I'd consider withdrawing from the representation." According to Mr. Faber, Campbell's spin planning documents suggest that perhaps there might have been increases in costs resulting from administrative expenses. Section 355 of the Tax Code states that in order for a spinoff to be tax-free, it has to be motivated by a business, a corporate business purpose. "That has to be the reason you undertake the transaction in the first place. The fact that a benefit may result as an incidental consequence of the spinoff will not justify tax-free treatment and, in the context of [VFI's] case, if cost savings had, indeed, been the motivating, the impelling element that led to the company wanting to do a spinoff, that could justify tax-free treatment. But if cost savings were an incidental by-product, a consequence of the spinoff and not a reason for doing it, that would not justify tax-free treatment." Mr. Faber asserts that the mere fact of the later failure of Vlasic by itself would not undermine the spinoff's qualification. "That could result from unforeseen circumstances and so forth. But if the causes that led, if the seeds that led to the failure of a plant at the time of the spinoff and if the parties knew about them, that could suggest that, again, that Vlasic was structured without a thought to its continuing viability and that could undermine the tax qualification of the spinoff." Mr. Faber relates that there are two possible points at which tax could be imposed, assuming that the spinoff is treated as not tax-free. "When Campbell distributes the Vlasic stock to its shareholders, Campbell is treated as having sold that stock for its fair market value. And if the fair market value is in the neighborhood of a billion dollars and that number has been, I've seen, from time to time, then Campbell's gain, you know, assuming a basis of 400 million or so, you end up with a tax on the gain of a couple of hundred million dollars, and when you add on interest and penalties, you end up in the neighborhood of, say, 350 million. The second part of the transaction that would be taxable would be that the Campbell shareholders would be treated as having received a taxable dividend of the Vlasic stock and, again, if the parties are using a billion dollars as the estimated value of Vlasic stock, hence, a billion dollar dividend and the top individual rate at the time was around 40%, so you got 400 million of tax plus interest and somehow the two together get you about a billion." During cross-examination, Mr. Faber admitted that he has never given a formal opinion on a Section 355 spinoff. C. Theodore Grossman Prof. Grossman is a Senior Lecturer of Information Technology, Management at Babson College and President of Applied Solutions, Inc., which is an IT consultant company. Prof. Grossman was president of TRG Systems through the 1980s. TRG Systems was a service bureau, outsourcer for major retailers, providing data processing services for all phases for both food and non-food retailers. As expert witness, Prof. Grossman was asked to review: -- Did the terms of the transition services agreement comport to industry standards? If not, did Campbell's know or should have known that it didn't conform or comport to industry standards? -- Could the fees paid by Vlasic to Campbell's under the TSA have been fully or partially avoided? -- Had Spinco or Vlasic had an IT system in place on March 30, 1998? What was the projectable cost and time able to develop tests and implement, conduct the necessary post- audit reviews for an IT system for Vlasic's domestic divisions? -- On March 30, 1998, at the Spinco, would the risks associated with the lack of an IT system at Vlasic and the terms of the TSA have impacted the fair market value of Spinco's assets? At the time of the spinoff, Prof. Grossman recounts, VFI had no IT systems and infrastructure. VFI had no hardware, no software, no network, no computers, very few IT people, very few people centralized headquarters, user groups to implement any systems. Most importantly, VFI had no systems that it could actually migrate from Campbell's that it could take to Vlasic. While the TSA provided for a 12-month period, in effect, it was really only provided for a 10-month period because all the major service, all the major software which impacted the Customer Service Center had to be functional by January 31, 1999. Enterprise resource planning system is an integrated system which touches every part of the business, from raw materials through manufacturing, customer order entry, shipping, inventory control, accounts receivable, billing, general ledger, accounts payable, etc. "You need to have the participation of all the managers and all the operating groups to be part of that implementation," Prof. Grossman says. Typically, he says, it will impact the financial performance of the company. The company has to dedicate the best and the brightest to the project. Among the risks identified in the KPMG proposal before the spinoff was the ability of the Campbell Soup Company to provide an adequate level of support for current operations, and most important, for the conversion to BPCS to meet the requirements of the project plan. Prof. Grossman also identified additional factors unique to VFI that made the installation particularly risky and difficult, which he calls VFI IT Co. Morbidity Factors. "The fact that you had 12 plants. You had multiple disparate product lines. This is not like a company implementing an ERP system with one product line in one or two plants. You have got 12 plants. You have got four different product lines with four different sets of requirements. You had multiple cost accounting methodologies. You had poor infrastructure in the plants, which is they were not year 2000 compliant. You had to upgrade the equipment in the plants. There was no infrastructure in the farms. There were no IT-qualified people in the farms. There was no infrastructure in the headquarters. There was no headquarters for that matter. No IT staff in the beginning. No staffing in the customer service