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/raid1/www/Hosts/bankrupt/TCR_Public/050621.mbx T R O U B L E D C O M P A N Y R E P O R T E R Tuesday, June 21, 2005, Vol. 9, No. 145 Headlines AIR CANADA: Appoints Three Executives to Complete Realignment ALASKA AIRLINES: Inks Tentative 4-Year Labor Pact with Mechanics ALLIED HOLDINGS: Voluntarily Files to Delist Stock from AMEX AMERCO: Completed Refinancing Prompts S&P to Withdraw Ratings AMERICAN BUSINESS: Ch. 7 Trustee Taps Miller Coffey As Accountant AMERICAN BUSINESS: Countrywide Wants to Foreclose on Assets AMI SEMICONDUCTOR: S&P Ratings Stable After $135M Flextronic Deal ANY MOUNTAIN: If Plan Fails, Chapter 11 Trustee Will be Appointed ARCAP 2003-1: Fitch Affirms Low-B Ratings on $56 Million Notes ASSET BACKED: Moody's Rates Class M11 Subordinate Cert. at Ba2 ATA AIRLINES: Gets Court Nod to Lease Boeing 737s from Q Aviation ATA AIRLINES: Chicago Express Gets Okay to Reject Three Contracts BRIAN TREZAK: Case Summary & 20 Largest Unsecured Creditors BURGER KING: Moody's Rates Proposed $1.15 Billion Bank Loan at Ba2 BURGER KING: S&P Rates Proposed $1.15 Billion Loans at B+ CAPITALSOURCE COMMERCIAL: Moody's Rates $72M Class E Notes at Ba2 CARRINGTON MORTGAGE: Moody's Rates Class M-9 Sub. Certs. at Ba1 CATHOLIC CHURCH: Portland Grants Easements at Gethsemani Cemetery CELLSTAR CORP: Selling Up to $50 Million of Convertible Notes CELLU TISSUE: Merger Plan Prompts Moody's to Improve Outlook CITIGROUP MORTGAGE: Fitch Affirms BB+ Rating on Class M-7 Certs. CNE GROUP: Filing Request for AMEX Delisting Appeal Hearing Today COFFEYVILLE RESOURCES: Moody's Rates $275M 2nd Sec. Loan at B3 CREDIT SUISSE: Moody's Rates Class D-B-4 Subordinated Cert. at Ba1 CWABS INC: Moody's Downgrades Class B2 Cert. to Ba3 from Baa2 DIMENSIONS HEALTH: Moody's Affirms B3 Rating on $76.6 Mil. Bonds DIVERSIFIED CORPORATE: Axtive Terminates Datatek Acquisition DON SEALS: Case Summary & 20 Largest Unsecured Creditors DOUBLECLICK INC: S&P Junks $115 Million Second-Lien Term Loan ENRON CORP: Court Approves Allocation of Reserved Funds ENRON CORP: MARTA Okays $1.8 Settlement Payment to ENA ENRON CORP: Asks Court to Okay Cargill Settlement Agreement EXIDE TECH: To File Fiscal 2005 Annual Financial Results Late FARR MANUFACTURING: Case Summary & Largest Known Creditors FEDERAL-MOGUL: Asbestos Claims Estimation Hearing - Days 1 & 2 FIRST FRANKLIN: Moody's Rates Class B-4 Sub. Certificates at Ba1 FUJI HEAVY: Weak Cash Flow Prompts S&P to Lower Ratings to BB+ GLOBAL CROSSING: Registers 800,000 Common Shares with SEC GREENPOINT MORTGAGE: Moody's Rates Class B-4 Certificates at Ba2 GSAMP TRUST: Moody's Rates Class B-3 Sub. Certificates at Ba1 HARBOURVIEW CDO: Fitch Junks $49 Million Class B & C Notes HOME RE: Moody's Rates Three Mortgage Note Classes at Low-B HOVNANIAN ENT: Increases Revolving Credit Facility to $1.2 Billion INTERSTATE BAKERIES: Wants to Combine 3 Profit Centers' Operations INTERSTATE BAKERIES: Selling San Pedro Property for $14 Million IPC ACQUISITION: Soliciting Consents to Amend 11.5% Sr. Indenture IVOW INC: Annual Stockholders' Meeting Slated for July 19 IVOW INC: Investors Commit to Join in Private Equity Placement KEYSTONE CONSOLIDATED: Disclosure Statement Hearing Set for Friday KMART CORP: Lynx Associates Holds $12 Million Allowed Claim MCLEODUSA INC: Nasdaq May Delist Common & Pref. Stock on Thursday METALFORMING TECH: Wants to Sell Assets to Zohar for $25 Million METALFORMING TECH: Wants to Pay Foreign Vendors' $1.3 Mil. Claims METROMEDIA INT'L: Executes Waiver Pact on Senior Note Default METROMEDIA INT'L: Amends PeterStar Share Purchase Agreement MID-SOUTH LUMBER: Case Summary & 20 Largest Unsecured Creditors MIRANT CORP: Gets Court Approval on Entergy Settlement Agreement MIRANT CORP: Gets Court Approval on Deerpark Settlement Agreement MYLAN LABORATORIES: S&P Rates $500 Mil. Sr. Unsec. Notes at BB+ NEWS CORPORATION: Board Approves Stock Repurchase Program NORTHWEST AIRLINES: Just How High Are the Carrier's Labor Costs? NRG ENERGY: Stockholders Okay Changes to Articles of Incorporation NUCENTRIX BROADBAND: Bankruptcy Court Closes Chapter 11 Cases NVF COMPANY: Case Summary & 40 Largest Unsecured Creditors OFFSHORE LOGISTICS: Reporting Delay Cues Moody's to Review Ratings PEGASUS SATELLITE: Plan Trustee Gets OK to Assign KB Lewiston Pact PILLOWTEX CORP: Court Okays Hiring BDO Seidman for Tax Work POGO PRODUCING: Selling Thailand Oil & Gas Assets for $820 Million POLAR MOLECULAR: Nasdaq Delists Common Stock from OTCBB PRIDE ELECTRIC: Case Summary & 20 Largest Unsecured Creditors RHODES INC: Taps PricewaterhouseCoopers as Auditors & Tax Advisor ROUGE INDUSTRIES: Wants Until Oct. 14 to File a Chapter 11 Plan SAKS INC: Ratings Downgrade Entitles Holders to Convert Notes SASKATCHEWAN WHEAT: S&P Rates C$250 Million Bank Loan at BB- SECURITIZED ASSET: Moody's Rates $11.41M Class B4 Certs. at Ba1 SGP ACQUISITION: Committee Taps KL&Co as Special Asian Liaison SHYPPCO FINANCE: Fitch Affirms Junk Ratings on $78.5 Million Debt SPIEGEL INC: Bankruptcy Court Estimates Disputed Claims STRUCTURED ASSET: High Monthly Losses Cue Fitch to Lower Ratings TECHNEGLAS INC: Gets Court Okay to Enter into Labor Union MOU TERWIN MORTGAGE: Moody's Rates Class B-4 Subord. Certs. at Ba1 THILMANY LLC: Merger Plan Prompts Moody's to Improve Outlook TIRO ACQUISITION: Has Until July 10 to File Chapter 11 Plan TODD MCFARLANE: Has Exclusive Right to File Plan Until October 17 TORCH OFFSHORE: Committee Blocks Sale of 11 Vessels to Cal Dive TOUCH AMERICA: IRS Says Debtor Miscalculated Taxes by $1.2 Million TOWER AUTOMOTIVE: Wants to Reject 11 Corydon Facility Leases TOWER AUTOMOTIVE: Selling E-Coat System to Metalsa for $1,000,000 TRICOM S.A.: CEO & President Carl Carlson Resigns from Posts TROPICAL SPORTSWEAR: Ex-CEO & Shareholders Want to Continue Suit UAL CORP: Wants Court Nod on $11 Mil. Deposit to Purchase Planes UAL CORP: Objects to KBC Bank's Request to Effect Set-Off UNIFIED HOUSING: U.S. Trustee Wants Case Dismissed or Converted UNIFIED HOUSING: General Electric Files Disclosure Statement URS CORPORATION: Moody's Lifts Proposed $350M Loan Rating to Ba1 US AIRWAYS: Workers Say Transaction Retention Plan Still Stinks USG CORP: Equity Panel Wants to Hire Morris Nichols as Counsel VAN-ACTION: Savaria Acquires All Assets for $1.4 Million VARIG S.A.: Brazilian Court Grants Interim Stay Order W.R. GRACE: MDEP Holds $700,298 Allowed Unsecured Claim WEIRTON STEEL: Court Denies D. Powell's Request for Rule 2004 Exam WESTPOINT STEVENS: Wants to Walk Away from Central Valley Lease WILBRAHAM CBO: Fitch Holds Junk Ratings on 3 Note Classes WILLIAMS PRODUCTION: Moody's Raises Corporate Family Rating to Ba3 WMC MORTGAGE: Loss Expectations Prompt Fitch to Affirm Junk Rating YUKOS OIL: Moscow Court Orders Yukos Unit to Pay Back Taxes * Large Companies with Insolvent Balance Sheets ********* AIR CANADA: Appoints Three Executives to Complete Realignment ------------------------------------------------------------- Air Canada President and Chief Executive Officer, Montie Brewer, reported three key executive appointments that support the airline's strategic business objectives and complete its organizational realignment. Commenting on the appointments, Mr. Brewer said: "I am delighted to welcome aboard Air Canada three highly talented individuals who have proven track records in their respective fields. Each will play a leading role in implementing Air Canada's new business model, further simplifying the travel experience and earning our customers' loyalty. They bring a wealth of experience to our management team as we position Air Canada on the leading edge of North American international carriers and build brand value for the Air Canada franchise." Sean Menke Sean Menke, formerly Senior Vice President and Chief Operating Officer at Frontier Airlines, joins Air Canada as Executive Vice President and Chief Commercial Officer. Reporting directly to Montie Brewer, he will be responsible for all commercial aspects of Air Canada's worldwide operations including marketing, sales, scheduling, brand, research and product development, international affairs, alliances and Jetz, the carrier's specialty charter service. Prior to his appointment as COO at Denver-based Frontier Airlines, Mr. Menke oversaw all aspects of the airline's pricing, revenue management, scheduling, planning, advertising, brand management, sales, reservations, frequent flyer, e-commerce, customer service and ground operations activities. Mr. Menke holds a Bachelor of Science, Economics and Aviation Management, and a Masters Business Administration. His appointment is effective July 11, 2005. Reporting to Mr. Menke are: * Marc Rosenberg Vice President Sales and Product Distribution * Ben Smith Vice President Network Planning * Yves Dufresne Vice President International, Alliances and Regulatory Affairs * Claude Morin President and CEO Air Canada Cargo Joshua Koshy Joshua Koshy, formerly Senior Vice President, Information Technology at Emirates Group, joins Air Canada as the airline's Executive Vice President and Chief Financial Officer. Reporting directly to Montie Brewer, Mr. Koshy will be responsible for all aspects of Air Canada's financial reporting, Six Sigma and project management organization. At Dubai-based Emirates, he was responsible for financial services throughout the group prior to leading its information technology activities. Mr. Koshy is a qualified chartered accountant, Certified Information Systems Auditor and a qualified CDP from the Institute for the Certification of Computer Professionals, U.S.A. His appointment is effective August 1, 2005. He replaces Rob Peterson, who continues in his role as Executive Vice President and CFO, ACE Aviation Holdings Inc., Air Canada's parent company. Reporting to Mr. Koshy is Danielle Poudrette, Vice President, Corporate Initiatives. David Tait David Tait, formerly Executive Vice President of Virgin Atlantic's North America operations, joins Air Canada as Senior Vice President, Customer Service. Reporting to Executive Vice President and Chief Operating Officer, Rob Reid, Mr. Tait will be responsible for customers' airport and in-flight experience, call centres, customer solutions and customer service strategy. Prior to joining Air Canada, he led the start-up of Virgin Atlantic in the United States and was thereafter responsible for the carrier's North American operations. Mr. Tait holds an OBE (Order of the British Empire) in recognition of his services to the interests of British aviation in the United States. His appointment is effective September 1, 2005. Reporting to Mr. Tait are: * Susan Welscheid Vice President Customer Experience, In-Flight * Chantal Baril President and Chief Executive Officer Air Canada Ground Handling Services. All three executives will be located at the airline's Montreal headquarters. Air Canada filed for CCAA protection on April 1, 2003 (Ontario Superior Court of Justice, Case No. 03-4932) and filed a Section 304 petition in the U.S. Bankruptcy Court for the Southern District of New York (Case No. 03-11971). Mr. Justice Farley sanctioned Air Canada's CCAA restructuring plan on Aug. 23, 2004. Sean F. Dunphy, Esq., and Ashley John Taylor, Esq., at Stikeman Elliott LLP, in Toronto, serve as Canadian Counsel to the carrier. Matthew A. Feldman, Esq., and Elizabeth Crispino, Esq., at Willkie Farr & Gallagher, serve as the Debtors' U.S. Counsel. When the Debtors filed for protection from their creditors, they listed C$7,816,000,000 in assets and C$9,704,000,000 in liabilities. On September 30, 2004, Air Canada successfully completed its restructuring process and implemented its Plan of Arrangement. The airline exited from CCAA protection raising $1.1 billion of new equity capital. As of December 31, 2004, Air Canada's shareholders' deficit narrowed to CDN$203 million compared to a $4.155 billion deficit at December 31, 2003. ALASKA AIRLINES: Inks Tentative 4-Year Labor Pact with Mechanics ---------------------------------------------------------------- Alaska Airlines and the Aircraft Mechanics Fraternal Association jointly disclosed a tentative agreement on a new four-year contract for the airline's 700 aircraft technicians. Terms of the agreement are being withheld pending a ratification vote by union members. The ratification process is expected to begin within the next two weeks. "We are pleased to present, for our membership's consideration, a contract that provides job security language and wage increases that are unique in the current industry environment," said Louie Key, AMFA Region 1 Director. "We appreciate the dedication and professionalism of our aircraft technicians during recent challenging times and are grateful to the union leadership for working collaboratively with us to achieve this long-term, market-based agreement that is a win for both parties," said Alaska's CEO Bill Ayer. AMFA's craft union represents aircraft maintenance technicians and related support personnel at Alaska Airlines, ATA, Horizon Airlines, Independence Airlines, Mesaba Airlines, Northwest Airlines, Southwest Airlines and United Airlines. AMFA's credo is "Safety in the air begins with quality maintenance on the ground." To learn more about AMFA, visit http://www.amfanatl.org/ Alaska Airlines and its sister carrier, Horizon Air, together serve more than 80 cities in Alaska, the Lower 48, Canada and Mexico. Seattle-based Alaska Air Group is the parent company of Alaska Airlines and Horizon Air Industries. The company and its sister carrier, Horizon Air, together serve 80 cities in Alaska, the Lower 48, Canada and Mexico. * * * As reported in the Troubled Company Reporter on Apr. 25, 2005, Standard & Poor's Ratings Services lowered its ratings on Alaska Airlines Inc.'s 9.5% equipment trust certificates (ETCs) due April 12, 2012, to 'B+' from 'BB', as part of an industry wide review of aircraft-backed debt. All other ratings on Alaska Airlines and parent Alaska Air Group Inc., including the 'BB-' corporate credit ratings on both, are affirmed. The outlook remains negative. "The lower rating on the ETCs reflects Standard & Poor's concern that repayment prospects for holders of aircraft-backed debt could suffer in a potential scenario of multiple, further bankruptcies of large U.S. airlines weakened by high fuel prices and intense price competition," said Standard & Poor's credit analyst Betsy Snyder. "Downgrades of aircraft-backed debt securities were focused on debt instruments that would be hurt in such a scenario, particularly debt backed by aircraft that are concentrated heavily with large U.S. airlines that would be at greater risk in negotiated restructurings or sale of repossessed collateral," the analyst continued. ALLIED HOLDINGS: Voluntarily Files to Delist Stock from AMEX ------------------------------------------------------------ Allied Holdings, Inc. (Amex: AHI) filed an application with the U.S. Securities and Exchange Commission to voluntarily delist its common from trading on the American Stock Exchange. The Company asked the Amex to suspend trading in the Company's common stock if and at the time that the SEC grants Allied's application to withdraw its common stock from listing. Allied expects to receive an order from the SEC with respect to its delisting application in July 2005. Allied anticipates that upon the termination of the listing of its common stock on the Amex, its common stock will be quoted on the over-the-counter bulletin board under the symbol [AHI.OB], however Allied can not give any assurance that any broker will make a market in the Company's common stock. As previously announced, Allied has been operating under a plan that was approved by the Amex in February 2005 in order to bring Allied's shareholders' equity above the continued listing requirements of the Amex by May 2006. Allied filed a notice to voluntarily delist its common stock from trading on the Amex because the Company does not currently believe that it will comply with the plan as previously submitted to the Amex. Allied Holdings, Inc., is the parent company of several subsidiaries engaged in providing distribution and transportation services of new and used vehicles to the automotive industry. The services of Allied's subsidiaries span the finished vehicle continuum, and include car-hauling, intramodal transport, inspection, accessorization and dealer prep. Allied, through its subsidiaries, is the leading company in North America specializing in the delivery of new and used vehicles. * * * As reported in the Troubled Company Reporter on June 14, 2005, Standard & Poor's Ratings Services lowered its corporate credit rating on vehicle transporter Allied Holdings Inc. to 'CCC-' from 'CCC+' and its unsecured debt rating to 'CC' from 'CCC-'. The outlook on the Decatur, Georgia, company is negative. At March 31, 2005, Allied had $290 million in lease-adjusted debt. "The downgrade reflects uncertainty surrounding Allied Holdings' near-term financial covenant compliance and liquidity, given the challenging U.S. automotive sector and the company's hiring of a financial advisor to review strategic and financial alternatives," said Standard & Poor's credit analyst Kenneth Farer. The company's financial advisor is expected to present its recommendations to the company on or before June 22, 2005, after which Standard & Poor's will reassess its ratings and outlook. "Ratings could be lowered if covenant relief is not extended beyond June 22, 2005," Mr. Farer said. "Ratings on the company's unsecured notes could be lowered to selective default, 'SD' if a bond exchange or other debt restructuring arrangements are undertaken in a manner judged to be a distressed exchange." AMERCO: Completed Refinancing Prompts S&P to Withdraw Ratings ------------------------------------------------------------- Standard & Poor's Ratings Services withdrew its senior secured debt rating on AMERCO's $550 million bank facility and AMERCO's secured notes. The withdrawal of the ratings reflects the completion of refinancing outstanding debt with mortgage and hybrid real estate loans. "Ratings on AMERCO (B+/Stable/--) reflect the company's weak financial profile following its emergence from Chapter 11 bankruptcy protection on March 15, 2004, that resulted in constrained financial flexibility," said Standard & Poor's credit analyst Kenneth L. Farer. In addition, ratings take into account ongoing investigations of the company by the SEC. A positive credit factor is the company's position as the largest participant in the consumer truck rental market. Reno, Nevada-based AMERCO is a holding company whose principal subsidiary, U-Haul International Inc., represents approximately 80% of consolidated revenues. AMERCO is also the parent of Amerco Real Estate Co., which owns and manages most of AMERCO's real estate assets, and two insurance companies -- Republic Western Insurance Co. and Oxford Life Insurance Co. SAC Holdings, an off- balance sheet related entity, owns self-storage properties managed by AMERCO subsidiaries. On June 9, 2005, Repwest was released from administrative supervision by the Arizona Department of Insurance. Repwest had been under administrative supervision since May 20, 2003. AMERCO's revenues and earnings are expected to improve modestly over the intermediate term. However, upside rating potential will be limited by a heavy debt burden, constrained financial flexibility, and various ongoing investigations. AMERICAN BUSINESS: Ch. 7 Trustee Taps Miller Coffey As Accountant ----------------------------------------------------------------- George L. Miller, the duly appointed Chapter 7 Trustee for the American Business Financial Services, Inc., ask the U.S. Bankruptcy Court for the District of Delaware for authority to employ Miller Coffey Tate, LLP, as his accountants. Mr. Miller requires the services of accountants to: (a) assist in reporting to the U.S. Trustee regarding the Debtors' financial status; (b) assist the ABFS Trustee in pursuing causes of action for the estate's benefit; (c) attend meetings with the ABFS Trustee and court hearings as required; (d) prepare and file necessary tax returns; (e) provide all other accounting services as may be required by the ABFS Trustee when necessary; (f) assist the ABFS Trustee in identifying and securing the assets and records of the estate and provide forensic and valuation services if required concerning the estate's property; and (g) assist with the preparation of budgets and related items. The ABFS Trustee informs the Honorable Mary F. Walrath that he is a member and partner employed as an accountant by the firm. The ABFS Trustee believes that Miller Coffey has the appropriate accounting skills and personnel needed to perform the required accounting services. Miller Coffey will be paid in accordance with its normal hourly rates: Partners and principals $240 to $365 Managers $200 to $235 Senior accountants $155 to $195 Staff accountants/paraprofessionals $85 to $150 Daniel J. Coffey, also a partner at the firm, assures Judge Walrath that Miller Coffey does not represent an interest adverse to the estate and is a "disinterested person" as that term is defined in Section 101(14) of the Bankruptcy Code. Headquartered in Philadelphia, Pennsylvania, American Business Financial Services, Inc., together with its subsidiaries, is a financial services organization operating mainly in the eastern and central portions of the United States and California. The Company originates, sells and services home mortgage loans through its principal direct and indirect subsidiaries. The Company, along with four of its subsidiaries, filed for chapter 11 protection on Jan. 21, 2005 (Bankr. D. Del. Case No. 05- 10203). Bonnie Glantz Fatell, Esq., at Blank Rome LLP represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $1,083,396,000 in total assets and $1,071,537,000 in total debts. (American Business Bankruptcy News, Issue No. 17; Bankruptcy Creditors' Service, Inc., 215/945-7000) AMERICAN BUSINESS: Countrywide Wants to Foreclose on Assets ----------------------------------------------------------- On Jan. 2, 1997, John Bodi executed and delivered to America's Wholesale Lender a note for $103,200, plus 7.75% interest per annum, attorneys' fees, costs and late charges to be paid over 30 years. To secure the repayment of sums due under the Note, Mr. Bodi executed and delivered to America's Wholesale a mortgage, dated January 2, 1997, encumbering the real property at 33369 Lake Shore Drive in Wildwood, Illinois. Neil F. Dignon, Esq., at Draper & Goldberg, P.L.L.C., in Georgetown, Delaware, tells the U.S. Bankruptcy Court for the District of Delaware that the AWL Mortgage and AWL Note were later transferred to Countrywide Home Loan, Inc. American Business Credit, Inc., holds a lien subordinate to the lien created by the AWL Mortgage by virtue of a mortgage executed by Mr. Bodi, securing a note for $35,000. Mr. Dignon notes that Mr. Bodi is in default under the AWL Note for having failed to pay the December 2004 through April 2005 monthly installments. According to Mr. Dignon, the lien created by the mortgage held by ABC is not necessary for the Debtors' reorganization, as that lien adds little or no value to the bankruptcy estate. "A continued stay of Countrywide's action against Mr. Bodi and ABC will cause Countrywide significant prejudice," Mr. Dignon says. "It is not economically feasible to attempt to recover the judgment amount for the Bankruptcy Estate as the underlying real property is located out of state." Thus, Countrywide asks the Court to terminate the automatic stay for Countrywide to exercise its legal rights under applicable law as to the Property, including but not limited to, foreclosure against the Property under the Mortgage. Headquartered in Philadelphia, Pennsylvania, American Business Financial Services, Inc., together with its subsidiaries, is a financial services organization operating mainly in the eastern and central portions of the United States and California. The Company originates, sells and services home mortgage loans through its principal direct and indirect subsidiaries. The Company, along with four of its subsidiaries, filed for chapter 11 protection on Jan. 21, 2005 (Bankr. D. Del. Case No. 05- 10203). Bonnie Glantz Fatell, Esq., at Blank Rome LLP represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $1,083,396,000 in total assets and $1,071,537,000 in total debts. (American Business Bankruptcy News, Issue No. 17; Bankruptcy Creditors' Service, Inc., 215/945-7000) AMI SEMICONDUCTOR: S&P Ratings Stable After $135M Flextronic Deal ----------------------------------------------------------------- Standard & Poor's Ratings Services revised its outlook on Pocatello, Idaho-based AMI Semiconductor Inc. to stable from positive, following the announcement that it will acquire the semiconductor division of Flextronics Inc. for $135 million in cash. The corporate credit and senior secured ratings are affirmed at 'BB-'. "The outlook revision reflects the likelihood that leverage will increase following the acquisition, potentially to 2.5x or 3.0x, as well as some integration risks in merging Flextronics' operations with those of AMI," said Standard & Poor's credit analyst Lucy Patricola. While AMI has sufficient cash and unused availability under its bank line to fund the cash purchase price, liquidity would be reduced without some form of longer term, external funding. Low debt to EBITDA, 1.6x as of March 2005, provides the company flexibility to accommodate this acquisition within the rating. While the businesses to be acquired complement AMI's market position in mixed signal products and digital ASICs, there will be some integration challenges as AMI incorporates the operations. Standard & Poor's ratings on AMI reflect a niche product focus, small scale, and volatility in the company's smaller digital and foundry businesses. These factors partly are offset by the company's sole-source agreements to provide semiconductor chips and its diversified customer and end-market base. AMI supplies customized semiconductor chips, called application-specific integrated circuits, for automotive, industrial, communications, medical, and military applications. AMI has established itself in a niche providing lower-volume, lower-technology semiconductors, primarily in the mixed signal segment. The company is the sole-source provider for approximately 95% of the products it manufactures and, given low obsolescence in its product line, has long-term relationships with its customers. The mixed signal business, 60% of revenues, experiences lower volatility because it serves stable and growing end-markets, such as automotive, medical, and industrial. ANY MOUNTAIN: If Plan Fails, Chapter 11 Trustee Will be Appointed ----------------------------------------------------------------- The U.S. Bankruptcy Court for the Northern District of California granted the request of Any Mountain Ltd.'s Official Committee of Unsecured Creditors to appoint a chapter 11 trustee in the Debtor's case. The Honorable Alan Jaroslovsky set the appointment date as two months after the approval of the disclosure statement if the Debtor's chapter 11 plan isn't confirmed by that date. The Debtor filed its Plan and accompanying Disclosure Statement on June 10, 2005. A summary of the company's plan appeared in the Troubled Company Reporter yesterday. Plan is "Unfeasible" Robert L. Eisenbach III, Esq., at Cooley Godward LLP, in San Francisco, California, represents the Committee. Mr. Eisenbach tells the court that under its current leadership, the Debtor is unwilling to pursue any options other than an "unfeasible" plan of reorganization (which the Debtor did not negotiate with the Committee). Mr. Eisenbach points out that the Plan is full of presumptions that are contingent on the completion of processes that the Debtor has yet to even set in motion. The Debtor's Plan and Disclosure Statement do not include a budget or any projections on which to base the possibility for a successful reorganization. The only projections submitted by the Debtor are one-year pro forma financial projections, which were produced in response to the Committee's Bankruptcy Rule 2004 document request. Mr. Eisenbach argues that these projections cannot support the Debtor's Plan. Not only are the pro forma projections contingent upon sales increases that are virtually impossible to achieve and certainly unprecedented in the Debtor's history of operations, but they're also premised on the Debtor's operating six stores. The Debtor's Plan and Disclosure Statement contemplate operating four. $1.6 Million Cash Shortfall in November As the Committee lacks any projections better suited to the Debtor's current proposed Plan, it has attempted to analyze the pro forma financial statements. That analysis, the Committee says, demonstrates that pursuing the Debtor's Plan is not in the best interests of the estate. The Debtor projects it will run out of money in September 2005, before it has a chance to replenish its bank accounts with its historically better Winter season sales, Mr. Eisenbach tells the Court. Even assuming the Debtor is capable of meeting its projections -- which requires a grossly unrealistic 52% sales increase -- there will still be a $1.6 million cash shortfall in November 2005. If the Debtor's sales only increase by 20% -- still a huge stretch given historic results of underperformance and losses -- the cash shortfall would total $1.7 million; with a 10% sales increase, $1.8 million. Thus, the Debtor needs a cash infusion of just under $2 million to successfully operate its business into next Winter's ski season. President Can't & Won't Invest Eldon "Bud" Hoffman, the Debtor's president and sole stockholder, has not indicated his readiness or willingness to make a $2 million investment. Furthermore, according to Mr. Eisenbach, Mr. Hoffman's ability to invest in the Debtor is questionable considering the numerous personal guaranties, tax liens and other security interests attached to his personal assets. Additionally, the Debtor did not furnish the names of any entities that it contacted or by whom it was contacted to provide financing, despite the Committee's specific request for that list in its Document Request. Thus, the Committee is left to assume that the Debtor has failed to actively pursue debtor-in-possession financing or even to put a process in place to do so. Unwilling to Sell The Debtor has been unwilling to consider purchase offers from outside entities that would salvage the most value from the Debtor's estate. The Debtor received Offers from seven separate entities to purchase some portion of the Debtor's assets, which offers contemplated, inter alia, purchasing the Debtor as a going concern with offers of employment to existing employees, and purchasing the Debtor's inventory, store leases and intellectual property. Despite the substantial value represented by these Offers, the Debtor remained unwilling to contact even one of the interested parties to negotiate these Offers, pursue them in any way or authorize its counsel to establish a Court authorized sale process. The Need for a Trustee The Committee sought the appointment of a chapter 11 trustee to review the Debtor's Plan and Offers and pursue the best course of action for the estate. The Debtor's management is not capable of being objective as evidenced by its proposed "unfeasible" Plan and failure to discuss any of the Offers, the Committee contends. Headquartered in Corte Madera, California, Any Mountain Ltd, operates ten specialty outdoor stores throughout the San Francisco Bay Area. The Company filed for chapter 11 protection on Dec. 23, 2004 (Bankr. N.D. Calif. Case No. 04-12989). Michael C. Fallon, Esq., of Santa Rosa, California represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed below $50,000 in assets and more than $10 million in debts. ARCAP 2003-1: Fitch Affirms Low-B Ratings on $56 Million Notes -------------------------------------------------------------- Fitch Ratings affirms all of the rated notes issued by ARCap 2003-1 Resecuritization, Inc. The affirmation of these notes is a result of Fitch's annual rating review process. These rating affirmations are effective immediately: -- $58,000,000 class A notes 'AAA'; -- $36,000,000 class B notes 'AA'; -- $20,500,000 class C notes 'A'; -- $15,400,000 class D notes 'A-'; -- $36,100,000 class E notes 'BBB+'; -- $13,000,000 class F notes 'BBB'; -- $45,000,000 class G notes 'BBB'; -- $9,000,000 class H notes 'BBB-'; -- $28,000,000 class J notes 'BB'; -- $28,000,000 class K notes 'B'. The ratings of the class A and B notes address the likelihood that investors will receive timely payments of interest, as per the governing documents, as well as the aggregate principal amount by the stated maturity date. The ratings of the class C, D, E, F, G, H, J and K notes address the likelihood that investors will receive ultimate interest payments, as per the governing documents, as well as the aggregate principal amount by the stated maturity date. ARCap 2003-1 is a collateralized debt obligation, which closed Aug. 27, 2003, supported by a static pool of non-investment grade commercial mortgage-backed securities. The collateral was selected and is administered by ARCap REIT, Inc., rated 'CAM2' by Fitch for structured finance collateral management. Also, ARCap Servicing, Inc. is rated 'CSS1-' and is the special servicer on all the underlying CMBS transactions. Fitch has reviewed the credit quality of the individual assets comprising the portfolio and will continue to monitor ARCap 2003-1 closely to ensure accurate ratings. According to the May 20, 2005 trustee payment report the combined class A, B, C, D, E, F, G, and H overcollateralization test was 180.3% relative to the minimum test level of 100%. The CDO has experienced minimal credit migration and no collateral has defaulted since closing. Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch Ratings web site at http://www.fitchratings.com/.For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralized Debt Obligations,' dated Sept. 13, 2004, also available at http://www.fitchratings.com/ ASSET BACKED: Moody's Rates Class M11 Subordinate Cert. at Ba2 -------------------------------------------------------------- Moody's Investors Service has assigned a rating of Aaa to the senior certificates issued by Asset Backed Securities Corporation Home Equity Loan Trust, Series 2004-HE4 and ratings ranging from Aa1 to Ba2 to the mezzanine and subordinate certificates in the deal. The securitization is backed by New Century Mortgage Corp. originated adjustable-rate (82%) and fixed-rate (18%) sub-prime mortgage loans. The ratings are based primarily on: * the credit quality of the loans; * past performance of collateral from this originator; and * on the protection from subordination, overcollateralization, and excess spread. The credit enhancement requirements reflect some benefit for due diligence performed on the collateral. The credit quality of the loans backing this deal is in line with previous securitizations by this issuer. Moody's expects collateral losses to range from 4.50% to 4.75%. Select Portfolio Servicing, Inc. will service the loans. Moody's has assigned its average servicer quality rating (SQ3) to Select for primary servicing of sub-prime mortgage loans. The complete rating actions are: Issuer: Asset Backed Securities Corporation Home Equity Loan Trust, Series 2005-HE4 Issue: Asset Backed Pass-Through Certificates, Series 2005-HE4 * Class A1, rated Aaa * Class A2, rated Aaa * Class A2A, rated Aaa * Class A2B, rated Aaa * Class M1, rated Aa1 * Class M2, rated Aa2 * Class M3, rated Aa3 * Class M4, rated A1 * Class M5, rated A2 * Class M6, rated A3 * Class M7, rated Baa1 * Class M8, rated Baa2 * Class M9, rated Baa3 * Class M10, rated Ba1 * Class M11, rated Ba2 ATA AIRLINES: Gets Court Nod to Lease Boeing 737s from Q Aviation ----------------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of Indiana approved the request of ATA Airlines, Inc. and its debtor- affiliates to: * lift the automatic stay provided by Section 362(a) to allow Q Aviation to exercise all of its rights and remedies under the Leases. * consider the obligations contained in Section 1110(c)(1) applicable to the Debtors under the Leases. * grant administrative expense status pursuant to Sections 503(b) and 507(a) to any and all claims of Q Aviation arising under or related to the Leases, once the Leases are duly executed. As previously reported in the Troubled Company Reporter on May 6, 2005, the Debtors negotiated the return of several leased Boeing 737-800 aircraft. The Debtors also held extensive discussions with various potential lessors to replace a portion of the Returned Aircraft with older Boeing 737 "classic," aircraft to meet ATA Airlines' postpetition fleet plan and operational needs. With the consent of the Official Committee of Unsecured Creditors, the Debtors and Q Aviation, LLC, executed a letter of intent pursuant to which Q Aviation will lease five to 12 Boeing 737 classic aircraft to ATA Airlines. The Letter of Intent contains the financial details of the Leases that are confidential in nature. The Letter of Intent has been filed under seal pursuant to Section 1110 of the Bankruptcy Code. Although the entry of the Q Aviation Leases may be performed in "ordinary course" of business, the Debtors, out of an abundance of caution, asked the United States Bankruptcy Court for the Southern District of Indiana to approve the Leases. 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 Nos. 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. 26; Bankruptcy Creditors' Service, Inc., 215/945-7000) ATA AIRLINES: Chicago Express Gets Okay to Reject Three Contracts ----------------------------------------------------------------- As previously reported in the Troubled Company Reporter on May 20, 2005, Chicago Express seeks the U.S. Bankruptcy Court for the Southern District of Indiana's authority to reject the Agreements, effective when it: (i) tenders notice of the rejection to the counterparty of the Agreements; or (ii) surrenders possession of the personal or real property subject to the Agreements. Chicago Express Airlines, Inc., and Pan Am International Flight Academy are parties to an Exclusive Training Services Agreement dated May 1, 2003. Under the Agreement, Chicago Express is entitled to use Pan Am exclusively for outside pilot training. Chicago Express and the Bank of Blue Valley are parties to a Plain Language Equipment Lease, pursuant to which Chicago Express leases de-icing equipment from the Bank. Chicago Express and Aeronautical Radio, Inc., are parties to a GLOBALink/VHF Aeronautical Data Communications Service Agreement and an Aeronautical Mobile Ground Station Administration Agreement. ARINC provides Chicago Express with various radio communications services. Chicago Express ceased flight operations on March 28, 2005, and as a result, Chicago Express has no use for the goods, services and equipment provided by the Agreements. * * * At the Debtor's behest, the Court approved the motion. 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 Nos. 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. 26; Bankruptcy Creditors' Service, Inc., 215/945-7000) BRIAN TREZAK: Case Summary & 20 Largest Unsecured Creditors ----------------------------------------------------------- Debtor: Brian T. Trezak aka Brian T. Trezak, MD Greystone Loch Apts, Apt C28 Hilton Head, South Carolina 29926 Tel: (843) 298-1043 Bankruptcy Case No.: 05-06975 Type of Business: The Debtor is a physician. Chapter 11 Petition Date: June 17, 2005 Court: District of South Carolina (Charleston) Judge: John E. Waites Debtor's Counsel: Ivan N. Nossokoff, Esq. Ivan N. Nossokoff, LLC 25 Cumberland Street Charleston, SC 29401 Tel: (843) 577-5292 Fax: 843-723-3159 Total Assets: $757,977 Total Debts: $1,120,882 Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Wachovia Bank $75,095 P.O. Box 96074 Charlotte, NC 28296 Citibank Financial $47,000 Student Loans P.O. Box 6615 The Lakes, NV 88901 Wachovia Bank $13,600 P.O. Box 96074 Charlotte, NC 28296 Bank of America $12,984 P.O. Box 26059 Greensboro, NC 27420 Heritage Medical Partners LLC $9,600 460 William Hilton Parkway Hilton Head Isld, SC 29926 Caligor $7,421 526 Congaree Road Greenville, SC 29607 PCI-Compliance Service Dept $4,200 2865 Metropolitan Place Pomona, CA 91767 PHS Medical Sales $3,426 1919 Maybank Hwy Charleston, SC 29412 Island Medical Plaza POA $3,031 c/o GW Services Inc. P.O. Box 6476 Hilton Head, SC 29938 Dell Computers $4,800 Payment Processing Center Value of Security: P.O. Box 5292 $2,000 Carol Stream IL 60197 Spectrum Lab Network $2,232 P.O. Box 35907 Greensboro, NC 27425 Hilton Head Heart PA $1,473 25 Hospital Boulevard, Suite 305 Hilton Head, SC 29926 Wells Fargo Financial $1,195 P.O. Box 6434 Carol Stream, IL 60197 Lincoln Benefit Life Co. $960 P.O. Box 80469 Lincoln, NE 68501 Bio-Rad Laboratories $647 P.O. Box 70378 Chicago, IL 60673 One Call Does It All Inc. $645 35 Marshland Road, Suite 3 Hilton Head Isld, SC 29926 Palmetto Electric Co-op Inc. $376 P.O. Box 23619 Hilton Head, SC 29925 Beckman Coulter $150 Deparment CH 10164 Palatine, IL 60055 Commodore Medical Services $111 1941 Cement Plant Road Nashville, TN 37208 Hilton Head No.1 Public Service $44 P.O. Box 21264 Hilton Head SC 29925 BURGER KING: Moody's Rates Proposed $1.15 Billion Bank Loan at Ba2 ------------------------------------------------------------------ Moody's Investors Service assigned a rating of Ba2 to the proposed $1.15 billion bank loan of Burger King Corporation. Together with cash on hand, proceeds from the new bank loan will refinance all debt incurred in the December 2002 leveraged buyout. Limiting the ratings are Moody's belief that Burger King's financial flexibility will remain weak for several years relative to higher rated restaurant peers and the challenges in steadily improving performance in the competitive hamburger QSR segment. However, the resilience of the Burger King brand and Moody's expectation that the company will continue to improve operating efficiency support the rating placement. The rating outlook is stable. This is the first time that Moody's has rated Burger King. Ratings are assigned as: -- $150 million Revolving Credit Facility at Ba2, -- $250 million Term Loan A at Ba2, -- $750 million Term Loan B at Ba2, and the -- Senior Implied Rating at Ba2. The ratings are limited by: * the company's leveraged financial condition (especially adjusted for operating lease obligations) and modest fixed charge coverage; * the intense level of competition within the hamburger segment of the quick service restaurant industry; and * the extended history of weak average unit volume and restaurant margin at Burger King relative to many peers. Moody's opinion that the domestic hamburger QSR segment has matured and will grow at low single-digit rates, the sensitivity of customer traffic to economic conditions that impact disposable income levels, and the vulnerability to price volatility for commodities such as beef and chicken also limit the ratings. However, the ratings consider the wide consumer recognition of "Burger King" as a differentiated hamburger restaurant brand, Moody's expectation that the Burger King system will continue recent trends of improved customer traffic and unit-level margin, and our belief that a substantial fraction of future discretionary cash flow will be used for balance sheet improvement. The high variable contribution from incremental sales if average unit volume (now about $1.1 million across the Burger King system) equals smaller peers such as Wendy's (AUV of $1.3 million), Jack in the Box (AUV of $1.2 million), or Carls Jr (AUV of $1.3 million) and the international and domestic development potential of the Burger King system(considering that Burger King, while the third largest global operator & franchiser of restaurants, is only about a third the size of the McDonald's system) also benefit the ratings. The stable outlook reflects the expectations that the entire Burger King system will continue improving operations (using measures such as average unit volume and restaurant margin) to levels closer to its peers, cash flow from operations will comfortably cover capital expenditures and debt service obligations, and discretionary cash flow will be used for balance sheet improvement. Upward rating momentum is unlikely until average unit volume and restaurant-level margin consistently approximates hamburger QSR peers, lease adjusted leverage falls below 4 times, and fixed charge coverage (as defined by Moody's) exceeds 2.5 times. Ratings would be negatively impacted if indications of improved sales momentum at Burger King stall, higher sales do not lead to restaurant margin steadily progressing towards industry norms, or debt protection measures do not improve from current levels. Renewed financial difficulties at a significant proportion of franchisees or permanent use of the revolving credit facility also would place downward pressure on the ratings. The ratings do not consider the impact of any potential equity transaction. The Ba2 rating on the proposed bank loan (to be comprised of a $150 million Revolving Credit Facility, a $250 million Term Loan A, and a $750 million Term Loan B) considers the collateral provided by all capital stock of the company and its subsidiaries, the negative pledge on other assets, and the guarantees of domestic operating subsidiaries. Moody's expects that the bank agreement will meaningfully limit returns to shareholders. Significant other assets include 875 (mostly domestic) fee-owned properties, a royalty stream from almost 10,000 franchisee contracts, and intangibles such as the well-known Burger King brand. The bank loan is rated at the same level as the Senior Implied Rating because of the large weight of this debt class in the total debt structure. Initial liquidity will be comprised of at least 40% of the Revolving Credit Facility commitment and $150 million in cash, given Moody's expectation that up to 30% of the Revolving Credit Facility commitment could initially be drawn and that about $42 million may be used for letter of credit utilization. Margin at corporate Burger King restaurants for the nine months ending March 2005 is weaker than many other restaurants rated by Moody's, even though almost double the same period of the prior fiscal year. The company has achieved consistently positive comparable restaurant sales over the past 16 months for the first time since 1999. During the several recent years of mediocre operating performance, EBITDA always covered interest expense and maintenance capital expenditures and system revenue remained relatively constant at around $11.5 billion. Pro-forma for the contemplated transaction, lease adjusted leverage will be relatively high and fixed charge coverage will be relatively low. However, over the next two years, Moody's expects that increased operating cash flow will cover debt service and capital expenditures, debt protection measures will improve to levels that are more appropriate for the assigned ratings, and the revolving credit facility will be used only for letter of credit support and seasonal working capital needs. Burger King Corporation, with headquarters in Miami, Florida, operates 1,119 and franchises 9,974 Burger King hamburger quick service restaurants in the United States and 64 other countries. Corporate revenue for the twelve months ending March 31, 2005 was about $1.9 billion and total sales across the Burger King system were about $12 billion. BURGER KING: S&P Rates Proposed $1.15 Billion Loans at B+ --------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B+' corporate credit rating to quick-service restaurant operator Burger King Corp. It also assigned 'B+' ratings to the company's proposed: * $150 million secured revolving credit facility, * $250 million secured term loan A due 2011, and * $750 million secured term loan B, which matures 2012. A recovery rating of '2' was assigned to the credit facility, indicating the expectation for substantial (80%-100%) recovery of principal in the event of a payment default. The outlook is positive. "Ratings reflect Burger King's below-average business profile, leveraged capital structure, and thin cash flow protection measures," said Standard & Poor's credit analyst Diane Shand. Proceeds from the debt offering will be used to refinance existing debt and for general corporate purposes. The ratings are based on preliminary terms and are subject to change after review of final documents. Miami, Florida-based Burger King operates in an extremely competitive industry. Management faces the formidable challenge of regaining market share after experiencing large systemwide problems from 1999 to 2003 due to senior management turnover, an inadequate product pipeline, weak marketing and promotions, and the poor financial health of a large portion of its franchisees. Still, the company has a strong brand name and stable cash flows due to its large royalty stream. Operating performance has shown some improvement since the company was purchase by a consortium of investors in 2002. As an independent company, the management team was strengthened, new products were developed, and financial and relationship issues in the franchise system were addressed. CAPITALSOURCE COMMERCIAL: Moody's Rates $72M Class E Notes at Ba2 ----------------------------------------------------------------- Moody's Investors Service assigned ratings to six classes of notes issued by CapitalSource Commercial Loan Trust 2005-1: 1) Aaa to the U.S. $425,000,000 Class A-1 Floating Rate Asset Backed Notes, Series 2005-1; 2) Aaa to the U.S. $468,750,000 Class A-2 Floating Rate Asset Backed Notes, Series 2005-1; 3) Aa2 to the U.S. $62,500,000 Class B Floating Rate Deferrable Asset Backed Notes, Series 2005-1; 4) A2 to the U.S. $103,125,000 Class C Floating Rate Deferrable Asset Backed Notes, Series 2005-1; 5) Baa2 to the U.S. $62,500,000 Class D Floating Rate Deferrable Asset Backed Notes, Series 2005-1; and 6) Ba2 to the U.S. $71,875,000 Class E Floating Rate Deferrable Asset Backed Notes, Series 2005-1. The ratings assigned to the notes address the ultimate cash receipt of all interest and principal payments required by the notes' governing documents and are based on the expected loss posed to the noteholders relative to the promise of receiving the present value of such payments. The ratings of the notes are also based upon the transaction's legal structure and the characteristics of the collateral pool, which will consist primarily of U.S. dollar-denominated senior secured loans. Moody's ratings on the composite securities only address the ultimate receipt of the rated balance for each composite security relative to the promise of receiving the present value of such payment and do not address any other payments or additional amounts that a holder of composite securities may receive pursuant to the underlying documents. CARRINGTON MORTGAGE: Moody's Rates Class M-9 Sub. Certs. at Ba1 --------------------------------------------------------------- Moody's Investors Service has assigned a rating of Aaa to the senior certificates issued by Carrington Mortgage Loan Trust 2005- NC2 and ratings ranging from Aa1 to Ba1 to the mezzanine and subordinate certificates in the deal. The securitization is backed by New Century originated adjustable- rate sub-prime mortgage loans with an interest-only feature. The ratings are based primarily on: * the credit quality of the loans; * performance of this type of collateral from this originator; and * on the protection from subordination, overcollateralization, and excess spread. The credit enhancement requirements reflect some benefit for due diligence performed on the collateral. Moody's expects collateral losses to range from 4.75% to 4.95%. The complete rating actions are: Issuer: Carrington Mortgage Loan Trust 2005-NC2 Securities: Asset Backed Pass-Through Certificates * Class A-1, rated Aaa * Class A-2, rated Aaa * Class A-3, rated Aaa * Class M-1, rated Aa1 * Class M-2, rated Aa2 * Class M-3, rated Aa3 * Class M-4, rated A2 * Class M-5, rated A3 * Class M-6, rated Baa1 * Class M-7, rated Baa2 * Class M-8, rated Baa3 * Class M-9, rated Ba1 CATHOLIC CHURCH: Portland Grants Easements at Gethsemani Cemetery ----------------------------------------------------------------- As previously reported, the U.S. Bankruptcy Court for the District of Oregon authorizes the Archdiocese of Portland in Oregon to grant a way of easement to PacifiCorp regarding electrical service to Holy Redeemer School. Judge Perris approves the terms, conditions, and transactions contemplated by the request, including the transfer of the Archdiocese's interest in the property regarding the PacifiCorp easement. The transfer of Portland's interest, if any, in the property is likewise approved and authorized. The Archdiocese of Portland sought authority from the U.S. Bankruptcy Court for the District of Oregon to execute: (a) in favor of PacifiCorp, an Oregon Corporation, a Right of Way Easement for an area of parish property to provide additional electric service to Holy Redeemer School on North Portland; and (b) a Grant of Easement for Road and Right of Way Purposes, in favor of Clackamas County, over Gethsemani Cemetery property, in exchange for frontage improvements to the cemetery. * * * The U.S. Bankruptcy Court for the District of Oregon approves the request as it concerns the easement for road and right-of-way purposes at Gethsemani Cemetery. "The terms conditions, and transactions contemplated by the Motion, including the transfer of the [Archdiocese's] interest, if any, in the property . . . regarding the Gethsemani easement, are approved, and the transfer of [Portland's] interest, if any, in the property is approved and authorized," Judge Perris rules. The Court authorizes Portland, as the record title-holder of the property, to execute in favor of Clackamas County, Oregon, an easement for road and right-of-way purposes over the Gethsemani Cemetery property in exchange for frontage improvements to the cemetery. Judge Perris clarifies that the Order does not determine the rights and claims of any party-in-interest, including Portland, Portland's creditors, Portland's estate, Holy Redeemer Church, Gethsemani Cemetery, any parish, parishioner donor, others with respect to the property. All the rights and claims are preserved. Furthermore, the Order will not constitute a waiver of rights of Portland, the Tort Claimants Committee, any creditor, any parish, parishioner, or any party-in-interest with respect to the property that is subject of any pending dispute. The Roman Catholic Church of the Diocese of Tucson filed for chapter 11 protection (Bankr. D. Ariz. Case No. 04-04721) on September 20, 2004, and delivered a plan of reorganization to the Court on the same day. Susan G. Boswell, Esq., Kasey C. Nye, Esq., at Quarles & Brady Streich Lang LLP, represent the Tucson Diocese. (Catholic Church Bankruptcy News, Issue No. 30; Bankruptcy Creditors' Service, Inc., 215/945-7000) CELLSTAR CORP: Selling Up to $50 Million of Convertible Notes ------------------------------------------------------------- CellStar Corporation (OTC Pink Sheets: CLST) disclosed a proposal to sell up to $50 million of convertible debentures. The Company also signed a letter of intent to sell up to $25 million of the Debentures to Stanford Financial Group Company and its affiliates. Stanford is acting on its own behalf and as financial advisor to Alan H. Goldfield, the founder and former Chairman and CEO of CellStar. The Company has not yet entered into any letter of intent for the sale of the balance of the Debentures. The Debentures would have a four-year term with a coupon rate of 8% and would be convertible into the Company's common stock at $4.00 a share. For each $1000.00 of Debentures, the Company would issue warrants to purchase 192 shares exercisable at $0.01 per share, with a five-year term. The Debentures would be subordinate to the Company's senior credit facility and 12% senior subordinated notes due January of 2007. The letter of intent is non-binding and the final terms of the definitive agreement are contingent upon, among other conditions: -- the satisfactory results of Stanford's due diligence investigation of the Company; -- the prevailing securities market conditions at the time of the closing of the proposed transaction; -- the election of Mr. Goldfield as the Company's Chairman of the Board and Chief Executive Officer; -- the election of three persons named by Mr. Goldfield to serve on the Company's five-member Board of Directors; and -- certain agreements between Mr. Goldfield and Stanford. Stanford is aware of the on-going review in its Asia Pacific Region by the Company's Audit Committee. It is anticipated that the due diligence examination will commence immediately and that the closing will be held, or the efforts toward concluding a transaction will terminate by July 31, 2005. There can be no assurance that the parties will be successful in negotiating a definitive agreement or consummating the proposed transaction. The Debentures will not be registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Delisting CellStar received notification from the Nasdaq Listing Qualifications Panel that its request for an extension to file its Form 10-K for fiscal 2004 and Form 10-Q for the first quarter of 2005 has been denied. Accordingly, the Company's common stock will be delisted from The Nasdaq Stock Market effective with the open of business on Friday, June 10, 2005. The Company has been unable to file its Form 10-K for fiscal 2004 and Form 10-Q for the first quarter of 2005 as a result of accounting issues related to certain accounts receivable and revenues in its Asia Pacific Region. As a result, the Company received a Nasdaq Staff Determination notice for each of the periods indicating that the Company had violated The Nasdaq Stock Market's continued listing requirement set forth in Marketplace Rule 4310(c)(14). The Company had requested that The Nasdaq Stock Market stay its delisting proceedings and grant the Company until May 31, 2005, to file its Form 10-K and as soon as possible thereafter, its Form 10-Q. On May 26, 2005, the Company announced that it would be unable to file its Form 10-K for fiscal 2004 by May 31, 2005. The Audit Committee of the Company's Board of Directors needs more time to complete its independent review of certain accounts receivable and revenue issues in the Asia Pacific Region. Waiver On June 1, 2005, the Company said it obtained a waiver from its lenders under its domestic revolving credit facility to extend the date to file its Form 10-K for fiscal 2004 and its Quarterly Report on Form 10-Q for the first quarter of 2005 to July 15, 2005. Pursuant to the waiver, the Company's lenders also agreed to waive certain financial covenants for the quarters ended November 30, 2004 and February 28, 2005, and for the quarters ended prior to November 30, 2004, with which the Company would not have been in compliance due to the contemplated restatements of its financial statements. The Waiver was executed by Wells Fargo Foothill, Inc., as agent and a lender, Fleet Capital Corporation, Textron Financial Corporation, and PNC National Bank Association, as lenders, and the Company and certain of its subsidiaries as borrowers, including CellStar, Ltd., National Auto Center, Inc., CellStar Financo, Inc., CellStar International Corporation/SA, CellStar Fulfillment, Inc., CellStar International Corporation/Asia, Audiomex Export Corp., NAC Holdings, Inc., CellStar Global Satellite Services, Ltd., and CellStar Fulfillment Ltd. CellStar Corporation -- http://www.cellstar.com/-- provides value-added logistics services to the wireless communications industry, with operations primarily in the North American, Latin American and Asia-Pacific regions. CellStar facilitates the effective and efficient distribution of handsets, related accessories and other wireless products from leading manufacturers to network operators, agents, resellers, dealers and retailers. CellStar also provides activation services in some of its markets that generate new subscribers for wireless carriers. CELLU TISSUE: Merger Plan Prompts Moody's to Improve Outlook ------------------------------------------------------------ Moody's Investors Service changed the outlook for Cellu Tissue Holdings, Inc., to developing from stable. The change in outlook is prompted by the recent announcement that Cellu Tissue has entered into an agreement and plan of merger with an affiliate of Kohlberg & Company in which Kohlberg will acquire Cellu Tissue. The developing outlook reflects the uncertainty as to: 1) the composition of the final capital structure post the proposed acquisition; 2) the position of existing bondholders within the new capital structure; 3) the anticipated combination of Cellu Tissue and Thilmany Inc. to effect the acquisition and the final corporate structure that will result, in addition to; 4) the various other conditions and approvals required to close the transaction. In the event the acquisition and combination were not consummated the outlook would likely be changed to stable. Cellu Tissue's B2 senior implied rating reflects: * the modest scale of the company's operations; * relatively weak balance sheet; * price exposure to raw material and energy; * significant competitive pressures; * the ability of customers to bring production back in-house; and * high degree of customer concentration. However, the ratings are supported by: * the company's improved operating performance; * strong market position for several of its products; * long-term customer relationships; * relatively good cash flow generation; and * adequate liquidity. As of February 28, 2005, the company had approximately $27 million of cash and an estimated $29 million available under its working capital revolver ($1 million in letters of credit were outstanding). Absent any deterioration in operating cash flows, we do not anticipate the company utilizing its working capital revolver. However, Moody's also believes Cellu Tissue has limited alternate sources of liquidity with all tangible and intangible assets of the company encumbered by either the bank facility or the senior secured notes. Cellu Tissue is a manufacturer of specialty tissue hard rolls and machine glazed paper. The scale of Cellu Tissue's operations is modest compared to most of its competitors with total aggregate production capacity of about 267,000 short tons and converting capacity of approximately 100,000 short tons, which based on management estimates gives the company a North American market position for tissue of about 2%. For fiscal year 2005, approximately 9% of total sales were generated from higher margin converted products while 91% was generated from hard rolls sold to third party converters. Cellu Tissue Holdings, Inc, headquartered in East Hartford, Connecticut, is a manufacturer of specialty tissue hard rolls and machine glazed paper used in the manufacture of: * diapers, * facial tissue, * bath tissue, * assorted paper towels, and * food wrap. CITIGROUP MORTGAGE: Fitch Affirms BB+ Rating on Class M-7 Certs. ---------------------------------------------------------------- Fitch Ratings has affirmed Citigroup Mortgage Loan Trust, series 2003-HE2, as follows: -- Class A 'AAA'; -- Class M-1 'AA'; -- Class M-2 'A+'; -- Class M-3 'A+'; -- Class M-4 'A-'; -- Class M-5 'BBB+'; -- Class M-6 'BBB'; -- Class M-7 'BB+'. The affirmations, affecting $59,404,653 of outstanding certificates, reflect pool performance and credit enhancement levels consistent with expectations. As of the May 2005 distribution, CE continues to build for all rated classes. Excess spread has covered all losses for the deal and the overcollateralization amount currently is at its target of $3,659,318. Approximately 57% of the collateral has paid down and there have been less than 0.10% in cumulative losses. The certificates are supported by mortgage loans originated by Encore Credit Corp. The mortgage pool consists of conventional, one- to four-family, adjustable-rate and fixed-rate first lien mortgage loans. Further information regarding current delinquency, loss, and credit enhancement statistics is available on the Fitch Ratings web site at http://www.fitchratings.com/ CNE GROUP: Filing Request for AMEX Delisting Appeal Hearing Today ----------------------------------------------------------------- CNE Group, Inc. (AMEX:CNE) received notice from the American Stock Exchange Staff on May 5, 2005, indicating that at Dec. 31, 2004, the Company did not meet certain of AMEX's continuing listing standards, specifically its: (i) Stockholders' Equity being less than $6,000,000 (Section 1003(a)(iii) of the AMEX Company Guide), and (ii) financial condition has become so impaired that it appears questionable that it will be able to continue operations and meet its obligations as they mature (Section 1003(a)(iv) of the AMEX Company Guide). AMEX requested the Company to submit a plan that would demonstrate to AMEX the Company's ability to regain compliance, which it did on June 8, 2005. On June 13, 2005, the Staff notified the Company that it had determined that the Plan does not make a reasonable demonstration of the Company's ability to regain compliance with the continued listing standards, as required by Section 1009 of the Company Guide and, as provided by Section 1009(d) thereof, the Staff has determined to proceed with the filing of an application with the Securities and Exchange Commission to strike the Company's common stock from listing and registration on AMEX. In accordance with Sections 1203 and 1009(d) of the Company Guide the Company has a limited right to appeal the Staff's determination at an oral hearing or one based on a written submission before a Listing Qualifications Panel within seven days after receipt of the notification of the Staff's determination. The Company intends to request an oral hearing to appeal the Staff's determination and will file this request today, June 21, 2005, for which it will be required to pay a $5,000 fee together with the request. The Company can give no assurance that its appeal will be successful. CNE Group Inc., is a holding company whose primary operating subsidiaries are SRC Technologies, Inc., and U.S. Commlink, Ltd. SRC has two operating subsidiaries: Connectivity, Inc., and Econo- Comm, Inc. Econo-Comm, Inc. conducts business under the name of Mobile Communications. These companies, which CNE acquired on April 23, 2003, market, manufacture, repair and maintain remote radio and cellular-based emergency response products to a variety of federal, state and local government institutions, and other vertical markets throughout the United States. SRC has intellectual property rights to certain key elements of these products -- specifically, certain communication, data entry and telemetry devices. In addition, CNE engages in the business of e-recruiting through its CareerEngine, Inc., subsidiary. The e-recruiting business does not generate a significant part of CNE's revenue, and is not significant to the operations of the Company. * * * As reported in the Troubled Company Reporter on May 9, 2005, Rosen Seymour Shapss Martin & Company LLP audited CNE Group, Inc.'s consolidated financial statements for the year ending Dec. 31, 2004. Their report includes language stating that substantial doubt exists as to CNE's ability to continue as a going concern. The auditors observe that CNE's financial statements show an accumulated deficit at December 31, 2004, of approximately $21,500,000. The Company has incurred substantial losses from continuing operations and sustained substantial cash outflows from operating activities. Further, at December 31, 2004, CNE's balance sheet shows a $3,146,873 working capital deficit. COFFEYVILLE RESOURCES: Moody's Rates $275M 2nd Sec. Loan at B3 -------------------------------------------------------------- Moody's rated Coffeyville Resources, LLC's pending $800 million four tranche first and second secured credit facility. Located in the midst of the Mid-continent refined product and agribusiness markets, CRL principally consists of: * a modest complexity, regionally relatively large 100,000 barrel Coffeyville, Kansas refinery; * an importantj profitable nitrogen fertilizer plant fed by less expensive petroleum coke from the refinery rather than by costly natural gas; and * the Phillipsburg refined product terminal. For the next four years, the refinery will operate with a partial gross margin hedge (a NYMEX 5-3-2 crack spread hedge). However, the hedge will not protect against a narrowing of the important sweet versus sour and heavy/medium versus light crude oil price differentials or against refined product basis risk. With a stable outlook and subject to final facility documentation, Moody's assigned these ratings. 1) B1 $150 million cash-secured letter of credit facility backing a crack spread hedge facility. 2) B1 $100 million initially undrawn first secured 6-year bank revolver. 3) B1 $275 million first secured 7-year term loan, including a $50 million delayed draw. 4) B2 Corporate Family Rating (formerly the Senior Implied Rating). 5) B3 on a $275 million second secured 8-year term loan. An initial $500 million of debt and over $200 million of cash equity will fund the over $720 million acquisition of CRL by GS Capital Partners V (GSC, a Goldman Sachs private equity fund) and Kelso & Company from Pegasus Capital Advisors. That price includes somewhat over $100 million of inventory and the nitrogen fertilizer plant. Coffeyville Acquisition, LLC will, through intermediate guarantor holding companies, wholly-own CRL which will be the sole borrower. GSC and Kelso will contribute additional equity to fund a bit over half of the cost to construct a continuous catalytic reformer unit, a fluid catalytic cracking unit, and additional desulfurization capacity. Assuming project success, these projects should add important value adding process capacity since CRL currently produces a very high proportion of lower margin regular gasoline and low proportion of premium gasoline. Pegasus bought Coffeyville out of bankruptcy in March 2004 for $163 million (including $100 million in inventory and $23 million of assumed liabilities) and assumed significant environmental liabilities and other risks. The difference between the price Pegasus paid and the GS/Kelso price deserves much comment. CRL was owned by Farmland Industries which filed for bankruptcy in 2002. Subsequent completion of key CRL and third party projects have rendered a more competitive asset set and the signing of a Consent Decree with state and federal regulators also reduces environmental cost uncertainty. While we detail other factors below that contribute to the recent higher acquisition price, GSC/Kelso still seem to be paying a notable price given the relatively recent vintage of the sector's high margin expectations. All in, GSC/Kelso will pay in the range of $7,250 per refining throughput barrel for a modestly complex refinery and a high roughly $760 per complexity barrel (using CRL's 9.5 Nelson Complexity Index as reported at year-end 2004 by the Oil & Gas Journal). Allocating $250 million of the acquisition cost to the fertilizer unit would reduce that metric to roughly $4,750 per distillation barrel and $500 per complexity barrel. Using CRL's lower 8.8 Solomon Complexity rating, the all-in cost acquisition cost would be roughly $825 per complexity barrel. Complexity indirectly measures a refinery's relative capacity to convert crude oil into value-added refined product. Coffeyville derives part of its 9.5 Nelson index from process redundancy. Ignoring redundancy, on pure value adding process complexity the complexity figure approximates 8.8. CRL's index would be lower still if measured by other consultants whose methods tend to yield complexity indexes lower than the Nelson and Solomon methods. Ratings Support The ratings are supported by: * over $200 million cash equity cushion; * expected sound refining margins through 2005 and possibly into 2006; * much more secure crude oil sourcing logistics with the March 2005 completion of the Plains Pipeline; * favorable refined product take-away and distribution logistics and proximity to end-user markets; * the positive aspects of the crack spread hedge on the considerable majority of production which, assuming CRL avoids material downtime, provides a partial gross margin hedge on that production; * commitments by GS and Kelso to support a portion of a value- adding capital program with additional equity; * the fact that the projects are not new technology and could add significantly to CRL's value assuming successful performance; * a degree of diversification provided by the fertilizer business; * expected sound fertilizer prices in the near term; and * general continuity of sound operating management. The new CEO is seasoned in project management and refinery operations. Also, while the fertilizer business carries high fixed costs relative to natural gas fed competitors, the fertilizer business has a key cost advantage in being fed by low cost petroleum coke which is gasified to provide feedstock and energy. It benefits from current strong prices driven by competitor's high natural gas costs and still strong demand for urea and liquid nitrogen fertilizer. The plant is situated in the midst of a major market for nitrogen fertilizer. Ratings Restraints CRL operates a single refinery with no redundancy for certain processing units, though this is tempered to a degree by: * a degree of redundancy in atmospheric and vacuum distillation, coking, and sulfur recovery capacities; * by important diversification from its additional fertilizer business line; and * by substantial business interruption insurance. However, it cannot be known at this time how closely business interruption payments would match contractual obligations. CRL will carry high leverage measured by Debt/Complexity barrels and Debt/Distillation barrels. We view refining leverage measures that are oriented around EBITDA to have limited value due to the volatility of margins, wide working capital swings, and the very substantial capital spending needs for the sector through 2007. The ratings are also restrained by substantial capital spending (partly funded by new equity) needed for projects critical to moving CRL from third quartile status to second quartile status and to meet ultra low sulfur diesel and Tier II gasoline requirements. CRL also produces a very low level of high margin premium gasoline (to be addressed with the addition of a continuous catalytic reformer), incurs comparatively high unit operating costs and also ranks low in energy and heat efficiency. CRL will also face inherent project delay, completion, and post- completion performance risk (though it is seasoned in project management) before meeting design specifications. CRL has yet to send bid letters out for its CCR and FCCU projects, exposing it to cost escalation risk until all raw material costs and construction terms are finalized, though it has added contingency for unforeseen cost escalation. CRL also is exposed to rising net debt levels if it suffers an extended inability to produce sufficient refined product at a time when the market NYMEX 5-3-2 crack spread had moved above the hedge level. In such an event, CRL would have to meet its contractual payments to its counterparty on the hedge but may not have sufficient cash flow to make those payments. Its obligation would then be met by the swap counterparty's draw under the letter of credit facility, with the letter of credit banks being reimbursed from the cash collateral. The cash collateral was funded with debt; hence net debt would rise as the cash collateral was consumed. Recent More Robust Valuation Drivers Critically, after completing the Plains crude oil line linking CRL to Cushing, Oklahoma, CRL mitigated the stark risk of losing its vital access to crude oil from outside its gathering region. Enbridge had evaluated the reversal of a crude line that indirectly linked CRL to Cushing. Also, in contrast to the 2003 to early 2004 the valuation perceptions that were partly shaped by a very harsh 2002 and a recovering 2003 margin environment, recent bidders for CRL faced a far more favorable margin outlook. CRL's unique fertilizer business also benefits from much higher fertilizer price expectations now and Pegasus and CRL have made progress in mitigating refining and fertilizer operating factors that had also restrained value perceptions. Other factors restraining the early 2004 valuation included: * that CRL was in bankruptcy; * bidders then seem to have considerably underestimated the value of the fertilizer business by underestimating future natural gas costs and, therefore, fertilizer prices; * GSC/Kelso may have factored some of the margin benefit of CRL's pending four year NYMEX 5-3-2 partial gross margin hedge into its acquisition price; and * CRL expects reduced unscheduled downtime. With over $230 million in new capital projects, GSC/Kelso seeks to convert CRL from a third quartile to a second quartile refinery. It now produces a very low proportion of higher margin premium gasoline, is notably light on hydrotreating (sulfur removal) capacity, has low energy and heat efficiency, and does not run at its 115,000 barrel per day name plate capacity since that would yield even higher proportions of low-to-negative margin product. It estimates non-fuels environmental costs to be $50 million to $70 million, largely spent later this decade. CRL's fertilizer business ($370 million invested between 1999 and 2002) does not require costly natural gas as a feedstock. It instead gasifies petroleum coke produced as a low value refining by-product. On the other hand, CRL's fertilizer process carries a much higher fixed cost burden than units that source natural gas and it has had reliability issues since it was completed earlier this decade. Fertilizer prices are seasonal, cyclical, and are driven by natural gas prices since most producers consume natural gas as a principal raw material. We expect fertilizer prices to remain historically strong this year but remain inherently volatile. Notching Of The Ratings The B1 first secured ratings are notched up from the B2 Corporate Family Rating to reflect the senior claim on all working capital and operating assets and the large junior capital (second lien debt and equity) cushion beneath the first secured debt. The notch also reflects the potential for accelerated first secured debt reduction, beginning in mid-2007 after a heavy capital program is completed, by a cash sweep of 75% of free cash flow. The first secured rating is restrained since first lien debt will grow with new borrowings to fund the capital program and by the risk that first lien net debt could rise if CRL significantly under producers product volume at a time when 5-3-2 NYMEX cracks spreads exceed CRL's over $7.50/barrel crack spread hedge. If it is unable to make its payments to the hedge counterparty, the counterparty would draw on letters of credit under the $150 million facility. The lenders would use the cash collateral to make payment under the letter of credit. The second secured rating is restrained by: * its junior position in major creditor decisions; * a second lien position behind first lien debt; * a risk of higher net debt if the letter of credit agreement is drawn; and * by the fact that we expect that the second lien debt will be junior to any future DIP funding that the first secured lenders could vote to arrange in a duress situation. Financial Profile In the twelve months ended March 31, 2005, CRL reports $123 million of EBITDA after $115 million in calendar 2004, $44 million in calendar 2003, and an operating loss in a very weak 2002 sector environment. Especially strong sector margins this past April pushed EBITDA for the twelve months ending April 30, 2005 to a reported $138 million ($148 million per CRL's adjustments). We anticipate 2006 EBITDA to be in the $105 million to $125 million range, depending on the strength of U.S. and world economic activity and petroleum product demand. Moody's believes annual interest expense will be in the range of $45 million to $50 million and that capital spending will be at least $75 million for 2005 ($10 million already spent), $160 million for 2006, and $65 million for 2007. We would expect debt to peak at levels approaching $600 million in 2006, depending on working capital requirements. CRL will support its gross margin with a crack spread hedge based on NYMEX light sweet crude oil, regular gasoline, and heating oil prices for the substantial majority of production and averaging over $7.50 per barrel for the period ending mid-2008. While the hedge will provide important support, it does not protect against a narrowing of the very important light versus sweet and heavy/medium versus sour crude oil cost differentials; it exposes CRL to basis risk on its product mix; and exposes it to substantial costs if operating downtime substantially reduces production when the market 5-3-2 spread exceeds the over $7.50 per barrel hedge. In 2004, CRL ran 54% light sour to medium sour crude oil and sourced 60% to 80% of that from Latin America. The hedge does not protect against regional refined product price declines below NYMEX or declines in diesel or other distillate prices relative to hedged heating oil. The pro-forma capital structure includes $500 million of debt and over $200 million of equity. An additional $150 million will be borrowed and escrowed to cash collateralize CRL's obligations under the crack spread hedge. Inventory would increase by roughly $75 million to $125 million if BP Oil Supply Company no longer fronted for CRL's sourcing of 84% of its crude oil and CRL's exposure to crude oil price volatility would also therefore increase. Principle pro-forma April 30, 2005 assets include: * nominal cash (excluding escrowed cash); * $35 million in receivables; * $129 million in inventory; * an as yet to be determined allocation to fixed assets; and * Moody's expectation of very substantial goodwill and other intangibles. Coffeyville Resources, LLC is headquartered in Kansas City, Kansas. CREDIT SUISSE: Moody's Rates Class D-B-4 Subordinated Cert. at Ba1 ------------------------------------------------------------------ Moody's Investors Service has assigned a Aaa rating to the senior certificates issued by Credit Suisse First Boston Mortgage Securities Corp. and ratings ranging from Aa1 to Ba1 to the mezzanine and subordinate certificates in the deal. The securitization is backed by fixed-rate Jumbo and Alt-A mortgage loans originated by various originators and acquired by DLJ Mortgage Capital, Inc. The ratings are based primarily on the credit quality of the loans, and on the protection from subordination. Loans will be service by: * Select Portfolio Servicing Inc., * Washington Mutual Bank, * Washington Mutual Mortgage Securities Corp., * Countrywide Home Loans Servicing, L.P., * Bank of America, * National Association, * GMAC Mortgage Corporation, * National City Mortgage, * U.S. Central Credit Union, * Wachovia Mortgage Corporation, * Chase Manhattan Mortgage Corporation, and * Wells Fargo Bank, N.A. Wells Fargo Bank, N.A. will act as master servicer for all loans other than for the mortgage loans serviced by Washington Mutual Mortgage Securities Corp. Moody's has assigned Countrywide Home Loans Servicing, L.P. and Chase Manhattan Mortgage Corporation its top servicer quality rating (SQ1) as primary servicers of prime loans. The complete rating actions are: CSFB Mortgage-Backed Pass-Through Certificates Series 2005-4 * Class I-A-1 rated Aaa * Class II-A-1 rated Aaa * Class II-A-2 rated Aaa * Class II-A-3 rated Aaa * Class II-A-4 rated Aaa * Class II-A-5 rated Aaa * Class II-A-6 rated Aaa * Class II-A-7 rated Aaa * Class II-A-8 rated Aaa * Class II-A-9 rated Aa1 * Class III-A-1 rated Aaa * Class III-A-2 rated Aaa * Class III-A-3 rated Aaa * Class III-A-4 rated Aaa * Class III-A-5 rated Aaa * Class III-A-6 rated Aaa * Class III-A-7 rated Aaa * Class III-A-8 rated Aaa * Class III-A-9 rated Aaa * Class III-A-10 rated Aaa * Class III-A-11 rated Aaa * Class III-A-12 rated Aaa * Class III-A-13 rated Aaa * Class III-A-14 rated Aaa * Class III-A-15 rated Aaa * Class III-A-16 rated Aaa * Class III-A-17 rated Aaa * Class III-A-18 rated Aaa * Class III-A-19 rated Aa1 * Class III-A-20 rated Aaa * Class III-A-21 rated Aaa * Class III-A-22 rated Aaa * Class III-A-23 rated Aaa * Class III-A-24 rated Aaa * Class III-A-25 rated Aaa * Class I-X rated Aaa * Class II-X rated Aaa * Class III-X rated Aaa * Class A-P rated Aaa * Class C-B-3 rated Baa3 * Class D-B-2 rated A2 * Class D-B-3 rated Baa2 * Class D-B-4 rated Ba1 CWABS INC: Moody's Downgrades Class B2 Cert. to Ba3 from Baa2 ------------------------------------------------------------- Moody's Investors Service has upgraded twenty-seven certificates and downgraded one certificate from various transactions originated by New Century Mortgage Corporation. In addition, it has confirmed seven certificates previously put on watch. Finally, Moody's reviewed for possible upgrade one certificate from New Century Home Equity Loan Trust, Series 2000-NC1. The transactions, issued in 1999-2002, are backed by first lien adjustable- and fixed-rate subprime mortgage loans. The rating actions were based on the analysis of the credit enhancement levels provided by: * the excess spread, * overcollateralization, * subordination, and * insurance or guarantee when applicable. Another key aspect of the analysis was to review the stepdown triggers for the majority of the deals in order to consider the potential of overcollateralization leaking out of the deals. In general, the relative level of credit enhancement has increased in these deals due to rapid prepayments and the deal's lock-out provisions. In addition, while the current economic environment has caused some financial strain on borrowers, recent home price appreciation in most major housing markets has enabled many stressed borrowers to avoid foreclosure by selling their properties prior to any loss being experienced on the mortgage loans. The most subordinate class from CWABS, Inc, Series 2001-CB1 deal has been downgraded due to erosion of the loss coverage obligation provided by the seller-available to cover losses on the mortgage loans backing the transaction. The remaining dollar balance of the loss coverage obligation is not sufficient to support the current rating on the most subordinate class in the deal given the projected pipeline losses. Moody's complete rating actions are: Upgrade: Issuer: Salomon Brothers Mortgage Securities VII * Series 1999-NC3; Class M2, upgraded to Aaa from A2 * Series 1999-NC4; Class M2, upgraded to Aaa from A2 * Series 1999-NC5; Class M2, upgraded to Aaa from A2 Issuer: ABFC 2002-NC1 Trust * Class M1, upgraded to Aaa from Aa2 * Class M2, upgraded to Aa3 from A2 * Class M3, upgraded to Baa1 from Baa2 Issuer: New Century Home Equity Loan Trust * Series 2000-NC1; Class M2, upgraded to Aaa from A2. * Series 2002-1; Class M2, upgraded to Aa1 from A2 * Series 2002-1; Class M3, upgraded to A2 from Baa2 * Series 2002-1; Class M4, upgraded to A3 from Baa3 Issuer: PaineWebber Mortgage Acceptance Corp IV, Series 2000-HE1 * Class M1, upgraded to Aaa from Aa2 Issuer: Morgan Stanley Dean Witter Capital I Inc * Series 2001-NC2; Class M1, upgraded to Aaa from Aa2 * Series 2001-NC3; Class M1, upgraded to Aaa from Aa2 * Series 2001-NC4; Class M1, upgraded to Aaa from Aa2 * Series 2002-NC1; Class M1, upgraded to Aaa from Aa2 * Series 2002-NC1; Class M2, upgraded to Aa2 from A2 * Series 2002-NC4; Class M1, upgraded to Aaa from Aa2 * Series 2002-NC4; Class M2, upgraded to Aa2 from A2 Issuer: MASTR Asset Securitization Trust 2002-NC1 * Class M1, upgraded to Aaa from Aa2 Issuer: GSAMP 2002-NC1 Trust * Class M1, upgraded to Aaa from Aa2 Issuer: Asset Backed Securities Corporation * Series 2002-HE1; Class M1, upgraded to Aaa from Aa2 * Series 2002-HE2; Class M1, upgraded to Aaa from Aa2 * Series 2002-HE2; Class M2, upgraded to Aa3 from A2 Issuer: MESA Trust * Series 2001-1; Class M, upgraded to Aa2 from Baa2 * Series 2001-1; Class B, upgraded to Baa2 from Ba2 * Series 2001-3; Class M, upgraded to Aaa from Baa2 * Series 2001-3; Class B, upgraded to Aa2 from Ba2 Downgrade: Issuer: CWABS, Inc., Series 2001-BC1 * Class B2, downgraded to Ba3 from Baa2 Confirm: Issuer: Salomon Brothers Mortgage Securities VII * Series 1999-NC3; Class M3, confirmed at Baa2 * Series 1999-NC4; Class M3, confirmed at Baa2 Issuer: Morgan Stanley Dean Witter Capital I Inc * Series 2001-NC1; Class B1, confirmed at Baa3 * Series 2001-NC4, Class M2, confirmed at A2 Issuer: MASTR Asset Securitization Trust 2002-NC1 * Class M2, confirmed at A2 Issuer: GSAMP 2002-NC1 Trust * Class M2, confirmed at A2 Issuer: Asset Backed Securities Corporation, Series 2002-HE1 * Class M2, confirmed at A2 Review for possible upgrade: Issuer: New Century Home Equity Loan Trust, Series 2000-NC1 * Class M3, current rating Baa2, under review for possible upgrade DIMENSIONS HEALTH: Moody's Affirms B3 Rating on $76.6 Mil. Bonds ---------------------------------------------------------------- Moody's Investors Service has affirmed the B3 rating assigned to the bonds of Dimensions Health Corporation. The outlook remains negative. The rating affects $76.6 million of Series 1994 bonds. The low speculative rating reflects: Strength * Historical and ongoing support from Prince George's County, MD and the State * Locations in two relatively good demographic areas Challenges * County and State unlikely to support debt service on bonds * Negligible liquidity (6 days cash on hand) * Very bad demographics for the flagship hospital * Lack of capital investment causing flight of physicians * Three consecutive years of declining operating performance * Substantial management turnover * Independent task force recommending discontinuation of DHC as hospital operator * Expiration of 4% emergency rate increase in February 2005 * Current default related to insufficient pension payments The negative outlook reflects Moody's expectations that DHC or any successor will be unable to generate sufficient cash flow to service all of its cash requirements, including debt service. Security: The bonds are secured by a pledge of "receipts" derived from the health care operations and an assignment of the lease in the health care facilities. The actual health care buildings are owned by Prince George's County, Maryland and are leased to DHC through 2042. The Master Trustee can terminate the lease by virtue of an event of default by DHC and assign the lease and operation of the facilities to another operator. As of March 30, 2005, a debt service reserve fund in the amount of $7.2 million existed for the protection of the Series 1994 bondholders as well as the Series 1996 noteholders ($2.2 million outstanding) and Pooled Loan Program Series D bondholders ($2.3 million outstanding). Derivatives: None Financial Position Precarious Moody's downgraded the rating to B3 in February 2001 in conjunction with a dramatic decline in operating performance and liquidity. Since that time, days cash on hand has remained between a negligible 5 and 10 days. Surprisingly, DHC has not yet missed a bond payment. Since 2002, we believe that the only reason DHC has been able to remain in operation is due to financial support from the County and State, along with asset sales. For the years 2002, 2003 and 2004, the County and State contributed $5 million, $3 million and $7 million, respectively. Excluding these amounts, DHC generated total cash flow of $5.1 million, $3.3 million and $1.7 million, respectively. This is insufficient to fund necessary annual capital needs (which at minimum should be equal to depreciation of $9 million) and debt service of $7.2 million. While the County has agreed to fund, subject to appropriation, $5 million annually through 2008 (plus another $5 million in 2005 from asset sales) and the State has agreed to fund $6.3 million in 2005, we do not believe this will be sufficient. Through the 9 months ending March 31, 2005, DHC generated total cash flow of $7.5 million (excluding $5 million of special governmental support); however, $6.7 million of this resulted from receipt of an emergency rate increase from the state that expired on February 28, 2005. At the end of March cash on hand was a seemingly high $9.7 million, but declined to $5.4 million (6 days cash on hand) a few days later after a payroll payment. By January 15, 2006, DHC is required to make pension payments totaling $8.3 million, which we believe will only be paid if the County or State provides additional funding. On June 1, 2005, DHC gave notice that it had failed to make certain necessary pension payments, placing it in default under its various debt agreements, including the Trust Indenture for the Series 1994 bonds. DHC is seeking a waiver from the Internal Revenue Service. Flagship Hospital Located In Depressed Area DHC's 15,000-admission Prince George's Hospital Center is located just outside the Washington, D.C. line in an economically depressed area of southern Maryland. The hospital's net revenue mix includes approximately 25% from Medicaid and 29% Self-pay; this mix compares unfavorably to Moody's medians of 9% and 7%, respectively. In order to attract medical staff the hospital has to employ a large number of physicians, causing further pressure on profitability. DHC's 7,000-admission Laurel Regional Hospital is located in a nicer area of Maryland but has also struggled lately due to its own bad debt expenses. Likewise, Bowie Health, an outpatient center and emergency room located near prosperous Anne Arundel County has also experienced a material rise in bad debts. Extraordinary Measures Likely In the Summer of 2004, the board replaced most of the senior management and brought in the turnaround group, Cambio, to assess the hospital system's position. While some improvements have been made, we believe that fundamental change is necessary to improve negligible revenue growth. In 2004, the County and State formed an Oversight Committee to make recommendations for longer term survival of the hospital system. In January 2005, the Committee published its findings, including a recommendation to terminate its relationship with DHC. Options included negotiating with a large hospital system to take over DHC, arrange a sale to a third party or retain a new management entity to operate the system. Longer term recommendations call for some kind of ongoing public funding, possibly a sales tax or hospital district tax, to supplement patient revenues. In any case, we believe that any additional governmental funding will be limited to providing patient care, not paying principal and interest on the Series 1994 bonds. While the County owns the ho spitals, it does not have a legal obligation to repay the bond debt and has indicated it will not do so. Financial And Utilization Data (fiscal year ended June 30, 2004 and 9-months ended March 31, 2005; investment income as reported, not normalized; excludes County, State and Magruder Trust grants of $7 million in 2004 and $5 million in 2005): -- Inpatient admissions: 22,725; 16,702 -- Total operating revenue: $315 million; $251 million -- Net revenue available for debt service: $1.7 million; $7.5 million (includes $6.7 million from emergency rate increase that expired February 28, 2005) -- Total debt outstanding: $84.1 million; $81.2 million -- Maximum annual debt service coverage: $7.2 million; $7.2 million -- MADS coverage based on reported investment income: 0.24 times; 1.38 times (annualized) -- Debt-to-Cash Flow: negative; 14.9 times (annualized) -- Days cash on hand: 5.6 days; 10.7 days -- Cash-to-debt: 5.8%; 11.9% -- Operating cash flow margin: 0.4%; 2.8% Outlook The negative outlook reflects our expectations that DHC or any successor will be unable to generate sufficient cash flow to service all of its cash requirements, including debt service. DIVERSIFIED CORPORATE: Axtive Terminates Datatek Acquisition ------------------------------------------------------------ Diversified Corporate Resources, Inc. (OTC Pink Sheets: HIRD) disclosed that Axtive Corporation will be unable to satisfy the conditions to closing set forth in the Asset Purchase Agreement pursuant to which Axtive agreed to acquire Datatek Group Corporation, a wholly owned subsidiary of the Company. The Company reported an extension of the deadline to complete the transaction, which expired on April 30, 2005, allowing the Company to market the subsidiary to other interested parties. Since that time, the Company has received numerous inquiries from other parties interested in Datatek. The Company is currently involved in negotiations with these other parties regarding the sale of Datatek, and management expects to enter into one or more letters of intent in connection with such sale in the next couple of weeks. However, because the negotiations are in their early stages, there is no assurance that a sale will ultimately occur. Diversified Corporate Resources, Inc., is a national employment services and consulting firm, servicing Fortune 500 and larger regional companies with permanent recruiting and staff augmentation in the fields of Engineering, Information Technology, Healthcare, BioMed and Finance and Accounting. The Company currently operates a nationwide network of eight regional offices. * * * As reported in the Troubled Company Reporter on Dec. 20, 2004, Diversified Corporate Resources, Inc. (OTC Pink Sheets: HIRD) has filed with the Securities and Exchange Commission its Annual Report on Form 10-K for fiscal year ended Dec. 31, 2003. The audited statements included in the 10-K were accompanied by an audit opinion, which contains a going concern qualification. Weaver and Tidwell, L.L.P., in Dallas, Texas, audited the company's 2003 financial statements. The Company believes that it will be unable to continue as a going concern for the next twelve months without obtaining additional funds through debt or equity financing or through the sale of assets. The inability to obtain additional funds could have a material adverse effect on the Company. DON SEALS: Case Summary & 20 Largest Unsecured Creditors -------------------------------------------------------- Debtor: Don Seals Enterprises, Inc. dba Big Horn Petroleum P.O. Box 669 Buffalo, Wyoming 82834 Bankruptcy Case No.: 05-21267 Type of Business: The Debtor is a petroleum distributor. Chapter 11 Petition Date: June 19, 2005 Court: District of Wyoming (Cheyenne) Judge: Peter J. McNiff Debtor's Counsel: Paul Hunter, Esq. Law Office of Paul Hunter 2616 Central Avenue Cheyenne, Wyoming 82001 Tel: (307) 637-0212 Total Assets: $3,918,500 Total Debts: $2,184,744 Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Red Eagle Oil, Inc. $497,855 P.O. Box 2468 Cody, WY 82414 Overland Petroleum $55,301 P.O. Box 910550 St. George, UT 04791-0550 SB Fuels of Wyoming $27,347 12500 I80 Service Road Cheyenne, WY 82009-8761 Slafter Oil Company $13,681 210 South Beltline East Scottsbluff, NE 69363-0950 Big Horn Travel Plaza $11,285 Box 669 Buffalo, WY 82834 Eds Body Shop, Inc. $10,032 1211 Fort Street P.O. Box 35 Buffalo, WY 82834 Jims Automotive and Tire $6,808 423 Upper French Creek Road Buffalo, WY 82834 Valutect Petroleum Products $6,427 3400 Dundee Road Northbrook, IL 60062 Pacific Power and Light $5,237 1033 Northeast 6th Avenue Portland, OR 97256 Alta Computer Services LLC $4,683 1887 South 700 West SLC, UT 84104 Montana Food Distribution $4,101 P.O. Box 21339 Billings, MT 59184-1339 Steve's Truck Service, Inc. $3,773 124 Canfield Sheridan, WY 82801 Great Western Tire/Sheridan $2,847 P.O. Box 6466 Sheridan, WY 82801-6466 Farmer Brothers Coffee $2,781 2625 Enterprise Avenue Billings, MT 59102 Blackhawk Security $2,370 807 North Federal Boulevard P.O. Box 2050 Riverton, WY 82501 Rushmore News, Inc. $2,181 924 East St. Andrews Street Rapid City, SD 55701-3992 Phillips Welding Service $1,839 P.O. Box 1656 Gillette, WY 82717 Fuel Transport $1,582 Box 421 Casper, WY 82602 Allstar/Big Horn Gas $1,559 173 Highway 16 East, Unit #1 Buffalo, WY 82834 Vernon Company $1,500 Department C One Promotion Place Newton, IA 58200-2065 DOUBLECLICK INC: S&P Junks $115 Million Second-Lien Term Loan ------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B' bank loan rating and a recovery rating of '2' to Internet ad service provider DoubleClick Inc.'s (B/Negative/--) $340 million first- lien senior secured credit facilities, indicating an expectation of substantial (80%-100%) recovery of principal in a default scenario. The facilities consist of a $50 million revolving credit facility due 2010 and a $290 million term loan B due 2012. At the same time, Standard & Poor's also assigned its 'CCC+' bank loan rating and a recovery rating of '5', indicating an expectation of negligible (0%-25%) recovery of principal in a default situation, to DoubleClick's $115 million second-lien term loan due 2013. Proceeds from the transaction will be used to finance partially the acquisition of DoubleClick by Hellman & Friedman LLC. The 'B' corporate credit rating on DoubleClick was affirmed and removed from CreditWatch, where it was placed with negative implications on Nov. 2, 2004. The outlook is negative. Pro forma for the transaction, the company will have $405 million of debt outstanding as of March 31, 2005. DoubleClick consists of two main operating units, TechSolutions and Data. TechSolutions provides tools and services for the planning, execution, and analysis of online marketing campaigns. The Data unit offers direct marketers a large set of transactional, geographic, demographic, and behavioral profiles to help acquire prospects. "The ratings reflect aggressive financial policies, pricing pressure at DoubleClick's ad management services, and earnings softness at its Data unit," said Standard & Poor's credit analyst Andy Liu. These factors are only partially offset by the company's leading share in several Internet ad-serving niches and its large suite of product offerings. Hellman & Friedman LLC's acquisition of DoubleClick is being funded by a combination of new equity, bank debt and about $500 million of DoubleClick's cash, which Standard & Poor's had previously considered an important source of support for the credit. The outlook is negative. Pricing pressure, competition, and business reinvestment will likely limit any potential upside over the near term. If business operations weaken and subsequently begin to pressure liquidity, the rating could be lowered. Over the longer term, given DoubleClick's large portfolio of products and services, it is possible that a combination of market share gains from competitors and credit metric improvement could lead to a revision in the rating outlook to stable. ENRON CORP: Court Approves Allocation of Reserved Funds ------------------------------------------------------- Enron Corporation and its debtor-affiliates sought the U.S. Bankruptcy Court for the Southern District of New York's authority to allocate the proceeds from the sale of certain assets. Specifically, the Allocation Motion proposed that $13,200,000 of the proceeds be allocated in this manner: Enron North America Corp. $6,856,303 Joint Energy Development Investments II Limited Partnership 6,343,697 JEDI II objected the Allocation Motion and proposed this distribution: ENA $4,107,343 JEDI II 9,092,657 However, the Court approved the Allocation Motion in its entirety except with respect to the proceeds from that certain sale of coal-related assets to Cline Resources and Development Company. Melanie Gray, Esq., at Weil, Gotshal & Manges, LLP, in New York, relates that $750,000 of the proceeds have already been allocated to JEDI II. The remaining $12,450,000 has not been distributed. The Debtors have retained the Remaining Proceeds in a segregated account, pending further order from the Bankruptcy Court. To resolve JEDI II's objection, the Reorganized Debtors and JEDI II reached an agreement on the distribution of the Remaining Proceeds. In a stipulation Judge Gonzalez approved, the parties agree that: a. JEDI II's Objection will be deemed dismissed with prejudice; b. The allocation of the Proceeds will be in this manner: ENA $4,950,000 JEDI II 8,250,000 c. The Reorganized Debtors will immediately distribute the Remaining Proceeds with the $4,950,000 to ENA and the $7,500,000 to JEDI II, together with the interest that has accrued. d. The Reorganized Debtors will distribute the Interest in this ratio -- ENA: 39.76% and JEDI II: 60.24%. e. The parties will release each other from all claims with respect to the Allocation Motion and the Proceeds. 