/raid1/www/Hosts/bankrupt/TCR

/raid1/www/Hosts/bankrupt/TCR_Public/050805.mbx T R O U B L E D C O M P A N Y R E P O R T E R Friday, August 5, 2005, Vol. 9, No. 184 Headlines AAMES MORTGAGE: S&P Cuts Rating on Series 2001-1 Class B Certs. ADELPHIA COMMS: Disclosure Statement Hearing Set on Sept. 20 ALLEGHENY ENERGY: AEP to Acquire Monongahela's Assets for $55 Mil. ALLIANCE IMAGING: June 30 Balance Sheet Upside-Down by $51.6 Mil. ALLIED HOLDINGS: Ct. Directs Joint Administration of Ch. 11 Cases AMCAST INDUSTRIAL: Exits Chapter 11 With $20 Million New Financing AMI SEMICONDUCTOR: Moody's Confirms Ba3 Rating on $320 Mil. Loan ANDREWS PERFORMANCE: Voluntary Chapter 11 Case Summary APPLICA INC: Weak Operating Performance Cues S&P to Junk Ratings APPLIED IMAGING: Second Quarter Net Loss Narrows 58% to $436,000 ARGOSY GAMING: Reports Second Quarter 2005 Earnings ARMSTRONG WORLD: Reports Second Quarter Financial Results ATA AIRLINES: Wants Plan Filing Period Extended Until January 9 ATHLETE'S FOOT: Wants More Time to Decide on Two Sets of Leases BANC OF AMERICA: Fitch Affirms Low-B Rating on 14 Cert. Classes BLOCKBUSTER INC: Weak 2nd Qtr. Rentals Cue S&P's Negative Watch BUILDING MATERIALS: Fitch Places BB+ Rating on $197MM Sr. Debt CALPINE CORP: Canadian Court Dismisses Harbert Litigation CALPINE CORP: Posts $298.5 Million Net Loss in Second Quarter CALPINE CORP: Sells Saltend to Normantrail for GBP498.4 Million CARDIAC SERVICES: Can Use GECC's Cash Collateral Until Sept. 30 CARRIER ACCESS: Delivers Restated 2003 & 2004 Financial Results CATHOLIC CHURCH: Court Denies Portland's Cry to Continue Hearing CELESTICA INC: Completes Repurchase of $612 Million LYONs CENTENNIAL COMMS: Will Restate First Quarter Report Due to Error CESAR CEDANO: Case Summary & 20 Largest Unsecured Creditors CHARTER COMMS: June 30 Equity Deficit Widens to $5.1 Billion COLLINS & AIKMAN: Ford & Labor Union Object to Contract Rejection COLLINS & AIKMAN: J.R. Automation Wants to Get Paid for Equipment COLLINS & AIKMAN: Wants to Extend Deadline to Remove Actions CREST 2002-IG: Fitch Holds BB Rating on $14 Million Class D Notes CUMMINS INC: S&P Lifts Rating on $28 Million Series 2001-4 Certs. DEAN FOODS: Earns $81.2 Million of Net Income in Second Quarter DEPARTMENT 56: S&P Rates Proposed $275 Million Senior Loan at BB- DUANE READE: Posts $10.3 Million Net Loss in Second Quarter DUANE READE: Moody's Junks $50 Mil. Sr. Second Lien Notes Add-On DUANE READE: S&P Junks Proposed $50 Million Senior Notes DUKE FUNDING: Fitch Rates $32 Million Subordinated Notes at BB+ DVI INC: Trust Wants Merrill Lynch to Produce Privileged Documents DYNEGY INC: $2.35 Billion Asset Sale Prompts S&P to Watch Ratings EASYLINK SERVICES: Taps Grant Thornton to Audit 2005 Financials ENRON CORP: Inks Pact Allowing WestLB's Claim for $539 Million ENRON CORP: Wants Court to Okay Amendments to Plan Schedule S EPOCH INVESTMENTS: Pays $75,000 to Gabriel Del Virginia FC CBO: S&P Removes BB-Rated Senior Notes from Creditwatch FIRST MERCURY: S&P Rates $65 Million Senior Unsecured Notes at BB FIRST UNION: Fitch Holds Low-B Rating on Six Certificate Classes FIRST UNION: Fitch Holds Junk Rating on $8.7 Mil. Class M Certs. FRONTLINE CAPITAL: Can Continue Transactions with Assisted Living FRONTLINE CAPITAL: Gets OK to Revise Agreement with F. Adipietro GE COMMERCIAL: S&P Puts Low-B Ratings on Six Certificate Classes GRAY TELEVISION: Spins-Off Newspaper & Wireless Units GRAY TELEVISION: Bull Run to Merge into Triple Crown Spin-Off IFT CORP: Posts $887,189 Net Loss in Second Quarter IMPAX LABS: Expects $800,000 