center. There were two people at the beginning. The others weren't added until later. The same thing, the business service center, you were trying to keep this company afloat while you were implementing the system. And you really had poor Legacy data coming over from Campbell's. And poor support under the TSA agreement from Campbell's." Data migration, Prof. Grossman says, is one of the most critical aspects of implementing an ERP. "You have to move all your master files and all your history data from the old Legacy systems at Campbell's to the new ERP systems. Campbell's had old Legacy systems which were not documented well, where various people had institutional knowledge of where data elements were." One year was not a reasonable time to allow VFI -- a new business starting with no existing infrastructure, to complete the installation, Prof. Grossman says. He notes that one of the most publicized examples was Hershey Foods, when it attempted to implement an ERP system which was scheduled to be a four-year implementation and Hershey tried to do it 30 months and, as a result of that, Hershey missed the entire Halloween season. Its earnings dropped 19% for that quarter. "What happens is you lose total control of your inventory, your accounts receivable, of your data. You end up potentially misreporting to the SEC. You end up with potential shareholder lawsuits. And most importantly, you alienate customers. And they are so hard to get back." Prof. Grossman asserts that the installation should have been a two-year process. Moreover, Prof. Grossman continues, VFI encountered several problems as a result of Campbell's inadequate performance under the TSA: -- a $3.5 million accounts receivable writeoff; -- a $1 million cash balance writeoff due to Campbell not reconciling the bank balance; -- over $1 million in underaccrual of payroll taxes; -- no raw materials purchasing reporting; -- inadequate assistance in translating and migrating data from the Campbell's systems; and -- loss of the critical trade spending data. In summary, Prof. Grossman says, a company typical of VFI's size, geography and product relies on its IT systems as being mission critical. "Campbell's knew or should have known that it was virtually impossible for Vlasic to successfully implement all of its IT systems and infrastructure within the 10 months to one year window. The project was an unnecessary distraction for the company and the best and brightest at a time when Vlasic was creating a central headquarters staff and having to create its own functional business and getting out from under Campbell's umbrella. Significant functional compromises were made in order to make the 10-month deadline. Many of the major foreseeable problems that were encountered could have been avoided had Vlasic been given a reasonable amount of time to implement the system. The foreseeable cost of development and implementing the system, including transition costs was at least $46.5 million. BCG had opined that it would cost 1% of revenue to run the IT Department. This was unrealistic based on both Campbell's experience and the grocery manufacturer's industry experience. Campbell's had sufficient experience and was privy to the various GMA and other industry studies to know that 1% of revenue was totally unrealistic to run Vlasic's IT Department considering it was implementing an IT infrastructure and systems from scratch. And had a financial advisor bought Vlasic at the time of the spin, because of the lack of a central headquarters infrastructure, including IT, the investor would have had to deeply discount its purchase price due to the extreme risk of having to establish an IT system and infrastructure within one year. On cross-examination, Mr. McElroy reminds Prof. Grossman of Liz Shuttleworth's testimony. Ms. Shuttleworth, who was the Chief Information Officer at VFI after the spinoff, testified that she had no objection to the BPCS and the IT implementation. Prof. Grossman explains that the reason that Ms. Shuttleworth did not object to BPCS was because of the compressed time frame, because the system had to be in by February 1st, 1998, and because BPCS 4.0 was already in the factories running manufacturing. "It was the only choice, it would have been impossible to succeed with any other alternative but BPCS. And that's why she didn't object to BPCS, because it was the only path in which to try and make that February 1st, 1998 deadline." Mr. McElroy also recounts that Mr. Bernstock reported to the Board that as of February 1, full BPCS system is up and running on schedule and on budget, and that the transition to date accomplished through an extraordinary team effort, no business disruptions. "If he meant that Vlasic was manufacturing products and shipping goods to their customers, then he is right, there was no business disruption. If he is not including within that cash flow issues and billing issues and accounts receivable issues and trade spending issues, then -- it all depends upon what he includes within that rubric of no business disruptions," Prof. Grossman says. Mr. McElroy points out the VFI won an award as the Best IT system in the food industry. "For those of us in the IT industry who knows how those awards are actually awarded, they are fairly meaningless. People submit, you know, questionnaires and names are picked. There is really no vetting of what actually happened. I mean, I don't put a lot of credence on an award, but to the extent that, as I said earlier in my testimony, that they accomplished what they managed to accomplish in 10 months, they probably do deserve an award, because most companies could never have accomplished what they accomplished," Prof. Grossman says. D. Greg Hallman Dr. Hallman is a lecturer in the Finance Department at the McKeon School of Business at the University of Texas in Austin. He has a Ph.D. in finance. Together with Professor Sheridan Titman, Dr. Hallman was retained by counsel for VFB to provide a rebuttal opinion to the opinion of Dr. Timothy Luehrman. He was also asked to form an independent