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. Enron 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. The Confirmed Plan took effect on Nov. 17, 2004. 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. 147; Bankruptcy Creditors' Service, Inc., 15/945-7000) ENRON CORP: MARTA Okays $1.8 Settlement Payment to ENA ------------------------------------------------------ Pursuant to Rule 9019(a) of the Federal Rules of Bankruptcy Procedure, Enron North America Corp. sought and obtained the U.S. Bankruptcy Court for the Southern District of New York's approval of its settlement agreement with Metropolitan Atlanta Rapid Transit Authority. Prior to the Petition Date, the parties entered into a swap agreement and negotiated an ISDA agreement pursuant to which certain amounts are owed to ENA. Pursuant to the Settlement, the parties agree that: 1. MARTA will pay $1,825,000 to ENA; 2. they will exchange a mutual release of claims related to the Agreements; 3. all claims filed by or on behalf of MARTA against ENA in connection with the Agreements will be deemed irrevocably withdrawn, with prejudice, and to the extent applicable expunged; 4. all liabilities scheduled by ENA on its Schedules of Assets and Liabilities in favor of MARTA will be deemed irrevocably withdrawn, with prejudice, and to the extent applicable expunged, and all scheduled liabilities related to MARTA will be disallowed in their entirety; 5. MARTA will execute certain stipulations dismissing with prejudice: -- Appeal No. 04-CIV-03348 (BSJ), filed by MARTA, appealing from the Court's order denying MARTA's request for relief from the automatic stay; and -- Case No. 2003CV68534, filed by MARTA in the State Court of Georgia, seeking certain declaratory judgments regarding the Agreements; and 6. ENA will execute a stipulation dismissing with prejudice an adversary proceeding it filed against MARTA. 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. Enron 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. The Confirmed Plan took effect on Nov. 17, 2004. 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. 146; Bankruptcy Creditors' Service, Inc., 15/945-7000) ENRON CORP: Asks Court to Okay Cargill Settlement Agreement ----------------------------------------------------------- Cargill Incorporated and certain of its subsidiaries, including Cargill Energy Trading Canada, Inc., Cargill Power Markets, LLC, Cargill International S.A., Cargill Fertilizer, Inc., and Cargill Fertilizer, LLC, assert more than $20 million on account of claims against Reorganized Enron Corporation and its debtor- affiliates. Frederick W. H. Carter, Esq., at Venable LLP, in Baltimore, Maryland, relates that prior to the Petition Date, certain Cargill Entities entered into agreements with Enron Corp., Enron North America Corp., Enron Power Marketing, Inc., Enron Capital & Trade Resources International Corp., Garden State Paper Company, LLC, and Enron Reserve Acquisition Corp. The agreements were for: -- the sale of commodities, and -- the exchange of cash payments based on the movement of the prices of commodities or of indices relating to these commodities. On January 1, 2001, and September 28, 2001, Enron amended an existing credit support agreement in favor of Cargill, Cargill Canada, Cargill Int'l. and Cargill S.A. Singapore Branch. Enron extended the expiration date of an existing guaranty and increased its guaranteed limit of certain obligations of ENA, EPMI, ECTRIC and other subsidiaries to up to $40,000,000 owing under some of the Agreements. The Cargill Entities filed proofs of claim for amounts due under the Agreements -- Trading Claims: Claimant Debtor Claim No. Claim Amount -------- ------ --------- ------------ Cargill ENA 19297 $7,907,050 Cargill Canada ENA 19300 $1,064,883 Cargill Power EPMI 19302 $48,527 Cargill Int'l ECTRIC 19294 $360,498 CFLLC Garden 5613 $9,202 Cargill ERAC 19298 $161,820 Cargill ECTRIC 19296 $782,447 On account of the guaranty under the Agreements, four Cargill Entities filed claims against Enron: Claimant Claim No. Claim Amount -------- --------- ------------ Cargill Canada 19299 $1,064,883 Cargill 19295 $8,851,347 Cargill Power 19301 $48,527 Cargill Int'l 19580 $360,498 On November 26, 2003, Enron filed an adversary proceeding against the Cargill Entities seeking to avoid two Guaranty Claims -- Claims Nos. 19295 and 19299. The Reorganized Debtors objected to four of the Cargill Claims -- Claim Nos. 19299, 19298, 19296 and 19295 -- and asked the Court to modify the claims. The Court has not addressed the Objection. Section 28.2 of the Plan allows holders of guaranty claims based on guaranties executed between December 2, 2000, and December 2, 2001, to compromise and settle guaranty avoidance litigation, like the Guaranty Avoidance Action, by accepting a discount to the allowed amount of the guaranty claim, if any. The Reorganized Debtors and the Cargill Entities have entered into settlement negotiations to resolve their differences with regards to the Adversary Proceeding and the Cargill Claims. The parties agreed that: 1. The Trading Claims will be reduced and allowed as prepetition, general unsecured claims to be paid in accordance with the Plan: Claim No. Allowed Amount --------- -------------- 19297 $7,907,050 19300 1,064,883 19302 48,527 19294 360,498 5613 9,202 19298 63,240 19296 451,248 2. Claim Nos. 19301 and 19580 will be allowed in full as Class 185 claims to be paid in accordance with the Plan. 3. Pursuant to Section 28.2 of the Plan, the remaining Guaranty Claims will be reduced by 70% and allowed as Class 185 claims at their reduced amounts: Claim No. Allowed Amount --------- -------------- 19299 $319,450 19295 2,526,462 4. The Guaranty Avoidance Action will be dismissed, with prejudice and without costs to any party. The Reorganized Debtors ask the Court to approve the Settlement. Mr. Carter asserts that the Settlement falls within the "range of reasonableness" under Rule 9019 of the Federal Rules of Bankruptcy Procedure. The settlement will avoid future disputes and litigation with respect to the claims, including the attendant litigation costs. 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. Enron 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. The Confirmed Plan took effect on Nov. 17, 2004. 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. 146; Bankruptcy Creditors' Service, Inc., 15/945-7000) EXIDE TECH: To File Fiscal 2005 Annual Financial Results Late ------------------------------------------------------------- Exide Technologies has been unable to complete its financial statements for the fiscal year ended March 31, 2005, required for the timely filing of its annual report on Form 10-K without unreasonable cost and effort principally due to the diversion of resources to the Company's Section 404 Sarbanes-Oxley compliance program and actions associated with recent bank amendments. J. Timothy Gargaro, Executive Vice President and Chief Financial Officer, discloses that the Company anticipates a significant change in results of operations from the corresponding period for the last fiscal year. Exide previously filed with the Securities and Exchange Commission its unaudited estimated financial results for the fiscal year and quarter ended March 31, 2005, as presented in a conference with its secured lenders of its senior credit facility. A full-text copy of the presentation is available for free at: http://ResearchArchives.com/t/s?d A full-text copy of the Consolidated Adjusted EBTIDA Reconciliation is available for free at: http://ResearchArchives.com/t/s?2d 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 Apr. 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. * * * As reported in the Troubled Company Reporter on May 23, 2005, Moody's Investors Service placed the ratings for Exide Technologies, Inc. and its foreign subsidiary Exide Global Holdings Netherlands CV on review for possible downgrade. Management announced that a preliminary evaluation of Exide's results for the fourth quarter ended March 2005 strongly indicates that the company will be in violation of its consolidated adjusted EBITDA and leverage ratios as of fiscal year end. Moody's considers this is a significant event, given that these covenants were all very recently reset during February 2005 in connection with Exide's partial refinancing of its balance sheet. The company has initiated amendment negotiations with its lenders, but will not have access to any portion of the $69 million of unused availability under its revolving credit facility until the amendment process is completed. Exide had approximately $76.7 million of cash on hand as of the March 31, 2005 fiscal year end reporting date. However, this amount had declined to about $42 million as of May 17, 2005 due to the company's use of cash to fund seasonally high first quarter working capital needs, as well as approximately $8 million in pension contributions and a required $12 million payment related to a hedge Exide has in effect. These ratings were placed on review for possible downgrade: -- Caa1 rating for Exide Technologies' $290 million of proposed unguaranteed senior unsecured notes due March 2013; -- B1 ratings for approximately $265 million of remaining guaranteed senior secured credit facilities for Exide Technologies and Exide Global Holdings Netherlands CV, consisting of: * $100 million multi-currency Exide Technologies, Inc. shared US and foreign bank revolving credit facility due May 2009; * $89.5 million remaining term loan due May 2010 at Exide Technologies, Inc.; * $89.5 million remaining term loan due May 2010 at Exide Global Holdings Netherlands CV.; * Euro 67.5 million remaining term loan due May 2010 at Exide Global Holdings Netherlands CV.; -- B2 senior implied rating for Exide Technologies, Inc.; -- Caa1 senior unsecured issuer rating for Exide Technologies, Inc. As reported in the Troubled Company Reporter on May 19, 2005, Standard & Poor's Ratings Services lowered its corporate credit rating on Exide Technologies to 'B-' from 'B+', and placed the rating on CreditWatch with negative implications. The rating action follows Exide's announcement that it likely violated bank financial covenants for the fiscal year ended March 31, 2005. Lawrenceville, New Jersey-based Exide, a manufacturer of automotive and industrial batteries, has total debt of about $750 million. The covenant violations would be a result of lower-than-expected earnings. Exide estimates that its adjusted EBITDA for the fiscal year ended March 31, 2005, will be only $100 million to $107 million, which is substantially below the company's forecast and 40% below the previous year. The EBITDA shortfall stemmed from high lead costs, low overhead absorption due to an inventory reduction initiative, other inventory valuation adjustments, and costs associated with accounting compliance under the Sarbanes- Oxley Act. Exide is working with its bank lenders to secure amendments to its covenants. "The company continues to be challenged by the dramatic rise in the cost of lead, a key component in battery production that now makes up about one-third of Exide's cost of sales," said Standard & Poor's credit analyst Martin King. FARR MANUFACTURING: Case Summary & Largest Known Creditors ---------------------------------------------------------- Debtor: Farr Manufacturing & Engineering Company 200 Armstrong Avenue Williamstown, West Virginia 26187 Bankruptcy Case No.: 05-40315 Type of Business: The Debtor designs, manufactures, and installs custom machinery for the industrial cleaning industry, man-made fiber industry and heat treating industries. Farr's been in business for over 17 years. Farr also specializes in chemical and thermal processing systems. See http://www.farrmfg.com/ Chapter 11 Petition Date: June 7, 2005 Court: Southern District of West Virginia (Parkersburg) Judge: Ronald G. Pearson Debtor's Counsel: Stephen P. Hoyer, Esq. Hoyer, Hoyer & Smith, PLLC 22 Capitol Street Charleston, West Virginia 25301 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million A full-text copy of a 24-page list of the Debtor's largest known creditors is available for a fee at: http://www.researcharchives.com/bin/download?id=050620014839 FEDERAL-MOGUL: Asbestos Claims Estimation Hearing - Days 1 & 2 -------------------------------------------------------------- Lawyers for the Official Committee of Asbestos Claimants, the Legal Representative for Future Claimants, and the Official Committee of Property Damage Claimants made their way to Judge Rodriguez's courtroom in Camden, N.J., last week to litigate the value of Federal-Mogul's liability on account of personal injury claims. Elihu Inselbuch, Esq., and Nathan Finch, Esq., at Caplin & Drysdale, Chartered, represent the ACC. Rolin Bissell, Esq., And Maribeth L. Minella, Esq., at Young Conaway Stargatt & Taylor, LLP, represent the Future Claimants Representative. The ACC and FCR generally agree with one another on most every issue in this estimation proceeding. The ACC and the FCR argue that the Debtors' asbestos-related liability tops $11 billion. The Official Committee of Asbestos Property Damage Claimants is represented by Michael P. Kessler, Esq., Adam P. Strochak, Esq., Peter M. Friedman, Esq., and Kristin King Brown, Esq., at Weil, Gotshal & Manges LLP. The PD Committee argues that an $11 billion estimate is much too high and will deliver too much value to the Sec. 524(g) Asbestos Claims Trust under Federal-Mogul's chapter 11 plan. Opening Statements In his opening statement, Mr. Inselbuch noted that while there are many other parties who are aware of the hearing, but have chosen not to appear, including: * competing constituencies both in the United States and in the United Kingdom; * the Pension Creditors in England; * the Administrators in England, * the Debtors; * the Official Committee of Unsecured Creditors; * the Secured Creditors; and * the Official Committee of Equity Holders. Mr. Inselbuch told the District Court that estimation is imperative for the purpose of plan confirmation, to determine the size of the claims so as to allocate the resources of the Debtors among the various constituencies. "There is no great mystery any longer about how we're supposed to do this, a lot of courts have done it before. And basically Judge Fullam said recently in Owens Corning that the claims being valued here arise under state law and, hence, state law determines their validity and value. They are valued as of the petition date," Mr. Inselbuch said. "This necessarily means that the claims ought to be appraised on the basis of what would have been a fair resolution of the claims in the absence of bankruptcy," Mr. Inselbuch quoted Judge Fullam. "So, we're looking at the asbestos personal injury claims as of the petition date, the claims on hand as of that time, what those claims would have been worth in the tort system and the claims that will arise in the future." Mr. Inselbuch noted that Federal-Mogul is the parent of Turner & Newall, an English subsidiary responsible for thousands of pending asbestos claims, and mentioned of a cross border issue and the need to understand how the claims against T&N would be valued in the United Kingdom. Mr. Inselbuch explained that because there are constituents in U.K. that have claims against T&N and because Federal-Mogul has a paralegal administration in U.K., the court in England will ultimately have to decide how to allocate the T&N assets that are in U.K. as among the various constituencies. Mr. Inselbuch recognized the importance of a proper foundation of the English law so as to understand how the English Court would go about estimating similar asbestos claims. "[H]ow do we go about doing estimation?" Mr. Inselbuch asked. According to Mr. Inselbuch, estimation is a matter of logic by comparing the thing with no value with something that has a value that "looks a lot like it". In the case of Federal-Mogul Corporation, the estimation must look into the settlement history of over 25 years that T&N went through and resolved. "What that settlement history shows is how in the tort system willing Plaintiffs and a willing Defendant resolved their controversies in a fair environment over a long period." Mr. Inselbuch added that the settlement history is complex. "[I]t has many factors in it, there are moving parts to it, and as of the moment we draw the curtain at the petition date, it had trends moving things in various different directions. And the experts have to take account for those moving pieces and those moving trends as they do their estimation because when you look forward to estimate claims, you have to make reasonable assumptions about what would occur had there not be a bankruptcy for [T&N]." Mr. Inselbuch said that evidence from a series of witnesses who were involved would explain that T&N were able to resolve its claims in a most favorable environment. PD Committee's Counsel's Opening Statement Representing the Official Committee of Asbestos Property Damage Claimants, Michael Kessler, Esq., at Weil, Gotshal & Manges, pointed out the importance of distinguishing the "allowed amount" from the "distribution amount". The distribution amount is the amount that will be paid in the bankruptcy case on the allowed claim, Mr. Kessler explains. Mr. Kessler reminded the District Court that it is being asked to determine the aggregate allowed amount of the asbestos claims and it is not asked to estimate the distribution amount on the claims. "The distribution amount will be determined at a later Date after the bankruptcy is over in a trust that will be set up under the bankruptcy." Mr. Kessler noted that the Debtors have taken no position in the estimation notwithstanding that they are a co-proponent of the plan. "Why?" Mr. Kessler asked. "There's little in this fight for the debtors because the debtors are insolvent and all the equity will go to the creditors under the plan," Mr. Kessler answered his question. "The debtors are ambivalent if one creditor gets more or less than another, they totally don't care. They just want to get out of bankruptcy and have the equity distributed to the new shareholders and reorganized into a new company." Mr. Kessler explained that if the Court estimates the allowed amount of all asbestos claims at $10 billion, which is close to the Asbestos Claimants Committee's estimate, the trust will receive billion dollars in equity and it will have against it an estimated aggregate amount of claims of $10 billion. "In a perfect world, and if asbestos claims are later proved to the trustee of that trust to aggregate claim by claim and add up 10 to exactly 10 billion dollars, everyone will get 10 cents on the dollar or 1/10 of their claim as the distribution amount. They will have 1 billion in equity, they'll have 10 billion in claims, they'll each get a distribution amount out of the trust of 1/10 or 10 percent." If the Court estimates instead the aggregate amount of asbestos claims at 2 billion, Mr. Kessler explained that the trust still gets 1 billion dollars of equity. "If all the claims are then later proved to the trust and aggregate exactly as the Court estimated, 2 billion dollars, each of the asbestos claimants will get 50 percent on their claim, 1 billion of equity over 2 billion in claims. Now they're still getting to whack up the same billion dollars of equity, it's just optics at this point as to whether they're getting 10 cents on the dollar or 50 cents on the dollar, they're still getting 1 billion dollars divided up among all of them." In sum, Mr. Kessler told the Court that if the total estimated asbestos claimants is $10 billion dollars, the PD plaintiffs who are not in the trust, and other unsecured creditors, will get 10 cents on the dollar or 1/10 of their claim as the distribution amount. If the estimation for asbestos claims is $2 billion, the PD Plaintiffs will get 50 cents or 50 percent of their claim, and the Asbestos Claimants will get $1 billion to divide up among themselves, Mr. Kessler said. Mr. Kessler pointed out that a correct estimate is vitally important. The asbestos trust, once funded, will distribute all of its value to the present and future asbestos plaintiffs, Mr. Kessler contended. "There's no provision in the trust to give anything back if [the Court] overestimates." PD Committee's side will offer deposition testimony of Michael G. Lynch, the Debtors' Chief Financial Officer and Dr. Hans Weill. The PD Committee retained Dr. Weill as expert but due to an accident, he won't be able to come to trial to testify. Adam Strochak, Esq., at Weil Gotshal & Manges LLP, told the Court that the PD Committee will present Dr. Robin Cantor as its expert. Before the start of the testimony, Judge Rodriguez told the parties that he will decide the case the same way that he would instruct a jury to decide it, that it's to be based on the evidence and solely on the evidence presented in court. "I'm fully aware of the emotional debates that take place nationally with respect to the tort system and I know that on each side they're infected with political motivation and I don't intend to get caught up on either side of the motivation. Whatever we do, I would hope that it will be based strictly on the evidence presented before me here in court." Asbestos Claimants' First Witness Paul Hanly Nathan Finch, Esq., at Caplin & Drysdale, introduced Paul Hanly as the first witness. Mr. Hanly told the Court that T&N was first sued in United States asbestos litigation in August 1977. Mr. Hanly and a team were responsible for all strategy decisions throughout the discovery process, including which witnesses would be proffered, which documents would be produced, how responses to requests for the production would be handled. Their responsibility extended to preparation of briefs and memoranda of law, negotiation of settlements and if the case were to proceed to trial. Mr. Hanly related that he started and tried between 25 and 40 cases and oversaw 200,000 to 300,000 case resolutions over the course of 20 years. According to Mr. Hanly, a consortium of insurance, liability insurance companies and 35 asbestos manufacturers came together in June 1985, and formed what the Asbestos Claims Facility -- a joint 'claims handling claims defense organization". The Asbestos Claims Facility engaged counsel around the United States to deal with the underlying cases. But very few lawyers had any experience defending T&N historically. As a consequence, Mr. Hanly and the team continued to participate on a daily basis. Mr. Hanly related that the Asbestos Claims Facility died an in 1988 and a new organization rose called the Center for Claims Resolution, or the CCR, which had a similar structure. The lawyers reporting for the CCR also had no experience with T&N, so the team continued their services. The Center for Claims Resolution was an organization of some 20 asbestos defendants who wanted to continue the initial purpose of the Asbestos Claims Facility, which was to come together to reduce costs and to try to find a way to resolve asbestos claims on the most economical terms possible. Mr. Hanly said that he became familiar with T&N's asbestos products and operation by spending a considerable amount of time in the U.K. in T&N's document repository. He posed that he reviewed all of its historical documents, and in many countless days interviewed historical witnesses -- "folks who had worked for the company in the [1930s, 1940s, 1950s and 1960s] . . ." T&N's liability, Mr. Hanly said, is based on theories of liability. One of theories was its being a supplier of raw asbestos fiber to companies in the United States, including Johns-Manville, and another theory is its ownership of Keasby & Mattison, a Pennsylvania asbestos manufacturing company created in 1873. T&N owned Keasby & Mattison from 1934 to 1962. The third theory of liability was due to T&N's product, which was distributed in the United States, called Limpet -- a spray-one fireproofing acoustical treatment. The last theory of liability, according to Mr. Hanly, was "a kind of concert of action or conspiracy theory of liability." The theory relates to the facts that T&N had been at the forefront of the development of knowledge concerning the hazards of asbestos and had very close connections and business relationship with Johns-Manville. Mr. Hanly noted that Johns-Manville was also a company that had very early knowledge of the hazards but never during the relevant years placed any warnings on its products. Mr. Hanly told the Court that T&N did not pay a claim or settlement of a claim based on a conspiracy theory allegation. "They could not be paid, in our judgment as counsel, because theoretically we would then have to pay for every Manville claim." Mr. Hanly explained why T&N didn't try to allocate liability for claims to U.K. subsidiaries. Mr. Hanly described that the relationship between the U.K. subsidiaries and the parent company in the U.K. was legally an agency relationship whereby documents were created to provide that subsidiaries acted as agents of T&N. "And as a consequence of that, it was the position of [T&N] in the United States litigation that effectively [T&N] as a defendant included all of the [U.K.] subsidiaries . . ." Mr. Hanly noted that T&N made an affidavit that it was appearing on behalf of itself and all of its U.K. subsidiaries. The basic elements of the cause of action against T&N, Mr. Hanly said, was failure to warn based on either strict product liability or a failure to warn basis, or negligence claims. Mr. Hanly told the Court that in January 1993, a purported settlement class action was filed in the Eastern District of Pennsylvania under Rule 23 of the Federal Rules of Civil Procedure. The settlement was commonly called as the Georgine Settlement. Judge Becker reversed and vacated the class certification of the Georgine Settlement. Mr. Hanly enumerated some factors that the CCR takes into account in negotiating settlement amounts with plaintiffs during the -- CCR and the post-CCR time period: 1. severity of the plaintiff's disease; 2. strength of the evidence of exposure to a T&N product; 3. jurisdiction; and 4. history of appellate courts in a jurisdiction in remitting or otherwise modifying jury verdicts; and the he identity of the plaintiff's counsel. Mr. Hanly noted that B-Reader reports were not material in a large number of cases, including Mesothelioma cases. But identity of the plaintiff's doctor, expert witness or treating physician would play some role, Mr. Hanly said. "There [were] several doctors who we were aware of who, where the interpretation of X-rays was relevant, were known to have over- read . . . It was all a part of the factors that we considered in pricing cases." According to Mr. Hanly there is no particular threshold score on a pulmonary function test that T&N would require before it would settle a nonmalignant asbestos claim. PFTs, Mr. Hanly believed, have never been required by any judge of any court anywhere in the U.S. to enable a plaintiff to get to a jury on the issue of whether their lungs have been damaged by exposure to asbestos. Mr. Hanly related that going to trial in an asbestos personal injury case is something that T&N tried to avoid. Mr. Hanly identified some asbestos Defendants who adopted a more aggressive strategy and would try cases more often. Mr. Hanly mentioned Johns-Manville, Union Carbide, United States Gypsum, and Armstrong World Industries. "What were the categories of damages that were available to asbestos personal injury plaintiffs in a trial against Turner & Newell in the United States?" Mr. Finch asked. "Well, the categories would be the same that would exist in any kind of tort case, whether it was a car wreck case or an asbestos case, so that would include so-called special or economic damages such as medical expenses and lost wages and, in the case of a decedent, funeral expenses and the like," Mr. Hanly answered. "And then, of course, the general category of general damages [like] pain and suffering and loss of consortium and those sorts. . . ." "Would it include the cost of past and future medical care, for example?" Mr. Finch continued. "Sure, that would be part of the economic damages." Mr. Hanly said. "Did [T&N] ever suffer a judgment for punitive damages in an asbestos personal injury case?" Mr. Finch asked. "Just once," Mr. Hanly answered. "And when was that?" "It was in the late winter of 2001." "And do you know when that judgment was paid, if at all?" "It was bonded and paid recently, I think in the last year." "Do you know if that judgment is in any way referenced in the databases that your firm compiled?" "I believe it's not." "Did the settlement amount that [T&N] was paying to resolve asbestos personal injury claims contain a dollar component allocable to punitive damages in your view?" "No, never." "Can you explain why not?" "We didn't price cases on the basis of punitive damage exposure, we priced cases -- priced case meaning, your Honor, analyzing what the case should settle for -- based on the strength of the product exposure evidence, the competence of the plaintiff's lawyer and, most importantly, or equally importantly the significance or severity of the asbestos-related disease." "Did you come to a view by the end of 2001 when [T&N] filed for bankruptcy as to the extent of its overall liability for asbestos personal injury claims as a standalone defendant as compared to when it was in the CCR?" Mr. Finch asked. "Yes, it was our view that the liability would be greatly enhanced if Turner & Newell continued as a standalone defendant." Mr. Hanly said. "What factors led you to come to this view? "[Twenty years'] experience of observing what was happening to members of the Asbestos Claims Facility and the CCR versus what was happening to folks who were standalone defendants. The CCR members survived for a very long time and all the others, including the examples I gave you . . . ended up in bankruptcy a whole lot earlier." Peter Friedman, Esq., at Weil Gotshal & Manges LLP, cross- examined Mr. Hanly. Mr. Friedman asked Mr. Hanly about his prepetition conversations made with Mr. Lynch. Mr. Hanly said that he was not consulted in connection with the number that the Debtors put in their 10-Ks regarding their anticipation of pending and future asbestos liability. "[O]ur role was never to opine about specific gross aggregate numbers with respect to asbestos liability." Mr. Friedman brought up the "Hoskins case." The "Hoskins case," according to Mr. Hanly, was an alleged Mesothelioma case. "I recall that there were some issues as to whether, indeed, it was a Mesothelioma case because the man had out lived the usual survival period after his diagnosis, but certainly it was an alleged Mesothelioma case." "And was the plaintiff awarded punitive damages in that case?" Mr. Friedman asked. "Yes, sir." Mr. Hanly said. "How much was the punitive damages award?" "I think it was about $7 million of punitives and maybe $2 million in compensatory. I know the total award was about $9 million." Mr. Hanly told the Court that the punitive damages verdict in Hoskins did not affect the pricing of those cases settled post- Hoskins. In the vast majority of cases, Mr. Hanly noted that except for cases brought in the limited number of jurisdictions that prohibited punitive damages in asbestos cases, that punitive damages were sought in the complaint. "Did you actually see more cases go to Mississippi as the jurisdiction got more and more difficult from a defense perspective?" Mr. Friedman asked. "For a period of time between 1998 and about 2000 that would be true, yes." Mr. Hanly answered. "And that was after the Cosey case was decided isn't that right?" "Yes, sir." "In the Cosey case there was a substantial punitive damages award to non-malignant -- to plaintiffs claiming non-malignant injuries, isn't that right?" "No, sir, there were no punitive damages awarded in the Cosey case, the case was settled on the compensatory." "Was it settled for the full value of the compensatory award?" "Yes, sir." "To the extent you were involved in CCR meetings where you had direct knowledge of that." "Certainly the issues of punitive damages was discussed among counsel who spent that month or so in Jefferson County, Mississippi." "Would you agree that after Cosey, there were a lot more cases filed in Mississippi?" "Oh, yeah." Mr. Friedman brought up the issue on unimpaired claimant. "Was it a problem for T&N when a claimant with 1 Mesothelioma or cancer joined his or her claim with the claim of a person who was unimpaired?" "That was a problem that was certainly discussed at the CCR level," Mr. Hanly told the Court. "Whether it ever was a particular problem for T&N in any particular case, I frankly just don't recall, sir." "Well, do you agree that unimpaired claimants benefited because of sympathy by association with claimants who are actually sick?" Mr. Friedman asked. "That certainly is a dynamic that could well happen at the trial of a case. Sure. If you had a person who was dying of Mesothelioma joined with a plaintiff who was not exhibiting any signs of distress, certainly that presents a dynamic at a jury trial that most defense lawyers would try to avoid." Mr. Hanly noted that "mass screenings' fostered huge numbers of claims by those who were are unimpaired. But it generated huge numbers of claims; many of those claims were impaired. Mr. Hanly also recalled of the some prolific B-readers with bad reputation. On redirect examination, Mr. Finch asked Mr. Hanly of his understanding of the word "unimpaired". "In the context of asbestos litigation," Mr. Hanly answered, "unimpaired means a claimant who may exhibit signs of injury on [x-ray] or at autopsy on pathology, but who in his or her lifetime doesn't exhibit any decrease in lung function or the like." "Any decrease as measured by some kind of particularized lung function test?" Mr. Finch inquired. "Yes, what's called spirometry or pulmonary function test," Mr. Hanly said. Mr. Finch ended the redirect examination by instructing Mr. Hanly to read a quote from a T&N document numbered as Exhibit 71. Mr. Hanly read the part: We have over the years been able to talk our way out of claims or compromise for comparatively small amounts, Lyman quoted the lawyer for the Defendant then known as T&N, but we have always recognized that at some stage solicitors of experience would recognize there is no real defense to these claims and take us to trial. "Had that started to happen in 2001 when [T&N] reverted to being a standalone defendant?" Mr. Finch asked. "Yes," Mr. Hanley replied. Asbestos Claimants' Second Witness Andrea Crichton Rolin Bissell, Esq., at Young, Conaway, Stargatt & Taylor, LLP, called Andrea Crichton, Q.C., to the witness stand. Ms. Crichton has served as the U.K. Asbestos Claims Manager for T&N since 1994. Ms. Crichton told the Court that she started working for T&N in January 1985 as legal assistant, reporting to the Group Solicitor, John Atkinson. Ms. Crichton assisted in some of the more mundane aspects of the ever increasing U.S. asbestos litigation, the writs coming in, insuring that they would be sent out the appropriate people. Ms. Crichton also carried out an exercise to do with the U.K. asbestos litigation with respect to some insurance litigation that they were involved in. As more work and projects came along, Ms. Crichton said assistants were hired to go through the claims filed for the U.K. asbestos litigation. Ms. Crichton oversaw the staff. "[D]uring that period was asbestos litigation for T&N, Ltd. growing at all?" Mr. Bissell asked. Yes, Ms. Crichton replied. "From being fairly steady it seemed to just take-off," she described. Ms. Crichton explained that when she first started there was no database; they used index cards. Her staff later established a database to keep track of the claims. Ms. Crichton said the database was used to keep data regarding: * the claimant's name, * the date of birth, * the date of death if applicable, * the disease and underlying disease, * the date claims received, * the claimant's solicitor, * T&N's own solicitor, * which of the T&N companies would be in the most cases the employer, * the job description and the periods over which they worked, and * the jurisdiction. "If it were a third-party claim, there would be a little bit of extra information on that, the third-party plaintiff who was bringing us in," she added. "If was a product liability claim, it would be the name of the product that was alleged the claimant was exposed to." Ms. Crichton disclosed that reserves against each of the claims that were reviewed over time were also kept. "We have a reserve . . . for what we thought the claim would settle for and how much the cost was likely to be. There was also a field to capture settlement information." Ms. Crichton told the Court that her staff submitted monthly reports on the number of claims received, the number of claims that had settled, and how much the company spent. Aside from working on the claims database, Ms. Crichton said she also worked on a document database. The document database was established around 1993 to address various discovery requests. As Asbestos Claims Manager, Ms. Crichton admitted that she has settlement authority for T&N. Mr. Bissell asked her to describe the nature of that authority and how she worked with outside solicitors. Ms. Crichton explained that when an asbestos claim is received, she would instruct an outside counsel to attempt to settle the claim. Ms. Crichton confirmed that she has authority to fix a settlement offer for the claim. Ms. Crichton also noted that she attended U.K. trials for T&N. "About how many?" "It's difficult to say, we don't go to trial that often," Ms. Crichton replied. "No more than 20." Mr. Bissell asked why T&N went to trial rarely in the U.K. "Because for the vast majority of the U. K. claims there is really no defense," Ms. Crichton answered. It's also cheaper. "The quicker you settle a claim, the less you are paying out to both your own counsel and to the claimant's counsel," she said. Ms. Crichton disclosed that at least 90% of the claims were from employees or ex-employees. T&N also received subrogation claims, which arise out of specific activities of Newell's employees, or from J. W. Roberts' employees, another subsidiary. Ms. Crichton proceeded to describe the events -- and the steps T&N would take -- if negotiations broke down. Ms. Crichton, however, emphasized that 90% to 95% of the claims get settled. "What type of medical evidence did Turner & Newell require for plaintiff to come forward with before it would settle with the U. K. claimant?" "We would always receive a report from a recognized consultant who specialized in asbestos diseases." "Did the plaintiff have to provide x-rays?" "I think x-rays would be provided probably to the consultant, they didn't provide x-rays to us. But if there were any relevant x-rays, they would be referred to in the consultant's report." Ms. Crichton said the medical reports would always contain the results of pulmonary function tests. Ms. Crichton added that T&N used the Judicial Study Board guidelines to determine how much it will pay in settlements. Mr. Bissell recalled that T&N did not take many cases to trial. "How did Turner & Newell do at trial?" he asked. "Not very well." "Has T&N settled products liability claims?" "Not very many, a handful." Before turning Ms. Crichton over, Mr. Bissell asked how liability was allocated between T&N and other defendants when a claimant was exposed to asbestos from more than one source. It was almost always on a time-exposed basis, Ms. Crichton explained. "If an employee worked for us for five years and worked for someone else for five years and someone else for ten years, then our share would be 25 percent and the others would be 25 and 50 percent respectively." "So is it fair to say that T&N would pay an asbestos claim if the consulting doctor rendered a diagnosis of asbestosis even if the plaintiff did not have any particular decline on a PFT test?" "Yes," Ms. Crichton replied. "But clearly they would get considerably less than if they were a high disability. And in the UK we have a system whereby claimants can opt to take provisional damages." Adam P. Strochak, Esq., at Weil, Gotshal & Manges LLP, cross- examined Ms. Crichton. Mr. Strochak sought clarifications about the claims database. He asked if the U.S. company that was hired to do the project related to Dr. Mark Peterson, the testifying expert for the Asbestos Claimants Committee. "I don't think so." Ms. Crichton said. Mr. Strochak asked if the documents in the electronic repository were the same documents shown to Chase Manhattan in the property damage litigation. Ms. Crichton said many of the documents were the same, but not all. Ms. Crichton also disclosed that asbestos personal injury lawyers representing U.S. claimants viewed the repository. "About what percentage of claims are resolved with no payment in the UK, if you have a sense?" "You mean that we take to trial and don't pay or just we just don't for whatever reason -- a number of them just go away. A number of them are abandoned." "[W]e might start a case and the claimant just goes away. There are . . . a few instances where we have been released by codefendants mainly because our share would prove to be so small . . . less than 1 percent or something, it's really not worth it. Mr. Strochak asked Ms. Crichton to clarify when she said that for many of the claims there was no defense, if she was referring to employer's liability claims. "Yes." "And the reason for that is there's a fairly well established record of the presence of asbestos in mills and other factories where Turner & Newell and subsidiaries actually made asbestos, its asbestos products, right?" "That's right," she confirmed. "Now, is that comparable in the United States?" Mr. Strochak prodded on. "Objection!" Mr. Finch interjected. "Lack of foundation," Mr. Finch told the Court. Ms. Crichton said she didn't understand the question. "You have a general sense that the U.S. claims are largely products liability type claims?" Mr. Strochak proceeded. "Yes, to that extent I know they would be mostly product liability claims." Ms. Crichton explained that T&N did not receive many product liability claims in the U.K. The ones received, however, had good evidence that the person has been exposed to one of T&N's products. Ms. Crichton also told the Court that Federal-Mogul took an interest on a book written by Geoffrey Tweedale in 2000 about T&N's corporate conduct with regard to asbestos. Mr. Strochak reminded her that at their meeting in New York, Ms. Crichton said she believed the Tweedale book had no effect on litigation against T&N. "In the UK I would say so," Ms. Crichton clarified. She confirmed that there was nothing new in the book with respect to T&N's ability to defend itself against claims in the U.K. Asbestos Claimants Committee's Third Witness Dr. Laura Welch Mr. Finch called Laura Welch to the witness stand as the ACC's medical expert to talk about asbestos-related disease and disorders from a physician's perspective. Dr. Welch has a Bachelor's degree in biology from Swarthmore College and a medical degree from the State University of New York at Stony Brook. She did a residency in internal medicine at Montefiore Hospital in the Bronx, which is part of the Albert Einstein School of Medicine. And prior to that, she had faculty positions at several medical schools. Dr. Welch is board certified both in internal medicine and occupational medicine, and her clinical practice and work has included both. Dr. Welch said she was involved with patients who suffer from asbestos-related diseases since 1980. She has also written chapters for a book relating to asbestos disease. Dr. Welch was recognized a number of times by courts as an expert in the diagnosis of asbestos-related diseases and in the epidemiology of asbestos-related diseases. She has also testified before Congress on matters relating to diagnosis of asbestos-related diseases. Dr. Welch was retained by the Asbestos Claimants Committee to give an opinion on certain aspects of asbestos-related disease. According to Dr. Welch, exposure to asbestos causes mesothelioma, lung cancer, colon cancer, and laryngeal and pharyngeal cancer. Non-malignant diseases caused by asbestos exposure include asbestosis, asbestos-related pleural plaques, and to some degree of obstructive lung disease. Dr. Welch opined that someone can have a decline even though they're pulmonary function is within the population normal range. "The normal range that we use for pulmonary function testing, there are a set of different predictives, what we call predictives, and they vary very little. They're pretty much based by testing people who are not known to have lung disease and creating a range of normal and that range is fairly big. . . Let's say my normal is 100 percent, the best estimate of what 100 percent would be for me ranges between 80 and 120 percent of that normal. So I could lose -- if I started at a high normal -- if my normal was really higher than the average for the population, I could lose easily 20 percent of my lung function before I dropped below 80 percent of the population predictive, because the population predictive is really an average across a whole range of people. And people are different, people have different body types primarily, and so even though the predictives are adjusted based on age, height, and sex, there's still a lot of variation in the normal between people. We know that from circumstances where we're able to measure people periodically. Over a period of time, there is some information on loss of lungs function, and that's how we know what happens with aging, and people can lose, as I said 20 percent, maybe more, and still be within the normal range on a population basis." Dr. Welch told Judge Rodriguez that functional impairment is not required to diagnose someone with an asbestos-related non- malignant disease like asbestosis. "The diagnosis is based on history of exposure and appropriate changes in the lung measured either with pathology or using more with radiology. And the American Thoracic Society has a statement about the diagnosis of asbestosis and states clearly that functional impairment is not necessary for that diagnosis." Dr. Welch further opined that individuals can have asbestosis with a normal chest film. "It's been documented both using pathology as the gold standard looking at people who have normal chest film but substantial asbestos exposure and finding that a good number of that people, like in one study about 20 percent had pathological asbestosis with a normal chest x-ray, and then there is also studies that have used CAT scanning as the, what we might say the gold standard is, comparing the plain chest x-ray to what you see on a CAT scan, and again you find 25, some studies up to 40 percent of the people with substantial asbestos exposure, but a normal chest x-ray have some findings of asbestosis on a CAT scan. A person who has asbestosis yet has a PFT score in the normal range can have a significant loss of lung function, Dr. Welch said. It's very typical for individuals with asbestosis to have shortness of breath, some chest discomfort, and fatigue related to the increase work of breathing because of the scarring in the lung, Dr. Welch explained. In addition, they have a significant increase risk of developing lung cancer and subsequent to that, even if they haven't had the lung cancer yet, they're very concerned about their future risk of lung cancer. "If they have asbestosis," Dr. Welch said, "they're probably about four times as likely as someone who is equivalent to them in terms of smoking history who doesn't have asbestosis. But if you take that person with asbestosis who is a smoker and compare them to a nonsmoker, non-asbestosis exposed person, it's probably about 50 fold because the asbestos multiplies times the risk of smoking." According to Dr. Welch, 15% of people who contract lung cancer live more than five years. "What other adverse health consequences are suffered by people who have nonmalignant asbestos disease even though they may have normal pulmonary function tests?" Mr. Finch asked. "The fear of cancer, shortness of breath even within the normal, and then they have a likelihood of developing progressive