Net Loss for 2004 with New Policy IMPSAT FIBER: Subsidiaries Complete $125.6 Mil. Debt Restructuring INSIGHT MIDWEST: Moody's Rates $1.125 Billion Term Loan C at Ba3 INTERLINE BRANDS: Prices 7,750,000 Common Shares at $19 Per Share KB TOYS: Court Extends Solicitation Period to Sept. 1 KCS ENERGY: Earns $20.9 Million of Net Income in Second Quarter KIRKER ENTERPRISES: Jones Day Represents Ad Hoc Noteholder Group KMART CORP: Marion Stafford Wants Stay Lifted to Pursue Action KMART CORP: Settling Employees' 401(k) Lawsuit for $11.5 Million LA PALOMA: Moody's Rates Proposed $370 Million Facilities at Ba3 LB-UBS COMMERCIAL: Credit Enhancement Cues Fitch to Lift Ratings MAC-GRAY CORP: Moody's Rates New $125 Million Unsec. Notes at B1 MAC-GRAY: S&P Rates Proposed $125 Million Senior Notes at B+ MALCOM BOHANON: Case Summary & 20 Largest Unsecured Creditors MEDIA GENERAL: Improved Finances Prompt S&P's Positive Watch MERIDIAN AUTOMOTIVE: Can Purchase Insurance from Liberty Mutual MERIDIAN AUTOMOTIVE: Gets Court Nod to Employ PwC as Accountants METROMEDIA FIBER: Dist. Ct. Agrees County Franchise Fee Improper MCI INC: Will Release 2005 2nd Quarter Results on August 9 MILLENNIUM AMERICA: Moody's Rates $250 Million Facility at Ba2 MIRANT CORP: Asks Court for Summary Judgment on Pokalsky's Claims MIRANT CORP: Court Approves Settlement Agreement with Citibank MORGAN'S FOODS: Equity Deficit Narrows to $3.3 Million in May 2005 NATIONAL BEDDING: Moody's Reviews $300 Million Debts' Ba3 Rating ON TOP: Wants to Hire Cox Stein as Lead Bankruptcy Counsel ORGANIZED LIVING: Wants Plan Filing Period Stretched to Dec. 30 OWENS CORNING: Earns $67 Million of Net Income in Second Quarter PC LANDING: Can Continue Using Cash Collateral Until September 30 PC LANDING: Creditors Must File Proofs of Claim by Aug. 15 PROXIM CORP: Asks Court to Allow Limited Liquidation of Collateral QUIGLEY COMPANY: Sept. 15 Bar Date Includes Silica Claims ROGERS COMMUNICATIONS: Completes $223 Million Debt-for-Equity Swap SAFETY-KLEEN: Court Okays Stipulation in Dispute with M. Black SATELITES MEXICANOS: S. Maza Files Sec. 304 Petition in S.D.N.Y. SATELITES MEXICANOS: Section 304 Petition Summary SHURGARD STORAGE: Moody's Reviews Ba1 Preferred Stock Rating SIRIUS SATELLITE: Offering $400M Sr. Notes to Institutional Buyers SIRIUS SATELLITE: Moody's Junks Proposed $500 Million Notes SITHE INDEPENDENCE: S&P Places B-Rated $559.5 Mil. Bonds on Watch SOLUTIA INC: Delivers Second Quarter Financial Report to SEC SPANISH BROADCASTING: Styles Media Makes Additional $15MM Deposit SUN HEALTHCARE: June 30 Balance Sheet Upside-Down by $117.4 Mil. TOBACCO ROW: Judge Tice Confirms Chapter 11 Plan TOWER AUTOMOTIVE: Wants Additional Time to Remove Civil Actions TOWER AUTOMOTIVE: Reconciles Visteon's Prepetition Claims TOYS "R" US: Moody's Downgrades Corporate Family Rating to B1 US AIRWAYS: Asks Court to Allow Worldspan's $5 Mil. Admin. Claim US AIRWAYS: Bank of New York Wants Access to $600,000 Account US DATAWORKS: Posts $968,000 Net Loss in First Quarter 2006 USG CORP: Revises Non-Employee Directors' Compensation Program VARIG S.A.: Accounts for 3.5% of Boeing's Total Portfolio VARIG S.A.: Taps Lufthansa Consulting as Restructuring Advisor VERTIS INC: June 30 Balance Sheet Upside-Down by $508.6 Million WESTERN WIRELESS: ALLTEL Deal Completion Cues S&P to Remove Watch WINN-DIXIE: Objects to Heritage's Stand to Shorten Decision Period WINN-DIXIE: Vera Volovecky Wants Stay Lifted to Pursue Claim WINN-DIXIE: Wants to Deny Transamerica's Request for Payment WORLDCOM INC: Wants Ebbers Litigation Stayed