opinion as to the value of VFI from the date of the spinoff. Dr. Hallman reviewed the expert reports of Dr. Luehrman and Dr. Blattberg, Campbell's Form 10 describing the spinoff, the management operating plans for 1999 for Vlasic and Swanson, the loan documents, the information memorandum from the banks, and VFI's Form 10-Qs and 10-Ks. After determining trends and projecting various calculations, Dr. Hallman concludes that the VFI enterprise value at the spin date was 376.6 million. "Our calculation was that the firm was worth $376.6 million. It had around $594 million of debt on it, a small amount of cash on the books, 5.6 million. So you take the 376, subtract off the debt, add back in the cash on the books, the calculated insolvency of the spin date is $211.7 million." Dr. Hallman did not take into account any other obligations that were assumed by VFI from Campbell Soup like deferred taxes or medical benefits. According to Dr. Hallman, one of the major criticisms they have to Dr. Luehrman's report is that Dr. Luehrman took management projections and used those as the basis for his future cash flow projections for his valuation of the firm. "We don't believe that those management projections were the type of expected values he would use to value the firm. Those were targets. They were goals of management. Nobody teaches that you use targets as the basis for the valuation of a company. You need to use expected values." Dr. Hallman also notes that Dr. Luehrman's discount rate is a little too low. "We believe that's related to the fact that he does not consider the firm to be in financial distress at the time that it was born." Dr. Hallman explains that they did not use market comparables because they did not think that VFI was comparable to any of the food companies that were suggested by Dr. Luehrman. "We believed this firm had declining brands, imminently shrinking margins, and was in financial distress due to the amount of debt that it had." E. Sheridan Titman Dr. Titman is the McCallister Chair of Professor of Financial Services at the McComb School of Management, the University of Texas. Dr. Titman was asked to take a look at Dr. Luehrman's report on the solvency of VFI, to render opinion on the solvency and to come up with his own valuation. Dr. Titman worked on the assignment in collaboration with Dr. Hallman. "Our overall conclusion is that VFI, at the spin date, was worth $376 to $377 million. I think it was $376.6 million. And based on that, we concluded it was insolvent by about $212 million. Our basic methodology is a discounted cash flow methodology, which was one of three methodologies that Dr. Luehrman looked at." According to Dr. Titman, Dr. Luehrman also looked at a comparables multiples methodology, which looks at other firms and comes up with various multiples, like an EBITDA multiple to value the firm. "We thought that was inappropriate because the comparable firms are not at all comparable with VFI." Dr. Titman clarifies that he does not have any criticism of Dr. Luehrman's model itself, but he has very strong criticism of the inputs to the model. Dr. Titman notes that Dr. Luehrman is using management targets as inputs. He explains that management targets would be clearly at the upper end of that projection. "So these are sort of best case cash flows rather than projected cash flows that he's using in his valuation." According to Dr. Titman, they also disagree with Dr. Luehrman's growth rate for the terminal value. "I think he assumed a 2% sales growth rated at the terminal value, which, again, we think is pretty high, given the fact that this is a firm that we believe is in financial distress. This is a firm that cannot raise cash to do a lot of marketing. It's a firm that cannot raise cash to acquire new businesses. It's a firm that cannot raise cash to aggressively develop and promote new brands." Moreover, Dr. Titman point out that there's clearly a disconnect between the Form 10 and the trial transcript. "[In the Form 10], you are clearly under the impression that the banks have provided a $750 million credit facility, and that the firm has taken down $500 million already, leaving them an additional $250 million that they can spend on, again, product improvements, marketing, and acquisitions. I think that's clearly stated in the Form 10. But it's clear, if you look at the numbers, that they're not going to be able to borrow $750 million. The credit facility requires, it has a loan covenant that states going out a few months, that they cannot borrow more than 3.75 times EBITDA. So if you look at a projection of EBITDA at $100 million and that's VFI's own projection at the spin date, and you have to add to that, I can't remember exactly the number, I think it's about 43 million, you're going to get an EBITDA of say, what? $142 million. If you want to multiply that times 3.75, you're not going to go, come anywhere near that $750 million. In fact, Bill Lewis concluded that the firm was close to a covenant violation at the spin date. So it's not that we're going to have -- it's not just that we're going to have difficulties raising the additional $250 million. We're going to have difficulties with our current $500 million. Based on that, I concluded, and Greg and I concluded after a lot of discussion, that this is a company in financial distress. From the outset, this company has been structured in a way to be in financial distress." During cross-examination, Mr. Bryan questioned the amount of time that Dr. Titman spent reviewing documents. Dr. Titman admits that he was not able to review the operating plans for Swanson and Vlasic but he was able to read the testimony of the fact trial. F. Henry Owsley Mr. Owsley is the Chief Executive Officer of Gordian Group, a financial advisory firm that deals primarily in financially troubled situations, restructurings and other complex situations. The firm was asked to undertake a significant review, including looking at information regarding VFI, other expert reports, depositions and testimonies, and give an opinion on whether VFI received