decline in lung function and eventually dropping below the normal range. Individuals have different rates of decline, but if they live long enough they usually develop a significant impairment from that declining lung function," Dr. Welch replied. For people who suffer from nonmalignant asbestos disease, Dr. Welch said she generally recommends that they have an annual examination with a physician who knows about asbestos-related disease, to make sure that they get their annual influenza vaccination. Dr. Welch noted that many of them do smoke, so she asserts that they have to quit smoking. Part of the annual exam is finding out what other diseases have developed in men who are getting to be 60 and 70, and sorting out what might be due to their asbestos and what might be due to heart disease or other lungs disease as well. A complete test costs about $800 to $1,000 per year. Mr. Finch also asked Dr. Welch to describe the adverse health consequences suffered by someone who has pleural plaques. "Pleural plaque, as of the most general statement, usually doesn't have a loss of lung function with it, but you have -- those people have a higher likelihood of eventually developing asbestosis. Because of the asbestos exposure that they've had, they're at a higher risk for lung cancer. So it's very similar to the people with asbestosis in terms of increased risk of lung cancer, fear of lung cancer and progression of lung disease," Dr. Welch said. Dr. Welch also recommends annual physical examination and checkup for people with pleural plaques. According to Dr. Welch, it's not uncommon for people to have asbestosis even with pulmonary function impairment and not have a diagnosis because it comes on very slowly and the impairment comes on slowly. "People essentially learn to live with it, attribute it to aging, and so it's very, very common for people to have this disease." Dr. Welch opined that asbestosis is not a necessary event in the causal chain between asbestos exposure and lung cancer. "We know that asbestos causes cancer because asbestos cause mesothelioma directly and there is -- no postulates that you need asbestosis to attribute mesothelioma to asbestos. In addition, in animal experiments and laboratory experiments asbestos causes cancer. There is no disagreement at all that asbestos causes cancer without any intermediaries. In a way, it's easier for me to explain it by explaining why the asbestosis link is really a false hypothesis because so much of the information just is that asbestos causes cancer, there is a linear dose response between asbestos exposure as the development of cancer. As the dose goes up, the rate in the population goes up. If you needed asbestosis, you should see no lung cancer attributable to asbestos in populations exposed at levels lower than what we think is a level for asbestosis, but there are a number of population based studies that show a risk of lung cancer at levels of exposure such as in the range of like seven or eight fiber years, which is a way of calculating total asbestos lifetime dose, when the number for asbestosis is generally quoted as 25 fiber years. So, if you needed asbestosis, the relationship between asbestos exposure and lung cancer shouldn't go linearly up, it should have a threshold. So it would have a very different shape, that dose response relationship." Dr. Welch does not share the observation by some doctors that asbestosis is a vanishing disease. She pointed out that based on the data compiled by the National Center for Health Statistics, each year an increase in the number of deaths for which asbestos is mentioned as a cause of death on the death certificate. Mr. Finch asked Dr. Welch if she believed the proposition that a significant percentage of asbestos claims are supported by fraudulent or invalid reading of x-rays. "No, I absolutely don't," Dr. Welch responded. "What the study did was they, Dr. [Joseph] Gitlin and his colleagues, collected approximately 500 x-rays from plaintiffs who had filed a claim in asbestos litigation. It was never clear to me where they came from. And they came from some, I think, mass claims in West Virginia but it wasn't clear to me how they were selected. They were selected by defense attorneys and provided to Dr. Gitlin and his group. And then Dr. Gitlin asked six different B Readers to read those x-rays and give an interpretation. And what he found was that the readers who read it, he called them the consultant readers and the initial readers, the consultant readers found a lot less disease among those 500 films than the initial readers. Of course, the initial readers found disease because they were selected to be deceased cases that they were going to be re- reviewed." Dr. Welch also related to the Court a study on B Readers who read films for the United States Navy published in 1988 made by Dr. Ducatman. "That [study] included readings on 100,000 x-rays as opposed to the 500 in the Gitlin study. At that time, Dr. Ducatman was working for the Navy and the Navy was doing regular screenings to look for asbestos disease in their, the active duty personnel that were exposed. And what they did was they took batches of the x-rays and sent them to, I think 23 different readers. The x-rays were distributed fairly randomly among the readers. He looked to be sure that one reader wasn't getting all the shipyard films and another reader getting, you know, just technical people. And he took that, those 100,000 films and looked at agreement among those 23 readers. And between the reader who found the least amount of disease and the reader who found the most amount of disease, it was 300 fold, which was a little surprising in that the hope was the B reading would have reduced that variability. Even among the readers who were considered the gold standard who had helped set up the B Reader program, the variability was almost 20 fold. . . . if they looked at the same 100 films, one person might have found one of them abnormal and someone else would find 20 of them abnormal and everybody else was in between. With a very large group, it was one out of 300 or 300 out of 300." Mr. Friedman, Esq., at Weil, Gotshal & Manges LLP, cross-examined Dr. Welch. Mr. Friedman noted that there are some cases of mesothelioma where the diagnosis is idiopathic mesothelioma rather than asbestos-related mesothelioma. Idiopathic mesothelioma means the cause is not known. "That's correct," Dr. Welch said. "There's probably some background rate of mesothelioma, it's hard to -- it's hard to say. You'd have to go back before asbestos was commercially used to really identify the number that represents the background but it's generally agreed there's some background rate of mesothelioma." Mr. Friedman pointed out that if a person has a pleural change but there was no abnormality in lung function and no disease from ability to perform activities of daily living, an individual would have an impairment rating of zero. "Dypsnea is the most common symptom noted on initial examination of individuals with any type of pulmonary impairment, is that correct?" Mr. Friedman asked. "Correct," Dr. Welch said. "And dyspnea presents as fatigue or shortness of breath, is that right?" "Dyspnea is shortness of breath." "And it can cause fatigue, difficulty climbing stairs?" Dr. Welch noted that there can be a whole range of causes of dyspnea, usually it's due to lung or heart disease. "But it can also be called any hematological conditions, isn't that right?" Mr. Friedman asserted. According to Dr. Welch, anything that impairs oxygen delivery to the tissues is lung disease. And hematologic conditions can cause shortness of breath. At Mr. Friedman's prompting, Dr. Welch admitted that shortness of breath can be caused by metabolic conditions and even anxiety. Dr. Welch believes the overall disease burden from asbestos has reached its peak. "If we had a way of tracking it nationwide, it could be going down. But even though the prevalence can be going down, claims could be going up because they're not necessarily related to each other. But I think if we were doing large scale examination programs, we would be seeing a decline in the prevalence of asbestosis, of the non-malignant diseases. We are not yet seeing a decline in the prevalence of the cancer, but in non-malignant cancer, we're seeing a decline. I believe there would be a decline if we were doing a large screening program." Asbestos Claimants' Committee's Fourth Witness Barbara Dohmann Mr. Inselbuch called Barbara Dohmann, a barrister at the Bar of England and Wales, to the witness stand. Before proceeding with the examination, Mr. Inselbuch introduced Judge Rodriguez to Rod Freeman from Lovells in London who are solicitors on behalf of the Asbestos Claimants Committee and who participated with them in working with Ms. Dohmann. Ms. Dohmann explained the difference between solicitors and barristers. Solicitors are lawyers who have client contact while barristers act as advocates and advisors. Barristers must be independent from even the client. The first duty of the barrister is to the court. That duty, Ms. Dohmann explained, means that a barrister must provide the court with all facts and authority relevant in a particular matter event when that is not in a client's interests. Ms. Dohmann has been a barrister for more than 30 years. Ms. Dohmann worked as a part-time judge for about nine years, until 2002. She is now exclusively in independent private practice. According to Ms. Dohmann, she is familiar with asbestos litigation in the English courts because she was retained in the late 1990s for an important set of cases known as Lubbe and Cape, Public Limited Company -- which involved South African asbestos miners, their families and people living near the asbestos mines which was owned in the past by Cape, PLC. "I would say that a significant proportion of my work every year will involve questions of non-English law and issues as to what law should be applied," Ms. Dohmann told Mr. Inselbuch. At that point, Mr. Inselbuch proferred Ms. Dohmann as an expert on English law as it relates to choice of law analysis with respect to claims of U.S. plaintiffs arising in the U.S. against Turner & Newell brought in England. Ms. Dohmann was retained by Mr. Freeman of Lovells, on behalf of the Asbestos Claimants Committee and the Futures Representative. Ms. Dohmann was asked to address the issue whether the claims that were brought in the past and may be brought in the future and are pending against T&N in the United States would be recognized as a matter of English law as giving rise to cause of action known to English law. "And the answer to that question is certainly yes," Ms. Dohmann told the Court. Ms. Dohmann was also asked to consider what law the English court would apply to issues of liability and of damages. "The bases of liability are entirely known to English law and would be recognized. That is the question of liability. Now, of course, questions of proof and procedure are different ones. The questions of damages falls in two parts, everything to do with the heads of damage, what is the type of damage that can be recovered by a plaintiff will be governed by U.S. law. Any questions of whether the damage is foreseeable or is remote will be governed by U.S. law. And I would say now that it seems to me that there would be very little difference between U.S. law and English law on those topics. The question of quantification is more complex because at the moment the law is in flux as to what is really assessment of damages, what does it mean. The safe answer to give today is that English law tends to regard everything to do with putting a value on a particular claim as a matter for the court that decides the point and, therefore, as a matter of English law. However, this is beginning to change. It will certainly change in the near future," Ms. Dohmann said. In preparing her report, Ms. Dohmann said she relied on her 34 years of experience. She was also assisted by Professor Edwin Briggs, a professor of international law at Oxford University. Mr. Inselbuch asked Ms. Dohmann for her opinion on Mr. Hanly's description of the facts. Ms. Dohmann noted that the bases of liability that Mr. Hanly described and of what was paid and not paid is consistent with the assumptions upon which she relied. At Mr. Inselbuch's request, Ms. Dohmann stepped the Court through the English law that governs liability. At the English common law, it must be determined where the cause of action arises. If the cause of action substantially arises in a county other than England and Wales, then that law will govern as to whether there's a cause of action. "Next, the English court has to apply a rule, when I say has to apply, that's at common law, has to apply a rule known as the rule of double actionability. This was established even before, but certainly became the rule when the House of Lords so ruled in the case called Chaplin and Boys in 1971. Double actionability means that the cause of action, and I'm talking about the law of tort at common law, that the cause of action must be actionable in England, in other words, it must be recognized by us as being a civil wrong, a tort. And you can bring a suit in England in relation to it and it must be actionable in the country where it arose as a civil wrong as well, both." Mr. Inselbuch asked, "Do you have an opinion as to whether or not the claims being asserted on behalf of asbestos personal injury victims against Turner & Newell in the United States would satisfy the double actionability rule?" "Yes, I have no doubt that it would," Ms. Dohmann replied. "Plainly it's actionable in the U.S. and it's equally actionable in the United Kingdom and England and Wales specifically." Ms. Dohmann related that there is a general trend in the United Kingdom, and specifically England and Wales, to the effect that one moves away from that which in modern eyes appears too parochial or too little England oriented and aligns oneself more with what goes on internationally. According to Ms. Dohmann, the double actionability rule has been much criticized. "It doesn't exist anywhere else in Europe. To the best of my knowledge, it is pretty unknown generally in international law. And English lawyers, quite rightly, criticized it and it has been abolished by statute as from the 1st of May 1996. A law commission, which is usually set up to consider particular points that are ripe for reform, considered that particular problem of the law of torts and made its recommendations in which it specifically said that we must move away from parochial aspects of our law of torts. And, accordingly, there was an enacted in 1995 the Private International Law (Miscellaneous Provisions) Act." Ms. Dohmann stated that the effect of the 1995 Act is partly in doubt insofar as acts or omissions have occurred before the 1st of May 1996, which gives rise to a claim. As to the issue of quantum of damages, Ms. Dohmann said, any court will always apply its own procedures. "And there is in private international law, and always has been, a division between substance and procedure. Everything to do with substance normally governed by the proper law of the issue, contract or tort. But anything to do with procedure will be a matter for what is called the Lex Fori, the law of the Court where the case takes place. So everything to do with how you bring a claim, how you present the claim to the court, how you prove the claim will always be a matter for the Court where that claim is being litigated." Ms. Dohmann related that there was this recent case cited in the Court of Appeal called Harding and Whealands. It was under the 1995 Act, not at common law. Majority of the Court of Appeal having analyzed carefully the argument in relation to procedure and substance has begun to shift away from making everything to do with assessment of damages procedural. The case is on its way to the House of Lords and it may well be heard later this year. The House of Lords will consider the question of what is procedure and what is substance in damages. But it is not obligated to address the general common law. Ms. Dohmann also informed the Court that there is a very important development in relation to tort and delicit in the European Union. Under the draft regulation, if in asbestos cases the damage or harm appears later, it will come within it and therefore it will apply to the assessment of damages. On cross-examination, Kristin King Brown, Esq., at Weil, Gotshal & Manges, noted that until the House of Lords overrules Boys vs. Chaplin, lower courts determining choice of law issues are bound by the decision in Boys vs. Chaplin, which says that on procedural issues, including quantum of damages, the law of the forum in the case applies. "It is your opinion," Ms. Brown told Ms. Dohmann, "that although Boys against Chaplin has not been overruled and requires the law of the forum to apply, that rule has essentially outlived its usefulness?" "Yes, entirely," Ms. Dohmann responded. "So your conclusion . . . that U.S. law would apply to quantity of damages is not based on the law as it stands today, is it?" Ms. Brown asked. "Well," Ms. Dohmann said, "my conclusion is the whole of the opinion, and as a matter of the whole of the opinion it is that ultimately in this case it will be U. S. law." Ms. Brown pointed out that if the House of Lords does not overrule Boys and Chaplin, then U.K. law would apply to quantum of damages. Ms. Dohmann clarified that there is no such thing as U.K. law, it would be the law of England and Wales. "That would be the case for, in my opinion, a short period of time, namely the next case that goes up to the House of Lords after Harding against Wealands, if they don't deal with the point then. And in any event, until the regulation comes into force, which is then prescriptive." But there's no certainty that will happen, Ms. Brown asserted. "There is no certainty in life, but there is the possibility of looking ahead with considerable confidence," Ms. Dohmann replied. She believes the change will occur. Asbestos Claimants' Fifth Witness Mark Peterson Before the direct examination began, Adam P. Strochak, Esq., at Weil, Gotshal & Manges LLP, representing the Official Committee of Asbestos Property Damage Claimants, directed the Court's attention to the PD Committee's pending limine motion. The parties agreed and the Court consented that argument on the request to strike portions of Dr. Peterson's testimony will be reserved until later in the trial. This will avoid hearing Dr. Peterson's testimony, determining its admissibility and then, if ruled admissible, hearing it all a second time. Dr. Peterson has an undergraduate degree in psychology and mathematics from the University of Minnesota, a law degree from Harvard University, and have Masters and Ph.D. in experimental social psychology from the University of California, Los Angeles. He worked for Rand Corporation in San Monica for 25 years doing quantitative empirical research with regard to the legal system. Since 1980, Dr. Peterson also has participated as a consultant and an expert and a special master in series of mass tort litigation, primarily asbestos. He was also retained as an expert for several federal court judges. According to Dr. Peterson, he has been engaged in more than 20 different bankruptcies of asbestos debtors. His role has been, to a great extent, the estimation of liabilities as well as the construction of trust distribution procedures that would be used by the subsequently created asbestos trust to allow and pay claims. Most of his engagements have been with asbestos claimants committees. Dr. Peterson has also testified before the Congress on issues that involve asbestos, recently on the Fair Act. He is also a consultant for a dozen asbestos trusts and he is a trustee of asbestos trusts. Mr. Inselbuch asked Dr. Peterson if he followed the progress of the various asbestos cases in which he provided testimony in order to determine how accurate his projections were. Dr. Peterson said he does compare his forecast with the subsequent experience of claimed filings and calculations of liability. "And in doing so, I've found that generally I'm wrong but to the degree -- I'm sometimes very accurate but when I'm wrong, I've always underestimated the liability. So I'm consistent with regard to my forecasts, is that they're either accurate or they're less than what the liability turns out to be. And that's not only characteristic of me, but everyone who does the kind of forecast that I do has always over -- they've always underestimated -- they've underestimated what the subsequent liability is. That's the general pattern of research." According to Dr. Peterson, he was engaged in the Federal-Mogul bankruptcy in the spring of 2002, by the Asbestos Claimants Committee. Among the first things he did was participate in the preparation of a survey of the Federal-Mogul streams of liability. He also came up with a report providing some background information to the members of the Asbestos Claimants Committee, describing: -- who these entities were that had asbestos liabilities, -- what was their insurance, -- what we understand to be the available insurance for each of those companies, -- what was the past data with regard to their claims, and -- what was the relative liability that one might see from them but without attempting to make any current estimate of what their liabilities were at the time. As the collection of data grew, Dr. Peterson was asked to develop matrix values for the trust distribution procedures that may be incorporated into a proposed bankruptcy reorganization plan for Turner & Newall. "I tried to estimate what and provide the committee with my estimate of what's the current value or average value of the current claim in each of the diseases in each of the subcategories of disease in a TDP. So for Mesothelioma, there's one category, but for lung cancer there are two categories. For non-malignant claims, which is asbestosis and pleural disease, there are three categories depending upon the severity of the claims. So I provide the committee with estimates of what I think is about the mean or average value of those claims, which, if I hit it right, they tend to agree with and use as the scheduled value." Dr. Peterson said he also suggest to the Committee what's an appropriate maximum value for each of these disease categories. The Committee suggested to Dr. Peterson, and he agreed it's a good approach, to take the Mesothelioma value and they will use this historic experience for Turner & Newall or eight or nine other companies in order to hang the value of a lung cancer and another cancer and so on. "I'd been given a range of what the committee thought might be an appropriate value for Mesothelioma, which was consistent with what I've been telling them, and I used a number of $200,000 for Mesothelioma, which was somewhat less than I had estimated the value. I thought it was a conservative estimate of the value of the Mesothelioma claim currently against Turner & Newall, but I used that for purposes of construct the TDP and pegged every other claimed category based on these relative ratios that I had obtained previously." Dr. Peterson was asked by the Committee to estimate the liabilities of Turner & Newall for pending future asbestos claims at the time of -- just at the time of its bankruptcy petition dated October 1, 2001, and to prepare a report describing his estimates and the bases for his estimates. Using visual aids, Dr. Peterson explained to the Court the steps he went through in doing the estimating process for both the United States claims and the U.K. claims. Dr. Peterson related that among the mesothelioma claims, about 91.4% of them turned out to be mesothelioma while 6.5% turned out to be nonmalignant claims. As for lung cancer claims, 9/10 of 1% turn out to be mesothelioma. He observed that the settlement averages for mesothelioma were rising for all defendants in the 1990s. Dr. Peterson estimates that Turner & Newall averaged $138,939 as settlement for each mesothelioma claim. The settlement average in 2001 for mesothelioma claims is $195,000. "There were more claims paid in 2001 than were settled. Because of the CCR's delay in payment, there were claims paid in 2001 that had been settled in the year 2000, year 1999, year 1998, so forth. Those claims got the values that were then the current realm when they settled. So, the 2000 claims settled in 1998 and paid in 2001 had much lower values than the claims actually settled in 2001. So if you do a calculation of what's the average payment in 2001, it would be lower than 138,000, it's about $102,000. But that doesn't represent the current values of claims being settled in 2001, it obscures the settlement trends and what is the then current values of the claims." Dr. Peterson added that 12,000 of the 14,000 claims that Turner & Newall settled in 2001 were this one block of Mississippi claims. "Turner & Newall had great success in getting out of the Mississippi claims, they had summary judgments in a number of mass cases because the claimants, plaintiffs, were unable to show any exposure to a Turner & Newall product. So in Mississippi, the claims had relatively low values." About 12,000 claims were resolved for $3,600,000. Dr. Peterson noted that the average Mesothelioma settlement increased from $44,000 in 1997 to $139,000 in 2001. Between that time period, the average Mesothelioma settlement increased by 318%. "And this was a basis for estimating what would be the current amount of money that this company would have to pay today." "I determined the values of all the other diseases by essentially hanging it off this calculated value for Mesothelioma using historic rates of the differences between the Mesothelioma and lung cancer, Mesothelioma and non-malignant claims. So I took those historic rates of payment and derived average values for all of the other diseases. Then I compared this with a number of different sources. I did a variety of sensitivities to look at if I calculated this differently, what would I get. And I compared it to the trust distribution procedures, the scheduled value there, which I also calculated and provided to the committee earlier. And then from that I selected a conservative value that was less than any of these numbers and used that as the basis for forecasting liabilities." Dr. Peterson believes that one of the factors that caused the increase was that over the course of the 1990s, more and more was coming out about the bad history of Turner & Newall. Worse, when the Center of Claims Resolution dissolved, Turner & Newall lost the anonymity it had. It lost all of the strategic advantages it had in negotiating settlement. Dr. Peterson estimates the indemnity value of the pending claims against Turner & Newall calculated in year 2001 at $1.402 billion. Headquartered in Southfield, Michigan, Federal-Mogul Corporation -- http://www.federal-mogul.com/-- is one of the world's largest automotive parts companies with worldwide revenue of some US$6 billion. The Company filed for chapter 11 protection on October 1, 2001 (Bankr. Del. Case No. 01-10582). Lawrence J. Nyhan Esq., James F. Conlan Esq., and Kevin T. Lantry Esq., at Sidley Austin Brown & Wood, and Laura Davis Jones Esq., at Pachulski, Stang, Ziehl, Young, Jones & Weintraub, P.C., represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed US$10.15 billion in assets and US$8.86 billion in liabilities. At Dec. 31, 2004, Federal-Mogul's balance sheet showed a US$1.925 billion stockholders' deficit. At Mar. 31, 2005, Federal-Mogul's balance sheet showed a US$2.048 billion stockholders' deficit, compared to a US$1.926 billion deficit at Dec. 31, 2004. (Federal-Mogul Bankruptcy News, Issue No. 82; Bankruptcy Creditors' Service, Inc., 215/945-7000) FIRST FRANKLIN: Moody's Rates Class B-4 Sub. Certificates at Ba1 ---------------------------------------------------------------- Moody's Investors Service has assigned a Aaa rating to the senior certificates and ratings ranging from Aa1 to Ba1 to the mezzanine/subordinate certificates issued by First Franklin Mortgage Loan Trust 2005-FFH1. The securitization is backed by First Franklin originated adjustable-rate (89.66%) and fixed-rate (10.34%) mortgage loans. The ratings are based primarily on the credit quality of the loans, and on the protection from subordination, overcollateralization and excess spread. The credit quality of the loan pool is in line with the average loan pool (e.g., weighted average original loan-to-value ratio of approximately 100%) backing recent First Franklin high LTV sub-prime securitizations. Moody's expects collateral losses on this pool to range from 4.65% to 4.90% Wilshire Credit Corporation (rated "SQ2" by Moody's) will service all of the loans. The Complete Rating Actions are: First Franklin Mortgage Loan Trust 2005-FFH1 Mortgage Pass-Through Certificates, Series 2005-FFH1 * Class A-1A, rated Aaa * Class A-1B, rated Aaa * Class A-2A, rated Aaa * Class A-2B, rated Aaa * Class A-2C, rated Aaa * Class M-1, rated Aa1 * Class M-2, rated Aa2 * Class M-3, rated Aa3 * Class M-4, rated A1 * Class M-5, rated A2 * Class M-6, rated A3 * Class B-1, rated Baa1 * Class B-2, rated Baa2 * Class B-3, rated Baa3 * Class B-4, rated Ba1 FUJI HEAVY: Weak Cash Flow Prompts S&P to Lower Ratings to BB+ -------------------------------------------------------------- Standard & Poor's Ratings Services lowered its long-term credit rating on Fuji Heavy Industries Ltd. to 'BB+' from 'BBB-' based on diminished prospects for a recovery in profitability and cash flow over the near term along with intensifying competition in the global auto industry. The outlook on the rating is stable. "Fuji Heavy's profitability and cash flow have weakened over the past two years largely owing to its disappointing sales performance, deterioration in model mix, and increasing competitive pressures," said Standard & Poor's credit analyst Chizuko Satsukawa. "Fuji Heavy has a high dependence on a few vehicle models in its relatively small automotive business, Subaru. This makes the company's overall profitability highly dependent on the sales performance of each model, as well as on new product launches," Ms. Satsukawa added. In addition to weak sales overall, Fuji Heavy's profitability has been negatively affected by erosion in its model mix, given the greater proportion of lower-margin vehicles. The prospects for improvement in profitability in the near term are low as indicated by the company's downward revision of its sales volume and profit targets in its midterm business plan to March 2007. While Fuji Heavy plans to launch a limited number of new models and to perform major facelifts on its existing models over the next few years, the aggressive introductions of new models planned by competitors will pressure its ability to achieve these targets and improve profitability as planned. To revive profitability, Fuji Heavy intends to cut costs by coordinating global purchasing with its 20%-owner General Motors Corp. (BB/Negative/B-1), and restructure its product planning and sales processes and networks. Fuji Heavy remains vulnerable to foreign exchange rates because of its relatively low overseas production and procurement. The company plans to reduce its exposure to this risk by exporting vehicles manufactured in the U.S. to Japan and Europe, but it is uncertain if exports will reach sufficient volumes to constitute a meaningful natural hedge. Moreover, depending on the sales performance of a new SUV, production capacity at its vehicle assembly plant in the U.S. may continue to be underutilized. Profitability and cash flow are not likely to improve from recent weak levels in the near term. Fuji Heavy's EBITDA margin and ratio of funds from operations to total debt are expected to remain below 10% and 25%, respectively. Despite the erosion, the company is expected to maintain moderate financial leverage, with a ratio of total debt to capital of approximately 37% (calculated according to Standard & Poor's captive finance methodology), given its relatively low capital investment plans over the next few years. The stable outlook is based on the expectation that Fuji Heavy will be able to stop profitability and cash flow erosion in the next few years, helped by various cost cutting measures and the major facelift of the core Legacy model. In addition, the company's relatively moderate financial leverage provides some leeway at the revised rating level. If there are delays in improving cash flow, leading to significantly increased debt usage and considerable deterioration in cash flow protection measures, the rating could be lowered further. GLOBAL CROSSING: Registers 800,000 Common Shares with SEC --------------------------------------------------------- Pursuant to the requirements of the Securities Act, Global Crossing Limited filed a Registration Statement with the Securities and Exchange Commission, disclosing that it is selling 800,000 shares of common stock: Maximum Title of Offering Maximum Registration Securities Amount Price/Share Price Fee Amount ---------- ------ ----------- ------- ------------ Common Stock, 800,000 $10.16 $8,128,000 $956.67 par value $.01/share Chief Executive Officer John Legere explains that the shares to be registered consist of shares owned by STT Crossing Ltd., issuable on exercise of outstanding options granted pursuant to the STT Communications Ltd. Share Option Plan 2004. Global Crossing's by-laws provide that officers, directors and certain other persons will each be indemnified and held harmless out of the funds to the fullest extent provided by Bermuda law against all liabilities, losses, damages or expenses incurred or suffered by that party. The by-laws also state that those persons will be indemnified for costs of defense of civil and criminal proceedings and for advancement of expenses in connection with indemnified activities and proceedings. In addition, Global Crossing maintains directors' and officers' liability insurance policies covering indemnified losses of each indemnified person. Mr. Legere ascertains that the policies provide up to $50,000,000 in director, officer and entity-level coverage and up to an additional $15 million in coverage for directors and officers only. 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 December 9, 2003. At March 31, 2005, Global Crossing's total liabilities exceed its total assets by $30 million. GREENPOINT MORTGAGE: Moody's Rates Class B-4 Certificates at Ba2 ---------------------------------------------------------------- Moody's Investors Service has assigned a rating of Aaa to the Class A, SP and A-R certificates issued by Greenpoint Mortgage Loan Trust 2004-1 and ratings ranging from Aa2 to Ba2 to the mezzanine and subordinate certificates in the deal. The transaction is backed by fixed-rate, first lien mortgage loans originated by Greenpoint Mortgage Funding, Inc. The ratings of the certificates are based primarily on the credit quality of the underlying mortgages, the credit enhancement provided by subordination, and the legal structure of the transaction. Moody's expects collateral losses to range from 0.85-0.95% Greenpoint will be the servicer for the mortgage loans backing the deal. The complete rating actions are: Issuer: GreenPoint Mortgage Loan Trust 2004-1 Securities: Mortgage Loan Pass-Through Certificates, Series 2004-1 * Class A, rated Aaa * Class SP, rated Aaa * Class A-R, rated Aaa * Class B-1, rated Aa2 * Class B-2, rated A2 * Class B-3, rated Baa2 * Class B-4, rated Ba2 GSAMP TRUST: Moody's Rates Class B-3 Sub. Certificates at Ba1 ------------------------------------------------------------- Moody's Investors Service has assigned a rating of Aaa to the senior certificates issued by GSAMP Trust 2005-S1 and ratings ranging from Aa2 to Ba1 to the mezzanine and subordinate certificates in the deal. The securitization is backed by New Century originated second lien sub-prime mortgage loans. The ratings are based primarily on: * the credit quality of the loans; * the protection from subordination; * overcollateralization and excess spread; and * a mortgage pool insurance policy. The mortgage pool insurance policy will be issued by Radian Insurance, Inc., which has a financial strength rating of Aa3. The policy only covers losses due to default on the underlying mortgages after the aggregate level of losses incurred by the mortgage pool reaches 12% of the original pool balance. The total amount of coverage provided by the policy is equal to approximately 3.50% of the original mortgage pool balance. Wilshire Credit Corporation will service the loans. Moody's has assigned a rating of SQ2 to Wilshire as a primary servicing of second lien loans. The complete rating actions are: Issuer: GSAMP Trust 2005-S1 Securities: Mortgage Pass-Through Certificates, Series 2005-S1 * Class A, rated Aaa * Class M-1, rated Aa2 * Class M-2, rated A2 * Class B-1, rated Baa2 * Class B-2, rated Baa3 * Class B-3, rated Ba1 HARBOURVIEW CDO: Fitch Junks $49 Million Class B & C Notes ---------------------------------------------------------- Fitch Ratings downgrades three classes of notes issued by HarbourView CDO III Funding, Ltd., and removes all classes from Rating Watch Negative. These rating actions are effective immediately: -- $175,935,406 class A notes to 'A-' from 'AA-'; -- $22,713,325 class B notes to 'CCC' from 'BBB-'; -- $26,250,000 class C notes to 'C' from 'B-'. HarbourView III is a collateralized debt obligation managed by HarbourView Asset Management that closed April 24, 2001. HarbourView III is currently composed of 35.0% residential mortgage-backed securities, 29.6% asset-backed securities, 16.4% commercial mortgage-backed securities, 8.6% real estate investment trusts, 7.8% CDOs, and 2.6% corporate debt. Since March 2005, HarbourView III has been in a technical event of default due to the fact that the aggregate principal balance of the collateral debt securities fell below the aggregate balance of the rated notes. Prior to the determination date for the June 15, 2005 payment date, a majority of class A noteholders chose to accelerate the maturity of the transaction. As a result, all principal and interest proceeds available less senior transaction fees and expenses, including the hedge counterparty payment, will be used to pay the class A interest and principal until the notes are paid in full. Collateral deterioration has also occurred since Fitch's rating action on Aug. 30, 2004. Mezzanine and subordinate tranches from under-performing manufactured housing securitizations have taken principal write-downs and, in Fitch's opinion, over $18 million in collateral that was considered performing from its previous review is now considered distressed. The class A/B overcollateralization ratio has decreased to 95.0% from 102.3% and the class C OC ratio has decreased from 102.3% and 94.1%, respectively, to 95.0% and 84.5% as of the most recent trustee report dated June 5, 2005. Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch Ratings web site at http://www.fitchratings.com/. For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralized Debt Obligations,' dated Sept. 13, 2004, also available at http://www.fitchratings.com/ HOME RE: Moody's Rates Three Mortgage Note Classes at Low-B ----------------------------------------------------------- Moody's Investors Service has assigned the ratings from A2 to Ba3 to securities issued by Home Re Limited and Home Re Credit LLC. Home Re is a synthetic securitization of mortgage insurance risk. The complete rating actions are: Co-Issuer: Home Re Limited Co-Issuer: Home Re Credit LLC Issue: Synthetic Mortgage Notes * Class M-2 Notes, rated A2 * Class M-3 Notes, rated A3 * Class M-4 Notes, rated Baa1 * Class M-5 Notes, rated Baa2 * Class M-6 Notes, rated Baa3 * Class B-1 Notes, rated Ba1 * Class B-2 Notes, rated Ba2 * Class B-3 Notes, rated Ba3 HOVNANIAN ENT: Increases Revolving Credit Facility to $1.2 Billion ------------------------------------------------------------------ Hovnanian Enterprises, Inc. (NYSE: HOV) increased its unsecured revolving credit facility to $1.2 billion from $900 million and extended the maturity through July of 2009. The facility contains an accordion feature under which the aggregate commitment can be increased to $1.3 billion subject to the availability of additional commitments. The new facility is led by PNC Capital Markets, LLC, Wachovia Securities, Inc. and Banc of America Securities LLC, as Joint Lead Arrangers and Joint Book Runners. PNC Bank, N.A. is Administrative Agent, with Bank of America, N.A. and Wachovia Bank, N.A. as Co-Syndication Agents, and JP Morgan Chase Bank, N.A., The Royal Bank of Scotland plc and KeyBank, N.A. as Co-Documentation Agents. Nineteen other lenders also participated in the new credit facility. "The commitment we received from some of the most highly respected banking institutions in the world demonstrates their confidence in the operating strategy and financial strength of Hovnanian, as well as the strength of the homebuilding industry," commented Ara Hovnanian, President and Chief Executive Officer of the Company. "The expansion of our credit facility provides us with improved liquidity as we continue to grow our business. Our revolving credit facility has been an integral part of our success and we greatly appreciate the support and confidence of our banking partners, some of which we have been working with for decades, as well as several new members who have joined our group," he concluded. About the Company Hovnanian Enterprises, Inc., founded in 1959 by Kevork S. Hovnanian, Chairman, is headquartered in Red Bank, New Jersey. The Company is one of the nation's largest homebuilders with operations in Arizona, California, Delaware, Florida, Illinois, Maryland, Michigan, Minnesota, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, Virginia and West Virginia. The Company's homes are marketed and sold under the trade names K. Hovnanian Homes, Goodman Homes, Matzel & Mumford, Diamond Homes, Westminster Homes, Forecast Homes, Parkside Homes, Brighton Homes, Parkwood Builders, Great Western Homes, Windward Homes, Cambridge Homes and Town & Country Homes. As the developer of K. Hovnanian's Four Seasons communities, the Company is also one of the nation's largest builders of active adult homes. * * * As reported in the Troubled Company Reporter on May 4, 2005, Fitch Ratings affirms Hovnanian Enterprises, Inc.'s (NYSE:HOV) 'BB+' senior unsecured debt and unsecured bank credit facility ratings. The rating applies to approximately $805.3 million in outstanding senior notes. Fitch also affirms the 'BB-' senior subordinated notes rating that applies to $400 million in debt. The Rating Outlook is Stable. INTERSTATE BAKERIES: Wants to Combine 3 Profit Centers' Operations ------------------------------------------------------------------ J. Eric Ivester, Esq., at Skadden Arps Slate Meagher & Flom LLP, in Chicago, Illinois, relates that in the initial stage of Interstate Bakeries Corp. and its debtor-affiliates' Chapter 11 cases, the Debtors focused on transitioning into Chapter 11 and ensuring stable operations and an uninterrupted flow of their products and on cost reductions that did not fundamentally change the way they operate their businesses. However, these efforts have not offset the continuing decline in sales revenue, nor have they sufficiently addressed the Debtors' cost structure in a manner that would enable them to develop a business plan around which to structure a reorganization plan that maximizes recovery for their constituents. As a second stage of their operational turnaround, the Debtors, Mr. Ivester reports, have engaged, and continue to engage, in exhaustive analyses of their profit centers on an individual basis to determine the aspects of their businesses where the most significant improvements in profitability and efficiency can be achieved. The Debtors' profit centers are groupings of bakeries, depots, thrift stores and routes based on geographic proximity. The analysis of each of the Debtors' 10 profit centers, Mr. Ivester explains, are staggered because of the extensive effort needed in analyzing even one profit center. As of June 8, 2005, the Debtors have already reviewed and analyzed profit centers in the Florida and Georgia region, the Mid-Atlantic region, and northeast region of the United States. Profit Center Consolidations After extensive evaluation of their Florida and Georgia, the Mid- Atlantic, and northeast Profit Centers, the Debtors have identified issues that adversely affected the three Profit Centers' profitability. As a result, the Debtors intend to consolidate the operations in the three Profit Centers: A. Florida/Georgia The Debtors plan to consolidate their operations in their Florida/Georgia Profit Center by closing their bakery in Miami, Florida, and reducing routes, depots and thrift stores in Florida and Georgia, where they currently maintain regional facilities. The consolidation is expected to (x) affect approximately 600 workers in the Florida Profit Center and (y) be completed by July 15, 2005. The Debtors will continue to service the marketplace from their bakeries in Columbus, Georgia; Jacksonville, Florida; and Orlando, Florida. The Debtors' preliminary estimate of charges to be incurred in the consolidation is approximately $10 million, including approximately $2 million of severance charges, approximately $5 million of asset impairment charges, and approximately $2 million in other charges. The Debtors further estimate that approximately $5 million of the costs will result in future cash expenditures. The Debtors intend to spend approximately $1 million in capital expenditures and an additional $1 million in other accrued expenses to effect the consolidation. B. Mid-Atlantic The Debtors intend to consolidate operations in their Mid- Atlantic Profit Center by closing their bakery in Charlotte, North Carolina, and reducing routes, depots and thrift stores in North Carolina, South Carolina and Virginia. The consolidation is expected to (x) affect approximately 950 workers and (y) be completed by July 23, 2005. The Debtors will continue to service the marketplace from their bakeries in Rocky Mount, North Carolina, and Knoxville, Tennessee. The Debtors' preliminary estimate of charges to be incurred in the consolidation is approximately $15 million, including approximately $3 million of severance charges, approximately $8.5 million of asset impairment charges, and approximately $3.5 million in other charges. The Debtors further estimate that approximately $6 million of the costs will result in future cash expenditures. The Debtors intend to spend approximately $2 million for capital expenditures and accrued expenses to effect the consolidation. C. Northeast The Debtors plan to consolidate their operations in their Northeast Profit Center by closing their bakery in New Bedford, Massachusetts and reducing routes, depots and thrift stores throughout the Northeast where they maintain regional facilities. The consolidation is expected to (x) affect approximately 1,400 workers and (y) be completed by mid- August. The Debtors will continue to service the marketplace from their remaining bakeries in the Northeast. The Debtors' preliminary estimate of charges to be incurred in the consolidation is approximately $17 million, including approximately $7 million of severance charges, approximately $7 million of asset impairment charges, and approximately $3 million in other charges. The Debtors further estimate that approximately $9 million of the costs will result in future cash expenditures. The Debtors intend to spend approximately $4.5 million in capital expenditures and accrued expenses to effect the consolidation. The Debtors currently contribute to more than 40 multi-employer pension plans as required under various collective bargaining agreements, many of which are underfunded. Mr. Ivester notes that the Debtors are conducting the Profit Center consolidation in a manner that they believe will not constitute a total or partial withdrawal from the relevant multi-employer pension plans resulting in material potential withdrawal liability. The Debtors have sent out Worker Adjustment and Retraining Notification notices to all parties-in-interest required to receive the notification. Debtors Want to Reject Contracts As a result of the proposed consolidation, the Debtors find certain executory contracts and unexpired leases unnecessary and burdensome to their estates and business operations. Hence, the Debtors want to reject: * a vehicle lease and service agreement with Salem Leasing Corporation for the Debtors' use of 38 Salem tractors at the Charlotte, North Carolina bakery; * a supply agreement with School Board of Broward County, Florida, because the Debtors can no longer supply them on a go-forward basis; and * executory contracts, unexpired leases and property that will no longer provide tangible benefit to the Debtors' estates and will play no part in their future operations. Contract Rejection Procedures The Debtors propose these procedures for rejecting additional executory contracts and unexpired leases associated with the Profit Center consolidations: (i) A Contract will be deemed rejected on the earlier of the date set forth in a notice of rejection or 10 days after the Rejection Notice is filed with the Court and delivered to any applicable special notice party; (ii) Objections must be filed within 10 days upon the filing of the Rejection Notice; (iii) If the Court denies the rejection, the Rejection Notice will be null and void. If the Court authorizes the rejection, the Contract would be deemed rejected as of the Rejection Date; and (iv) Affected parties will have 30 days after the Rejection Date to file a claim for rejection damages. Any claims not timely filed will be forever barred. Property Abandonment Procedures The Debtors propose these procedures for abandoning certain property associated with the Profit Center consolidations: (i) A property will be deemed abandoned on the earlier of the date set forth in a notice of abandonment or 10 days after the Abandonment Notice is filed with the Court and delivered to any applicable special notice party; (ii) Objections must be filed within 10 days upon the filing of the Abandonment Notice; and (iii) If the Court denies the abandonment, the Abandonment Notice would be null and void. If the Court authorizes the abandonment of the property, the property would be deemed abandoned as of the Abandonment Date. Mr. Ivester maintains that the proposed rejection and abandonment processes fairly preserve the rights of affected parties to appear before the Court and assert, as applicable, a rejection claim. Moreover, the processes allow for the Debtors to efficiently minimize unnecessary administrative charges. By this motion, the Debtors ask the Court for authority to: (1) consolidate operations in the Profit Centers, including the closure of the identified bakeries and the reduction of routes, depots and thrift stores; (2) reject the Salem Agreement; (3) reject the Broward Agreement; (4) implement procedures for rejecting Contracts associated with the Profit Center consolidations; and (5) implement procedures for abandoning any Property associated with the Profit Center consolidations. 