Pending Settlement W.R. GRACE: Wants to Sell SP Business to Sancap for $4.6 Million YOUR HOME: Case Summary & 19 Largest Unsecured Creditors ZIFF DAVIS: Derek Irwin Leaves Post as Chief Financial Officer ZIFF DAVIS: June 30 Balance Sheet Upside-Down by $1 Billion * Former Austin Mayor Kirk Watson Joins Hughes & Luce as Partner * BOOK REVIEW: Landmarks in Medicine - Laity Lectures of the New York Academy of Medicine ********* AAMES MORTGAGE: S&P Cuts Rating on Series 2001-1 Class B Certs. --------------------------------------------------------------- Standard & Poor's Ratings Services raised its ratings on the class M-1 certificates of Aames Mortgage Trust series 2002-1 and 2002-2 and lowered its rating on the class B certificate of Aames Mortgage Trust series 2001-1. At the same time, ratings are affirmed on the remaining classes from the same three series, as well as on the classes from seven other Aames Mortgage Trust and Aames Mortgage Investment Trust transactions. The upgrades reflect the following: -- Increased credit support percentages provided by subordination, excess interest, and overcollateralization; -- Good collateral pool performance; and -- At least three years of mortgage seasoning. The increased credit support percentages are the result of significant principal prepayments and the shifting interest feature of the transactions, as well as low realized losses. Both actual and projected credit support percentages are at least 2x the loss coverage levels associated with the new ratings, even after step down. Furthermore, both series have outstanding pool balances of less than 27.3% of their original sizes. Series 2002-1 and 2002-2 have delinquencies of 22.42% and 12.09%, respectively, with at least half of these percentages severely delinquent (90-day plus). Cumulative realized losses for these series were less than 2% of the original pool balances. The downgrade reflects the following: -- Declining credit support; -- Poor collateral pool performance; and -- Losses that generally exceed the available monthly excess interest amount. The decreased credit support amount is the result of losses outpacing the available excess interest, which has reduced the overcollateralization amount to near depletion. At the current trend, the overcollateralization amount is projected to reach zero within 12 months. Delinquency with regard to series 2002-1 is at 32.13%, with the severely delinquent categories (90-day delinquent, foreclosed, REO) totaling to 12.99%. Cumulative realized losses are at 6.34%. The rating affirmations reflect actual and projected credit enhancement percentages that are sufficient to support the current ratings. The remaining mortgage pools backing the classes with affirmed ratings had total delinquencies ranging from 11.93% (series 2003-1) to 34.91% (series 2000-2). Lastly, all series with affirmed ratings have experienced low realized losses. Credit support for the transactions is provided by subordination, excess interest, and overcollateralization with a step down feature. In addition, Financial Security Assurance Inc. ('AAA'), provides bond insurance for some of the 'AAA' rated classes. The collateral backing the certificates originally consisted of subprime fixed-rate and adjustable-rate first lien mortgage loans with terms of maturity of no greater than 30 years. Ratings Raised Aames Mortgage Trust 2002-1 Rating ------ Class To From ----- -- ---- M-1 AA+ AA Aames Mortgage Trust 2002-2 Rating ------ Class To From ----- -- ---- M-1 AA+ AA Rating Lowered Aames Mortgage Trust 2001-1 Rating ------ Class To