reasonably equivalent value or was rendered insolvent or had unreasonably small capital or couldn't have paid its debts as they would have become due. The firm was also hired as rebuttal experts with respect to Dr. Luehrman's report. According to Mr. Owsley, he conducted due diligence, made a number of valuation analyses, cash flow analyses, among others. In his first of four analyses, Mr. Owsley reached an adjusted enterprise value of $385,000,000. Mr. Owsley did not take into account any of the Swanson ownership issues like not owning the name and Campbell's perpetual right to approve a sale. In his second analysis, Mr. Owsley did some screens based on databases of food industry companies that had done transactions in the past couple of years and divided them into various groupings -- diversified, frozen, single line and protein sub-groups. "[We} took a look at these in order to determine whether or not any of the groupings had information content and looked at these to apply it to the VFI situation." Using the first quartile multiples and applying the illiquidity discount and giving a transaction cost, Mr. Owsley derived a $371,000,000 enterprise value for VFI. In performing the third multiple analysis, Mr. Owsley attempted to try to look at the diversified group of companies and to try to apply category weights to the Swanson group, the pickle group and the other group, and to see if there was any meaning to be derived from using multiples that differed, group to group, based on the comparable merger transactions. Mr. Owsley attempted to weight the different multiples from the different product segments that he calculated by the proportion of those business lines reflected within VFI. After further calculations, Mr. Owsley derived $284,000,000 as the enterprise value for the minus 2% professional growth rate. "The derived enterprise value with 0% was $346,000,000. In each case, you subtract out the $65,000,000 of transition costs to come to a range of $219,000,000 to $281,000,000." With an illiquidity discount, the total adjusted enterprise value is $164,000,000 to $211,000,000. Mr. Owsley's overall valuation of VFI at the time of the spinoff is $270,000,000 to $360,000,000. Mr. Owsley opines that it was forseeable to Campbell that VFI would be unable to pay its debts when due after closing. VFI did not have sufficient capital to execute the turnaround and growth plan that Campbell had sold to Wall Street. VFI had unreasonably small capital with which to conduct its business. Mr. Owsley believes that VFI was rendered insolvent. "I think the company was burdened with excessive debts as of the spin date [relative to] its earning capacity, the value of its assets, and so forth." G. Steve McEachern Mr. McEachern is the Managing Partner of Vince Roberts & Company, a medium-sized CPA firm in Houston, Texas. He has been a CPA for 29 years. Mr. McEachern relates that a Form 10 is required to be filed by Securities and Exchange Commission by a company that is proposing or planning to do a spinoff transaction. Asked to define an impairment, Mr. McEachern says, FAS 121 defines an impairment as a condition that exists when the carrying value of an asset is no longer recoverable. FAS 121 set this standard in 1995. Mr. McEachern believes that Campbell management was aware of the requirements of FAS 121, leading up to the time of the spinoff. Mr. McEachern relates that the Sweetpea projections were pretty aggressive targets. "As an auditor, I would have questioned whether or not those were the expected cash flows, or if those were not more aggressive than they should have been, to do a cash flow projection for impairment." According to Mr. McEachern, there were several other indicators in addition to Sweetpea that indicated that Swift needed to be considered for impairment because of indicators of cost overruns, changes in supply agreements, the hyper- inflation in Argentina, the mad cow disease, the effect of the supply and cost of the supply because of that. "Just looking at Sweetpea and considering those valuations, I think it was easy to conclude that Swift, SonA, and Freshbake were impaired, and the others [Open Pit and Kattus businesses] probably were impaired, if you considered a more realistic expected cash flow than what had been shown." "I think that Swift, SonA, Freshbake should have been taken on Campbell's books for the year ended August 3, 1997. Possibly the other ones, but they all would have had to have been written down to their net realizable value at the spin," Mr. McEachern says. "The books of Campbell's were overstated and the books of VFI were overstated." Had the required impairment charges been taken, Mr. McEachern says, VFI's opening balance sheet would have reflected $153,000,000 to $203,000,000 less in assets -- meaning that they would have had negative equity from a books standpoint. From a GAAP standpoint, Mr. McEachern continues, "the assets would have been less than the liabilities and from -- they would have been book insolvent to the tune of about $100,000,000 and I think they started out with $134,000,000." Mr. McEachern notes that misrepresentations were made by Campbell officers, required disclosures of contract changes were not made. "I think you have a situation where the Campbell's '97 year end and possibly quarterly financial statements are materially misstated, leaving information that was not provided to the users. The result of that was the Form 10, financial statements in the Form 10, were equally misstated by those impairments not having been taken as well as the effects that should have been flowed through the pro forma financial statements and the lacking related party disclosures. So those were very serious misstatements and omissions and, based on my experience, working with the SEC and matters of investigation, these were things that would be very seriously pursued, even possibly turned over to the Department of Justice." VFB LLC is represented by John A. Lee, Esq., Robin Russell, Esq., Joseph Holzer, Esq., Hugh Ray, Esq., Scott Locher, Esq., and David