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. 21; Bankruptcy Creditors' Service, Inc., 215/945-7000) INTERSTATE BAKERIES: Selling San Pedro Property for $14 Million --------------------------------------------------------------- As part of their restructuring, Interstate Bakeries Corporation and its debtor-affiliates have initiated a systematic review of opportunities to cut costs and dispose of surplus assets. The Debtors have identified two parcels of their property at 1605-1701 North Gaffey Street, in San Pedro, California, that are no longer beneficial to them. The Property includes approximately 9.8 acres of land with an approximately 171,028-square foot building. J. Eric Ivester, Esq., at Skadden Arps Slate Meagher & Flom LLP, in Chicago, Illinois, informs the Court that the Debtors use less than 2% of the total space in the Building for the operation of a thrift store. The San Pedro Eastview Little League is currently using a portion of the unimproved Land pursuant to a Court- approved agreement. The Debtors intend to discontinue operations at the Thrift Store and vacate the San Pedro Property by June 28, 2005. By this motion, the Debtors seek permission from the Court to sell the San Pedro Property to GMS Realty, LLC, a Delaware limited liability company, subject to higher or better offers. Colliers Seeley International, Inc., marketed the San Pedro Property. After exploring several alternatives and significant marketing efforts by the Debtors and Colliers Seeley, the Debtors decided to enter into an Asset Purchase Agreement with GMS, as the stalking horse bidder. GMS will acquire the Property for $14,050,000. GMS has deposited $2,000,000 in escrow. The Deposit will be held by the escrow agent until the Debtors satisfy all conditions to closing. The sale of the San Pedro Property to GMS will include all of the Debtors' right, title and interest in the Property. The Debtors will deliver good and marketable fee simple title to the Land and Improvements, free and clear of liens, other than Permitted Exceptions. The San Pedro Property is being sold "as- is, where-is," with no representations or warranties, reasonable wear and tear and casualty and condemnation excepted. Colliers will receive 3% of the gross proceeds of the Sale, payable at the closing. To obtain the best recovery for the San Pedro Property, the Debtors invite interested parties to submit competing offers by June 17, 2005. The Debtors will conduct an auction on June 23 if a competing bid is received. The Debtors impose a $14,400,000 minimum bid. The Debtors also seek permission to pay GMS a $281,000 termination fee if they consummate the sale with another bidder. The Debtors also seek to reimburse up to $50,000 of GMS' expenses. The Bid Protections are intended to compensate GMS for making the first qualified bid and setting the floor price for the Property. The San Pedro Property Sale will be considered at the June 28, 2005 omnibus hearing scheduled in the Debtors' Chapter 11 cases. Objections to the Sale must be filed by June 21. 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. 21; Bankruptcy Creditors' Service, Inc., 215/945-7000) IPC ACQUISITION: Soliciting Consents to Amend 11.5% Sr. Indenture ----------------------------------------------------------------- IPC Acquisition Corp. commenced a cash tender offer and consent solicitation relating to any and all of its outstanding $150,000,000 in aggregate principal amount of 11.5% Senior Subordinated Notes due Dec. 15, 2009, on the terms and subject to the conditions set forth in IPC's Offer to Purchase and Consent Solicitation Statement dated June 17, 2005. The Offer and Consent Solicitation is part of IPC's proposed recapitalization, which includes entering into a new senior credit facility and repurchasing some of its equity securities. The Offer and Consent Solicitation is conditioned upon, among other things, the funding of the new senior credit facility. IPC has entered into a Commitment Letter from Goldman Sachs Credit Partners L.P. with respect to the proposed new senior credit facility. In conjunction with the Offer, IPC is soliciting consents for proposed amendments to the indenture under which the Notes were issued. These amendments would eliminate substantially all of the restrictive covenants contained in the indenture as well as certain affirmative covenants and events of default. Holders who tender their Notes will be required to consent to the proposed amendments and holders who consent will be required to tender their notes. The consent of the holders of a majority of the aggregate principal amount of the outstanding Notes is required for the proposed amendments to become effective, but the proposed amendments will not become operative until the Notes are purchased pursuant to the Offer. Holders who validly tender Notes and deliver consents prior to 5:00 p.m., New York City time, on July 8, 2005, unless extended, will be eligible to receive the Total Consideration (which includes a consent payment of $30.00 per $1,000 principal amount of Notes). Holders who validly tender Notes after the Consent Time but prior to 10:00 a.m., New York City time, on Aug. 1, 2005, unless extended, will be eligible to receive the Tender Consideration, which is equal to the Total Consideration less the consent payment. Payment will be made promptly after the Expiration Time. In either case, holders will be eligible to receive accrued and unpaid interest to, but not including, the date of payment. Tendered Notes may be withdrawn and related consents may be revoked at any time at or prior to the Consent Time, but not thereafter (except under certain limited circumstances described in the Offer to Purchase). The Total Consideration will be a purchase price determined by reference to a fixed spread of 50 basis points, or 0.5%, over the yield to maturity based on the bid side price of the 1.875% U.S. Treasury Note due Dec. 31, 2005, as measured at 2:00 P.M., New York City time, on the third business day preceding the Expiration Time. Assuming a settlement date of Aug. 4, 2005, and a Reference Treasury Yield of 3.387%, the Total Consideration would be $1,083.80 per $1,000, which includes the $30 consent payment. Information regarding the pricing, tender and delivery procedures and conditions of the tender offer and consent solicitation is contained in the Offer to Purchase and related documents. Copies of these documents can be obtained by contacting Global Bondholders Services Corporation, the information agent for the Offer and Consent Solicitation at (866) 924-2200. Goldman, Sachs & Co. is the exclusive dealer manager and solicitation agent for the Offer and Consent Solicitation. Additional information concerning the terms and conditions of the tender offer and consent solicitation may be obtained by contacting Goldman, Sachs & Co., toll-free at (800) 828-3182 or collect at (212) 357-7867. IPC Acquisition -- http://www.ipc.com/-- is provides mission- critical communications solutions to global enterprises to the world's largest financial services firms, as well as to public safety; government; power, energy and utility; and transportation organizations. IPC offers its customers a suite of products and enhanced services that includes advanced Voice over IP technology, and integrated network and management services to 40 countries. Based in New York, IPC has over 800 employees throughout the Americas, Europe and the Asia Pacific regions. * * * IPC Acquisition's 11.5% senior subordinated notes due 2009 carry Moody's Investors Service's and Standard & Poor's single-B ratings. IVOW INC: Annual Stockholders' Meeting Slated for July 19 --------------------------------------------------------- iVOW, Inc. (Nasdaq: IVOW) will hold its Annual Stockholders' Meeting on July 19, 2005, at 10:00 a.m., Pacific Daylight Time, at the Company's headquarters located at 2101 Faraday Avenue in Carlsbad, California. The annual meeting will be held in order to: 1) elect two Class I directors for a term of three years or until their successors are duly elected and qualified. The Board of Directors has nominated Scott R. Pancoast and C. Fred Toney for election; 2) approve the issuance of the Company's securities representing more than 20% of the outstanding voting power of the Company, at a discount to the market price, in connection with a private placement financing; 3) approve a proposal to amend the Company's 1997 Stock Option/Stock Issuance Plan to: a) increase the number of shares of the Company's common stock available for issuance under the Plan from 2,592,500 to 4,000,000 shares; b) extend the term of the Plan to December 31, 2015; and c) provide for an automatic annual increase in the number of shares of the Company's common stock available for issuance under the Plan equal to the least of: (i) 2% of the number of the Company's shares issued and outstanding on the preceding Dec. 31; (ii) 1,500,000 shares; and (iii) a number of shares set by the Company's board of directors. 4) approve a proposal to amend the Company's 1997 Employee Stock Purchase Plan to: a) increase the number of shares of the Company's common stock available for issuance under the plan from 150,000 to 300,000 shares; and b) extend the term of the Plan to December 31, 2015. 5) consider and vote upon a proposal to amend the Company's Second Restated Certificate of Incorporation to increase the number of authorized shares of the Company's common stock from 35,000,000 shares to 70,000,000 shares; 6) approve a proposal to give the Board of Directors the authority, at its discretion, to effect a reverse split of the Company's common stock by filing a Certificate of Amendment to the Company's Second Restated Certificate of Incorporation; 7) ratify the appointment of J. H. Cohn LLP as the Company's independent auditors for the fiscal year ending December 31, 2005; and 8) transact other business as may properly come before the meeting or any adjournment thereof. Only stockholders of record at the close of business on May 23, 2005, are entitled to notice of and to vote at the Annual Meeting. iVOW, Inc. -- http://www.ivow.com/-- f/k/a Vista Medical Technologies, Inc., is focused exclusively on the disease state management of chronic and morbid obesity. They provide program management, operational consulting and clinical training services to physicians and hospitals involved in the medical and surgical treatment of morbidly obese patients. They also provide specialized vitamins to patients who have undergone obesity surgery. * * * As reported in the Troubled Company Reporter on Apr. 25, 2005, J. H. Cohn LLP says there's substantial doubt about iVOW, Inc.'s ability to continue as a going concern after auditing the Company's financial statements for the fiscal year ended Dec. 31, 2004. As of Dec. 31, 2004, the Company had an accumulated deficit, and management believes that the Company will require additional financing to fund its operations beyond June 2005. Management isn't sure that such financing will be available. At Dec. 31, 2004, the Company had cash and cash equivalents of $1.97 million. IVOW INC: Investors Commit to Join in Private Equity Placement -------------------------------------------------------------- iVOW, Inc. (Nasdaq: IVOW) received commitments from a group of institutional and accredited investors to participate in a private placement of the Company's common stock and warrants. Dawson James Securities is acting as the exclusive financial advisor to, and as sole placement agent for, iVOW. The commitments cover the sale of 7.3 million Units for aggregate gross proceeds of approximately $2.2 million. Each Unit consists of one share of common stock and a warrant to purchase one share of common stock. The warrants have a five-year term. The closing of the proposed private placement is subject to stockholder approval and certain other closing conditions. The Company intends to submit this matter to its stockholders for consideration at an annual meeting of the stockholders currently planned for July 2005. If stockholder approval is obtained and the proposed private placement is completed, the Company has agreed to file a registration statement covering the shares of common stock and the common stock underlying the warrants within 45 days of the closing of the transaction. iVOW, Inc. -- http://www.ivow.com/-- f/k/a Vista Medical Technologies, Inc., is focused exclusively on the disease state management of chronic and morbid obesity. They provide program management, operational consulting and clinical training services to physicians and hospitals involved in the medical and surgical treatment of morbidly obese patients. They also provide specialized vitamins to patients who have undergone obesity surgery. * * * As reported in the Troubled Company Reporter on Apr. 25, 2005, J. H. Cohn LLP says there's substantial doubt about iVOW, Inc.'s ability to continue as a going concern after auditing the Company's financial statements for the fiscal year ended Dec. 31, 2004. As of Dec. 31, 2004, the Company had an accumulated deficit, and management believes that the Company will require additional financing to fund its operations beyond June 2005. Management isn't sure that such financing will be available. At Dec. 31, 2004, the Company had cash and cash equivalents of $1.97 million. KEYSTONE CONSOLIDATED: Disclosure Statement Hearing Set for Friday ------------------------------------------------------------------ The Honorable Susan V. Kelley of the U.S. Bankruptcy Court for the Eastern District of Wisconsin will convene a hearing at 11:00 a.m. on Friday, June 24, 2005, to consider the adequacy of the Disclosure Statement explaining the First Amended Joint Plan of Reorganization filed by Keystone Consolidated Industries, Inc., and its debtor-affiliates. The Debtors filed their Plan and Disclosure Statement on May 26, 2005. The First Amended Joint Plan of Reorganization provides for, among other things: -- assumption of a previously negotiated amendment to the collective bargaining agreement with the Independent Steel Workers Alliance, Keystone's largest labor union; -- debts owed to pre-petition secured creditors will be reinstated in full against Reorganized Keystone; -- all of Keystone's common and preferred stock outstanding at the petition date will be cancelled; -- pre-petition unsecured creditors will receive, in the aggregate, $5.2 million in cash, a $4.8 million note and 49% of the common stock in Reorganized Keystone (the amount of cash and principal amount of the note may increase based on certain events); -- certain operating assets and existing operations of Sherman Wire Company, one of Keystone's pre-petition wholly-owned subsidiaries, will be sold at fair market value to Keystone, which will then form a newly created wholly-owned subsidiary of Reorganized Keystone with those assets and operations; -- Sherman Wire, and its pre-petition wholly owned non- operating subsidiaries, J.L. Prescott Company, and DeSoto Environmental Management, Inc. as well as Sherman Wire of Caldwell, Inc., a wholly owned subsidiary of Keystone, will be liquidated and the pre-petition unsecured creditors of these entities will receive their pro-rata share of the respective entity's net liquidation proceeds; -- prepetition unsecured creditors of Keystone's wholly owned prepetition subsidiary, FV Steel & Wire Company, will receive cash in an amount equal to their allowed claims; -- one of Keystone's Debtor-in-Possession lenders, EWP Financial, LLC (an affiliate of Contran Corporation, Keystone's prepetition majority shareholder) will convert $5 million of the credit facility, certain pre-petition unsecured claims and certain administrative claims into 51% of the common stock in Reorganized Keystone; -- the Board of Directors of reorganized Keystone will consist of seven individuals, of which two directors will be designated by Contran, two will be designated by the Official Committee of Unsecured Creditors, and the remaining three directors will qualify as independent directors (two of the independent directors will be appointed by Contran with the OCUC's consent and one will be appointed by the OCUC with Contran's consent); and -- assumption of new agreements with certain retiree groups that provide permanent relief by permanently reducing healthcare related payments to these retiree groups. Under the terms of a Lock-Up Agreement between Keystone, Contran, the OCUC, the ISWA and certain retirees of Keystone, all parties have agreed to support the First Amended Joint Plan of Reorganization. In addition, Keystone is currently negotiating with two potential lenders interested in providing the necessary financing to exit from the bankruptcy process. Keystone believes the filing of the First Amended Joint Plan of Reorganization and Disclosure Statement is another major step forward in Keystone's efforts to complete a successful restructuring and Keystone and its advisors will continue to work diligently in an effort to achieve its goal of exiting the bankruptcy process as soon as possible. Keystone currently anticipates a confirmation hearing during the first half of August. Headquartered in Dallas, Texas, Keystone Consolidated Industries, Inc., makes carbon steel rod, fabricated wire products, including fencing, barbed wire, welded wire and woven wire mesh for the agricultural, construction and do-it-yourself markets. The Company and its debtor-affiliates filed for chapter 11 protection on February 26, 2004, (Bankr. E.D. Wisc. Case No. 04-22422). The case is jointly administered under E.D. Wisc. Case No. 04-22421. Daryl L. Diesing, Esq., at Whyte Hirschboeck Dudek S.C., and David L. Eaton, Esq., at Kirkland & Ellis LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $196,953,000 in total assets and $365,312,000 in total debts. KMART CORP: Lynx Associates Holds $12 Million Allowed Claim ----------------------------------------------------------- JP Morgan Trust Company, National Association, is the successor trustee to Bank One Trust Company, N.A., the security assignee of the lease of 13 Kmart Stores or Real Estate Holdings between Lynx Associates LP, as lessor, and Kmart Corporation, as lessee. Lynx Associates has a Chapter 11 case pending in the U.S. Bankruptcy Court for the District of New Jersey. Kmart has rejected the Leases. As a result, JPMorgan filed lease rejection claims, which were consolidated under Claim No. 33353 in Kmart's Chapter 11 cases: Allocation of Location Store No. Claim by Property -------- --------- ----------------- Independence, Missouri 197 $865,953 Topeka, Kansas 218 1,033,526 Las Vegas, Nevada 220 1,107,524 Lawrence, Kansas 222 938,846 Merriam, Kansas 226 968,023 Omaha, Nebraska 230 935,343 Tucson, Arizona 231 653,244 Richardson, Texas 232 733,671 Dallas, Texas 234 753,754 Midvale, Utah 236 934,384 Hemet, California 239 958,359 Ogden, Utah 241 922,066 North Bergen, New Jersey 8580C 1,247,736 Kmart objected to JPMorgan's Lease Rejection Claims. In an agreed order signed by the Court, JPMorgan, Lynx Associates and Kmart concur that: (a) Lynx Associates will have an Allowed Class 5 Lease Rejection Claim for $12,052,429, which will be satisfied in accordance with the terms of Kmart's confirmed Plan of Reorganization, and which will be allocated to each of the 13 Stores and related Leases in the specified amounts; (b) the distributions to be made on account of the Allowed Class 5 Rejection Claim pursuant to the terms of Kmart's Plan will be made to JPMorgan; (c) upon final distribution and payments made in accordance with the terms of the Plan to JP Morgan, the Lease Rejection Claims filed by JPMorgan will be deemed satisfied in their entirety; (d) the effectiveness of the Order remains subject to approval of the claim settlement by the Federal Bankruptcy Court overseeing Lynx Associates' bankruptcy case; and (e) JPMorgan, Lynx Associates, and their successors, assigns, or designees, and all other persons are forever barred from asserting, collecting, or seeking to collect any amounts with respect to the Lease Rejection Claims. Headquartered in Troy, Michigan, Kmart Corporation (n/k/a KMART Holding Corporation) -- http://www.bluelight.com/-- 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 bought Sears, Roebuck & Co., for $11 billion to create the third-largest U.S. retailer, behind Wal-Mart and Target, and generate $55 billion in annual revenues. The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act expired on Jan. 27, without complaint by the Department of Justice. (Kmart Bankruptcy News, Issue No. 96; Bankruptcy Creditors' Service, Inc., 215/945-7000) MCLEODUSA INC: Nasdaq May Delist Common & Pref. Stock on Thursday ----------------------------------------------------------------- McLeodUSA Incorporated (Nasdaq:MCLD) received a notice from The Nasdaq Stock Market, Inc., indicating that: -- the Company does not comply with Nasdaq Marketplace Rule 4310(c)(2)(B)(ii), which requires companies listed on The Nasdaq SmallCap Market to maintain a market value of listed securities of $35 million; -- the Company had not regained compliance in accordance with Marketplace Rule 4310(c)(8)(c); and -- the Company's common stock had not regained compliance with Nasdaq Marketplace Rule 4310(c)(4), which requires listed companies to maintain a minimum bid price of at least $1.00 per share. As a consequence, subject to appeal, the Company was notified that its Class A Common Stock and Series A Preferred Stock would be delisted from The Nasdaq SmallCap Market at the opening of business on June 23, 2005. In light of the previously announced strategic and financial restructuring alternatives it is pursuing, the Company has determined not to request a hearing to appeal Nasdaq's determination to delist the Company's securities. Bankruptcy Warning There can be no assurances that the Company will be able to identify a strategic partner or buyer, reach agreement with any such strategic partner or buyer, or reach an agreement with its lenders regarding a capital restructuring. As previously announced, the Company is exploring these alternatives pursuant to a forbearance agreement between the Company and its bank lenders. The forbearance period runs through July 21, 2005. In the event these alternatives are not available to the Company, it is likely that the Company will elect to forgo making future principal and interest payments to its lenders while it continues to seek an extended forbearance period or permanent capital restructuring from its lenders, or alternatively, the Company could be forced to seek protection from its creditors. While the Company continues to explore a variety of options with the view toward maximizing value for all of its stakeholders, none of the options presented to date have suggested that there will be any recovery for the Company's current preferred stock or common stock holders. Accordingly, it is unlikely that holders of the Company's preferred stock or common stock will receive any recovery in a capital restructuring or other strategic transaction. The Company's securities will not be immediately eligible to trade on the OTC Bulletin Board or in the "Pink Sheets." The securities may become eligible if a market maker makes application to register in and quote the security in accordance with SEC Rule 15c2-11, and such application is cleared. Only a market maker, not the Company, may file a Form 211. The Company is not aware that a market maker intends to make such an application. Headquartered in Cedar Rapids, Iowa, McLeodUSA Incorporated provide integrated communications services, including local services, in 25 Midwest, Southwest, Northwest and Rocky Mountain states. The Company filed for chapter 11 protection on Jan. 30, 2002 (Bankr. D. Del. Case No. 02-10288). Eric M. Davis, Esq., and Matthew P. Ward, Esq., at Skadden, Arps, Slate, Meagher & Flom LLP represent the Debtor. When the Debtor filed for chapter 11 protection, it listed total assets of $4,792,600,000 and total debts of $4,566,200,000. The Court confirmed the Debtor's chapter 11 plan on April 5, 2002, and the Plan took effect on April 16, 2002. The Court formally closed the case on May 20, 2005. At Mar. 31, 2005, McLeodUSA Incorporated's balance sheet showed a $127,600,000 stockholders' deficit, compared to a $46,800,000 deficit at Dec. 31, 2004. METALFORMING TECH: Wants to Sell Assets to Zohar for $25 Million ---------------------------------------------------------------- Metalforming Technologies, Inc., Crescive Die & Tool, Inc., Metalform Industries, Inc., and Northern Tube, Inc., ask the U.S. Bankruptcy Court for the District of Delaware for authority to sell substantially all of their operating assets to Zohar Tubular Acquisition, LLC, for $25,000,000. Zohar will also assume some post-petition liabilities. The Debtors will sell all of the assets of: -- their structural and tubular business; -- their Saline and Milan plants; and -- Metalform's 49% equity interests in the Lexington Joint Venture and the Engineered Systems business. Zohar Tubular will deposit $1,250,000 to be held in an escrow account. The sale is expected to close on September 30, 2005. A Court-approved auction will be set on a later date. Competing bids, if any, must exceed Zohar's offer by $750,000. In the event that Zohar is not the successful bidder, the Debtors ask the Court to approve a $500,000 break-up fee. Headquartered in Chicago, Illinois, Metalforming Technologies, Inc., and its debtor-affiliates manufacture seating components, stamped and welded powertrain components, closure systems, airbag housings and charge air tubing assemblies for automobiles and light trucks. The Company and eight of its affiliates, filed for chapter 11 protection on June 16, 2005 (Bankr. D. Del. Case Nos. 05-11697 through 05-11705). Joel A. Waite, Esq., Robert S. Brady, Esq., and Sean Matthew Beach, Esq., at Young Conaway Stargatt & Taylor, represent the Debtors in their restructuring efforts. As of May 1, 2005, the Debtors reported $108 million in total assets and $111 million in total debts. METALFORMING TECH: Wants to Pay Foreign Vendors' $1.3 Mil. Claims ----------------------------------------------------------------- Metalforming Technologies, Inc., and its debtor-affiliates ask the U.S. Bankruptcy Court for the District of Delaware for authority to pay approximately $1,350,000 to foreign vendors holding prepetition claims. The Debtors say that in manufacturing automobile parts, they rely on foreign vendors (mostly from Mexico) for materials, goods and services that can't be timely obtained through alternative sources on comparable terms. The Debtors stress that failure to pay the foreign vendors' prepetition claims might result in the vendors refusal to continue providing materials and services necessary to protect and maximize the going concern value of the estates. In addition, the Debtors tell the Court that if they can't pay the vendors' claims, they'll be sued in Mexico and the vendors will attempt to seize the estates' assets located there. Headquartered in Chicago, Illinois, Metalforming Technologies, Inc., and its debtor-affiliates manufacture seating components, stamped and welded powertrain components, closure systems, airbag housings and charge air tubing assemblies for automobiles and light trucks. The Company and eight of its affiliates, filed for chapter 11 protection on June 16, 2005 (Bankr. D. Del. Case Nos. 05-11697 through 05-11705). Joel A. Waite, Esq., Robert S. Brady, Esq., and Sean Matthew Beach, Esq., at Young Conaway Stargatt & Taylor, represent the Debtors in their restructuring efforts. As of May 1, 2005, the Debtors reported $108 million in total assets and $111 million in total debts. METROMEDIA INT'L: Executes Waiver Pact on Senior Note Default ------------------------------------------------------------- Metromedia International Group, Inc., the owner of interests in various communications and media businesses in the countries of Russia and Georgia, received a waiver of certain events of default under the Indenture for its 10-1/2% Senior Notes Due 2007. The waiver was executed with holders of approximately $125.5 million, or 82.5%, of the outstanding Senior Notes. Concurrently, the Company entered into a supplemental indenture, the net effect of which are: -- The Company shall have until July 15, 2005, to file with the United States Securities and Exchange Commission and to furnish the indenture trustee and the holders of the Senior Notes with, its Annual Report on Form 10-K for the fiscal year ended December 31, 2004, and deliver to the indenture trustee an officers' certificate and written statement of the Company's independent public accountants required to accompany the Current Annual Report; and -- In consideration of the foregoing, the Company has paid the holders of record of the Senior Notes, as of June 3, 2005, an aggregate amount equal to $380,063.42; to be allocated among such holders in an amount equal to $2.50 per $1,000 aggregate principal amount of the Senior Notes at stated maturity held by such holder. This waiver and the supplemental indenture: -- eliminate for the present any default or event of default on the Senior Notes in respect of the Company's failure to file the Current Annual Report with the SEC; -- deliver the Current Annual Report to the indenture trustee and the holders of the Senior Notes; and -- deliver an officers' certificate and the CPA Statement to the indenture trustee by June 3, 2005. If the Company does not complete the required filings in connection with the Current Annual Report by July 15, 2005, an event of default on the Senior Notes shall exist, thereby permitting the indenture trustee or holders of at least 25% of the aggregate principal amount of the Senior Notes outstanding to declare all Senior Notes to be due and payable immediately. If this were to happen, the Company would not have sufficient corporate cash available to meet this obligation. Through its wholly owned subsidiaries, the Metromedia International Group, Inc. -- currently traded as: (PINK SHEETS: MTRM)-Common Stock and (PINK SHEETS: MTRMP)-Preferred Stock -- owns interests in communications businesses in the countries of Russia and Georgia. Since the first quarter of 2003, the Company has focused its principal attentions on the continued development of its core telephony businesses, and has substantially completed a program of gradual divestiture of its non-core cable television and radio broadcast businesses. The Company's core telephony businesses include PeterStar, the leading competitive local exchange carrier in St. Petersburg, Russia, and Magticom, Ltd., the leading mobile telephony operator in Tbilisi, Georgia. At Dec. 31, 2004, Metromedia International's balance sheet showed a $6,477,000 stockholders' deficit, compared to a $13,155,000 deficit at Dec. 31, 2003. METROMEDIA INT'L: Amends PeterStar Share Purchase Agreement ----------------------------------------------------------- Metromedia International Group, Inc., the owner of interests in various communications and media businesses in the countries of Russia and Georgia, amended a share purchase agreement with National Holding S.A., Emergent Telecom Ventures S.A., and Pisces Investment Limited, regarding the sale of ZAO PeterStar's assets for $215 million in cash. The amendment primarily extends the outside date of the period for closing a sale of the Company's interests in PeterStar from Sept. 30, 2005, to a date not earlier than Dec. 31, 2005. The Company remains committed to completing the sale of its PeterStar interest at the earliest possible date, subject to obtaining the affirming vote of holders of a majority of the Company's outstanding common shares. The parties undertook the amendment extending the period in which this transaction may be closed in consideration of certain delays the Company has experienced in completing SEC required filings that are prerequisites to convening the required meeting of the Company's shareholders. As reported in the Troubled Company Reporter on Feb. 22, 2005, the Company said it will utilize a portion of the proceeds of the sale to retire all of the Company's outstanding $152 million 10.5% senior discount notes due 2007. The Company also presently expects that it will be able to utilize its 2004 tax attributes (capital loss carry-forwards and net operating loss carry- forwards) and anticipated 2005 losses to offset any federal or state tax gain that would be recognized on the sale of PeterStar. Upon completion of this sale, the Company's principal business operations will include Magticom Ltd., the leading Georgian mobile telephony operator, and Telecom Georgia, a well-positioned Georgian long distance telephony operator. The Company intends to continue active development of these and other Georgian business interests. Through its wholly owned subsidiaries, the Metromedia International Group, Inc. -- currently traded as: (PINK SHEETS: MTRM)-Common Stock and (PINK SHEETS: MTRMP)-Preferred Stock -- owns interests in communications businesses in the countries of Russia and Georgia. Since the first quarter of 2003, the Company has focused its principal attentions on the continued development of its core telephony businesses, and has substantially completed a program of gradual divestiture of its non-core cable television and radio broadcast businesses. The Company's core telephony businesses include PeterStar, the leading competitive local exchange carrier in St. Petersburg, Russia, and Magticom, Ltd., the leading mobile telephony operator in Tbilisi, Georgia. At Dec. 31, 2004, Metromedia International's balance sheet showed a $6,477,000 stockholders' deficit, compared to a $13,155,000 deficit at Dec. 31, 2003. MID-SOUTH LUMBER: Case Summary & 20 Largest Unsecured Creditors --------------------------------------------------------------- Debtor: Mid-South Lumber of Lewisburg, LLC 1490 Nashville Highway Lewisburg, Tennessee 37091 Bankruptcy Case No.: 05-07260 Type of Business: The Debtor sells building materials. Chapter 11 Petition Date: June 17, 2005 Court: Middle District of Tennessee (Columbia) Judge: Marian F. Harrison Debtor's Counsel: Paul E. Jennings, Esq. Paul E. Jennings Law Offices, P.C. 805 South Church Street, Suite 3 Murfreesboro, Tennessee 37130 Fax: (615) 895-7294 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ Russell Forest Products, Inc. $46,174 P.O. Box 367 Hartselle, AL 35640 TN Department of Revenue $40,000 c/o Attorney General's Office Bankruptcy Division P.O. Box 20207 Nashville, TN 37202-0207 United Lumber & Remanufacturing $33,242 980 Ford Road Muccle Shoals, AL 35661 American Express Gold $28,912 Weyerhaeuser $28,105 Internal Revenue Service $23,999 Dairyman's Supply Company $23,683 Ezell, William B. $20,000 Industrial Products LLC $19,632 Whatley & Sons Truss Company $14,499 Moore-Handley $12,055 American Door & Millwork $9,761 Viwintech Windows & Door $9,140 American Express Blue $9,137 Sun Windows $9,067 Southern Fastening $5,125 Reserve Warehouse Corporation $4,403 Cumberland Materials, Inc. $3,733 Kenco Distributors, Inc. $3,285 Central Woodwork, Inc. $3,123 MIRANT CORP: Gets Court Approval on Entergy Settlement Agreement ---------------------------------------------------------------- On June 4, 2001, Wrightsville Power Facility, LLC, and Entergy Arkansas, Inc., entered into an Interconnection and Operating Agreement. The Interconnection Agreement relates to Wrightsville's power generating facility in Pulaski County, Arkansas, and EAI's power transmission system to which the power plant is interconnected. The Interconnection Agreement however gave rise to several matters that became the subject of proceedings at the FederaL Energy Regulatory Commission, and the parties' dispute: 1. Tax Gross-Up Claim As part of the interconnection of the power plant to the transmission system, the Interconnection provides for the construction of certain interconnection facilities and system upgrades owned by EAI. Wrightsville alleged that it made reimbursement payments to EAI for the costs of the construction of some interconnection facilities and system upgrades. Entergy, on the other hand, contends that Wrightsville is obligated to pay to EAI a "tax gross-up claim" pursuant to the Interconnection Agreement. 2. Transmission Credits EAI is obligated to provide certain transmission credits to Wrightsville up to an amount equal to a portion of certain reimbursement payments made to EAI. Wrightsville and EAI dispute whether certain interconnection facilities and system upgrades for which reimbursement payments were made are entitled to Transmission Credits. The outstanding amount of the Transmission Credits equals $30,912,406 as of December 31, 2004, plus any accrued interest allowed by the FERC. 3. FERC Proceedings Appeal Proceeding In a proceeding styled Entergy Gulf States, Inc., 98 FERC 61,014, reh'g denied, 99 FERC 61,095 (2002), the FERC issued an order, in part, classifying the kinds of interconnection facilities for which a transmission provider must provide a generator with transmission credits. ESI appealed the FERC order and the "at or beyond" policy announced therein to the United States Circuit Court of Appeals for the District of Columbia Circuit in a proceeding styled Entergy Servs., Inc., et al. v. Fed. Energy Regulatory Comm'n, Nos. 02-1199, et al. (D.C. Cir., June 24, 2002, et al.). Reclassification Proceeding Wrightsville and EAI are parties to a proceeding before the FERC styled as Pacific Gas and Electric Co., et al., 102 FERC 61,070, further order, Wrightsville Power Facility, L.L.C. v. Entergy Arkansas, Inc., et al., 102 FERC 61,212 (2003). Wrightsville contends that of the $13,378,000 of costs initially classified as Interconnection Facilities and metering costs in the Interconnection Agreement, the FERC reclassified $13,043,000 of the Interconnection Facilities as required System Upgrades. EAI disputes Wrightsville's contentions and disagrees with the FERC Reclassification Order. EAI has asked for a rehearing of the FERC Reclassification Order in the FERC Reclassification Proceeding. The matter is pending before the FERC. 4. Refund Issue Wrightsville seeks $9.9 million in reimbursement, which it paid to EAI for optional system upgrades. The FERC rules that the amount constitutes normal, ordinary course, business costs, and should not have been charged by and paid to EAI under any circumstances. Wrightsville thus seeks $9.9 million in refund. EAI however contends that Wrightsville voluntarily undertook the costs, and the FERC has not ruled that EAI owes Wrightsville $9.9 million. The Refund Issue is currently subject to pending motions for clarification or rehearing before the FERC. 5. The Reclassification Tax Gross-Up Claim Entergy Corporation filed a consolidated federal income tax return with Entergy Arkansas and other Entergy affiliates for the tax year 2003. As a result of the 2003 FERC Reclassification Order, the 2003 consolidated federal income tax return included $13 million as taxable income representing reimbursement payments paid to EAI under the Interconnection Agreement. EAI asserts that the taxable income gives rise to a tax gross- up claim for $4,533,509 under the Interconnection Agreement. 6. GIA and Excess Energy Amounts Wrightsville and EAI are bound by a Generator Imbalance Agreement. EAI asserts $4,032,176 on account of its claim against Wrightsville for alleged violations of the GIA. Wrightsville however disputes the allowance and enforceability of the GIA Claim. Wrightsville also asserts that EAI owes it $1,088,890 for excess energy under the GIA. EAI however asserts a right of offset, reduction and recoupment with respect to the Excess Energy Amount. 7. Interconnection Agreement Aggregate Funds The Aggregate Funds is the sum of the excess energy amount and the construction funds under the Interconnection Agreement -- which is $1,625,252. 8. Retail Agreement EAI provides retail electric service to Wrightsville under an Agreement for Electric Service dated December 11, 2001. As of October 3, 2003, EAI asserts $405,000 against Wrightsville for retail electric service. At the Bankruptcy Court's order, EAI applied a $90,000 deposit to reduce the Retail Claim. 9. Tax Refund Entergy Corporation and its subsidiaries have filed an amended federal income tax return for its tax year 2000 and thus may receive a tax refund from the Internal Revenue Service as related to certain reimbursement payments made to EAI under the Interconnection Agreement during the year 2000. The tax gross-up payments made to EAI in 2000, which are potentially eligible for tax-free treatment in tax year 2000 under IRS Notice 2001-82, total $508,109. Prepetition Claims EAI filed eight claims against Mirant -- $4,533,509 as Reclassification Tax Gross Up Claim, GIA Claim for $4,032,176, Retail Claim for $315,000, Radio Station Claim, Miscellaneous Invoices Claim, August Deficient Energy Claim, Annual Fee Claim for $10,000, and reimbursement claim for payments of consultations with respect to the Radio Station Interference. On February 13, 2004, EAI and ESI, as agent, asked the Bankruptcy Court for relief from the automatic stay. Wrightsville filed an answer to the Stay Motion and objected to EAI's Claims. The parties were able to reach an agreement settling their disputes. The material terms of the Settlement Agreement are: A. Payments Of the $1,625,252 in Aggregate Funds: (a) $1,000,000 will be paid to Wrightsville; (b) $364,391 will be retained by EAI as a permanent offset and payment to satisfy a portion, but not all, of the EAI Claims, referred to as the EAI Effective Date Payment; and (c) $260,861 will be retained and held by EAI to satisfy a portion of the Reclassification Tax Gross Up Claim or Rejection Tax Gross Up Claim, referred to as Interconnection and Operating Agreement Cash Payment. The Effective Date Payment will satisfy the remaining balance of the Retail Claim, the Radio Station Claim, the August Deficient Energy Claim, the Annual Fee Claim, and the Miscellaneous Invoices. The GIA Claim is also fully and completely satisfied. B. Initial Reduction of Transmission Credits Transmission Credits bearing interest will be reduced by $7,272,648, subject only to a right of Wrightsville to the reinstatement of $4,272,648 as the "Potentially Refundable Transmission Credits." C. Permanent Reduction of Transmission Credits Of the $7,272,648 in Initially Reduced Transmission Credits, $3,000,000, to which Wrightsville would otherwise be entitled under the Interconnection Agreement, any FERC ruling or order, the FERC Reclassification Order, or applicable law -- will be permanently and automatically extinguished and eliminated. The remaining $4,272,648 in Initially Reduced Transmission Credits will become "Potentially Refundable Transmission Credits." D. Tax Refund On receipt by Entergy Corporation and its subsidiaries of the Tax Refund from the IRS: (a) EAI will retain $508,109, on account of any Reclassification Tax Gross-Up Claim or Rejection Tax Gross Up Claim; and (b) there will be a concomitant dollar-for-dollar reinstatement of Potentially Refundable Transmission Credits previously reduced. E. Allowed Reclassification Tax Gross Up Claim EAI will have an allowed Reclassification Tax Gross Up Claim against Wrightsville for $4,533,509. F. Time Limitation on Refund Notwithstanding the occurrence of a Non-Taxable Event, the Potentially Refundable Transmission Credits, the $508,109 of the Tax Refund and the IOA Cash Payment will not be reinstated, revived, refunded or paid to Wrightsville until 45 days after the later of (x) the Assumption Deadline or (y) the date Wrightsville assumes or rejects the Interconnection Agreement. In the event EAI files a Rejection Tax Gross Up Claim, there will be no reinstatement, revival, refund or payment to Wrightsville until all legal matters related to allowance of the Rejection Tax Gross Up Claim are resolved. The Rejection Tax Gross Up Claim, if allowed, will be satisfied by EAI's retention of the Cash Payment, the $508,109 of the Tax Refund and a permanent and automatic reduction of a face amount of Potentially Refundable Transmission Credits. G. Reservation in the Ongoing Litigation EAI, Entergy Corporation, ESI and Wrightsville may each prosecute their existing claims, rights, appeals, requests for rehearing, issues, and defenses in the Appeal Proceeding and the FERC Reclassification Proceeding and with respect to the Refund Issue and the $9.9 Million Claim to its final resolution. Judge Lynn grants the Debtors' request in its entirety and approves the settlement agreement. Headquartered in Atlanta, Georgia, Mirant Corporation -- http://www.mirant.com/-- is a competitive energy company that produces and sells electricity in North America, the Caribbean, and the Philippines. Mirant owns or leases more than 18,000 megawatts of electric generating capacity globally. Mirant Corporation filed for chapter 11 protection on July 14, 2003 (Bankr. N.D. Tex. 03-46590). Thomas E. Lauria, Esq., at White & Case LLP, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $20,574,000,000 in assets and $11,401,000,000 in debts. (Mirant Bankruptcy News, Issue No. 67; Bankruptcy Creditors' Service, Inc., 215/945-7000) MIRANT CORP: Gets Court Approval on Deerpark Settlement Agreement ----------------------------------------------------------------- The U.S. Bankruptcy Court for the Northern District of Texas approved the settlement agreement entered into between Mirant Corporation and its debtor-affiliates, and certain Deerpark Tax Authorities. In July 1999, the Debtors purchased a power plant in Deerpark, along with certain other power plants in New York state. Since the power plant is located in Deerpark, it is subject to certain yearly ad valorem taxes. A dispute arose among the Debtors and certain Deerpark Tax Authorities. The dispute became the subject of a tax certiorari proceeding in New York state court. In the state proceeding, the Debtors assert, among others, that the Deerpark Tax Authorities owed them $311,984 in refunds for the years 2000-2002 based on alleged erroneous equalized assessed values for real property tax purposes ranging from $4,582,964 in 2000 to $5,610,857 in 2003. To resolve the real property tax disputes, the parties ink a settlement agreement. The parties to the Settlement Agreement are: a. Mirant New York, Inc., on behalf of itself and Mirant NY-Gen, LLC; and b. the Deerpark Tax Authorities -- the Town of Deerpark, the Port Jervis Central School District, the Assessor for Deerpark, the Board of Assessment Review of Deerpark, and the County of Orange. Through the Settlement Agreement, the Debtors' refund claims will be resolved. The Deerpark Tax Authorities agreed to provide the Debtors $88,377 in gross refunds for 2000-2002, which will be offset by $43,724 in adjusted unpaid 2003 taxes, resulting in a $44,652 net refund. The most important aspect of the settlement concerns the present and future real property taxes on the Deerpark Power Plant. Under the Settlement Agreement, the Deerpark Power Plant's current equalized assessed value of $5,610,857 will be reduced by 75% to $1,402,714 for 2003-2006. The reduction will provide the Debtors with sufficient certainty that: -- the Deerpark Power Plant will be taxed fairly and equitably into the future; and -- the Debtors can make informed decisions about its future operating expenses in connection with any plan of reorganization. Headquartered in Atlanta, Georgia, Mirant Corporation -- http://www.mirant.com/-- is a competitive energy company that produces and sells electricity in North America, the Caribbean, and the Philippines. Mirant owns or leases more than 18,000 megawatts of electric generating capacity globally. Mirant Corporation filed for chapter 11 protection on July 14, 2003 (Bankr. N.D. Tex. 03-46590). Thomas E. Lauria, Esq., at White & Case LLP, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $20,574,000,000 in assets and $11,401,000,000 in debts. (Mirant Bankruptcy News, Issue No. 66; Bankruptcy Creditors' Service, Inc., 215/945-7000) MYLAN LABORATORIES: S&P Rates $500 Mil. Sr. Unsec. Notes at BB+ --------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'BBB-' bank loan rating to generic drug maker Mylan Laboratories Inc.'s $475 million senior secured credit facility. A recovery rating of '3' was also assigned to the loan, indicating the expectation for meaningful (50%-80%) recovery of principal in the event of a payment default. At the same time, Standard & Poor's assigned its 'BB+' rating to Mylan's $500 million senior unsecured notes due 2015. The company is using the proceeds from the debt offering, along with on-hand cash, to fund a $1.25 billion share repurchase program. Existing ratings on Mylan, including the 'BBB-' corporate credit rating, were affirmed. The outlook is stable. "The ratings are based on Mylan's solid position in the growing generic drug industry, the promising prospects associated with nebivolol, and a moderate financial risk profile," said Standard & Poor's credit analyst Arthur Wong. "These factors are partially mitigated by the increasing challenges facing the already highly competitive generic drug industry." Canonsburg, Pennsylvania-based Mylan is one of the largest generic drug makers in the U.S. In the growing U.S. generic drug market, the company is the No. 2 player, accounting for 11% of all generic prescriptions filled. Mylan has a diverse product offering, with no single product accounting for more than 10% of sales. The company also has a rich generic drug pipeline, with 44 abbreviated new drug applications. Twelve are potential first-to-file, 180- day exclusivity opportunities. Standard & Poor's believes that the generic drug industry, which already accounts for nearly 50% of all U.S. prescriptions, will continue to grow over the intermediate term, given the increasing focus on health care cost control and the still large number of branded products losing patent protection over the next several years. NEWS CORPORATION: Board Approves Stock Repurchase Program --------------------------------------------------------- News Corporation's (NYSE: NWS, NWS.A; ASX: NWS, NWSLV) Board of Directors approved a stock repurchase program, effective immediately. Under the program, News Corporation is authorized to acquire from time to time up to $3 billion in the Company's Class A common stock and Class B common stock. The repurchases will be made through open market transactions. The timing of the transactions and class of shares purchased will depend on a variety of factors, including market conditions, but the program is expected to be completed within two years. The Company expects that the number of shares of Class A common stock and Class B common stock subject to the repurchase will be approximately equal. The program may be suspended or discontinued at any time. News