From ----- -- ---- B BB BBB Ratings Affirmed Aames Mortgage Trust Series Class Rating ------ ----- ------ 2000-1 A-5F, A-6F AAA 2000-2 A-5F, A-6F AAA 2001-1 A-1, A-2 AAA 2001-1 M-1 AA+ 2001-1 M-2 A 2001-2 A-1, A-2 AAA 2001-2 M-1 AA+ 2001-2 M-2 A 2001-3 A-1, A-IO AAA 2001-3 M-1 AA+ 2001-3 M-2 A 2001-3 B BBB 2001-4 A-4 AAA 2001-4 M-1 AA+ 2001-4 M-2 A+ 2001-4 B BBB 2002-1 A-3, A-4 AAA 2002-1 M-2 A 2002-1 B BBB 2002-2 A-1, A-2 AAA 2002-2 M-2 AA 2002-2 M-3 A 2002-2 B BBB 2003-1 1-A1, 1-A2, 2-A, A-IO AAA 2003-1 M-1 AA 2003-1 M-2 A 2003-1 M-3 A- 2003-1 M-4 BBB+ 2003-1 M-5 BBB 2003-1 M-6 BBB- 2003-1 B BB+ Aames Mortgage Investment Trust Series Class Rating ------ ----- ------ 2004-1 1-A1, 1-A2, 2-A1, A-IO AAA 2004-1 M-1, M-2 AA+ 2004-1 M-3, M-4 AA 2004-1 M-5 AA- 2004-1 M-6 A+ 2004-1 M-7 A 2004-1 M-8 A- 2004-1 M-9, B-1A, B-1F BBB+ 2004-1 B-2 BBB 2004-1 B-3 BBB- ADELPHIA COMMS: Disclosure Statement Hearing Set on Sept. 20 ------------------------------------------------------------ Judge Gerber of the U.S. Bankruptcy Court for the Southern District of New York schedules the hearing to consider the approval of Adelphia Communications Corporation and its debtor- affiliates' Second Amended Disclosure Statement on September 20, 2005, at 9:45 a.m. and, if necessary, September 21, 2005, at 9:45 a.m. Responses, objections and proposed modifications to the Disclosure Statement, if any, must: -- be in writing; -- state the name and address of the objecting or responding party and the nature of their claim or interest; -- state with particularity the basis and nature of any objection or response and include, where appropriate, proposed language to be inserted in the Disclosure Statement to resolve the objection or response; and -- be filed with the Bankruptcy Court, together with proof of service, and served on these parties so as to be actually received on or before 4:00 P.M. on September 9, 2005: * attorneys for the ACOM Debtors: Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, New York 10019 Attn: Marc Abrams, Esq. and Paul V. Shalhoub, Esq.; * Adelphia Communications Corporation 5619 DTC Parkway, 8th Floor Greenwood Village, CO 80111 Attn: Brad Sonnenberg, Esq.; * counsel to Time Warner and Comcast: Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, NY 10019-6064 Attn: Alan W. Kornberg, Esq. Jeffrey Saferstein, Esq.; and Ballard Spahr Andrews & Ingersoll, LLP 1735 Market Street, 51st Floor Philadelphia, PA 19103-7599 Attn: William Slaughter, Esq. Richard S. Perelman, Esq.; * counsel to the Official Committee of Unsecured Creditors: Kasowitz Benson Torres & Friedman LLP 1633 Broadway New York, New York 10019 Attn: David M. Friedman, Esq. Adam L. Schiff, Esq.; * counsel to the Official Committee of Equity Security Holders: Bragar Wexler Eagel & Morgenstern, P.C., 885 Third Avenue, Suite 3040 New York, New York 10022 Attn: Peter D. Morgenstern, Esq. Gregory A. Blue, Esq.; and * the Office of the United States Trustee for the Southern District of New York 33 Whitehall Street, 21st Floor New York, New York, 10004-2112 Attn: Tracy Hope Davis, Esq. Headquartered in Coudersport, Pennsylvania, Adelphia Communications Corporation (OTC: ADELQ) is the fifth-largest cable television company in the country. Adelphia serves customers in 30 states and Puerto Rico, and offers analog and digital video services, high-speed Internet access and other advanced services over its broadband networks. The Company and its more than 200 affiliates filed for Chapter 11 protection in the Southern District of New York on June 25, 2002. Those cases are jointly administered