Griffith, Esq., at Andrews & Kurth, LLP, in Houston, Texas. Campbell's attorneys are Neal C. Belgam, Esq., at Blank Rome, LLP, in Wilmington, Delaware; Richard P. McElroy, Esq., and Mary Ann Mullaney, Esq., at Blank Rome, LLP, in Philadelphia, Pennsylvania; and Michael W. Schwartz, Esq., David C. Bryan, Esq., and Forrest G. Alogna, Esq., at Wachtell, Lipton, Rosen & Katz, in New York. (Vlasic Foods Bankruptcy News, Issue No. 49; Bankruptcy Creditors' Service, Inc., 215/945-7000) W.R. GRACE: Files Chapter 11 Plan of Reorganization in Delaware --------------------------------------------------------------- W. R. Grace & Co. (NYSE:GRA) has filed a Plan of Reorganization as well as several associated documents, including a Disclosure Statement, with the U.S. Bankruptcy Court in Delaware in connection with its Chapter 11 reorganization proceeding. The Plan describes the way Grace proposes to satisfy its asbestos and other Chapter 11-related claims. The filing represents an important step forward in Grace's efforts to resolve its asbestos-related liabilities and emerge from Chapter 11. This filing is not expected to have any impact on Grace's ongoing operations. The Plan will become effective only after a vote of eligible creditors and with the approval of the Bankruptcy Court. Grace is requesting a hearing on the Disclosure Statement on Dec. 20, 2004. Votes on the plan may not be solicited until the Court approves the Disclosure Statement. The filing deadline for the Plan, originally scheduled for Oct. 14, 2004, was extended until Nov. 15 to permit Grace, representatives of the three creditors committees and the equity holders, and the representative of future asbestos claimants, to continue negotiations toward a consensual Plan. While these negotiations have been constructive, and are expected to continue following the filing of the Plan, agreement among all parties has not been achieved. Accordingly, Grace believes it should move forward to file its Plan with the Bankruptcy Court in compliance with this extended deadline. Under the terms of the Plan, Grace would satisfy claims under the Chapter 11 cases as follows: Asbestos-Related Claims and Costs A trust would be established under Section 524(g) of the Bankruptcy Code through which all pending and future asbestos- related claims would be channeled for resolution. The trust would utilize specified trust distribution procedures to satisfy the following asbestos-related claims and costs: 1. Personal injury claims that meet specified exposure and medical criteria (Personal Injury-Symptomatic Eligible or "PI-SE" Claims). PI-SE claimants would have to prove that their health is impaired from exposure to Grace's asbestos-containing products. 2. Personal injury claims that do not meet the exposure and medical criteria necessary to qualify as PI-SE Claims (Personal Injury-Asymptomatic and Other or "PI-AO" Claims). This class would contain all other asbestos- related personal injury claims against Grace. 3. Property damage claims, including claims related to Grace's former Zonolite attic insulation product. These claimants would have to prove Grace liability for loss of property value or remediation costs related to Grace's asbestos-containing products. 4. Trust administration costs and legal expenses. Grace has requested that the Bankruptcy Court conduct an estimation hearing to determine the amounts that would need to be paid into the trust on the effective date of the Plan to satisfy the estimated liability for each class of asbestos claimants and trust administration costs and expenses over time. The amounts to fund PI-SE Claims, PD Claims and trust administration would be capped at the amount determined through the estimation hearing. Amounts required to fund PI-AO Claims would not be capped. Asbestos personal injury claimants would have the option to litigate their claims against the trust or, if they meet specified eligibility criteria, accept a settlement amount based on the severity of their disease. Asbestos property damage claimants would be required to litigate their claims through the trust. The Plan provides that, as a condition precedent to confirmation, the maximum aggregate payment for all asbestos-related liabilities and trust administrative costs and expenses cannot exceed $1,613 million, which Grace believes would fund over $2 billion in claims, costs and expenses over time. The PI-SE Claims, the PD Claims and the related trust administration costs and expenses would be funded with: (1) $512.5 million in cash (plus interest accrued at 5.5% from December 21, 2002) and nine million shares of common stock of Sealed Air Corporation pursuant to the terms of the settlement agreement resolving asbestos-related and fraudulent transfer claims against Sealed Air, provided the Bankruptcy Court approves the settlement agreement on terms acceptable to Grace, and (2) Grace common stock. The amount of Grace common stock required to satisfy these claims will vary depending on the liability measures approved by the Bankruptcy Court and the value of the Sealed Air settlement, which varies daily with the accrual of interest and the trading value of Sealed Air stock. The PI-AO Claims would be funded with warrants exercisable for such number of shares of Grace common stock that, when added to the shares issued directly to the trust on the effective date, would represent 50.1% of the voting securities of Grace. If the common stock issuable upon exercise of the warrants is insufficient to pay all PI-AO Claims, then Grace would be obligated to pay any additional liabilities in cash. Other Creditors The Plan provides that all allowed non-asbestos claims would be paid totally in cash (if such claims qualify as administrative or priority) or 85% in cash and 15% in Grace common stock (if such claims qualify as general unsecured). Grace estimates that approximately $1,208 million of claims, including currently accrued interest, would be satisfied in this manner, including bank debt, environmental liabilities, non-qualified pension claims, trade payables, litigation, and