Corporation had total assets as of March 31, 2005 of approximately US$56 billion and total annual revenues of approximately US$23 billion. News Corporation is a diversified international media and entertainment company with operations in eight industry segments: filmed entertainment; television; cable network programming; direct broadcast satellite television; magazines and inserts; newspapers; book publishing; and other. The activities of News Corporation are conducted principally in the United States, Continental Europe, the United Kingdom, Australia, Asia and the Pacific Basin. * * * As reported in the Troubled Company Reporter on Jan. 27, 2005, Moody's Investors Service confirmed News Corporation's debt ratings of Baa3 senior unsecured. The rating outlook was changed to positive. This rating action concludes the review initiated on April 26, 2004. The ratings that were confirmed include: -- News America Incorporated: * Baa3 senior unsecured -- News Corporation Finance Trust II: * Baa3 senior unsecured -- News Corp Overseas Limited: * Ba1 trust preferred shares -- News Corporation Exchange Trust: * Ba1 trust preferred shares NORTHWEST AIRLINES: Just How High Are the Carrier's Labor Costs? ---------------------------------------------------------------- Press reports relate that Northwest Airlines Corp. has the highest labor costs in the airline industry. The June 19, 2005, edition of The Detroit News published a chart showing just how high Northwest's labor costs are compared to its peers. In the first quarter of 2005, the Top 12 U.S. Carriers' labor costs to fly one passenger one mile were: Northwest $0.046 *********************** Continental $0.043 ********************** American $0.043 ********************** Delta $0.040 ******************** United $0.039 ******************* US Airways $0.031 *************** Southwest $0.026 ************* America West $0.026 ************* ATA $0.024 ************ Frontier $0.024 ************ Jet Blue $0.022 *********** Air Tran $0.018 ********* Joel J. Smith at The Detroit News reports that Northwest has cut many costs to date. The carrier's free passenger magazine is history, saving $565,000 a year in subscription fees. Passengers don't receive free bags of pretzels any longer when the drink cart comes by. That move is projected to save $2 million per year. Following other carriers, Northwest tossed pillows from its planes earlier this year. Mr. Smith relates that one of Northwest's planes sat on a Minneapolis tarmac for 45 minutes recently as passengers sweltered in the heat. "The pilot wouldn't turn on the air conditioning. The crew claimed it was to save fuel costs for the airline," a passenger on that plane said. Closing telephone reservation centers and maintenance facilities, grounding gas- guzzling aircraft, adding fees to ticket prices, and other changes has pulled $1.7 billion out of Northwest's cost structure, Mr. Smith relates. Northwest is currently pressuring its 39,000 workers for more than $1 billion in wage and benefit concessions. Northwest is also asking Congress to give it 25 years to fund a $3.8 billion deficit in its pension plan. Northwest is the world's fifth largest airline with hubs in Detroit, Minneapolis/St. Paul, Memphis, Tokyo and Amsterdam, and approximately 1,600 daily departures. Northwest is a member of SkyTeam, an airline alliance that offers customers one of the world's most extensive global networks. Northwest and its travel partners serve more than 900 cities in excess of 160 countries on six continents. The carrier's reported losses since 2001. It lost about $458 million in the first quarter of 2005 and $878 million during 2004. Northwest's junk-rated 7-7/8% Notes due March 15, 2008, trade for less than 50-cents-on-the-dollar today. Northwest Airlines Corp.'s common shares are trading below $5 this week. The stock was at $11 per share in December. NRG ENERGY: Stockholders Okay Changes to Articles of Incorporation ------------------------------------------------------------------ Timothy W. J. O'Brien, vice president, secretary and general counsel of NRG Energy, Inc., informs the U.S. Securities and Exchange Commission that on May 24, 2005, NRG's stockholders approved two amendments to the Company's Amended and Restated Certificate of Incorporation. The first amendment gives the Board of Directors authority to enlarge the size of the Board to up to 15 directors and to fill newly created directorships. The Amended and Restated Certificate of Incorporation now provides: Subject to any rights of the holders of any series of Preferred Stock to elect additional Directors under specified circumstances, the number of Directors which will constitute the Board of Directors will initially be established at eleven and, thereafter, may be enlarged to up to fifteen by the affirmative vote of a majority of the total number of directors then in office or may otherwise be enlarged with the approval of the holders of at least a majority of the shares of Common Stock then outstanding, and may be reduced by resolution adopted by the affirmative vote of a majority of the total number of Directors then in office. Newly created directorships resulting from an increase in the size of the Board of Directors may be filled by the affirmative vote of a majority of the total number of Directors then in office or by vote of the stockholders. The second amendment deletes Article Sixteen, which was a holdover provision from the bankruptcy and no longer applies to the Company. A full-text copy of NRG's Amended and Restated Certificate of Incorporation is available for free at: http://ResearchArchives.com/t/s?2e NRG Energy, Inc., owns and operates a diverse portfolio of power-generating facilities, primarily in the United States. Its operations include baseload, intermediate, peaking, and cogeneration facilities, thermal energy production and energy resource recovery facilities. The company, along with its affiliates, filed for chapter 11 protection (Bankr. S.D.N.Y. Case No. 03-13024) on May 14, 2003. The Company emerged from chapter 11 on December 5, 2003, under the terms of its confirmed Second Amended Plan. James H.M. Sprayregen, Esq., Matthew A. Cantor, Esq., and Robbin L. Itkin, Esq., at Kirkland & Ellis, represented NRG Energy in its $10 billion restructuring. * * * Moody's Investor Services and Standard & Poor's assigned single-B ratings to NRG Energy's 8% secured notes due 2013. NUCENTRIX BROADBAND: Bankruptcy Court Closes Chapter 11 Cases ------------------------------------------------------------- The U.S. Bankruptcy Court for the Northern District of Texas closed Nucentrix Broadband Networks, Inc., and its debtor- affiliates' chapter 11 cases, on June 16, 2005, at the Debtors' behest. Josiah M. Daniel, III, Esq., at Vinson & Elkins L.L.P., in Dallas, Texas, told the Court that the Debtors' First Amended Joint Plan of Liquidation has been substantially consummated. In accordance with the Plan, shares of common stock in Nucentrix were canceled and the transfer books of the Company were closed at 3:00 p.m. (CDT) on June 10, 2004. Under the Plan, Record Holders of Nucentrix common stock are entitled to receive distributions of the remaining net proceeds from the sale of the Company's assets after payment has been made to holders of allowed claims. The Debtors funded an additional $0.435 per share distribution to holders of Nucentrix common stock of record as of June 10, 2004. The distribution was made through the Company's disbursing agent, Computershare Trust Company, Inc. The distribution of $0.435 per share, together with the distribution of $2.25 per share made in November 2004, total $2.685 per share distributed to Record Holders. Nucentrix Broadband Networks, Inc., provided broadband wireless Internet services using radio spectrum licensed by the Federal Communications Commission (FCC). The Company and certain subsidiaries filed chapter 11 petitions on Sept. 5, 2003 (Bankr. N.D. Tex. Case No. 03-39123). The U.S. Bankruptcy Court for the Northern District of Texas has confirmed the First Amended Joint Plan of Liquidation of the Company and its debtor subsidiaries in May 2004. The plan took effect on June 10, 2004. NVF COMPANY: Case Summary & 40 Largest Unsecured Creditors ---------------------------------------------------------- Lead Debtor: NVF Company 1166 Yorklyn Road Yorklyn, Delaware 19736 Bankruptcy Case No.: 05-11727 Debtor affiliates filing separate chapter 11 petitions: Entity Case No. ------ -------- Parsons Paper Company, Inc. 05-11728 Type of Business: NVF Company manufactures thermoset composites (glass, Kevlar), vulcanized fiber, custom containers, circuitry materials, custom fabrication, and welding products. Parsons Paper Company, Inc., a wholly owned subsidiary of NVF, is a paper and board manufacturer. See http://www.nvf.com/ Chapter 11 Petition Date: June 20, 2005 Court: District of Delaware Debtors' Counsel: Rebecca L. Booth, Esq. Richards, Layton & Finger, P.A. One Rodney Square P.O. Box 551 Wilmington, Delaware 19899 Tel: (302) 651-7700 Fax: (302) 651-7701 Debtors' Reorganization Consultants: Morris Anderson & Associates Ltd. Estimated Assets Estimated Debts ---------------- --------------- NVF Company $10 Million to More than $100 Million $50 Million Parsons Paper $0 to $50,000 $1 Million to Company, Inc. $10 Million A. NVF Company's 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Nationwide Trust Company Pension Liability $5,387,628 P.O. Box 784615 Columbus, OH 43271-4685 Attn: Mary Bigart Tel: (800) 255-7566 ext. 42430 Fax: (614) 854-2886 UGI Energy Services Inc. Stipulated $911,208 1100 Berkshire Boulevard Judgment Wyomissing, PA 19610 c/o Kevin T. Fogerty, Esq. Mill Run Office Center 1275 Glenlivet Drive, Suite 150 Allentown, PA 18106 Tel: (610) 366-0950 Fax: (610) 366-0955 The Saint Paul Company Insurance $391,116 215 Shurman Boulevard Naperville, IL 60563 Attn: Mike Blumetti Tel: (860) 277-4152 Fax: (860) 277-2158 Liberty Mutual Insurance Insurance $221,689 Company 75 Remittance Drive Chicago, IL 60675-1837 Attn: Kristine Miller Tel: (800) 653-7893 Fax: (715) 843-2649 Kennett Consolidated School Taxes $164,251 District P.O. Box 532 West Chester, PA 19381-0532 Unlimited Restoration Trade Debt $151,250 Specialties 379 Cherry Street Pottstown, PA 19464 MetLife Insurance $95,021 Cotsworld Industries, Inc. Trade Debt $84,902 Bedford Weaving Mills Inc. Trade Debt $76,686 Local School District Taxes Taxes $71,741 State of Delaware Penn Electric Motor Company Trade Debt $62,062 Cherry Pulp & Paper Company Trade Debt $58,857 FB Cross & Sons Inc. Trade Debt $57,690 Gettier Security Trade Debt $54,512 Office of the United States Government $50,000 Trustee Essex Brownell Products Trade Debt $43,254 City of Wilmington Property Tax $41,766 Conectiv Power Delivery Utility $36,518 Waste Management of Delaware Utility $35,924 Roadway Express Inc. Trade Debt $32,625 B. Parsons Paper Company, Inc.'s 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Department of Public Works Utility Services $1,148,868 City of Hoyoke 63 North Canal Street Holyoke, MA 01040 Attn: Legal Department Tel: (413) 322-5530 Fax: (413) 322-5531 LB Corporation Trade Debt $250,397 95 Maple Street Lee, MA 01238 Attn: Legal Department Tel: (413) 243-1072 Fax: (413) 243-3655 Gas & Electric Department Utility Services $218,286 City of Holyoke 70 Suffolk Street Holyoke, MA 01040 c/o Ferriter & Ferriter 150 Lover Westfield Road Suite 100 Holyoke, MA 01040 Attn: John J. Ferriter, Esq. Tel: (413) 535-4200 Fax: (413) 535-4201 Buckeye Lumberton, Inc. Trade Debt $40,698 BlueCross BlueShield of MA Employee Medical $36,065 Insurance Eka Chemicals, Inc. Trade Debt $19,083 Bolton Emerson Americas Inc. Trade Debt $12,344 E.I. DuPont de Nemours Company Trade Debt $11,745 Orr Felt & Blanket Company Trade Debt $10,079 Noramax LLC Trade Debt $9,833 Alcon Waste Trade Debt $9,833 General Contractors Inc. Trade Debt $7,652 D&L Lumber Trade Debt $5,710 XPEDX (Fargo) Trade Debt $5,358 National Refiner Plate Company Trade Debt $3,012 Dubois Chemical Company Trade Debt $2,444 Image Permanence Institute Trade Debt $2,280 Falcetti Clark Electric Co. Trade Debt $1,577 A.R. Green & Son Inc. Trade Debt $1,476 Tri-State Well Drillers Trade Debt $1,412 OFFSHORE LOGISTICS: Reporting Delay Cues Moody's to Review Ratings ------------------------------------------------------------------ Moody's placed the ratings for Offshore Logistics, Inc., under review for possible downgrade following the company's inability to file its March 31, 2005, Form 10-K by the June 15, 2005, requirement and as a result it's in violation of the financial reporting covenant under the senior notes indenture. Though the underlying business appears to be largely unaffected by this event, the filing delay is the result of the company's previously disclosed Board of Directors' and SEC investigation into payments made in a foreign country. The Audit Committee of the Board of Directors has retained outside counsel to fully investigate this matter as well as to expand the investigation to other foreign offices of OLG. The initial impact to the company has been the termination of the former president of its Air Logistics affiliate and the resignation of the CFO, both of whom have been replaced. While the company has previously disclosed it findings thus far had not had a material impact on reported financial statements, the investigation is still ongoing, and therefore prevents the company from filing its 10-K. While the company has not yet received a notice of default from the trustee regarding the failure to file its 10-K, there is no indication that it has yet received a waiver. If OLG does receive the notice of default, it officially begins a 60 day cure period during which time the company must either file its 10-K or obtain a waiver to extend the filing date. Management has not indicated when it expects the investigation will be completed, which raises the likelihood of the trustee serving the notice of default given the uncertainty surrounding the timing of receiving the 10-K. If this investigation is not completed and the company cannot file within the cure period, the noteholders will have the option to accelerate the notes at the end of the 60 day cure period if no waiver is given which at this time would put significant liquidity pressure on the company. OLG also announced on June 15, 2005 that it received a subpoena from the Dept. of Justice regarding a grand jury investigation into potential anti-trust violations among the helicopter service providers in the Gulf of Mexico. However, Moody's notes that certain of OLG's competitors also received the same subpoena but that no other information is available at this time. Moody's review will entail an assessment of the findings of the Audit Committee's investigation and the potential impact on the company as well as a review of the 10-K when it is filed along with the status of the recently announced Dept of Justice grand jury investigation. The ratings may be confirmed if the company is able to file its 10-K within the cure period and if there appears to be little impact from the grand jury subpoena. Moody's has placed these OLG ratings under review for possible downgrade: 1) Ba2 -- Corporate Family Rating (previously called the Senior Implied Rating) 2) Ba2 -- $230 million senior unsecured notes due 2013 3) Ba3 -- Issuer rating The ratings remain restrained by: * the company's dependence on the volatile exploration and production of oil and gas; * the very mature and cyclical nature of the GOM and North Sea, which generate about half of the company's of the company's earnings and cash flows; and * the significant capital being spent on the company's fleet renewal/expansion over the next couple of years. The ratings continue to be supported by: * OLG's increased earnings and cash flow base; * conservative financial policies; * international expansion and diversification; * its leading position in its primary markets; and * the company's solid liquidity position with approximately $147 million of cash on hand. In the GOM, where OLG is the second largest helicopter provider to the exploration and production operators in the region, activity has been in long-term decline as most of the larger oil and gas companies have re-directed their focus and capital to foreign basins and redeployed rigs to markets like Mexico and West Africa. While the GOM and North Sea are cyclical, mature markets, they still contain significant activity due to their strategic importance to a number of E&P companies and therefore, will continue to generate significant earnings and cash for OLG given its position as the second largest provider of helicopter services in the each of these markets. Further, the company's newer heavier fleet is suited for the deepwater GOM, where general activity has increased and is expected to remain healthy as long as commodity prices remain supportive. In an earnings release on June 8, 2005, the company reported revenues of $156.1 million and net income of $13.7 million for the quarter ended March 31, 2005 versus $152.9 million of revenues and $33.5 million of net income for the same quarter in 2004. The difference in net income was mainly driven by one-time a one-time non-cash curtailment gain of $21.7 million in 2004 resulting from changes made to the company's U.K. pension plan as well as a $2.5 million insurance premium rebate. The company's reported balance sheet for March 31, 2005 debt was $262.1 million of debt and $514.1 million of equity. Offshore Logistics, Inc., headquartered in Lafayette, Louisiana, is a provider of helicopter transportation services to the oil and gas industry worldwide. PEGASUS SATELLITE: Plan Trustee Gets OK to Assign KB Lewiston Pact ------------------------------------------------------------------ As previously reported, Ocean Ridge Capital Advisors, LLC, the Liquidating Trustee of the PSC Liquidating Trust established under the Plan, sought the U.S. Bankruptcy Court for the District of Maine's authority to assume the KB Lewiston Agreement. KB Prime Media, LLC, owns licenses to operate full powered television stations, including WSWB-TV (Channel 38) in Scranton/Wilkes-Barre, Pennsylvania and WPME-TV (Channel 35) in Lewiston, Maine. Pegasus Satellite Communications, Inc. and its debtor-affiliates own and operate television stations in the designated market areas where KB Prime owns television stations WSWB-TV and WPME-TV. According to Kenneth A. Rosen, Esq., at Lowenstein Sandler, PC, in Roseland, New Jersey, the Debtors are parties to time brokerage agreements and other agreements with KB Prime wherein the Debtors receive certain revenues generated by the Scranton and Lewiston Stations while KB Prime retains ultimate control over those stations. KB Prime Objects Randy J. Creswell, Esq., at Perkins, Thompson, Hinckley & Keddy, P.A., in Portland, Maine, points out that the Liquidating Trustee's request to assume the Asset Purchase Agreement for TV station WPME, in Lewiston, Maine, should be denied because: (a) the option agreement to provide collateral to secure certain loans issued by Wachovia Bank, N.A., to the owners of KB Prime, the KB Lewiston Agreement, and the KB Scranton Agreement constitute one integrated contract that must be assumed it its entirety; (b) the Debtors impermissibly seek to avoid certain obligations under the KB Lewiston Agreement while enjoying the benefits thereof; (c) the Debtors have committed incurable defaults under the KB Lewiston Agreement, which preclude assumption absent KB's consent; and (d) the Debtors fail to provide adequate assurance that certain other defaults under the Option Agreement and the KB Lewiston Agreement will be cured. Mr. Creswell asserts that the Debtors have already committed certain incurable breaches of the KB Lewiston Agreement. Section 365(b) of the Bankruptcy Code requires a debtor to cure any defaults under an executory contract as a prerequisite to assumption. However, "[i]f the debtor has committed . . . an incurable breach, [it] has no continuing rights under the contract," and assumption is therefore prohibited, Mr. Creswell relates, citing Good Hope Refineries, Inc. v. Benavides, 602 F.2d 998, 1003 (1st Cir. 1979). Mr. Creswell tells the Court that closing was required to occur within 30 business days after the later of (1) the satisfaction of all conditions precedent under the KB Lewiston Agreement and (2) the FCC Consent becoming a final order. Mr. Creswell states that because closing did not timely occur, defaults exist under the KB Lewiston Agreement that cannot be cured and, therefore, precludes assumption. "Pegasus intends to 'cherry pick' by exercising its rights under the Option Agreement as to only those stations that it can resell at a substantial profit -- such as the Lewiston and Scranton Stations -- and saddling KB with the less valuable stations and all the liabilities incurred in connection therewith," Mr. Creswell argues. "Pegasus will then -- impermissibly -- attempt to reject the Option Agreement, leaving KB with general unsecured claim while Pegasus walks away with the spoils. Such tactics are clearly impermissible." Debtors and Liquidating Trustee Respond According to John P. McVeigh, Esq., at Preti, Flaherty, Beliveau, Pachios & Haley, LLP, in Portland, Maine, the Purchase Agreements and the Option Agreement are undeniably separate and severable agreements, each of which can be assumed or rejected. There is no need to consider any evidence outside of the documents themselves to reach this conclusion, Mr. McVeigh says. Furthermore, Mr. McVeigh argues that the Debtors are not precluded from assuming the KB Lewiston Agreement because of any delay in the closing. Mr. McVeigh maintains that KB Prime has not demonstrated that there has been a default under the closing provisions in the KB Lewiston Agreement. KB Prime only asserts that closing did not occur within the time frame. Mr. McVeigh points out that time was not of the essence with respect to the closing requirement. Therefore, the failure of either party to close in and of itself does not constitute a default. * * * Judge Haines authorizes the Reorganized Debtors to assume the KB Lewiston Agreement. No monetary or other defaults exist under the KB Lewiston Agreement. Headquartered in Bala Cynwyd, Pennsylvania, Pegasus Satellite Communications, Inc. -- http://www.pgtv.com/-- is a leading independent provider of direct broadcast satellite (DBS) television. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. D. Maine Case No. 04-20889) on June 2, 2004. Larry J. Nyhan, Esq., James F. Conlan, Esq., and Paul S. Caruso, Esq., at Sidley Austin Brown & Wood, LLP, and Leonard M. Gulino, Esq., and Robert J. Keach, Esq., at Bernstein, Shur, Sawyer & Nelson, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $1,762,883,000 in assets and $1,878,195,000 in liabilities. (Pegasus Bankruptcy News, Issue No. 26; Bankruptcy Creditors' Service, Inc., 215/945-7000) PILLOWTEX CORP: Court Okays Hiring BDO Seidman for Tax Work ----------------------------------------------------------- As reported in the Troubled Company Reporter on May 9, 2005, Pillowtex Corporation and its debtor-affiliates originally planned to engage KMPMG LLP, their prior accountants and financial advisors, to review their federal and state income tax returns and work papers for the year ended December 31, 2004, and any future federal and state income tax returns that the Debtors may file. However, due to the resignation of the Debtors' tax directors in January 2005 and the retirement of the KMPMG tax partner that reviewed the Debtors' previous tax returns, the Debtors asked BDO Seidman LLP to do the review. Pursuant to Section 327(e), 328(a), and 330 of the Bankruptcy Code, the Debtors seek the Court's authority to employ BDO Seidman to review their Tax Returns, nunc pro tunc to April 18, 2005. Gilbert R. Saydah, Esq., at Morris, Nichols, Arsht & Tunnell, in Wilmington, Delaware reminds the Court that by order dated October 7, 2003, BDO Seidman was retained as the accountant to the Official Committee of Unsecured Creditors. In addition, by order dated November 12, 2004, BDO Seidman was retained by the Debtors as the auditor of: * the Pillowtex Corporation 401(k) Plan for Hourly Employees; * the Pillowtex Corporation 401(k) Plan for Salaried Employees; and * the Pillowtex Corporation Employee Medical Benefit Plan for the years ended December 31, 2003 and 2004. The Debtors believe that BDO Seidman's role as accountant to the Committee and auditor of the Benefit Plans do not create a conflict for purposes of their proposed retention as reviewer of the Debtors' Tax Returns as the Committee's interests and the Debtors' interests are aligned in filing timely and accurate federal and state tax returns. The Debtors will pay BDO Seidman $38,000 plus expenses for the review of their federal and state tax returns for the year ending December 31, 2004. The expenses will be charged at actual costs incurred. The compensation of BDO Seidman for any tax work for subsequent periods will be determined at a later date and will be subject to review pursuant to Section 330. Mr. Saydah believes that BDO Seidman is well qualified to serve as the reviewer of the Debtors' Tax Returns since it has extensive familiarity with the fields of accounting, auditing, and taxation as well as the accounting practices in insolvency matters in the bankruptcy courts in the District of Delaware and in other states. Furthermore, BDO Seidman's services are necessary to comply with the requirements of the Internal Revenue Service and the applicable state taxing authorities. The Committee supports the Debtors' proposed employment of BDO Seidman. Robert Klein, a partner and Certified Public Accountant at BDO Seidman, assures the Court that the firm does not represent any interest adverse to the Debtors or their estates in the matters on which it is seeking to be engaged. BDO Seidman is a "disinterested person" within the meaning of Section 101(14) of the Bankruptcy Code. Additionally, Mr. Klein discloses that neither BDO Seidman nor any of its members had any business, professional, or other connection with the Debtors or any other party-in-interest, the U.S. Trustee, or any person employed in the office of the U.S. Trustee in matters on which BDO Seidman is to be engaged, except that: (a) it represented the Creditors Committee in connection with the Debtors' initial Chapter 11 bankruptcy that was filed on November 14, 2000; (b) it is currently retained as the accountants to the Committee in connection with the Debtors' current Chapter 11 case; (c) Trenwith Securities, BDO Seidman's majority-owned affiliate, was engaged to provide investment banking services to the Committee in connection with the Debtors current Chapter 11 case; and (d) it is currently retained as the auditor of the Debtors' Benefit Plans. BDO Seidman also has business relationships with these parties, which are or may be creditors of the Debtors: -- BDO Seidman has previously performed assurance, tax, or other services for these creditors or other parties-in- interest: * Parkdale Mills, Inc., * Credit Suisse First Boston, * Bank of America, * Comerica Bank, * Fleet Bank, * Foothill Capital Corporation, * Southern Container Corporation, * Congress Financial Corporation, and * Silver Point Capital Fees for each of these engagements represent less than 1% of BDO Seidman's annual revenues and relate to matters totally unrelated to the case for which BDO Seidman is seeking to be engaged; -- BDO Seidman has performed and may be presently performing, assurance, tax, or other services for these creditors or other parties-in-interest: * El DuPont, * Continental Casualty Company, * Societe Generale, * The CIT Group, * Credit Lyonnais, * Wells Fargo Bank, * Gotham Partners, LP, and * KPMG Fees for each of these engagements represent less than 1% of BDO Seidman's annual revenues and relate to matters totally unrelated to the case for which BDO Seidman is seeking to be engaged. -- as part of its practice, BDO Seidman's appears in cases, proceedings, and transactions involving many different creditors, shareholders, attorneys, accountants, financial consultants, investment bankers, and other entities, some of which may be, or represent claimants and parties-in- interest in the Debtors' Chapter 11 case. However, BDO Seidman does not represent any of these entity, other than which has already been disclosed, in connection with the pending case or have a relationship with any entity or profession which would be adverse to the Debtor's Committee or its estate. BDO Seidman performed a review of potential connections and relationships between the firm and: (1) Pillowtex Corporation and its domestic and foreign subsidiaries and affiliates; (2) the holders of 10% of Pillowtex's term debt claims; (3) the holders of revolving credit agreement claims; (4) the beneficial owners of 5% or more of equity in Pillowtex; (5) the Debtors' attorneys and advisors; (6) the largest unsecured creditors of Pillowtex on a consolidated basis as identified in the Debtors' Chapter 11 petition; and (7) parties to significant leases or executory contracts. If BDO Seidman discovers additional information that, in the firm's reasonable opinion, requires disclosure, it will file a supplemental disclosure with the Court as promptly as possible. U.S. Trustee Objects According to David M. Klauder, counsel for Kelly Beaudin Stapleton, the U.S. Trustee for Region 3, the term "reviewer" is left undefined and BDO Seidman LLP's precise services to be performed are unknown. While BDO Seidman is retained as the Official Committee of Unsecured Creditors' accountant, the Debtors previously retained the firm on a discrete issue -- as auditor of various 401k and medical benefit plans. Mr. Klauder argues that BDO Seidman's proposed simultaneous representation of the Committee and the Debtors would be an actual conflict of interest or, at the very least, a potential conflict of interest, and in violation of Sections 327(a) and 1103(b) of the Bankruptcy Code. Section 327(a) prohibits a debtor's retention of an accountant that represents an interest adverse to the estate. Section 1103(b) directly prohibits an accountant employed by a committee to represent another entity having an adverse interest in connection with the case. Mr. Klauder asserts that the Debtors and the Committee have adverse interests, regardless of the consensual nature of the representation. Representation of both a debtor and a committee at the same time in the same case is an actual conflict of interest and mandates a per se disqualification of the professional. While representation of a debtor and a committee may be allowed on discrete issues, the general rule prohibits this type of dual representation. An exception to this rule should not be made because BDO Seidman's proposed work involves a fundamental duty of a debtor-in-possession -- the timely and accurate preparation of tax returns. Mr. Klauder says it is unclear who is preparing the tax returns that BDO Seidman will review. This is an important issue because if the tax returns were prepared by an outside accounting firm, it seems duplicative and unnecessary for BDO Seidman to conduct its own review of those tax returns. If the Debtors internally prepared the tax returns, then an outside review may be appropriate. Specifics regarding the services to be performed are also not provided in the Application. This is especially important when analyzing the conflict issue because BDO Seidman's services might directly evidence a conflicting representation, Mr. Klauder says. Mr. Klauder also points out that the Debtors already retained KPMG LLP at the beginning of the bankruptcy case to perform accounting, audit, and financial advisory services, including reviewing the Debtors' relevant tax returns. Mr. Klauder argues that KPMG's excuse for not performing the review of the Debtors' tax returns -- the retirement of the KPMG tax partner who reviewed the previous returns -- is insufficient since KPMG is a nationally recognized accounting firm with hundreds of professionals qualified to do the work. The retirement of one individual will not bring KPMG to its knees and certainly should not be used as a justification to support retaining another professional at further cost to perform the work. * * * Judge Walsh authorizes the Debtors to employ BDO Seidman to review their federal and state tax returns and work papers for the year ended December 31, 2004, nunc pro tunc to April 18, 2005. Headquartered in Dallas, Texas, Pillowtex Corporation -- http://www.pillowtex.com/-- sold top-of-the-bed products to virtually every major retailer in the U.S. and Canada. The Company filed for Chapter 11 protection on November 14, 2000 (Bankr. Del. Case No. 00-4211), emerged from bankruptcy under a chapter 11 plan, and filed a second time on July 30, 2003 (Bankr. Del. Case No. 03-12339). The second chapter 11 filing triggered sales of substantially all of the Company's assets. David G. Heiman, Esq., at Jones Day, and William H. Sudell, Jr., Esq., at Morris Nichols Arsht & Tunnel, represent the Debtors. On July 30, 2003, the Company listed $548,003,000 in assets and $475,859,000 in debts. (Pillowtex Bankruptcy News, Issue No. 80; Bankruptcy Creditors' Service, Inc., 215/945-7000) POGO PRODUCING: Selling Thailand Oil & Gas Assets for $820 Million ------------------------------------------------------------------ Pogo Producing Company (NYSE: PPP) entered into a definitive agreement to sell its Thailand assets to PTTEP Offshore Investment Company Limited and Mitsui Oil Exploration Co., Ltd., in a transaction totaling $820 million in cash. The transaction is expected to close in the third quarter of 2005, subject to customary closing conditions. "An important strategic goal of 2005, entering into an agreement to sell our Thailand assets if the right price was offered, has been achieved," said Paul G. Van Wagenen, Chairman and Chief Executive Officer of Pogo. "The American Jobs Creation Act of 2004 created a unique opportunity to reassess the value and strategic fit of Pogo's international assets. Given the current strength of the energy market, the demand for high quality international properties, and the one-time tax treatment afforded by the Act, we decided that the divestiture of our licenses in Thailand and Hungary was in the best interests of our shareholders and our company. On June 7, 2005, Pogo announced that it had agreed to sell its wholly-owned subsidiary, Pogo Hungary, Ltd., in a transaction totaling approximately $9 million. That transaction has closed." Mr. Van Wagenen continued, "In January, we announced our 2005 Strategic Plan. Major components of that plan include: -- evaluation of a sale of our assets in Thailand and Hungary; -- curtailment of our 2005 discretionary development drilling until the related costs or drilling efficiencies improve; and -- a stock repurchase program equal to not less than $275 million nor more than $375 million of Pogo's common stock, which, based upon recent prices, could represent approximately 9% to 12% of our outstanding shares. "These strategic initiatives demonstrate Pogo's focus on strict financial discipline and our willingness to adapt our strategy to changes in market conditions. All of these actions underscore Pogo's clear commitment to actively manage our assets and resources to enhance long-term value for our shareholders." Mr. Van Wagenen concluded, "We expect to resume our discretionary development activities when the costs or drilling efficiencies have improved. In the meantime, we will continue to repurchase shares and strengthen our balance sheet. The proceeds from the Thailand sale will be used to fund capital projects and will enable us to vigorously pursue market opportunities, including acquisitions." Pogo Producing Company explores for, develops and produces oil and natural gas. Headquartered in Houston, Texas, Pogo owns interests in 93 federal and state Gulf of Mexico lease blocks offshore from Louisiana and Texas. Pogo also owns approximately 705,000 gross leasehold acres in major oil and gas provinces in the United States and 1,043,000 acres in New Zealand. Pogo common stock is listed on the New York Stock Exchange and the Pacific Exchange under the symbol "PPP". * * * As reported in the Troubled Company Reporter on March 24, 2005, Standard & Poor's Ratings Services affirmed its 'BB+' corporate credit rating on Pogo Producing Co. At the same time, Standard & Poor's assigned its 'BB' rating to the company's proposed $300 million subordinated notes due 2015. Proceeds from the note offering will be used to repay existing bank borrowings under the company's $750 million credit facility. Houston, Texas-based Pogo had $755 million of debt as of Dec. 31, 2004. "The stable outlook on Pogo reflects our expectations that Pogo will prudently manage its more aggressive financial policies and 2005 budget initiatives while maintaining its sound financial profile and adequate liquidity for the current ratings," said Standard & Poor's credit analyst Brian Janiak. POLAR MOLECULAR: Nasdaq Delists Common Stock from OTCBB ------------------------------------------------------- Polar Molecular Holding Corporation (OTCBB:POMHE) reported that its shares were delisted from the NASDAQ OTC Bulletin Board as of the opening of trading on June 17, 2005. The Company's common stock continues to be available for trading under the ticker symbol of POMH (or POMHE) on the Nasdaq Pink Sheets. The Company has subscribed to real-time Pink Sheets Inside and Level 2 Quote Montage on http://www.pinksheets.com/which provides realtime quotes on the pinksheets.com website. The Company said the delisting resulted after its "historical" auditor, citing inability to service all of its customers due to time pressures related to requirements of Sarbanes-Oxley, terminated its service with the company, necessitating the engagement of a new auditor. The change in auditor resulted in a delay in the company's ability to file its annual report on Form 10-KSB for 2004 and its Form 10-QSB for the first quarter of 2005. According to stories in the Wall Street Journal and other publications, the effects of Sarbanes-Oxley requirements on auditors has caused a serious problem for small public companies who have experienced delays in their ability to file on time. The company expects to complete its 2004 audit and its filing of form 10-KSB and 10-QSB soon and be back in compliance with its filings. Upon completing the filings, the company intends to reapply for a listing on the OTCBB. About the Company Based in Denver, Colorado, Polar Molecular Holding Corporation -- http://www.polarmolecular.com/-- sells a proprietary line of fuel additives for gasoline, diesel and industrial heating oils under the trademarked name DurAlt(R) FC. The patented technology optimizes engine combustion, thereby improving fuel mileage and decreasing emissions. At Sept. 30, 2004, Polar Molecular Holding Corporation's balance sheet showed a $3,904,000 stockholders' deficit, compared to a $4,457,000 deficit at Dec. 31, 2003. PRIDE ELECTRIC: Case Summary & 20 Largest Unsecured Creditors ------------------------------------------------------------- Debtor: Pride Electric, Inc. 9463 Dielman Rock Island Saint Louis, Missouri 63132 Bankruptcy Case No.: 05-47000 Type of Business: The Debtor is an electrical contractor. Chapter 11 Petition Date: May 20, 2005 Court: Eastern District of Missouri (St. Louis) Judge: Kathy A. Surratt-States Debtor's Counsel: Robert E. Eggmann, Esq. Copeland, Thompson et al. 231 South Bemiston, Suite 1220 St. Louis, Missouri 63105 Tel: (314) 726-1900 Total Assets: $839,976 Total Debts: $1,497,894 Debtor's 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Electrical Workers Local Benefit contributions $152,454 No. 1 5850 Elizabeth Avenue Saint Louis, MO 63110 Frost Electric Supply Co. Trade debt $145,246 P.O. Box 66522 Saint Louis, MO 63166 Tech Electronics Trade debt $73,996 Department 18782 P.O. Box 790100 Saint Louis, MO 63179 Crescent Electrical Supply Trade debt $69,057 Western Extralite Company Trade debt $57,059 Ford Credit Purchase money $37,367 security in various vehicles Bell Electrical Contractors Trade debt $21,527 Missouri Division of Employment taxes $19,598 Employment Security Missouri Dept. of Revenue Withholding taxes $11,678 Cummins Mid-South, LLC Trade debt $10,287 Rexel Southern Trade debt $9,394 ADT Security Services Trade debt $8,256 AMCI Professional Real Rent due $8,600 Estate Management Chambers Excavating, LLC Trade debt $8,353 Bell Systems Group Trade debt $6,340 French Gerleman Trade debt $6,116 Midwest Aerials & Equipment Trade debt $5,635 Datel Communications, Inc. Trade debt $5,271 Webb Engineering Services Trade debt $5,382 United Healthcare Insurance Trade debt $4,955 RHODES INC: Taps PricewaterhouseCoopers as Auditors & Tax Advisor ----------------------------------------------------------------- Rhodes Holdings, Inc., and its debtor-affiliates ask the U.S. Bankruptcy Court for the Northern District of Georgia, Atlanta Division, for permission to retain PricewaterhouseCoopers LLP to provide auditing and tax advisory services. PwC is an international accounting and financial advisory services firm. PwC's professionals have extensive experience in providing audit and tax services in reorganization proceedings. PwC did prepetition work for the Debtors and, as a result, the Firm is familiar with Rhodes' business practices and financial structure. During the course of the Debtors chapter 11 cases, PwC will conduct: I. Accounting and Auditing Services: a) audits the Debtors' financial statements as may be required from time to time and assist in the preparation of the Debtors' financial statements and disclosures; b) analyze financial information for distribution to creditors and other parties-in-interest, including cash receipts and disbursements, legal entity financial statements, various asset and liability accounts and other transactions; c) provide consultations on accounting and reporting issues and matters as requested by the Debtor; and d) provide additional follow-up on procedures relative to the audit of the Feb. 28, 2005, financial statements of the Debtors. II. Tax Services: a) outsource assistance with regards to the Debtors' federal and state income tax compliance, property tax compliance, and other taxes and license; b) advice and assist the Debtors regarding tax planning, estimating net operating loss carry-forwards and other tax minimization strategies; c) provide any assistance regarding existing and future IRS, state or local tax examinations; and d) provide assistance regarding state and local tax planning opportunities resulting from bankruptcy filings. Rhodes will pay PwC: -- $258,000 for the audit of financial statements ending Feb. 28, 2005; and -- $147,600 for the annual outsourcing services. PwC's professionals and their current hourly billing rates: Designation Accounting Tax Consulting Tax Compliance ----------- ---------- -------------- -------------- Partner $523-$662 $489-$720 $577 Director $332 $377 $263 Senior Manager $300 $305 $198 Manager $205 $233 $159 Senior Associate $167 $166 $126 Associate $89 $127 $88 Paraprofessional $66 $111 $72 Mike Fahey, a partner in PwC's Atlanta office, assures the Court of his Firm's "disinterestedness" as that term is defined in Section 101(14) of the Bankruptcy Code. Headquartered in Atlanta, Georgia, Rhodes, Inc., will continue to offer brand-name residential furniture to middle- and upper- middle-income customers through 63 stores located in 11 southern and midwestern states (after disposing of the locations listed above). The Company and two of its debtor-affiliates filed for chapter 11 protection on Nov. 4, 2004 (Bankr. N.D. Ga. Case No. 04-78434). Paul K. Ferdinands, Esq., and Sarah Robinson Borders, Esq., at King & Spalding represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they estimated less than $50,000 in assets and more than $10 million in total debts. ROUGE INDUSTRIES: Wants Until Oct. 14 to File a Chapter 11 Plan --------------------------------------------------------------- Rouge Industries, Inc., and its debtor-affiliates ask the U.S. Bankruptcy Court for the District of Delaware to extend the time within which they alone can file a chapter 11 plan. The Debtors want their exclusive plan filing period extended through and including Oct. 14, 2005. The Debtors also ask the Court for more time to solicit acceptances of that plan from their creditors, through Dec. 14, 2005. Alicia B. Davis, Esq., at Morris Nichols Arsht & Tunnell, in Wilmington, Delaware, tells the Court that despite consummation of the sale of substantially all of the Debtors' assets to SeverStal N.A. for $285.5 million, the Debtors' chapter 11 cases continue to raise numerous complex issues including: -- the resolution of general administration claims in the Debtors' cases; -- the investigation and evaluation of Duke Fluor/Daniel's alleged secured claim; -- the examination of Ford Motor Company's alleged secured claim; -- the commencement of 29 avoidable transfer lawsuits and the resolution of the remaining avoidable transfers through consensual means. The Debtors have negotiated settlements with 12 of the avoidable transfer recipients for $207,764.52; and -- the termination of approximately $4 million letter of credit previously established with the Debtors' workers' compensation program and the recovery of the collateral posted in those letter of credit. Headquartered in Dearborn, Michigan, Rouge Industries, Inc., an integrated producer of flat-rolled steel, filed for chapter 11 protection on October 23, 2003 (Bankr. D. Del. Case No. 03-13272). Donna L. Harris, Esq., Robert J. Dehney, Esq., Eric D. Schwartz, Esq., Gregory W. Werkheiser, Esq., and Alicia B. Davis, Esq., at Morris, Nichols, Arsht & Tunnell represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $558,131,000 in total assets and $558,131,000 in total debts. On Dec. 19, 2003, the Court approved the sale of substantially all of the Debtors' assets to SeverStal N.A. for $285.5 million. The Asset Sale closed on Jan. 30, 2005. SAKS INC: Ratings Downgrade Entitles Holders to Convert Notes ------------------------------------------------------------- Saks Incorporated (NYSE: SKS) determined that holders of its $230 million 2% Convertible Senior Notes due March 15, 2024, are entitled to convert the Convertible Notes into shares of the Company's common stock due to the downgrading of the ratings assigned to the Convertible Notes by the relevant rating agencies. Holders may surrender Convertible Notes for conversion during any period in which the rating assigned by Moody's Investors Service, Inc., to the Convertible Notes is at or below B3, the rating assigned by Standard & Poor's Rating Services to the Convertible Notes is at or below B or the rating assigned by Fitch, Inc., to the Convertible Notes is at or below B- or if the Convertible Notes are no longer rated by at least one of such rating agencies. This is subject to compliance with the terms and conditions of the indenture governing the Convertible Notes. Holders of the Convertible Notes desiring to exercise their conversion rights with respect to the Convertible Notes should contact the conversion agent: The Bank of New York Trust Company, N.A. Attn: Charles Northen 505 North 20th Street Suite 950 Birmingham, AL 35203 Tel. No. 205-214-0208 Fax: 205-328-7169 Saks Incorporated operates Saks Fifth Avenue Enterprises (SFAE), which consists of 57 Saks Fifth Avenue stores, 52 Saks Off 5th stores, and saks.com. The Company also operates its Saks Department Store Group (SDSG) with 232 department stores under the names of Parisian, Proffitt's, McRae's, Younkers, Herberger's, Carson Pirie Scott, Bergner's, and Boston Store and 47 Club Libby Lu specialty stores. On April 29, 2005, the Company announced that it had entered into an agreement to sell 22 Proffitt's stores and 25 McRae's stores to Belk, Inc. The Company expects to complete the sale on July 5, 2005, subject to various closing conditions. * * * As reported in the Troubled Company Reporter on June 17, 2005, Moody's Investors Service downgraded the ratings of Saks Inc. and left the ratings on review for further possible downgrade following the company's announcement that it has received notice of a default under its $230 million senior convertible notes. The notice of default was triggered by the company's delay in filing its financial statements for the last fiscal year and for the first quarter of the current fiscal year as a result of the ongoing investigation into accounting and other financial matters. These ratings are downgraded: Saks, Inc.: * Senior implied from B1 to B2; * Senior unsecured debt guaranteed by operating subsidiaries from B1 to B2; * Senior unsecured long term issuer rating from B2 to B3; * Prospective ratings for prospective senior unsecured debt, subordinated debt and preferred stock issued from the company's shelf registration from (P) B1; (P) B3, (P) B3 to (P) B2; (P) Caa1, (P) Caa1. Proffit's Capital Trust I, II, III, IV, and V: * Preferred Stock Shelf from (P) B3 to (P) Caa1. SASKATCHEWAN WHEAT: S&P Rates C$250 Million Bank Loan at BB- ------------------------------------------------------------ Standard & Poor's Ratings Services assigned its 'BB-' bank loan rating and a recovery rating of '1' to Saskatchewan Wheat Pool's C$250 million secured asset-based credit facility due March 2008, indicating the high expectation of full recovery (100%) of principal in the event of a payment default. The 'BB-' rating on SWP's C$250 million secured asset-based credit facility due March 2008 is two notches above the long-term corporate credit rating. The facility is secured by a first charge on working capital. The borrowing base is calculated primarily as a percentage of SWP's accounts receivable and inventories, with the maximum borrowings available of C$250 million, depending on the prevailing grain crop. Regina, Sask.-based SWP is the second-largest Canadian agribusiness with about a 23% western Canadian market share of 2005 western Canadian grain shipments. SWP's other core operations include the agriproducts segment (SWP is Canada's second-largest agricultural retailer in Canada); and a small agrifood-processing segment, which manufactures and markets value- added products associated with oats and malt barley. "SWP's capital structure has strengthened considerably in fiscal 2005, after a series of major financial restructuring initiatives that took place in the current fiscal year," said Standard & Poor's credit analyst Don Povilaitis. Highlights of the restructuring include: * the refinancing of a C$250 million asset-backed loan, secured by a first charge on working capital and a second charge on fixed assets; * the conversion of C$172 million of debt into equity, with class A, class B, and convertible notes all converted into a single class of stock; and * a successful rights offering, from which proceeds of C$142.3 million were used to repay a C$100 million secured term loan. SECURITIZED ASSET: Moody's Rates $11.41M Class B4 Certs. at Ba1 --------------------------------------------------------------- Moody's Investors Service has assigned a Aaa rating to the senior certificates issued by Securitized Asset Backed Receivables LLC Trust 2005-FR2, and ratings ranging from Aa2 to Ba1 to the subordinate certificates in the deal. The securitization is backed by Fremont originated adjustable-rate and fixed-rate 1st and 2nd lien subprime mortgage loans acquired by Securitized Asset Backed Receivables LLC. The ratings are based primarily on the credit quality of the loans, and on the credit enhancement, which consists of subordination, overcollateralization, and excess spread. The credit quality of the loan pool is in line with the average loan pool backing recent subprime securitizations. Saxon Mortgage Services, Inc. will service the loans. The complete rating actions are: Securitized Asset Backed Receivables LLC Trust 2005-FR2 Mortgage Pass-Through Certificates, Series 2005-FR2 * Class A-1A $480,732,000 Aaa * Class A-1B $120,183,000 Aaa * Class A-2A $140,054,000 Aaa * Class A-2B $55,243,000 Aaa * Class A-2C $46,517,000 Aaa * Class M1 $92,428,000 Aa2 * Class M2 $59,263,000 A2 * Class M3 $17,399,000 A3 * Class B1 $16,311,000 Baa1 * Class B2 $13,592,000 Baa2 * Class B3 $11,961,000 Baa3 * Class B4 $11,418,000 Ba1 SGP ACQUISITION: Committee Taps KL&Co as Special Asian Liaison -------------------------------------------------------------- The Official Committee of Unsecured Creditors of SGP Acquisition, LLC, sought and obtained permission from the U.S. Bankruptcy Court for the District of Delaware to employ Kennic L.H. Lui & Company as a special liaison for Asian creditors and businesses, nunc pro tunc to Dec. 13, 2004. The committee believes that KL&Co is qualified to serve as special liaison with Asian creditors and businesses based on the Firm's proficiency in Cantonese and Mandarin and its business contacts in Asia. KL&Co will: a) serve as a liaison between the Debtors' Asian creditors and the Creditors' Committee's bankruptcy professionals; b) distribute and market a confidential information memorandum to qualified Asian parties on behalf of, and at the direction of, the Creditors' Committee; and c) perform any other services that may be requested by counsel to the Creditors' Committee. KL&Co's professionals initially designated to represent the Committee and their hourly rates are: Professional Designation Hourly Rate ------------ ----------- ----------- Lauren Lau Partner $545 June Chan Manager $244 - $310 The Committee believes that KL&Co is disinterested as that term is defined in Section 101(14) of the U.S. Bankruptcy Code. Headquartered in Greenville, South Carolina, SGP Acquisition, LLC, -- http://www.slazengergolf.com/-- markets a wide array of premium golf apparel, golf balls, and related accessories. The Company filed for chapter 11 protection on November 30, 2004 (Bankr. D. Del. Case No. 04-13382). Frederick B. Rosner, Esq., at Jaspan Schlesinger Hoffman represent the Debtor in its restructuring. When the Debtor filed for protection from its creditors, it listed estimated assets and debts of $10 million to $50 million. SHYPPCO FINANCE: Fitch Affirms Junk Ratings on $78.5 Million Debt ----------------------------------------------------------------- Fitch Ratings affirms one class, upgrades two classes of notes issued by Shyppco Finance Company, LLC. These rating actions are effective immediately: -- $18,097,505 class A-2A notes affirmed at 'AAA'; -- $44,519,864 class A-2B notes upgraded to 'BB+' from 'BB-'; -- $19,907,256 class A-2C notes upgraded to 'BB+' from 'BB-'; -- $62,000,000 class A-3 notes remained at 'C'; -- $16,500,000 class B notes remained at 'C'. Shyppco is a collateralized debt obligation managed by MBIA Capital Management, which closed May 5, 1998. Shyppco is composed of 68% high yield bonds and 32% investment-grade bonds. Included in this review, Fitch discussed the current state of the portfolio with the asset manager and their portfolio management strategy going forward. In addition, Fitch conducted cash flow modeling utilizing various default timing and interest-rate scenarios to measure the breakeven default rates going forward relative to the minimum cumulative default rates required for the rated liabilities. Shyppco continues to fail its overcollateralization test and therefore continues to divert excess interest proceeds towards the pro rata redemption of the class A-2 notes. As a result, approximately 63.8% of the original class A-2 balance has been redeemed since closing, as well as 27.6% since the last rating action on June 21, 2004. Additionally, the creditworthiness of the collateral has remained relatively stable. The ratings of the class A-2A notes reflect the insurance wrap provided by MBIA Insurance Corp., rated 'AAA' by Fitch. The class A-2B and A-2C notes addresses the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. As a result of this analysis, Fitch has determined that the current ratings assigned to the class A2-B and A2-C notes no longer reflect the current risk to noteholders and warrant an upgrade. Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch Ratings web site at http://www.fitchratings.com/ SPIEGEL INC: Bankruptcy Court Estimates Disputed Claims ------------------------------------------------------- Judge Lifland entered an order estimating Spiegel Inc. and its debtor-affiliates' maximum liability with respect to certain disputed claims pursuant to the corresponding reserve amounts. Specifically, Judge Lifland: (a) estimates and caps the reserve amount of 16 claims at $963,912; (b) caps the reserve amount of the Insurance Claims at $5,471,353; (c) allows $867,363 to be reserved for rejection damages in connection with the Lease Claims, except for the claim of Macerich, doing business as Lacumbre Plaza Dept.; (d) finds that no reserve amount should be established for the 23 Zero Reserve Resolved Claims, yet, in the event that, as of the Effective Date, no order has been entered by the Court allowing any Zero Reserve Resolved Claim, the Debtors' maximum liability is capped at $2,548,596; (e) allows the Debtors to reserve $3,659,912 for the Resolved Claims; (f) establishes no reserve amount for the Zero Liability Disputed Claims. A list of the disputed claims and their corresponding Court- approved reserve amounts is available for free at: http://ResearchArchives.com/t/s?2f Judge Lifland clarifies that the Debtors' maximum liability with respect to the Bond Claims is estimated and capped at $151,069, provided, however, that in the event that the Debtors and the Bond Claimholders do not reach agreement prior to the Effective Date, the Bond Claimholders will have the right to ask the Court to estimate the Bond Claims in different amounts. Moreover, Judge Lifland estimates the Debtors' maximum liability with respect to 18 Zero Liability Disputed Claims, filed by Deborah B. Divis, Deborah L. Koopman, and Michael A. McKillip, at $0. Judge Lifland authorizes the Debtors to reserve $867,363 for Taubman Cherry Creek Limited's rejection damages claim. Debtors and RAKTL Stipulate On June 13, 2003, Ronald A. Katz Technology Licensing, L.P., filed Claim No. 227 against the Debtors. RAKTL also filed Claim No. 3876, which amends Claim No. 227. Furthermore, RAKTL filed Claim No. 3877, requesting payment of administrative expenses by the Debtors. Currently, RAKTL and the Debtors are finalizing a global agreement resolving the Claims. However, a dispute has arisen between the parties as a result of the Debtors' request for the estimation of certain disputed, contingent and unliquidated claims in connection with the funding and establishment of a claims reserve. The Request designates the RAKTL Claims as "Resolved Claims." In a Court-approved stipulation, the Debtors agree that they will withdraw the Request as to RAKTL's Claim No. 3877. In addition, the Debtors will reserve $2,000,000 for RAKTL's Claim No. 3876. Headquartered in Downers Grove, Illinois, Spiegel, Inc. -- http://www.spiegel.com/-- is a leading international general merchandise and specialty retailer that offers apparel, home furnishings and other merchandise through catalogs, e-commerce sites and approximately 560 retail stores. The Company filed for Chapter 11 protection on March 17, 2003 (Bankr. S.D.N.Y. Case No. 03-11540). James L. Garrity, Jr., Esq., and Marc B. Hankin, Esq., at Shearman & Sterling, represent the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $1,737,474,862 in assets and $1,706,761,176 in debts. The Court confirmed the Debtors' Modified First Amended Joint Plan of Reorganization on May 23, 2005. Spiegel will emerge from bankruptcy as Eddie Bauer Holdings Inc. Impaired creditors overwhelmingly voted to accept the Plan. (Spiegel Bankruptcy News, Issue No. 48; Bankruptcy Creditors' Service, Inc., 215/945-7000) STRUCTURED ASSET: High Monthly Losses Cue Fitch to Lower Ratings ---------------------------------------------------------------- Fitch Ratings has affirmed three and downgraded one class of Structured Asset Securities Corp. residential mortgage-backed certificates, as follows: Series 2001-2 -- Class A affirmed at 'AAA'; -- Class B1 affirmed at 'AAA'; -- Class B2 affirmed at 'AA'; -- Class B3 downgraded to 'B' from 'BB'; -- Class B4 remains at 'C'. The affirmations reflect credit enhancement consistent with future loss expectations and affect $24,409,986 of outstanding certificates. The negative rating action taken on class B3 affecting $4,363,953 of outstanding certificates, is the result of Fitch's observation of continuing high monthly pool losses and delinquency levels. May 25, 2005 remittance information indicates that 13.66% of the pool is currently over 90 days delinquent and cumulative losses are 0.98% of the original pool balance. Class B3 currently has 1.24% of credit support remaining (originally 1.50%). It should be noted however, that concurrent with May's losses of nearly $500,000 the percentage of loan principle in the most severe delinquency buckets - Foreclosure and Real Estate Owned - fell precipitously from 14% down to 7%. It is estimated that losses associated with the liquidation of these FC and REO loans would result in the write-down of slightly over 50% of the remaining B4 bond. Fitch believes that a rating of 'B' more accurately reflects the increased risk associated with class B3. The collateral consists of conventional, fixed-rate, fully amortizing residential mortgage loans. The pool factor (current balance as a percentage of original balance) is 4.33%. Further information regarding current delinquency, loss and credit enhancement statistics is available on the Fitch Ratings web site at http://www.fitchratings.com/ TECHNEGLAS INC: Gets Court Okay to Enter into Labor Union MOU ------------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of Ohio gave Techneglas, Inc., and its debtor-affiliates permission to enter into a memorandum of agreement with Glass, Molders, Pottery, Plastics and Allied Workers International Union, AFL-CIO-CLC and its Local Unions 243 and 306. Brenda K. Bowers, Esq., at Vorys, Sater, Seymour & Pease LLP, in Columbus, Ohio, told the Court that the Debtors manufactured cathode ray tube components at plants in Columbus, Ohio, Perrysburg, Ohio, and Pittston, Pennsylvania until August 2004. The Debtors ceased manufacturing operations at the Columbus and Pittston plants on Aug. 3, 2004. The Debtors' operations today consist of: (1) a distribution business that is currently run out of the Columbus facility, and (2) the production of dopants and glass resins at the Perrysburg facility. Some current and former employees of the Pittston facility are members of the Union subject to a Collective Bargaining Agreement dated July 1, 2000, that expires on June 30, 2005. Some current and former employees of the Columbus facility are members of the Union subject to a Collective Bargaining Agreement dated June 1, 2000, that expired on May 31, 2005. The Debtor and the Union thoroughly discussed some claims of current and former bargaining unit employees in the Plants pursuant to the CBA between the Debtor and the Union, as well as modifications required for the CBA relating to the planned reorganization of the Debtor. Pursuant to these negotiations, the parties have agreed to settle and resolve any and all alleged claims of the Union and Union employees and to modify the Collective Bargaining Agreement. The terms of the settlement agreement include: (1) the Debtors will classify or otherwise designate severance payments, vacation accruals, and identified Pittston pay provisions as priority claims, administrative expenses, or amounts otherwise payable on the effective date of a Conforming Plan; (2) the Debtors will honor these obligations: (a) Health Insurance -- Medical and life insurance coverage; (b) Pending Grievances -- All grievances in the Plants are resolved; (c) Pension Processing -- The Union consents to the termination of the Techneglas, Inc., Hourly Retirement Plan; and (d) Union Dues -- The Company agrees to check-off, withhold, and promptly transmit to the Union amounts equal to: -- two months of union dues from the severance payments issued to Union Employees terminated under the Columbus CBA; and -- three months of Union dues from the severance payments issued to Union Employees terminated under the Pittston CBA. Headquartered in Columbus, Ohio, Techneglas, Inc. -- http://techneglas.com/-- manufactures television glass (CRT panels, CRT funnels, solder glass and specialty glass), dopant sources, glass resins and specialty bulbs. The Company and its debtor-affiliates filed for chapter 11 protection on Sept. 1, 2004 (Bankr. S.D. Ohio Case No. 04-63788). David L. Eaton, Esq., Kelly K. Frazier, Esq., and Marc J. Carmel, Esq., at Kirkland & Ellis, and Brenda K. Bowers, Esq., Robert J. Sidman, Esq., at Vorys, Sater, Seymour and Pease LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed total assets of $137 million and total debts of $336 million. TERWIN MORTGAGE: Moody's Rates Class B-4 Subord. Certs. at Ba1 -------------------------------------------------------------- Moody's Investors Service assigned a rating of Aaa to the senior certificates of the Terwin Mortgage Trust 2005-5SL securitization. In addition, Moody's has assigned ratings ranging from Aa1 to Ba1 to the mezzanine and subordinate certificates and certificate components in the securitization. The ratings were based upon the credit quality of the loans in the mortgage pool, and upon the credit enhancement provided by a combination of structural features, including: * overcollateralization, * subordination, and * allocation of losses. The mortgage pool consists of fixed rate, second lien mortgage loans acquired from a variety of originators. The credit quality of the loans in the mortgage pool is similar to that of loans in recent Terwin second-lien securitizations. The offered certificates were sold in a privately negotiated transaction without registration under the Securities Act of 1933 under circumstances reasonably designed to preclude a distribution thereof in violation of the Act. The issuance has been designed to permit resale under Rule 144A. Depositor: Terwin Securitization LLC Securities Issued: Terwin Mortgage Trust 2005-5SL Asset-Backed Certificates, TMTS Series 2005-5SL The complete rating actions are: * Class A-1, rated Aaa * Class A-2a, rated Aaa * Class A-2b, rated Aaa * Class M-1a, rated Aa1 * Class M-1b, rated Aa2 * Class M-2, rated Aa2 * Class M-3, rated A1 * Class B-1, rated A2 * Class B-2, rated Baa1 * Class B-3, rated Baa2 * Class B-4, rated Ba1 THILMANY LLC: Merger Plan Prompts Moody's to Improve Outlook ------------------------------------------------------------ Moody's Investors Service changed the outlook of Thilmany, LLC to developing from stable. The change in outlook is prompted by recent announcement that Kohlberg & Company plans to combine the operations of Thilmany with those of Cellu Tissue Holdings, Inc. to effect the acquisition of Cellu Tissue by Kohlberg. The developing outlook reflects the uncertainty as to: 1) the composition of the final capital structure post the combination; 2) the position of current lenders within the new capital structure; 3) the ultimate corporate structure; and 4) the anticipated timing of the combination. In the event the combination were cancelled the outlook would likely be changed to stable. Thilmany's B2 senior implied rating reflects: * the modest size of the company's operations; * nominal revenue growth; * deterioration in profitability; * minimal tangible asset coverage; and * high level of customer concentration. The ratings also incorporate: * the challenges of transitioning to an independent company; * the increased leverage associated with its recent financing; * the likelihood of acquisitions; and * limited sources of external liquidity. However, the ratings are supported by: * relatively good credit metrics; * a leading market position for several of its product lines based on company estimates; and * the benefits derived from various sale and purchase agreements with International Paper that secure a source of fiber and provide a committed buyer for various products during the initial years of the contract. In regards to liquidity, the company has a $30 million revolving credit facility, although with relatively tight covenant levels Moody's believes access could be limited. Over the next twelve months, leverage on a debt to EBITDA basis cannot exceed 4.0x, while interest coverage must exceed 1.80x and EBITDA must be at least $36 million. Based on 2004 EBITDA of approximately $40 million and expected debt levels pro forma for the recent financing of $147 million, leverage would have been about 3.68x. After incorporating capital expenditures of approximately $12 million, adjusted leverage would have increased to 5.25x. In the event operating costs continue to exceed price realizations we believe revolver access could be limited. Thilmany's operations consist the industrial papers segment of International Paper, which were acquired by Kohlberg & Company for approximately $180 million in June 2005. The acquisition was funded with $145 million of debt and contributed equity of $40 million from Kohlberg & Company and $5 million from International Paper. Thilmany's product mix focuses on specialty papers operating in four business segments: 1) lightweight papers that includes machine glazed, machine finished, extensible and coated papers for food and non-food packaging; 2) pressure sensitive release base papers for labels; 3) Thilmany Packaging which converts lightweight paper, plastic resins, and aluminum foil into a finished product; and 4) Akrosil, a global converter of silicone coated release liners. Thilmany LLC, is a privately owned company headquartered in Kaukauna, WI. TIRO ACQUISITION: Has Until July 10 to File Chapter 11 Plan ----------------------------------------------------------- The Honorable Peter J. Walsh of the U.S. Bankruptcy Court for the District of Delaware extended until July 10, 2005, the time within which Tiro Acquisition, LLC, and its debtor-affiliates' have the exclusive right to file a plan of reorganization and disclosure statement. The Debtors' exclusive period to solicit plan acceptances is extended through September 9, 2005. The Debtors say that the exclusivity extensions are needed to ensure an orderly, efficient and cost-effective wind-down process for the benefit of all creditors. During the extension period, the Debtors will: a) attend to any-post closing issues; b) analyze the merits of avoidance actions under chapter 5 of the bankruptcy code; c) reject any remaining executory contracts and unexpired leases; d) liquidate certain inventory; e) address remaining pension and other benefit plan issues; f) resolve environmental and intellectual property issues; g) decommission or abandon certain equipment; and h) investigate their probable claims arising out of accounting irregularities that played a role in their bankruptcy. The Debtors sold substantially all of their assets to Outsourcing Services Group, LLC, after failing to secure additional equity infusions that could fund a restructuring. The Bankruptcy Court approved the sale on March 3, 2005. Headquartered in Southport, Connecticut, Tiro Acquisition -- http://www.tiroinc.com/-- develops, manufactures and packages hair care and other products for professional salons. The Company and its debtor-affiliates filed for chapter 11 protection on October 12, 2004 (Bankr. D. Del. Case No. 04-12939). When the Debtor filed for protection, it listed more than $10 million in assets and debts. TODD MCFARLANE: Has Exclusive Right to File Plan Until October 17 ----------------------------------------------------------------- The U.S. Bankruptcy Court for the District of Arizona extended the period within which Todd McFarlane Productions, Inc., has the exclusive right to file a chapter 11 plan to Oct. 17, 2005. The Court also extended the Debtor's exclusive period to solicit acceptances of that plan through Dec. 16, 2005. The Debtor asked for an extension of their exclusive plan proposal and plan voting periods period because of the complexity of its bankruptcy case and the need to: a) complete the process of identifying and analyzing all the insurance policies covering the Twist and Gaiman lawsuits that may provide partial funding for a plan of reorganization; b) prosecute adversary proceedings seeking compensatory, consequential and punitive damages against several insurance companies for declaratory judgment claims, breach of contract, and bad faith arising from the failure of these insurance carriers to defend and indemnify the Debtor under insurance policies concerning certain underlying litigation; c) achieve a resolution of the Twist Appeal; and d) adjudicate on certain claims against the Debtor. The Twist Litigation In July 2004, Tony Twist, a former professional hockey player, obtained a $15 million judgment on a right-of-publicity claim against Todd McFarlane. Mr. Twist complained that the Debtor had unlawfully used his identity as "Mr. Twist" when it used the name on a Spawn comic book series and in a Home Box Office animated series. Mr. Twist sought to enforce the judgment by demanding immediate turnover of the Debtor's property. In December 2004, the Debtor's checking account at Bank of America and Wells Fargo Bank were debited to a suspense account pending further order from the Superior Court of Arizona. The event led to the Debtor's bankruptcy filing on Dec. 17, 2004. The Debtor expects to resolve the Twist appeal by December. The Gaiman Litigation Neil Gaiman, a freelance artist, was awarded $45,000 in damages from a lawsuit he filed against the Debtor for breach of contract, copyrights co-ownership and violation of the right of publicity. The Wisconsin District Court ordered an accounting of the profits generated by Mr. Gaiman's intellectual property and the liquidation of his claim. The Court is expected to enter a final judgment after completion of the accounting. The lawsuit is currently stayed pursuant to Section 362(a) of the bankruptcy code. Insurance Claims The Debtor is currently evaluating whether to consolidate the indemnification claims filed against Hanover Insurance Company with other similar lawsuits that may be commenced as part of the Debtor's efforts to recover estate assets for the benefit of all its creditors. Hanover Insurance had repudiated its duty to defend the first six and one half years of the Twist Lawsuit and claimed that the insurance policy it sold to the Debtor does not cover any loss resulting from the Twist litigation. The Debtors have asserted counterclaims against Hanover Insurance for breach of contract, promissory estoppel and bad faith. The Debtor has also sought for a Declaratory Judgment against American International Insurance Company in connection with claims arising from the Gaiman litigation. The Debtor has initiated an investigation regarding its insurance coverage to identify potential sources of funding for its plan of reorganization. Traveler's Property & Casualty Corp and General Star Indemnity Company and Citizens Insurance Co. of America are subject to this investigation. Headquartered in Tempe, Arizona, Todd McFarlane Productions, Inc. -- http://www.spawn.com/-- publishes comic books including Spawn, Hellspawn, & Sam and Twitch. The Company filed for chapter 11 protection on Dec. 17, 2004 (Bankr. D. Ariz. Case No. 04-21755). Kelly Singer, Esq., at Squire Sanders & Dempsey, LLP, represents the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed more than $10 million in assets and more than $50 million in debts. TORCH OFFSHORE: Committee Blocks Sale of 11 Vessels to Cal Dive --------------------------------------------------------------- On June 8, 2005, the U.S. Bankruptcy Court for the Eastern District of Louisiana approved the sale of Torch Offshore, Inc.'s eleven vessels to Cal Dive International Inc. for $86.5 million. The Debtors are selling these vessels: * Midnight Express * Midnight Brave * Midnight Carrier * Midnight Dancer * Midnight Eagle * Midnight Fox * Midnight Gator * Midnight Rider * Midnight Star * Midnight Wrangler * Sapphire The deal was supposed to closed by June 30. Unsecured Creditors Appeal The Official Committee of Unsecured Creditors of Torch Offshore filed a Notice of Appeal and is asking the U.S. District Court for the Eastern District of Louisiana to reversal of the Bankruptcy Court's decision allowing Cal Dive to acquire Torch's vessels. The Committee wants the assets to be liquidated under a plan of reorganization. Otherwise, the Committee says, unsecured creditors get none of the sale proceeds. District Judge Mary Ann Vial Lemmon agreed to postpone the sale of the vessels until after the hearing of the Committee's request this week. Headquartered in Gretna, Louisiana, Torch Offshore, Inc., provides integrated pipeline installation, sub-sea construction and support services to the offshore oil and gas industry, primarily in the Gulf of Mexico. The Company and its debtor-affiliates filed for chapter 11 protection (Bankr. E.D. La. Case No. 05-10137) on Jan. 7, 2005. Jan Marie Hayden, Esq., at Heller, Draper, Hayden, Patrick & Horn, L.L.C., and Lawrence A. Larose, Esq., at King & Spalding LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $201,692,648 in total assets and $145,355,898 in total debts. TOUCH AMERICA: IRS Says Debtor Miscalculated Taxes by $1.2 Million ------------------------------------------------------------------ The Internal Revenue Service wants Touch America Holdings Liquidating Trust -- established to oversee the liquidation of Touch America Holdings, Inc. -- to pay approximately $1,228,266 in back taxes for 1994 and 1995. The IRS' effort to collect the taxes was halted when Touch America filed for bankruptcy on June 19, 2003. The Liquidating Trust disputes the IRS' claim. According to the IRS, the company owes $482,683 federal income taxes for 1994. In 1995, the company didn't pay $745,583 in taxes the Government says is due and owing. Jan Falstadt at the Billings Gazette reports that the IRS contends Touch America made six errors in calculating its federal taxes: -- calculating dividend income from its Brazilian operations; -- depreciating rather than capitalizing some labor costs, including severance payments and time spent in employee meetings; -- treatment of the carry-over of bad debts from previous years; -- calculations of foreign tax credits; -- use of some general business credits for taxable year 1994; and -- claiming a lesser environmental tax for 1994 and 1995. The tax disputes, filed on March 17, 2005, are pending before the United States Tax Court (Case Nos. 005236-05 and 005237-05). David E. Jacobson, Esq., at Thelen, Reid & Priest, represents Montana Power and Touch America in the tax litigation. Headquartered in Butte, Montana, Touch America Holdings, Inc., through its principal operating subsidiary, Touch America, Inc., developed, owned, and operated data transport and Internet services to commercial customers. The Company filed for chapter 11 protection on June 19, 2003 (Bankr. D. Del. Case No. 03-11915). Maureen D. Luke, Esq. and Robert S. Brady, Esq. at Young Conaway Stargatt & Taylor, LLP represent the Debtor. When the Company filed for bankruptcy protection, it listed $631,408,000 in total assets and $554,200,000 in total debts. The Debtors Plan became effective on October 19, 2004. TOWER AUTOMOTIVE: Wants to Reject 11 Corydon Facility Leases ------------------------------------------------------------ As part of Tower Automotive Inc. and its debtor-affiliates' ongoing operational restructuring, the Debtors have determined to cease or consolidate operations at certain facilities, including production facilities in Milwaukee, Wisconsin; Corydon, Indiana; Belcamp, Maryland; and Fenton, Missouri. As a result of these operational restructurings, the Debtors have decided to reject numerous equipment and real property leases that are no longer necessary or beneficial. By this motion, the Debtors seek the U.S. Bankruptcy Court for the Southern District of New York's authority to reject 11 equipment and real property leases related to their Corydon, Indiana Facility, effective as of the Rejection Date applicable to each Contract: Lessor Description of Contract Rejection Date ------ ----------------------- -------------- LaSalle National Schedule 1: 06/30/2005 Leasing Corp. Powdercoat equipment Schedule 2: 07/15/2005 e-coat equipment Schedule 3: 06/17/2005 U-152 assembly equipment Levee Lift, Inc. Fork Lifts: 06/30/2005 Numerous contracts for 9 separate pieces of equipment Cardinal Carryor, Fork lifts and other 06/30/2005 Inc. material handling equipment: 30 pieces Harrison Building lease: 10/01/2005 Properties Corydon manufacturing site Fleet Capital Schedule A: 07/15/2005 hydroform presses Schedule B: 07/15/2005 Continental washers GE Capital & Dodge Ram frame line "A" 07/15/2005 General Foods and "B" Credit Investors CRA, Inc. Tow-tractor equipment 08/15/2005 lease Wells Fargo Bank Building lease and 07/15/2005 Northwest, NA sublease agreement for "Building 36" Corporate 44 Warehouse lease 08/31/2005 Business Park Summit Realty Group Fidelity Federal Two forklift leases 08/31/2005 Savings Bank Tower Ventures, Building lease 07/31/2005 LLC The Debtors further ask the Court to set a 30-day deadline for any counter-party to a Rejected Lease to file a proof of claim for rejection damages. Objections (1) National City National City Leasing Corporation is the assignee of Equipment Schedule No. 2 between LaSalle National Leasing Corporation and Tower Automotive Products Company, Inc. National City objects to the Debtors' request to the extent Schedule No. 2 will be rejected effective July 15, 2005. Amish R. Doshi, Esq., at Pitney Hardin LLP, in New York, asserts that the proper rejection date should be the later of either the Effective Date or the date Equipment 2 is surrendered to National City. To have any other date as the rejection date would be inconsistent with Section 365 (a) of the Bankruptcy Code and may be subject to the Debtors' abuse. Accordingly, National City asks the Court to condition any order approving the rejection of Schedule 2 to specifically: -- direct the Debtors to reasonably cooperate for an orderly turnover of Equipment 2 to National City; and -- prohibit the Debtors from selling, dismantling, cannibalizing, or otherwise disposing of Equipment 2, without National City's consent. (2) LaSalle LaSalle National Leasing Corporation and Tower Automotive Products are parties to a Master Lease Agreement dated December 28, 1999, pursuant to which Tower Automotive Products leased certain equipment from LaSalle. The parties also entered into Equipment Schedule No. 1 and Equipment Schedule No. 3 under the Master Lease. LaSalle objects to the Debtors' request to the extent the rejection date should be June 30, 2005, for Schedule 1 and June 17, 2005, for Schedule 3. LaSalle asserts that the proper rejection date should be either the Effective Date or the date Equipment 1 and Equipment 3 are surrendered to LaSalle, whichever is later. Establishing any other date as the rejection date would violate Section 365(a) of the Bankruptcy Code, and may be subject to the Debtors' abuse. * * * Judge Gropper will continue the hearing to consider the Debtors' rejection of the GE Capital and General Foods leases of the Dodge Ram frame assembly lines to July 13, 2005. The other equipment and real property leases are deemed rejected as of the Effective Dates proposed by the Debtors or the date the premises or equipment are physically surrendered to the applicable Lessors. The Debtors are authorized to enter into service agreements, lease agreements, or other transitional agreements, without further Court order, with the counter-parties to the Rejected Contracts. The Debtors are prohibited from dismantling, selling or otherwise disposing of any of the Equipment that is subject to a Rejected Contract with National City, LaSalle or Fleet Capital without either prior consent of the Lessor or as may be fully set forth in the Transition Agreements between the Debtors and the applicable Lessor. Judge Gropper directs the Debtors to cooperate with Fleet Capital, National City and LaSalle regarding the negotiation and implementation of an appropriate Transition Agreement. Counter-parties to the Rejected Contracts must file proofs of claim for rejection damages by July 15, 2005. National City, LaSalle and Fleet Capital have until 120 days after the effective rejection date of their contracts to file claims. The Debtors are further directed to: -- provide National City or LaSalle reasonable access to the Equipment at the Corydon Facility so that the Lessors' experts or other professionals can inspect the Equipment; -- allow the Equipment to remain in its present location for a reasonable time after the Effective Date, which will be explicitly limited to the period during which the Debtors continue to occupy the Corydon Facility; or -- sell or otherwise dispose of the Equipment at its present location. Headquartered in Grand Rapids, Michigan, Tower Automotive, Inc. -- http://www.towerautomotive.com/-- is a global designer and producer of vehicle structural components and assemblies used by every major automotive original equipment manufacturer, including BMW, DaimlerChrysler, Fiat, Ford, GM, Honda, Hyundai/Kia, Nissan, Toyota, Volkswagen and Volvo. Products include body structures and assemblies, lower vehicle frames and structures, chassis modules and systems, and suspension components. The Company and 25 of its debtor-affiliates filed voluntary chapter 11 petitions on Feb. 2, 2005 (Bankr. S.D.N.Y. Case No. 05-10576 through 05-10601). James H.M. Sprayregen, Esq., Ryan B. Bennett, Esq., Anup Sathy, Esq., Jason D. Horwitz, Esq., and Ross M. Kwasteniet, Esq., at Kirkland & Ellis, LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $787,948,000 in total assets and $1,306,949,000 in total debts. (Tower Automotive Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 215/945-7000) TOWER AUTOMOTIVE: Selling E-Coat System to Metalsa for $1,000,000 ----------------------------------------------------------------- On February 10, 2004, Tower Automotive Inc. and its debtor- affiliates disclosed that production of their frame assembly for the Dodge Ram light truck would relocate from their Milwaukee, Wisconsin plant to Metalsa S. de R.L., in Monterrey, Nuevo Leon, Mexico, as part of their plan to stop Dodge Ram frame production in Milwaukee in July 2005. However, Anup Sathy, Esq., at Kirkland Ellis LLP, in New York, tells the U.S. Bankruptcy Court for the Southern District of New York that the relocation will create an unnecessary surplus of equipment in the Debtors' Milwaukee plant, including, but not limited to, an Eisenhower Electric Coating System, an equipment specifically designed and built to accommodate entire full-size pickup truck frames. Mr. Sathy says the E-Coat System poses a potential liability to the Debtors if it cannot be sold to a third party. The Debtors estimate that it will cost several hundred thousand dollars to drain the chemicals from the vats and to decommission and store the E-Coat System. After arm's-length negotiations, Metalsa agreed to purchase the E-Coat System from the Debtors for $1,000,000, on an "as is, where is" basis. Metalsa will take responsibility for all costs related to removing the system and site remediation. Accordingly, the Debtors ask the Court to approve the Asset Purchase Agreement for the sale of the E-Coat System to Metalsa free and clear of liens, claims and encumbrances. A copy of the Asset Purchase Agreement is available for free at: http://bankrupt.com/misc/metalsaleagreement.pdf The Debtors assert that the circumstances surrounding their efforts to sell the E-Coat System warrant approval of the sale to Metalsa without requiring a separate auction process. The Debtors believe it unlikely that there would even be another bidder, much less one who would pay more than $1,000,000 for the system. The Purchase Price is also fair and reasonable. The Debtors sought an independent appraisal for the E-Coat System. The appraisal ascribed only a $150,000 liquidation value to the asset. This value is described as the amount that might be "recovered through public competitive bidding at a "no minimum, no reservation" auction which is properly advertised and conducted under current economic and market conditions using a professional auction company which has the relevant expertise in marketing and merchandising of the subject property." The Debtors note that $1,000,000 is a premium for the E-Coat System in the current market. * * * Judge Gropper approves the parties' Asset Purchase Agreement and orders that, to the greatest extent possible under applicable law, no liability will attach to or remain with the E-Coat System on account of any liability, including without limitation, a tax liability, existing as of the Closing for which the Debtors are jointly or severally liable. Headquartered in Grand Rapids, Michigan, Tower Automotive, Inc. -- http://www.towerautomotive.com/-- is a global designer and producer of vehicle structural components and assemblies used by every major automotive original equipment manufacturer, including BMW, DaimlerChrysler, Fiat, Ford, GM, Honda, Hyundai/Kia, Nissan, Toyota, Volkswagen and Volvo. Products include body structures and assemblies, lower vehicle frames and structures, chassis modules and systems, and suspension components. The Company and 25 of its debtor-affiliates filed voluntary chapter 11 petitions on Feb. 2, 2005 (Bankr. S.D.N.Y. Case No. 05-10576 through 05-10601). James H.M. Sprayregen, Esq., Ryan B. Bennett, Esq., Anup Sathy, Esq., Jason D. Horwitz, Esq., and Ross M. Kwasteniet, Esq., at Kirkland & Ellis, LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $787,948,000 in total assets and $1,306,949,000 in total debts. (Tower Automotive Bankruptcy News, Issue No. 13; Bankruptcy Creditors' Service, Inc., 215/945-7000) TRICOM S.A.: CEO & President Carl Carlson Resigns from Posts ------------------------------------------------------------ Tricom, S.A. (OTC BB: TRICY.PK) disclosed that Carl Carlson has left as the Company's Chief Executive Officer and President, effective immediately. The Company's Board of Directors has selected Hector Castro Noboa, Secretary and Vice-Chairman of the Board of Directors, to succeed Mr. Carlson as CEO. Mr. Carlson will continue to work with the Company in a consulting role. Hector Castro Noboa, 64, a member of Tricom's Board of Directors since the Company's formation in 1988, will remain on the board. Mr. Castro has been Vice-Chairman and Executive Vice President in a number of companies affiliated with GFN Corporation, the Company's majority shareholder. Mr. Castro has also held positions in a number of financial institutions, including Deutsche Sudamerikanische Bank, Citibank, and Banco Metropolitano. Mr. Castro, a former professor of international economics and macroeconomics at Universidad Nacional Pedro Henriquez Urena, has a degree in Business Economics from Madrid's Universidad Complutense. Tricom, S.A. -- http://www.tricom.net/-- is a full service communications services provider in the Dominican Republic. The Company offer local, long distance, mobile, cable television and broadband data transmission and Internet services. Through Tricom USA, the Company is one of the few Latin American based long distance carriers that is licensed by the U.S. Federal Communications Commission to own and operate switching facilities in the United States. Through its subsidiary, TCN Dominicana, S.A., the Company is the largest cable television operator in the Dominican Republic based on its number of subscribers and homes passed. * * * As reported in the Troubled Company Reporter on May 13, 2005, Tricom, S.A. reported increases in revenues during the first quarter of 2005. The bad news is that recurring losses from operations, impacted further by the recognition of impairment losses of long-term assets and intangibles and a loss in the disposal of the Central America operations, have led the Company to default in its long and short-term debt commitments. These situations, among others, the Company says, raise substantial doubt about its ability to continue as a going concern. At March 31, 2005, Tricom's balance sheet showed a $214,972,000 stockholders' deficit, compared to a $195,733,000 deficit at Dec. 31, 2004. TROPICAL SPORTSWEAR: Ex-CEO & Shareholders Want to Continue Suit ---------------------------------------------------------------- William Compton, Tropical Sportswear Int'l Corp.'s former Chief Executive Officer, and one of the defendants of a lawsuit commenced by the shareholders, object to the Official Committee of Unsecured Creditors' request to stay that litigation. As reported in the Troubled Company Reporter on June 10, 2005, the class action lawsuit pending in the U.S. District Court for the Middle District of Florida (Case No. 8:03-CV-1958-T23TGW) was commenced by Richard R. Reina and other shareholders against: * the Debtors; * Michael Kagan, Chief Executive Officer; * William Compton, former Chief Executive Officer; * N. Larry McPherson, Chief Financial Officer; and * Christopher B. Munday, President. Gary W. Burns, of Bridge Associates, as trustee for TSLC I, Inc., -- the creditors' liquidating trust created under the chapter 11 plan -- will commenced an adversary proceeding against the same parties under the same facts and allegations. The Creditors Committee wanted the Shareholder Litigation stayed until the Trustee Action is resolved. The Creditors Committee asserted that the assets, which the shareholders attempt to recover through the litigation, are property of the Debtors' estate, and any recoveries should flow to the debtors' creditors. Not Part of the Estate Mr. Compton's attorney, Lewis F. Murphy, P.A., at Steel Hector & Davis LLP, in Miami Florida, tells the U.S. Bankruptcy Court for the Middle District of Florida that shareholder recovery from the litigation will be derived from the directors and officers' insurance policy. Mr. Murphy argues that the D&O proceeds are not part of the Debtors' estates and should not be subjected to the automatic stay. Same Side of the Fence The first time since the shareholder class action began, Mr. Compton finds himself an ally in some of the plaintiffs, the Alaska Laborers Employers Retirement Fund and Gregory S. Young and Michelle L. Young. The Fund and the Youngs argue that the Liquidation Trust should not be allowed to take a "first drib" on the recoveries from the Shareholder Action. The Fund and the Youngs agree with Mr. Compton that the proceeds from the D&O policy, where the shareholders will get its recovery from, are not part of the Debtors' estate. Headquartered in Tampa, Florida, Tropical Sportswear Int'l Corp. -- http://www.savane.com/-- designs, produces and markets branded branded apparel products that are sold to major retailers in all levels and channels of distribution. The Company and its debtor-affiliates filed for chapter 11 protection on Dec. 16, 2004 (Bankr. M.D. Fla. Case No. 04-24134). David E. Bane, Esq., and Denise D. Dell-Powell, Esq., at Akerman Senterfitt, represent the Debtors in their restructuring efforts. When the Debtor filed for protection from its creditors, it listed total assets of $247,129,867 and total debts of $142,082,756. UAL CORP: Wants Court Nod on $11 Mil. Deposit to Purchase Planes ---------------------------------------------------------------- UAL Corporation seek the U.S. Bankruptcy Court for the Northern District of Illinois' permission to deposit $11,000,000 for the purchase of four Boeing 767-300ER aircraft and eight Pratt & Whitney PW 4000 engines. The deposit is 10% of the purchase price for the aircraft and engines. According to James H.M. Sprayregen, Esq., at Kirkland & Ellis, in Chicago, Illinois, the deposit percentage is standard in a transaction of this type and size. The Debtors paid the deposit on June 6, 2005, to U.S. Bank as Trustee. The aircraft were originally financed before the Petition Date through the Jets 1995A transaction. Once the Court allows the Debtors to make the deposit, they will ask for permission to enter into a Letter of Intent that outlines the aircraft purchase. Mr. Sprayregen explains that the negotiating environment with the Aircraft Trustees has changed since the Seventh Circuit ordered the District Court to dissolve the injunction. Although negotiations have continued, the Debtors could not reach agreement with the Trustees on the 1993A PTC aircraft and 1993C PTC aircraft. As a result, the Debtors had to return these aircraft to the Trustees. This return of aircraft strained the Debtors' ability to fly their schedule and caused the suspension of the Chicago-to-Buenos Aires, Argentina service. Mr. Sprayregen reports that the Debtors were successful in negotiations with the holders of the JETS 1995A certificates. The Holders asked the Debtors to either restructure the lease terms or purchase the aircraft outright. The Debtors and the Holders were too far apart on terms for restructuring the leases, so they negotiated a purchase. Mr. Sprayregen says that the Letter of Intent was structured to induce the Holders to forbear from reclaiming the aircraft. The LOI also provides compensation for lost remarketing opportunities during negotiations. The Debtors' experts, Babcock & Brown, advised that there is excess demand for the Boeing 767-300 aircraft. Values for the aircraft have increased significantly and the Holders have ready alternatives in the secondary market. Without the deposit, the Holders will shop the aircraft for higher and better offers. As of March 31, 2005, the Holders held $89,500,000 in administrative claims, consisting of: a) $47,200,000 for claims under Sections 365(d)(10) and 503(b) of the Bankruptcy Code for the first 60 days of these proceedings; b) $26,800,000 for unperformed maintenance; and c) $15,500,000 for diminution of aircraft value. As part of the sale transaction, the Debtors agree that nothing will waive any rights, claims, or defenses with respect to the administrative claims. The Debtors also propose to allow the Aircraft Trustees a $[285,250,000] unsecured claim with respect to the deficiency claim. Both sides are responsible for their own legal fees and other transaction expenses. Mr. Sprayregen says that the sale transaction may violate certain terms and conditions under the DIP Credit Agreement, including covenants regarding liens on cash collateral and capital expenditures, and other debt and lien covenants. The Debtors have discussed the transaction with the Agent for the DIP Lenders and remain "cautiously optimistic" that they will obtain the necessary waivers or amendments. The Court should approve payment of the deposit, states Mr. Sprayregen. Otherwise, the Debtors risk route disruption and revenue loss. Since the aircraft are optimized for international service, they play an important role in the Debtors' fleet plan. If the Debtors have to return the aircraft, one international route will be cancelled outright and three other international routes will be impacted through a reduction in service. This would upset the travel plans of thousands of the Debtors' customers, who would likely face difficulty rescheduling due to the busy summer travel season and high load factors. The transaction must close by July 16, 2005. If the Debtors cannot obtain the necessary approvals for the transaction, the deposit will be forfeited. Headquartered in Chicago, Illinois, UAL Corporation -- http://www.united.com/-- through United Air Lines, Inc., is the holding company for United Airlines -- the world's second largest air carrier. The Company filed for chapter 11 protection on December 9, 2002 (Bankr. N.D. Ill. Case No. 02-48191). James H.M. Sprayregen, Esq., Marc Kieselstein, Esq., David R. Seligman, Esq., and Steven R. Kotarba, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $24,190,000,000 in assets and $22,787,000,000 in debts. (United Airlines Bankruptcy News, Issue No. 90; Bankruptcy Creditors' Service, Inc., 215/945-7000) UAL CORP: Objects to KBC Bank's Request to Effect Set-Off --------------------------------------------------------- Ronald R. Peterson, Esq., at Jenner & Block, in Chicago, Illinois, asks the U.S. Bankruptcy Court for the Northern District of Illinois to allow KBC Bank to set off the UAL Corporation and its debtor-affiliates' funds that are held in a KBC Account against the Debtors' unpaid prepetition aircraft lease payments. KBC leased the Debtors two Boeing 737 aircraft, bearing Tail Nos. 955UA and 957UA. The Debtors are obligated to pay rent for the aircraft through 2016, when they will return the aircraft to KBC. Rent is scheduled to begin flowing to KBC on July 1, 2005. The Debtors must indemnify KBC from any loss of the tax benefits flowing from aircraft ownership. On December 12, 2002, Jeffrey T. Kawalsky, the Debtors' Vice President and Treasurer, wrote to KBC that the Debtors would not be fulfilling their obligations under the Leases. Immediately thereafter, Michael Curran, KBC's general counsel in New York City, directed KBC's Belgium office to freeze the Debtors' funds in the Account. On December 18, 2002, KBC froze the Account, which holds a balance of $228,685. On June 4, 2004, the Debtors asked the Court for permission to reject the Leases and abandon the aircraft. The Court granted the request. As a result, KBC's Claim against the Debtors aggregates $23,659,922. Mr. Peterson tells Judge Wedoff that KBC's Claim qualifies for set-off against the Debtors' claim to the frozen Account. Each party's claim arose prepetition. The claims are between the same parties, standing in the same capacity, and the same kind or quality. Moreover, the mutual claims are valid and enforceable as they arose from a valid and enforceable contract. Debtors Respond Marc Kieselstein, Esq., at Kirkland & Ellis, in Chicago, Illinois, denies that KBC's alleged prepetition