tax liabilities. Grace would finance these payments with: -- $150 million of cash on hand, -- $115 million from Fresenius Medical Care Holdings, Inc., paid in settlement of asbestos and other Grace-related claims, -- $800 million in new debt, and -- $143 million in value of Grace common stock. Grace would satisfy other non-asbestos related liabilities (estimated to be approximately $508 million), primarily environmental, tax, pension and retirement medical obligations, as they become due and payable over time. Proceeds from available product liability insurance would supplement operating cash flow to service new debt and liabilities not paid on the effective date of the Plan. Effect on Grace Common Stock The Plan provides that Grace common stock will remain outstanding, but that the interests of existing shareholders would be subject to dilution for additional shares of common stock issued under the Plan. In addition, in order to preserve significant net operating loss carryforwards, which are subject to elimination or limitation in the event of a change in control (as defined by the Internal Revenue Code), the Plan places restrictions on the purchases of Grace common stock. The restrictions would prohibit, for a period of three years, a person or entity from acquiring more than 4.75% of the outstanding common stock or, for those persons already holding more than 4.75%, prohibit them from increasing their holdings. Grace also has filed a motion with the Bankruptcy Court that would impose the trading restrictions described from the date of approval of the motion to the effective date of the Plan. The Bankruptcy Court has issued an interim order imposing such restrictions pending a hearing on the motion scheduled for Dec. 20, 2004. 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 Company and its debtor-affiliates 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, Young, Jones & Weintraub, represent the Debtors in their restructuring efforts. WILMOT MOUNTAIN INC: Case Summary & 20 Largest Unsecured Creditors ------------------------------------------------------------------ Debtor: Wilmot Mountain, Inc. 11931 Fox River Road PO Box 177 Wilmot, Wisconsin 53192 Bankruptcy Case No.: 04-35989 Type of Business: The Company operates a ski park and school. See http://www.wilmotmountain.com/ Chapter 11 Petition Date: November 8, 2004 Court: Eastern District of Wisconsin (Milwaukee) Judge: Margaret D. McGarity Debtor's Counsel: Jerome R. Kerkman, Esq. Kerkman Law Office, Ltd. 757 North Broadway, Suite 600 Milwaukee, Wisconsin 53202 Tel: (414) 277-8200 Total Assets: $737,229 Total Debts: $2,321,781 Debtor's 20 Largest Unsecured Creditors: Entity Nature Of Claim Claim Amount ------ --------------- ------------ Mills Enterprises, LLC Mortgage Note $1,147,186 PO Box 338 4011 80th Street Kenosha, Wisconsin 53142 Dalbello Sports LLC Trade Debt $28,808 519 Main Street PO Box 59 Andover, New Hampshire 03216 Skis Dynastar, Inc. Trade Debt $26,663 95 Wintersport Lane Williston, Vermont 05495 Mastercard SP - 3731 Trade Debt $19,159 PO Box 77042 Madison, Wisconsin 53707 K2 Corporation Trade Debt $17,538 PO Box 88967 Chicago, Illinois 60695 Scott USA Trade Debt $11,937 PO Box 26004 SLC, Utah 84128 Atomic Ski USA, Inc. $11,834 21711 Network Place Chicago, Illinois 60673 Spyder Active Sports, Inc. Trade Debt $10,456 4725 Walnut Street Boulder, Colorado 80301 Fisher Skis US LLC Trade Debt $9,125 44 Locke Road Concord, New Hampshire 03301 WE Energies Trade Debt $7,935 PO Box 2046 Milwaukee, Wisconsin 53201 McGuireWoods LLP $7,551 c/o John F. Pollick, Esq. 150 North Michigan Avenue Chicago, Illinois 60601 Kombi Ltd. Trade Debt $6,603 PO Box 8767 Essex, JCT, Vermont 05451 Rossignol Trade Debt $6,447 Smith Sports Optics, Inc. Trade Debt $6,379 Columbia Sportswear Company Trade Debt $6,355 Marker USA Trade Debt $6,171 Tirabassi Felland & Clark $5,480 Obermeyer $5,028 Mastercard-Madison SP 2634 $4,744 Jim Sharkey $4,269 Z-TEL TECH: Sept. 30 Balance Sheet Upside-Down by $166.2 Million ---------------------------------------------------------------- Z-Tel Technologies, Inc. (Nasdaq:ZTELC), parent company of Z-Tel Communications, Inc., a leading provider of local, long distance and enhanced telecommunications services, released its financial results for the third quarter of 2004. For the three-month period ended September 30, 2004, the company reported revenues of $60.9 million, compared to $82.7 million for the prior-year period. Net loss from operations was $9.7 million versus $2.1 million for the prior-year period. Net loss attributable to common stockholders was $15.6 million, compared to $6.3 million for the third quarter of 2003. The company reported negative EBITDA (earnings before interest, taxes, depreciation and amortization) for the latest quarter of $4.7 million, compared with positive $3.8 million for the prior-year period. Included within the reported negative EBITDA for the third quarter was a non recurring charge related to a headcount restructuring that was implemented on September 1, 2004, in the amount of approximately $3.2 million. This reduction in force was a fundamental component of an overall cost restructuring plan that began to be put into place in late August. The company is also progressing with a recapitalization initiative. On October 29, 2004, Z-Tel announced that the window for its preferred stock tender offer was being extended through November 29, 2004. According to the company, as of October 29, 2004, it had received from preferred shareholders indications to tender in excess of 80 percent of the outstanding Series D preferred stock and in excess of 90 percent of the outstanding Series G preferred stock. There had also been an indication to tender all of the Series E preferred stock as of late October. Trey Davis, acting chief executive officer and chief financial officer remarked, "Our company has gone through significant change over the past several months. In particular, we are in the process of implementing a major cost restructuring. While we are less than three months into this