claims qualify for set-off against the funds held in the Account, as KBC has no legal claim against the Debtors. KBC is prohibited from setting off the funds in the Account under the Special Purpose Doctrine and the laches doctrine. KBC has waived its right to set-off funds held in the Pledge Account. The Debtors ask the Court to deny KBC's request for authority to effect a set-off. Headquartered in Chicago, Illinois, UAL Corporation -- http://www.united.com/-- through United Air Lines, Inc., is the holding company for United Airlines -- the world's second largest air carrier. The Company filed for chapter 11 protection on December 9, 2002 (Bankr. N.D. Ill. Case No. 02-48191). James H.M. Sprayregen, Esq., Marc Kieselstein, Esq., David R. Seligman, Esq., and Steven R. Kotarba, Esq., at Kirkland & Ellis, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $24,190,000,000 in assets and $22,787,000,000 in debts. (United Airlines Bankruptcy News, Issue No. 88; Bankruptcy Creditors' Service, Inc., 215/945-7000) UNIFIED HOUSING: U.S. Trustee Wants Case Dismissed or Converted --------------------------------------------------------------- The U.S. Trustee for Region 6 asks the U.S. Bankruptcy Court for the Northern District of Texas, Fort Worth Division, to dismiss or convert to a chapter 7 liquidation proceeding, the chapter 11 case of Unified Housing of Kensington, LLC. The U.S. Trustee tells the Court that the Debtor's case is primarily a two-party dispute. The Debtor filed for chapter 11 to prevent General Electric Capital Corporation from foreclosing on its collateral, the U.S. Trustee says. GECC asked the Bankruptcy Court for relief of the automatic stay but the Court denied its request in February 2005. The U.S. Trustee contends that the Court's decision resolved this case. Erin N. Schmidt, Esq., at Stinson Morrison Hecker LLP, counsel for the U.S. Trustee, tells the Court that the Debtor has unreasonably delayed the progress of this case. Although, Unified Housing filed a plan of reorganization in January it didn't file an accompanying disclosure statement and no hearing date has been set. This, Ms. Schmidt says, constitute delay pursuant to 11 U.S.C. Section 1112(b)(3) that is prejudicial to creditors. Headquartered in Dallas, Texas, Unified Housing of Kensington, LLC, filed for chapter 11 protection on July 29, 2004 (Bankr. N.D. Tex. Case No. 04-47183). John P. Lewis Jr., Esq., at Cholette, Perkins & Buchanan, represents the Debtor. When the Debtor filed for protection from its creditors, it listed above $10 million in estimated assets and debts. UNIFIED HOUSING: General Electric Files Disclosure Statement ------------------------------------------------------------ General Electric Capital Corporation, a secured creditor of Unified Housing of Kensington, LLC, delivered a Disclosure Statement explaining a proposed Plan of Liquidation to the U.S. Bankruptcy Court for the Northern District of Texas, Fort Worth Division. GECC asserts an $18.5 million claim against the Debtor. Unified Housing assumed the debt after it bought the Kensington Apartments from ACLP Kensington Park, LP, in March 2004. GECC's claim is secured by liens, assignments and security interests on the Kensington Apartments. General Electric's Plan provides for: a) the sale of the Kensington Apartments to pay all allowed claims; or b) the Debtor to retain the apartments, assume GE's loan and pay GE's claim in accordance with the loan agreement. The Sale Alternative The sale contemplated in the Plan requires the Debtor to sell the apartments not later than Dec. 31, 2005. GE will get $18.5 million from the sale proceeds and the rest will be distributed to other allowed claim holders. If no sale is consummated by Dec. 31, the Plan will allow GECC to foreclose on the property. The Assumption Alternative Under the loan assumption contemplated in the Plan, the Debtor will keep the apartments but it will reinstate the GECC Note and Obligations. The maturity of GE's loan and allowed claim will occur on Jan. 1, 2011. The Court will convene a hearing on July 18, 2005, at 1:30 p.m. to discuss the adequacy of information contained in the Disclosure Statement. A full-text copy of the Disclosure Statement is available for a fee at: http://www.researcharchives.com/bin/download?id=050620002939 Headquartered in Dallas, Texas, Unified Housing of Kensington, LLC, filed for chapter 11 protection on July 29, 2004 (Bankr. N.D. Tex. Case No. 04-47183). John P. Lewis Jr., Esq., at Cholette, Perkins & Buchanan, represents the Debtor. When the Debtor filed for protection from its creditors, it listed above $10 million in estimated assets and debts. URS CORPORATION: Moody's Lifts Proposed $350M Loan Rating to Ba1 ---------------------------------------------------------------- Moody's Investors Service upgraded the credit ratings of URS Corporation, with both the senior implied rating and the rating on the proposed $650 million senior secured credit facility moving to Ba1. The rating action follows the company's recent announcement that it completed a secondary public equity offering for net proceeds of $131 million and used such proceeds along with cash on hand to purchase 97.8% of its $130 million of 11.5% senior notes due 2009. The ratings on the senior notes have been withdrawn due to the de minimis remaining balance outstanding. Today's rating actions conclude the review for possible upgrade announced on June 8, 2005. The ratings outlook is stable. These ratings were upgraded: -- $300 million proposed senior revolver due 2010, upgraded to Ba1 from Ba2 -- $350 million proposed senior term loan due 2011, upgraded to Ba1 from Ba2 -- Senior Implied, upgraded to Ba1 from Ba2 -- Senior Unsecured Issuer, upgraded to Ba2 from Ba3 This rating was withdrawn: -- $130 million 11.5% senior notes, due 2009, Ba3 rating withdrawn Moody's also affirmed the company's speculative grade liquidity rating of SGL-1, reflecting the company's very good liquidity profile. The SGL-1 rating reflects: * Moody's expectation that URS will generate cash flow from operations well in excess of cash requirements; * have minimal borrowings under its revolving credit facility; and * maintain substantial cushion under its bank covenants. The ratings upgrade reflects the significant improvement in credit metrics after the recently completed equity offering and debt retirement and the company's strong financial performance. For the twelve months ended April 1, 2005, pro forma for the equity offering and debt retirement, free cash flow to debt improves to about 24.9% from the 20.7% level actually achieved, total debt to EBITDA improves to about 2.4x from 2.8x, and debt to total capital improves to about 26.4% from 32.6%. The company's financial performance has benefited from increased federal government spending on defense and homeland security and, in particular, spending on engineering and technical services and operations and maintenance activities. The ratings benefit from URS's stable customer base, recurring revenue stream, and solid order backlog (contract backlog of $3.7 billion as of April 1, 2005). Moreover, the company's recent capital structure transactions demonstrate URS's continued commitment to the reduction of debt and leverage levels. The ratings are constrained by: * URS's participation in a highly competitive and fragmented industry that exhibits relatively low barriers to entry; * modest EBITDA margins; and * significant utilization of working capital. In addition, URS derives nearly half of its revenue from the federal government including about 17% from one customer, the US Army. As a result, the company's revenues are exposed to changes in spending policies by the federal government. URS also derives about one-fifth of total revenues from state and local governments. This market, although improving, has been affected by budget deficits faced by state and local governments over the past few years. In addition, although the company's backlog is significant, there is no guarantee such revenues will materialize. The stable outlook anticipates that URS will continue to benefit from federal government spending on engineering and technical services, the continuing trend towards outsourcing, as well as modestly improving finances at state and local governments. Moody's expects that acquisitions are likely to remain modest in size and to be funded in a way that maintains URS's dedication to reduced debt and leverage. The Ba1 rating on the proposed credit facility, notched at the senior implied level, reflects the preponderance of senior debt in the capital structure. At the current ratings level, the credit facility will be secured by a pledge of 100% of the common stock of domestic subsidiaries. If URS's ratings (as defined in the credit agreement) fall two notches below investment grade, the credit facility will be secured by substantially all of the assets of the company and its material domestic subsidiaries. If URS's ratings rise to investment grade, the credit facility will become unsecured. Obligations under the credit facility will be guaranteed by all material domestic subsidiaries of the company. Financial covenants are expected to include minimum interest coverage and maximum debt to total capital ratios and to be less restrictive than those under the facility being replaced. The ratings could be downgraded if the company's credit profile weakens due to a sustained reduction in free cash flow attributable to declining revenues or operating margins or a lengthening of the cash conversion cycle. A significant increase in leverage due to a large acquisition, which would reflect a change in financial policy, would also likely cause a downgrade. The ratings could be upgraded if the company substantially reduces leverage, expands its revenue base and demonstrates an improving cash conversion cycle. Based in San Francisco, California, URS Corporation is an engineering firm that provides a range of services for: * professional planning, * design, * program and construction management, and * operations and maintenance. Unaudited revenues for the twelve month period ended April 1, 2005 were approximately $3.5 billion. US AIRWAYS: Workers Say Transaction Retention Plan Still Stinks --------------------------------------------------------------- In a post-hearing brief, the Communications Workers of America, AFL-CIO, repeats its request for Judge Mitchell to deny the US Airways, Inc., and its debtor-affiliates' Transaction Retention Plan. The Debtors told the Court that the Transaction Retention Plan is needed to retain essential management and salaried employees during the entire strategic transaction process or other change of control. The Communications Workers of America, AFL-CIO, objected to the first plan. CWA asserted that the payments are unnecessary and it sends a negative message. As reported in the Troubled Company Reporter on June 7, 2005, these parties-in-interest joined the battle against the Debtors' request: * Association of Flight Attendants-CWA; * The Air Line Pilots Association, International; * The International Association of Machinists and Aerospace Workers; * the United States Trustee for Region 4; * five US Airways employees; and * Dennis J. Harris, a US Airways shareholder. The influx of objections prompted the Debtors to revise their Transaction Retention Plan. The Revised TRP further provides that: (a) The Senior Executive severance payments and bonus components will be calculated from reduced current salary levels, reducing the maximum severance payments to Senior Executives by $4,000,000; (b) Bruce Lakefield, the Debtors' CEO, will reduce from 300% to 200% the applicable severance multiplier, and will waive the Long Term Incentive Plan component, equal to 125% of Base Salary, of his severance; (c) In a liquidation, the Senior Executives' severance pool will be capped at $8,500,000; (d) Senior Executives entitled to receive 50% of severance, must remain in their positions for 30 days after declining the offer of continued employment to permit the reorganized company to locate a replacement; (e) Senior Executives will waive any other contractual claims arising out of termination of their agreements; (f) The five Senior Executives who earned lifetime benefits as part of the United Airlines merger discussions will retain travel benefits but not lifetime medical benefits. Their medical benefits will be limited to regular Senior Executive medical benefits plus secondary health coverage through age 65; (g) The Debtors will not make the $410,000 restoration funding portion of the Unfunded Executive Defined Contribution Plan and will not make severance payments under the EDCP in a liquidation; (h) In a liquidation, the Debtors will cap severance payments to Salaried and Management employees at $15,000,000, inclusive of payments under the Discretionary Pool; and (i) The Debtors will provide notice to the Committee when they commit to pay $250,000 from the Discretionary Pool, and again at each $250,000 interval thereafter. Under the Revised TRP, many Senior Executives will forego over 60% of the severance they were entitled to under existing agreements. Mr. Hazan notes that Mr. Lakefield was entitled to over $4,000,000 in severance pursuant to his existing employment contract. Under the Revised TRP, Mr. Lakefield's potential severance payment has been reduced to $1,700,000. Communications Workers Not Moved Daniel M. Katz, Esq., at Katz & Ranzman, in Washington, D.C., calls the TRP a "lavish attempt to enrich the executive and management personnel of the Debtors." Mr. Katz asserts that even with the modifications, the TRP does not satisfy the business judgment test. Moreover, the Debtors' prepetition management employee and managing director severance policies expressly state that no employee should receive severance payments for termination due to a change of control. The Debtors have not demonstrated that any of the employees are essential to the merger, that any will terminate their employment due to the merger unless they receive a severance payment, nor that the Debtors will fail if they leave. Mr. Katz takes issue with the Debtors' addition of a change of control provision into the documents. Inserting a change of control provision nearly eight months after the Petition Date, and 10 days before announcement of the proposed change of control transaction, shows "that these modifications are aimed at lining management's pockets," Mr. Katz asserts. Mr. Katz insists that despite the Debtors' concessions, the revised TRP is still too expensive. Under the revised TRP, the theoretical maximum payout is still approximately $50,000,000 if the merger with America West is completed. If there is only a 33% termination rate, the TRP will still pay out approximately $20,000,000. For a two-time bankruptcy debtor that has tapped its workers for more than $1,000,000,000 a year in pay and benefit cuts, the proposed payments under the TRP are "unconscionable," Mr. Katz says. 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. 94; Bankruptcy Creditors' Service, Inc., 215/945-7000) USG CORP: Equity Panel Wants to Hire Morris Nichols as Counsel -------------------------------------------------------------- The Statutory Committee of Equity Security Holders in USG Corporation and its debtor-affiliates' chapter 11 cases seeks Judge Fitzgerald's authority to retain Morris, Nichols, Arsht and Tunnell as its local counsel, nunc pro tunc to May 14, 2005. Thomas B. Walper, Esq., on behalf of the committee chair, Berkshire Hathaway Inc., states that Morris Nichols is well qualified to represent the Equity Committee in the Debtors' Chapter 11 cases because of the firm's expertise, extensive experience, knowledge practicing before the Court, as well as its proximity to the Court, and its ability to respond quickly to emergency hearings and other urgent matters. As the Equity Committee's counsel, Morris Nichols will: (a) take all necessary actions to protect the Equity Committee's rights and interest with respect to the Debtors' Chapter 11 cases; (b) assist the Equity Committee with respect to its organization, the conduct of its business and meetings, the dissemination of information to its constituency, and other matters deemed necessary to facilitate the administrative activities; (c) attend the Equity Committee's meetings; (d) prepare all necessary documents in connection with the Debtors' cases; (e) represent and advise the Equity Committee in connection with any Chapter 11 plan and related matters; (f) confer with the Debtors, the statutory committees and their counsel, and other professionals engaged by the Equity Committee; (g) review the Debtors' activities and matters concerning the treatment of their equity interests; (h) attend to the inquiries of the Equity Committee members; (i) perform all necessary legal services in connection with the pending asbestos claims estimation litigation in the Debtors' cases, and other litigation as may be directed by the Equity Committee; and (j) represent the Equity Committee in any contested matter or adversary proceeding in the Debtors' cases affecting or concerning: -- the treatment of equity interests, whether under a Chapter 11 plan or otherwise; -- the Equity Committee's power and duties; and -- the application for and payment of the expenses incurred by the Equity Committee members. Morris Nichols will be paid in accordance with its customary hourly rates in effect from time to time: Partners $400 to $585 Associates $220 to $380 Paraprofessionals $165 Case clerks $100 The firm will also be reimbursed for necessary out-of-pocket expenses incurred. At the present time, the attorneys principally responsible for the Equity Committee's representation and their current hourly rates are: Robert J. Dehney (partner) $550 Daniel B. Butz (associate) 260 Curtis S. Miller (associate) 245 Joanna F. Newdeck (associate) 220 Morris Nichols partner Robert J. Dehney, Esq., assures the Court that the firm does not hold or represent any interest adverse to the Debtors' estates or their creditors, and is a "disinterested person," as that term is defined in Section 101(14) of the Bankruptcy Code. Headquartered in Chicago, Illinois, USG Corporation -- http://www.usg.com/-- through its subsidiaries, is a leading manufacturer and distributor of building materials producing a wide range of products for use in new residential, new nonresidential and repair and remodel construction, as well as products used in certain industrial processes. The Company filed for chapter 11 protection on June 25, 2001 (Bankr. Del. Case No. 01-02094). David G. Heiman, Esq., and Paul E. Harner, Esq., at Jones Day represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $3,252,000,000 in assets and $2,739,000,000 in debts. (USG Bankruptcy News, Issue No. 89; Bankruptcy Creditors' Service, Inc., 215/945-7000) VAN-ACTION: Savaria Acquires All Assets for $1.4 Million -------------------------------------------------------- Savaria Corporation (TSX:SIS) acquired all of Van-Action, Inc.'s assets for $1.4 million via Samson Belair/Deloitte & Touche, Van- Action's bankruptcy trustees. "We are proud to have acquired the assets of Van-Action, whose activities compliment our mission and our growth strategy", states Marcel Bourassa, President & CEO of Savaria. "Without delay, we will re-establish Van-Action's activities, which employs approximately one hundred employees. Mr. Jean-Francois Viau and Mr. Marcel Tremblay will hold respectively the positions of General Manager and Director of Research & Development of the Van- Action division of Savaria. They will be supported by Claude Dumoulin, Production Director, who occupies the same functions at Savaria and held the same position at the GM auto assembly plant in Ste.Therese and by Mr. Michel Dube, semi-retired, having ended his career as a Vice-President of the TD Bank. Mr. Viau states, "Due to Savaria's solid financial resources, its management and marketing expertise and its vast dealer network, we are very confident to rapidly regain the confidence of our customers and our position as a Canadian leader". "Whether in sales or management, our synergies are many and we are very confident to quickly render our new division profitable. Consequently, as this acquisition was a cash transaction, it should contribute to the growth of our earnings per share in this current fiscal year", states Mr. M. Bourassa. Savaria Corporation -- http://www.savaria.com/-- is one of North America's leading accessibility companies. Savaria designs, manufactures and distributes eight products, meeting the needs of people with mobility challenges, including stairlifts, vertical and inclined platform lifts and elevators for residential use, all of which are manufactured in our new plant in Laval, Quebec. Savaria also adapts vehicles for the physically challenged. Savaria's products are sold through a network of over 300 retailers, 61% from the United States, 37% from Canada and 2% from Europe. Savaria employs approximately 200 people and its shares (SIS) are traded on the Toronto Stock Exchange. In operation till mid May 2005, Van-Action Inc. was the most important Canadian enterprise engaged in converting and adapting vehicles for the physically handicapped. For over 20 years, they primarily offered mini-vans with lower floors and vans with higher ceilings, ideal for transporting persons in wheelchairs. They also distributed and installed platform elevators, motorized winches, assorted manual commands and other accessories to facilitate the movement of mobility restricted individuals. Located in Ville St. Laurent (Quebec), Van-Action has generated revenues of $12.7 million in 2004. VARIG S.A.: Brazilian Court Grants Interim Stay Order ----------------------------------------------------- Judge Alexander dos Santos Macedo of the Commercial Bankruptcy and Reorganization Court in Rio de Janeiro, Brazil, issued an interim order on June 17, 2005, pursuant to the New Bankruptcy and Reorganization Law of Brazil that prohibits VARIG's 29 Aircraft Lessors from seizing, repossessing or otherwise interfering with VARIG, S.A., and its affiliates' leased aircraft. A copy of the Brazilian Court's Interim Order dated June 17, 2005, is available at no charge at: http://bankrupt.com/misc/VARIGInterimOrder.pdf The leases are important to the Debtors' continued operations. "The seizure of aircraft would cause inestimable loss to the [Debtors]," Sergio Bermudes, Esq., at Escritorio de Advocacia Sergio Bermudes, in Rio de Janeiro, Brazil, told the Court. The Debtors have also requested judicial reorganization, which includes a stay or injunction for 180 days prohibiting actions by creditors to enforce rights and remedies on account of their claims. The Brazilian Court has yet to rule on the request. Headquartered in Rio de Janeiro, Brazil, VARIG S.A. is Brazil's largest air carrier and the largest air carrier in Latin America. VARIG's principal business is the transportation of passengers and cargo by air on domestic routes within Brazil and on international routes between Brazil and North and South America, Europe and Asia. VARIG carries approximately 13 million passengers annually and employs approximately 11,456 full-time employees, of which approximately 133 are employed in the United States. The Company, along with two affiliates, filed for a judicial reorganization proceeding under the New Bankruptcy and Restructuring Law of Brazil on June 17, 2005, due to a competitive landscape, high fuel costs, cash flow deficit, and high operating leverage. The Debtors may be the first case under the new law, which took effect on June 9, 2005. Similar to a chapter 11 debtor-in-possession under the U.S. Bankruptcy Code, the Debtors remain in possession and control of their estate pending the Judicial Reorganization. Each of the Debtors' Boards of Directors authorized Vicente Cervo as foreign representative. In this capacity, Mr. Cervo filed a Sec. 304 petition on June 17, 2005 (Bankr. S.D.N.Y. Case Nos. 05-14400 and 05-14402). Rick B. Antonoff, Esq., at Pillsbury Winthrop Shaw Pittman LLP represents Mr. Cervo in the United States and Sergio Bermudes, Esq., in Brazil. As of March 31, 2005, the Debtors reported BRL2,979,309,000 in total assets and BRL9,474,930,000 in total debts. (Varig Bankruptcy News, Issue No. 01; Bankruptcy Creditors' Service, Inc., 215/945-7000) W.R. GRACE: MDEP Holds $700,298 Allowed Unsecured Claim ------------------------------------------------------- The Massachusetts Department of Environmental Protection previously filed claims against W.R. Grace & Co., its debtor- affiliates, asserting liability to the Commonwealth of Massachusetts in connection with environmental contamination at certain sites throughout the Commonwealth, pursuant to federal and state laws and regulations, including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980. The MADEP Claims set forth general unsecured prepetition liquidated claims totaling $799,419 and also provided notice of the Debtors' other contingent, unliquidated and estimated environmental liability to the Commonwealth. The Debtors have objected to the MADEP Claims on various grounds. Moreover, the Court has approved a settlement between the Debtors and the Massachusetts Department of Revenue under which the Revenue Department owes the Debtors a $1,292,340 tax refund, plus interest for corporate excise taxes paid for the 1986 tax year. In addition, the MADEP sought to lift the automatic stay to effect a set-off of the amount allegedly owed by the Debtors for the MADEP's liquidated prepetition general unsecured claims against the Tax Refund. Consequently, the parties engaged in certain discovery and have reached an agreement on the allowed amount of MADEP's liquidated prepetition general unsecured claims, but have not reached an agreement on the requested set-off nor on the contingent, unliquidated, and estimated environmental liability identified in the MADEP Claims. Accordingly, in a Court-approved stipulation, the Parties stipulate that: (a) MADEP Claim No. 12849 will be allowed as an unsecured, prepetition, non-priority claim against the Debtors for $700,298. The Allowed Claim is apportioned in this manner: (i) Former Zonolite Plant Site -- $42,293; (ii) W.R. Grace Plant Superfund Site -- $623,525; (iii) Wells G&H, in Woburn, MA, Source Area and Central Area -- $4,334; (iv) Blackburn & Union Privileges Site -- $5,981; and (v) MMR Pipeline Site -- $24,165. (b) Claim Nos. 12848 and 13847 will each be withdrawn. However, to the extent that the Debtors' Plan of Reorganization does not provide for substantive consolidation, Claim Nos. 12848 and 13847 will be reinstated, and MADEP will be entitled to pursue all asserted claims. (c) The Debtors will direct their Claims Agent, Rust Consulting Inc., to mark the Official Claims Register to reflect that Claim No. 12849 is allowed and that all other contingent, unliquidated, or estimated prepetition or postpetition claims or amounts included in that claim remain unresolved, and that Claim Nos. 12848 and 13847 are withdrawn. (d) The MADEP will retain its right to assert that the Allowed Claim may be set off against the Tax Refund and the Debtors retain their right to oppose the set-off. Within 45 days of the later of the Court's approval of the Stipulation or the execution of the settlement agreement between the Debtors and the Revenue Department establishing the exact amount of the Tax Refund, the Revenue Department will pay the Debtors the difference between the Tax Refund and the Allowed Claim, and MADEP will not seek to set off any additional amounts owed to the Debtors by the Revenue Department from the prepetition tax refunds. The Revenue Department may also pay the amount of the Tax Refund equal to the Allowed Claim into an account to be held in escrow until the setoff issue is resolved. (e) The MADEP Stay Relief Motion will be set for further hearing by the Court on June 27, 2005. 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, P.C., represent the Debtors in their restructuring efforts. (W.R. Grace Bankruptcy News, Issue No. 87; Bankruptcy Creditors' Service, Inc., 215/945-7000) WEIRTON STEEL: Court Denies D. Powell's Request for Rule 2004 Exam ------------------------------------------------------------------ The U.S. Bankruptcy Court for the Northern District of West Virginia has received a Notice of Rule 2004 Examination filed by David Powell. The Court notes that Mr. Powell filed numerous documents in Weirton Steel Corporation's case and that none of the documents have pertained to matters before the Court in Weirton's case. Accordingly, Judge Friend denies and strikes Mr. Powell's Notice of Rule 2004 Examination from the record. Headquartered in Weirton, West Virginia, Weirton Steel Corporation was a major integrated producer of flat rolled carbon steel with principal product lines consisting of tin mill products and sheet products. The company was the second largest domestic producer of tin mill products with approximately 25% of the domestic market share. The Company filed for chapter 11 protection on May 19, 2003 (Bankr. N.D. W. Va. Case No. 03-01802). Judge L. Edward Friend, II administers the Debtors' cases. Robert G. Sable, Esq., Mark E. Freedlander, Esq., David I. Swan, Esq., James H. Joseph, Esq., at McGuireWoods LLP, represent the Debtors in their liquidation. Weirton sold substantially all of its assets to Wilbur Ross' International Steel Group. Weirton's confirmed Plan of Liquidation became effective on Sept. 8, 2004. (Weirton Bankruptcy News, Issue No. 45; Bankruptcy Creditors' Service, Inc., 215/945-7000) WESTPOINT STEVENS: Wants to Walk Away from Central Valley Lease --------------------------------------------------------------- Westpoint Stevens, Inc., and its debtor-affiliates operate an outlet store at 660 Bluebird Court in Central Valley, New York, pursuant to a Lease, dated September 23, 1993, with Woodbury Common Partners, as predecessor-in-interest to Chelsea Property Group. The Debtors lease 8,840 square-feet in the outlet center known as "Woodbury Commons" at an annual cost of $25 per square foot plus certain promotional fees and other charges. The Central Valley Lease is not due to expire until November 30, 2011. John J. Rapisardi, Esq., at Weil, Gotshal & Manges, LLP, in New York, relates that the Debtors were recently approached by the Landlord with an extremely lucrative offer to relocate the Central Valley Store to one of the Landlord's other premium outlet centers known as "Edinburgh Premium Outlets" in Edinburgh, Indiana. Edinburgh Premium Outlets is located within driving distance of four major metropolitan areas, and maintains an impressive tenant list and considerable foot traffic. After extensive, arm's-length negotiations, the Debtors reached an agreement in principle with the Landlord to relocate the Central Valley Store to the Edinburgh Premium Outlets, effective January 1, 2006, in exchange for a package worth over $470,000. Pursuant to the agreement, the Landlord will pay the Debtors: (i) $100,000 in cash to terminate the Central Valley Lease; (ii) $30,000 in cash for store closing expenses; and (iii) $20,000 for severance payments. In addition, the Landlord will reduce the Debtors' rental obligations at their outlet store in Allen, Texas, which will result in savings of $120,000 in rent for 2005. The Landlord has also agreed to pay the Debtors up to $200,000 for capital improvements and labor at the new Edinburgh store. In accordance with the proposed lease of the store in the Edinburgh Premium Outlets, the Debtors will lease approximately 10,000-square feet for a five-year term with an option to renew for one additional five-year term. Rent under the proposed Edinburgh Lease will be $12 per square foot, plus additional rent if certain sales thresholds are met. The Debtors have been advised that these terms are extremely favorable and below market rates, and anticipate that profits from the Edinburgh store will substantially exceed their current profits at the Central Valley Store. In addition, the Landlord has agreed to cap its damages stemming from a breach of the Debtors' obligations under the Edinburgh Lease to the lesser of 18 months' rent or the Landlord's actual damages after mitigation. The Edinburgh Lease also permits the Debtors to assign the lease to a purchaser of substantially all of their assets. While the proposed rejection of the Central Valley Lease and relocation to the Edinburgh store will not take effect until January 1, 2006, the Landlord has required an early commitment to the proposal to provide a sufficient period of time to locate a replacement tenant at Woodbury Commons. Pursuant to the Edinburgh Lease, the Debtors will also pay a percentage rent equal to 4% of their gross sales in excess of $2,500,000 per year. This provision provides incentive for the Landlord to attract more customers to the shopping center and, in turn, boost the Debtors' sales. Thus, the Debtors seek the Court's authority to: -- reject the Central Valley Lease, effective December 31, 2005; and -- enter into the Edinburgh Lease. Headquartered in West Point, Georgia, WestPoint Stevens, Inc., -- http://www.westpointstevens.com/-- is the #1 US maker of bed linens and bath towels and also makes comforters, blankets, pillows, table covers, and window trimmings. It makes the Martex, Utica, Stevens, Lady Pepperell, Grand Patrician, and Vellux brands, as well as the Martha Stewart bed and bath lines; other licensed brands include Ralph Lauren, Disney, and Joe Boxer. Department stores, mass retailers, and bed and bath stores are its main customers. (Federated, J.C. Penney, Kmart, Sears, and Target account for more than half of sales.) It also has nearly 60 outlet stores. Chairman and CEO Holcombe Green controls 8% of WestPoint Stevens. The Company filed for chapter 11 protection on June 1, 2003 (Bankr. S.D.N.Y. Case No. 03-13532). John J. Rapisardi, Esq., at Weil, Gotshal & Manges, LLP, represents the Debtors in their restructuring efforts. (WestPoint Bankruptcy News, Issue No. 48; Bankruptcy Creditors' Service, Inc., 215/945-7000) WILBRAHAM CBO: Fitch Holds Junk Ratings on 3 Note Classes --------------------------------------------------------- Fitch Ratings affirms two classes of notes issued by Wilbraham CBO, Ltd. These affirmations are the result of Fitch's review process. These rating actions are effective immediately: -- $122,636,161 class A-1 notes affirmed at 'AA'; -- $19,000,000 class A-2 notes affirmed at 'BBB-'; -- $8,630,422 class B-1 notes remain at 'CC'; -- $25,244,800 class B-2 notes remain at 'CC'; -- $28,832,064 class C notes remain at 'C'. Wilbraham is a collateralized debt obligation managed by David L. Babson & Company Inc., which closed July 13, 2000. Wilbraham is composed of high yield bonds and loans. Included in this review, Fitch discussed the current state of the portfolio with the asset manager and their portfolio management strategy going forward. In addition, Fitch conducted cash flow modeling utilizing various default timing and interest-rate scenarios to measure the breakeven default rates going forward relative to the minimum cumulative default rates required for the rated liabilities. Since the last rating action, the credit quality of the portfolio supporting Wilbraham has experienced deterioration. Wilbraham holds a $3.5 million dollar exposure to Collins & Aikman, which recently defaulted. In addition, there are also exposures to the airline industry that warrant concern. However, the decline in collateral credit quality has been effectively neutralized by the increase in credit enhancement generated from the deleveraging of Wilbraham's structure. Wilbraham continues to fail its interest coverage tests, and thus excess interest proceeds are being applied to redeem the principal of the class A-1 notes. Since the last review, the class A-1 notes have paid down 21.31% of the original balance of the note, or $53.7 million. Currently, approximately 48.6% of the original class A-1 notes remain outstanding. The class B notes will not receive interest payments until the class A coverage tests are corrected. As of the May trustee report, the class A interest coverage test was 80.7% relative to a minimum required level of 135%. In cash flow modeling simulations, the class B notes continue to capitalize interest for the next several payment periods; however, under a benign default environment, modest recovery appears likely. The class C notes will likely receive no future cash flow. As a result of this analysis, Fitch has determined that the current ratings assigned to the notes still reflect the current risk to noteholders. Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch Ratings web site at http://www.fitchratings.com/. For more information on the Fitch VECTOR model, see 'Global Rating Criteria for Collateralized Debt Obligations,' dated Sept. 13, 2004, available on the Fitch Ratings web site at http://www.fitchratings.com/ WILLIAMS PRODUCTION: Moody's Raises Corporate Family Rating to Ba3 ------------------------------------------------------------------ Moody's Investors Service raised the long-term debt ratings of Williams Production RMT Company. Moody's raised RMT's Corporate Family Rating (previously called the Senior Implied rating) to Ba3 from B2, its Senior Secured Bank Credit Facility rating to Ba3 from B1 and its Senior Unsecured rating to B1 from B3. This action reflects the ongoing progress that The Williams Companies, Inc. (Williams, Ba3 Corporate Family Rating) has made in its domestic exploration and production business through RMT, including: * production and reserves growth, * competitive finding and development costs, and * improved leverage. This action concludes the review begun March 24 that reflected improvement at Williams E&P but needed further analysis of RMT's performance specifically. The outlook is stable. Reserves and Production Characteristics -- RMT grew total proved reserves 17% to 355 million boe during 2004 while total proved developed reserves increased 29% to 138 MMboe, both as a result of an active development drilling program. Total production increased by 13% in 2004 over 2003 driven by a 31% increase in production from the Piceance Basin. RMT's production is expected to increase another 18% in 2005, with a 34% increase in Piceance production offsetting declining Powder River Basin production. While RMT's reserves and production volumes are consistent with a Ba3 rating, we note that RMT has a significant amount of proved undeveloped reserves, with PD reserves representing only 39% of total proved reserves. RMT would need to grow its PD reserves volumes closer to 200 MMboe for continued improvement in the rating. RMT's reserves should grow from already approved 10-acre spacing in much of its Piceance holdings, adding another 1.4 billion cubic feet per well of recoverable gas. However, this level of infill drilling is indicative of the degree of reservoir heterogeneity and the need for more wellbores. We also note the technology required to recover these reserves, including directional and horizontal drilling as well as more complex completion techniques, all of which serves to heighten concerns over ultimate recovery. Another restraint to RMT's rating is the high degree of concentration in two basins with about three-fourths of reserves and production in the Piceance. Re-investment Risk -- RMT has had strong organic reserves replacement at F&D costs competitive with higher rated peers. RMT replaced 354% of its 2004 production, following 237% replacement in 2003, and its three-year all-sources replacement was 243%. RMT is currently drilling with 13 rigs in the Piceance and, with its large drilling inventory, we would expect continued strong reserves replacement. Importantly, RMT has maintained peer group leading F&D costs, with a three-year all-sources F&D of $4.89 per boe. The company's leading edge 2004 drillbit F&D was $4.95 per boe. Going forward, we expect RMT's F&D costs to rise as a result of increasing drilling dayrates and higher oilfield services costs. In addition, we note that much of RMT's reserves additions in the past three years, which contributed to the strong reserves replacement rate and lower F&D costs, were in the PUD category. This means RMT will need to spend additional capital dollars to convert these reserves to PD without any change in total proved reserves, leading to higher F&D costs. RMT has contracted with drilling contractor Helmerich & Payne for ten new rigs for a term of three years. These rigs are expected to begin coming on line at the rate of about one per month starting in November 2005. Higher drilling activity will result in RMT drilling 450 Piceance wells in 2006, up from its earlier plan of 325 wells, with 2007 drilling up to 500 wells from an original 350. Increased drilling should lead to greater development of PUD reserves and higher production, but we note the material increase in capital spending required for this program. RMT will need to maintain capital discipline and F&D costs consistent with its higher rated Ba peers before consideration of a further rating increase. Operating and Capital Efficiency -- RMT's full-cycle costs, including cash costs and three-year F&D, were $15.87 per boe in 2004, down from $28.86 in 2003, which had reflected significantly higher interest expense. RMT's cash margin improved to $15.09 in 2004, reflecting higher realized prices per boe as lower priced natural gas hedges rolled off and dramatically lower interest expense as higher priced debt incurred in Williams' 2002 restructuring was repaid. RMT's cash margin should continue to benefit from the current high commodity price environment, although we note the company will need to continue managing its cost structure as well. The combination of stronger cash margins with the lower F&D described above led to a leveraged full-cycle ratio, a measure of cash on cash return, of 3.1x in 2004. This is currently higher than most Ba3 rated peers and will need to be maintained at around 3x for consideration of a higher rating. Leverage and Cash Flow Coverage -- RMT's leverage, as measured by debt to PD reserves, dropped from $6.09 per PD boe at the end of 2003 to $3.79 at year end 2004. Williams tendered for the senior unsecured notes at RMT in 2004, reducing total debt from $650 million to $524 million. Debt plus future development capital to total proved reserves did not improve as much, dropping from $5.71 to $5.47 per proved boe, reflecting higher expected development costs. While Williams has not committed to additional debt repayment, prepaying the RMT term loan is a logical place for Williams to continue its deleveraging. We would expect RMT's leverage to improve as its PD and total proved reserves grow, while maintaining or reducing debt levels. Rating Notching -- The senior secured term loan is rated the same as the corporate family rating at Ba3 as it represents the preponderance of debt in the capital structure. The senior unsecured notes are rated a notch lower at B1 reflecting the lack of security and the ability of the banks to receive preferential treatment. Williams RMT's Ba3 corporate family rating reflects: * its long-lived natural gas reserves; * growing production rates; * consistent organic reserves replacement at competitive F&D costs; and * improving leverage. The rating also considers: * the company's geographic concentration; * significant proportion of PUD reserves; * increasing development capital spending; and * complicated corporate structure as part of Williams E&P. The stable outlook reflects Moody's expectation of: * production and reserves, particularly PD reserves, growth; * continued strong reserves replacement at competitive F&D costs; * a leveraged full-cycle ratio in the 3x range; and * improving leverage on a PD and total proved boe basis. RMT's rating could move up through a combination of: * greater PD reserves closer to 200 Mmboe; * consistently increasing annual production to around 25 Mmboe; and * lower leverage, while maintaining its cost structure and leveraged full-cycle ratio. Declining production and reserves, materially higher costs, cash or F&D, leading to a leveraged full-cycle ratio closer to 2x or higher leverage could lead to a negative outlook. RMT is an indirect wholly owned subsidiary of Williams that owns and operates natural gas properties in the Piceance Basin of western Colorado and the Powder River Basin of northeastern Wyoming. These two basins represented 71% of Williams E&P's year end 2004 total domestic proved reserves and 72% of Williams E&P's 2004 domestic natural gas production. Ratings affected include those of Williams Production RMT Company. Williams Production RMT Company, an indirect wholly owned subsidiary of The Williams Companies, Inc., is an independent exploration and production company headquartered in Tulsa, Oklahoma. WMC MORTGAGE: Loss Expectations Prompt Fitch to Affirm Junk Rating ------------------------------------------------------------------ Fitch Ratings has taken rating actions on these WMC Mortgage Loan Trust issues: Series 1997-1 -- Class M-1 upgraded to 'AA+' from 'AA'; -- Class M-2 affirmed at 'A-'; -- Class B remains at 'CCC'. Series 1997-2 -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'; -- Class B affirmed at 'B'. Series 1998-1 -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'; -- Class B affirmed at 'B'. Series 1999-A -- Class A affirmed at 'AAA'; -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'; -- Class M-3 affirmed at 'BBB'. Series 2000-A -- Class A affirmed at 'AAA'; -- Class M-1 affirmed at 'AA'; -- Class M-2 affirmed at 'A'; -- Class B affirmed at 'BBB'. All of the mortgage loans in the aforementioned transactions were either originated or acquired by WMC Mortgage Corp. The mortgage loans consist of fixed-rate and adjustable-rate mortgages extended to sub-prime borrowers and are secured by first liens, primarily on one- to four-family residential properties. The upgrade reflects a substantial increase in credit enhancement relative to future loss expectations and affects approximately $2.82 million of outstanding certificates. The affirmations reflect CE consistent with future loss expectations and affect approximately $82 million of outstanding certificates. As of the May 2005 distribution date, the transactions are seasoned from a range of 61 to 93 months, and the pool factors (current mortgage loan principal outstanding as a percentage of the initial pool) range from approximately 2.84% (series 1997-2) to 10.32% (series 1999-A). Fitch will continue to closely monitor these transactions. Further information regarding current delinquency, loss, and credit enhancement statistics is available on the Fitch ratings web site at http://www.fitchratings.com/ YUKOS OIL: Moscow Court Orders Yukos Unit to Pay Back Taxes ----------------------------------------------------------- The Moscow Arbitration court confirmed a RUB8.7 billion back tax bill against Yukos Oil subsidiary Samaraneftegaz, but reduced it by RUB50 million, according to Kazinform. Samaraneftegaz is facing tax claims for 2001 to 2003. In May 2005, the unit has been served with a RUB8 billion tax demand for 2001, which was reduced by RUB910 million. Samaraneftegaz is accused of illegally benefiting from tax exemptions by selling oil at low prices to companies registered in the tax haven of the Evenkia region. According to Interfax, the Moscow Arbitration Court has compelled Samaraneftegaz to pay RUB3 billion for 2003 back taxes. Headquartered in Houston, Texas, Yukos Oil Company is an open joint stock company existing under the laws of the Russian Federation. Yukos is involved in the energy industry substantially through its ownership of its various subsidiaries, which own or are otherwise entitled to enjoy certain rights to oil and gas production, refining and marketing assets. The Company filed for chapter 11 protection on Dec. 14, 2004 (Bankr. S.D. Tex. Case No. 04-47742). Zack A. Clement, Esq., C. Mark Baker, Esq., Evelyn H. Biery, Esq., John A. Barrett, Esq., Johnathan C. Bolton, Esq., R. Andrew Black, Esq., Fulbright & Jaworski, LLP, represent the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed $12,276,000,000 in total assets and $30,790,000,000 in total debts. On Feb. 24, 2005, Judge Letitia Z. Clark dismissed the Chapter 11 case. (Yukos Bankruptcy News, Issue No. 22; Bankruptcy Creditors' Service, Inc., 215/945-7000) * Large Companies with Insolvent Balance Sheets ----------------------------------------------- Total Shareholders Total Working Equity Assets Capital Company Ticker ($MM) ($MM) ($MM) ------- ------ ------------ ------- -------- Airgate PCS Inc. PCSA (94) 299 86 Akamai Tech. AKAM (111) 202 75 Alliance Imaging AIQ (54) 608 14 Amazon.com Inc. AMZN (162) 2,472 720 AMR Corp. AMR (697) 29,167 (2,311) Atherogenics Inc. AGIX (54) 254 235 Blount International BLT (238) 434 115 Biomarin Pharmac BMRN (90) 181 3 CableVision System CVC (2,035) 11,141 410 CCC Information CCCG (113) 93 21 Centennial Comm CYCL (486) 1,467 124 Choice Hotels CHH (204) 276 (23) Cincinnati Bell CBB (593) 1,919 (8) Clorox Co. CLX (346) 3,756 (158) Compass Minerals CMP (69) 707 139 Conjuchem Inc. CJC (22) 32 28 Delta Airlines DAL (6,352) 21,737 (2,968) Deluxe Corp DLX (150) 1,556 (331) Denny's Corporation DENN (263) 496 (82) Domino's Pizza DPZ (526) 450 26 Eagle Hospitality EHP (26) 177 N.A. Echostar Comm-A DISH (1,830) 6,579 148 Flow Intl. Corp. FLOW (9) 136 (3) Foster Wheeler FWLT (520) 2,140 (213) Freightcar Amer. RAIL (23) 208 8 Graftech International GTI (35) 1,029 265 ICOS Corp ICOS (38) 285 170 IMAX Corp IMAX (40) 235 24 Investools Inc. IED (16) 56 (36) Isis Pharm. ISIS (104) 176 61 Knoll Inc. KNL (3) 570 67 Lodgenet Entertainment LNET (72) 287 22 Maytag Corp. MYG (78) 2,954 380 McDermott Int'l MDR (232) 1,450 34 McMoran Exploration MMR (24) 405 143 Neff Corp. NFFCA (43) 270 6 Nexstar Broadc - A NXST (30) 700 16 Northwest Airline NWAC (3,273) 13,821 (1,204) NPS Pharm Inc. NPSP (57) 351 261 ON Semiconductor ONNN (363) 1,112 237 Owens Corning OWENQ (8,271) 7,671 1,250 Primedia Inc. PRM (777) 1,883 164 Quality Distrib. QLTY (29) 386 15 Qwest Communication Q (2,564) 24,129 469 Revlon Inc. - A REV (1,065) 1,155 99 RH Donnelley RHD (127) 3,972 (57) Riviera Holdings RIV (27) 223 5 Rural/Metro Corp. RURL (184) 221 18 SBA Comm. Corp. A SBAC (104) 854 9 Sepracor Inc. SEPR (351) 974 605 St. John Knits Inc. SJKI (52) 213 80 Tivo Inc. TIVO (1) 151 48 US Unwired Inc. UNWR (84) 413 45 Vector Group Ltd. VGR (31) 505 152 Vertex Pharm. VRTX (8) 484 202 Vertrue Inc. VTRU (50) 451 (81) Viropharma Inc. VPHM (32) 101 94 Warner Music Group WMG (137) 4,742 (506) WR Grace & Co. GRA (629) 3,464 876 ********* 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. 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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, Christian Q. Salta, Jason A. Nieva, Lucilo Junior M. Pinili, and Peter A. Chapman, Editors. Copyright 2005. 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. 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