process, we are very pleased with the change that we have already realized. The reduction in force that we implemented in early September, coupled with some key actions involving our most significant business partnerships since then, have already facilitated a significant expense savings to our company. "On a parallel track to the operating improvements that we have made and continue to make, we are very pleased with our progress on the recapitalization initiative. We are anticipating bringing this process successfully to a close by the end of November. By doing so the company will likely have, in addition to a positive operating cash flow stream once again, a much simplified capital structure, a much reduced reported shareholder deficit and a significantly greater market capitalization of our common stock. The benefits of this are two fold: not only are we a more finance friendly company with an adjusted capital structure, but we will also likely be better positioned to address the pressing matter of our NASDAQ SmallCap Market listing." The company also reported that for the first time since mid 2003, it is experiencing positive net line growth. Since late August, the company added 5,000 net consumer lines. At September 30, Z-Tel had approximately 537,000 total active UNE-P bundled service lines under management. Lines under management include the end-user lines of Z-Tel's wholesale customers as well as the lines of Z- Tel's own customers. The company has also continued to progress on its facility based plans. It has deployed its first Broadband Loop Concentrators (BLC) in the Tampa market and has begun conducting "hot-cuts" of existing UNE-P customers to its own network. It has also begun installation of its second soft-switch into the New York City market along with the deployment of its initial six Broadband Loop Concentrators there, all of which are expected to be on-line by January 1, 2005. The company plans to begin hot-cuts of its New York UNE-P customers over to its own network in January, along with expanding its footprint to include approximately 40 co- located BLCs by the end of the first quarter. Z-Tel is also expanding its business-to-business initiative that was launched in Tampa and Atlanta in May of this year. The company has hired sales management to expand direct sales teams into Miami, Orlando and Nashville, along with two sales teams in New York City, and expects to have them fully staffed by December of this year. Mr. Davis added, "While the facility build continues to be a priority for the company over the next year, we continue to approach the legacy UNE-P business with an objective for net line and revenue growth. Despite some regulatory setbacks and uncertainties created earlier this year, we believe we will have the opportunity to utilize the UNE-P platform into the foreseeable future in creating incremental operating cash flows and value for our shareholders. We recently announced a significant agreement with Qwest, which will give us the ability to sell UNE-P like services in fourteen states through 2008. We also believe that in other non-Qwest states, at least on a selected basis, we will have the opportunity to utilize UNE-P like platforms for a period of time. Our position is that UNE-P will continue to be a key component of our business over the balance of 2004 and for most, if not all, of 2005." The company reported that it ended the third quarter with approximately $4.7 million in cash on hand, while capital expenditures totaled approximately $1.6 million during the third quarter. As of September 30, 2004, the company had drawn $5 million of the recently announced $15 million BBH standby credit facility. Mr. Davis concluded, "We are pleased with the short-term progress that we have made with respect to our cost structure. While we have already incorporated much improvement into our business at the operating cash flow line, we still have much work to do. However, we already have enough visibility over the balance of the year to offer guidance for the fourth quarter. We believe that we will report a positive EBITDA of at least $2.5 million on total revenue in a range of $55 million to $57 million for the fourth quarter. We also anticipate making continued progress on reducing our accounts payable balance between now and year end. These expected results, coupled with a successful recapitalization initiative, should put our company in a position to create positive value for our shareholder in 2005 and beyond, which is our fundamental business objective." About Z-Tel Z-Tel offers consumers and businesses nationwide enhanced wire line and broadband telecommunications services. All Z-Tel products include proprietary services, such as Web-accessible, voice- activated calling and messaging features, which are designed to meet customers' communications needs intelligently and intuitively. Z-Tel is a member of the Cisco Powered Network Program and makes its services available on a wholesale basis to other communications and utility companies, including Sprint. For more information about Z-Tel and its innovative services, please visit http://www.ztel.com/ At Sept. 30, 2004, Z-Tel Technologies' balance sheet showed a $166,227,000 stockholders' deficit, compared to a $131,019,000 deficit at Dec. 31, 2003. * Alvarez & Marsal Opens New Office in Sao Paulo, Brazil -------------------------------------------------------- Alvarez & Marsal, a global professional services firm, has opened a new office in Sao Paulo, Brazil, expanding the firm's already significant international presence, which includes 17 locations across the U.S., Europe, Asia and now Latin America. Jose Diniz, who has more than 20 years of finance and management experience, has joined the firm as a Managing Director and head of the Sao Paulo office. "There is a growing need for on-the-ground restructuring, performance improvement and creditor advisory expertise in Latin America," said Peter Cheston, Managing Director and co-head of the firm's Creditor Advisory Services Group. "Over the past several years, A&M has established a solid track record for serving businesses in Latin America, including both local companies and Latin American operations of U.S. companies. The opening of our new office in Sao Paulo underscores our commitment to this region and will enhance our ability to help a growing number of clients solve complex problems and advance their interests." The firm's clients have included: secured creditors to AT&T Latin America Corp., Parmalat (Latin American operations) and Light S.A. (Rio de Janeiro's Public Utility), among others. Prior to joining A&M, Mr. Diniz served as the Chief Financial Officer of the Andrade Gutierrez Group, a $1.3 billion revenue Brazilian conglomerate which owns the largest telecom company in Brazil. Previously, he worked for 10 years with McKinsey & Co. and the Monitor Group, where he focused on Brazilian turnaround situations. Over the course of his career, Mr. Diniz has developed extensive expertise in implementing long term plans focused on increasing liquidity, developing complex tax planning programs, negotiating long term funding using various bank sources such as the World Bank or European development agencies, and managing buy and sell side M&A processes. In addition to Mr. Diniz, A&M's Latin America team includes Director Luis de Lucio, who has been with the firm since early 2003, and Associate Ricardo Paes, who is based in Sao Paulo and also has been with the firm since 2003. Mr. de Lucio has advised shareholders and lenders in all of the major Latin American markets, in a cross-section of industry sectors including infrastructure, transportation, telecommunications, technology, financial services, healthcare, manufacturing and consumer products. Prior to joining A&M, Mr. de Lucio was involved in developing and implementing the financial restructuring plan for the Brazilian affiliate of a major U.S.- based technology company. Earlier in his career he was a senior member of Ernst & Young's Corporate Finance Group based both in the U.S. and Latin America. Mr. Paes has over a decade of experience with major accounting, consulting and investment banking firms. He has provided financial and operational advice to several leading companies that are based in or have operations in Brazil as well as those seeking to enter or expand in the market. About Alvarez & Marsal Founded in 1983, Alvarez & Marsal is a global professional services firm that helps businesses and organizations in the corporate and public sectors navigate complex business and operational challenges. With professionals based in locations across the U.S., Europe, Asia, and Latin America, Alvarez & Marsal delivers a proven blend of leadership, problem solving and value creation. Drawing on its strong operational heritage and hands-on approach, Alvarez & Marsal works closely with organizations and their stakeholders to help address complex business issues, implement change and favorably influence results. Alvarez & Marsal's service offerings include Turnaround Management Consulting, Crisis and Interim Management, Creditor Advisory, Financial Advisory, Dispute Analysis and Forensics, Real Estate Advisory, Business Consulting and Tax Advisory. For more information about the firm, please visit http://www.alvarezandmarsal.com/or contact Rebecca Baker, Chief Marketing Officer at 212-759-4433. * BOND PRICING: For the week of November 15 - November 19, 2004 --------------------------------------------------------------- Issuer Coupon Maturity Price ------ ------ -------- ----- Adelphia Comm. 3.250% 05/01/21 16 Adelphia Comm. 6.000% 02/15/06 16 American & Foreign Power 5.000% 03/01/30 75 AMR Corp. 4.500% 02/15/24 70 AMR Corp. 9.000% 08/01/12 66 AMR Corp. 9.000% 09/15/16 64 AMR Corp. 10.200% 03/15/20 59 Applied Extrusion 10.750% 07/01/11 59 Armstrong World 6.350% 08/15/03 72 Bank New England 8.750% 04/01/99 10 Burlington Northern 3.200% 01/01/45 56 Calpine Corp. 7.750% 04/15/09 61 Calpine Corp. 7.785% 04/01/08 69 Calpine Corp. 8.500% 02/15/11 63 Calpine Corp. 8.625% 08/15/10 63 Comcast Corp. 2.000% 10/15/29 44 Continental Airlines 4.500% 02/01/07 72 Delta Air Lines 7.711% 09/18/11 71 Delta Air Lines 7.900% 12/15/09 50 Delta Air Lines 8.000% 06/03/23 55 Delta Air Lines 8.300% 12/15/29 39 Delta Air Lines 9.000% 05/15/16 39 Delta Air Lines 9.250% 03/15/22 39 Delta Air Lines 9.750% 05/15/21 39 Delta Air Lines 10.000% 08/15/08 61 Delta Air Lines 10.125% 05/15/10 49 Delta Air Lines 10.375% 02/01/11 49 Dobson Comm. Corp. 8.875% 10/01/13 68 Evergreen Int'l Avi. 12.000% 05/15/10 65 Falcon Products 11.375% 06/15/09 62 Federal-Mogul Co. 7.500% 01/15/09 31 Finova Group 7.500% 11/15/09 43 Iridium LLC/CAP 14.000% 07/15/05 15 Inland Fiber 9.625% 11/15/07 47 Kaiser Aluminum & Chem. 12.750% 02/01/03 14 Kulicke & Soffa 0.500% 11/30/08 75 Level 3 Comm. Inc. 2.875% 07/15/10 72 Level 3 Comm. Inc. 6.000% 09/15/09 58 Level 3 Comm. Inc. 6.000% 03/15/10 56 Liberty Media 3.750% 02/15/30 68 Liberty Media 4.000% 11/15/29 73 Mirant Corp. 2.500% 06/15/21 68 Mirant Corp. 5.750% 07/15/07 69 Mississippi Chem. 7.250% 11/15/07 56 National Vision 12.000% 03/30/09 62 Northern Pacific Railway 3.000% 01/01/47 56 Northwest Airlines 7.875% 03/15/08 75 Nutritional Src. 10.125% 08/01/09 65 Oglebay Norton 10.000% 02/01/09 51 O'Sullivan Ind. 13.375% 10/15/09 40 Owens Corning 7.000% 03/15/09 67 Owens Corning 7.500% 05/01/05 64 Owens Corning 7.500% 08/01/18 64 Pegasus Satellite 12.375% 08/01/06 64 Pegasus Satellite 13.500% 03/01/07 2 Pen Holdings Inc. 9.875% 06/15/08 51 PG&E National Energy 10.375% 05/16/11 75 Primus Telecom 3.750% 09/15/10 65 RCN Corp. 10.000% 10/15/07 51 RCN Corp. 10.125% 01/15/10 52 RCN Corp. 11.125% 10/15/07 48 Reliance Group Holdings 9.000% 11/15/00 21 Spacehab Inc. 8.000% 10/15/07 65 Syratech Corp. 11.000% 04/15/07 44 Trico Marine Service 8.875% 05/15/12 50 Tower Automotive 5.750% 05/15/24 61 United Air Lines 9.125% 01/15/12 4 United Air Lines 10.670% 05/01/04 6 Univ. Health Services 0.426% 06/23/20 59 Westpoint Stevens 7.875% 06/15/08 0 Zurich Reinsurance 7.125% 10/15/23 65 ********* 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 ***