under case number 02-41729. Willkie Farr & Gallagher represents the ACOM Debtors. (Adelphia Bankruptcy News, Issue No. 100; Bankruptcy Creditors' Service, Inc., 215/945-7000) ALLEGHENY ENERGY: AEP to Acquire Monongahela's Assets for $55 Mil. ------------------------------------------------------------------ American Electric Power (NYSE: AEP), through its Columbus Southern Power utility subsidiary, has signed an agreement to purchase Monongahela Power Company's Ohio transmission and distribution operations for approximately $55 million, plus traditional working capital adjustments. Monongahela Power is a subsidiary of Allegheny Energy (NYSE: AYE). If the Public Utilities Commission of Ohio orders AEP to go through with this transaction, the transaction will be contingent on the receipt of required regulatory approvals from: -- the U.S. Securities and Exchange Commission, -- the Federal Energy Regulatory Commission, and -- Hart-Scott-Rodino clearance by the Department of Justice or the Federal Trade Commission. If approved, the parties expect to complete the sale by the end of 2005. The purchase agreement responds to an order issued by the PUCO on June 14, 2005, that ordered CSP and Monongahela Power to discuss potential terms and conditions of a transaction through which Monongahela Power would transfer its Ohio service territory to CSP. The order was issued in an effort to resolve issues related to Monongahela Power's planned transition to market-based rates in Ohio. "We are pleased that the negotiations with Allegheny were productive and that we were able to comply with the Commission's order," said Kevin E. Walker, president and chief operating officer of AEP Ohio. "We now will focus on working with these communities and their leaders, as well as our new customers and our new employees on transition and system integration issues moving forward." Terms of the Agreement According to the terms of the purchase agreement, AEP will acquire 29,000 Monongahela Power customers in six counties located in southeastern Ohio, and all transmission and distribution assets located in Ohio serving those customers, including 1,167 distribution line miles, 59 transmission line miles and 19 substations. The agreement also calls for the transfer of 24 Allegheny employees to AEP. The sale will include a power purchase agreement under which Allegheny will provide AEP 100 percent of its power requirements to serve the retail load in this area through May 31, 2007. AEP already is interconnected at transmission voltages with this service territory. CSP intends to take responsibility for providing service to the customers and facilities on Jan. 1, 2006, subject to regulatory approvals. AEP Ohio provides electricity to 1.4 million customers of major AEP subsidiaries Columbus Southern Power Company and Ohio Power Company in Ohio, and Wheeling Power Company in the northern panhandle of West Virginia. AEP Ohio is based in Gahanna, Ohio, and is a unit of American Electric Power. Headquartered in Greensburg, Pa., Allegheny Energy -- http://www.alleghenyenergy.com/-- is an investor-owned utility consisting of two major businesses. Allegheny Energy Supply owns and operates electric generating facilities, and Allegheny Power delivers low-cost, reliable electric service to customers in Pennsylvania, West Virginia, Maryland, Virginia and Ohio. * * * As reported in the Troubled Company Reporter on June 15, 2005, Moody's Investors Service assigned a Senior Implied rating of Ba1 to Allegheny Energy, Inc. and also assigned a Speculative Grade Liquidity Rating of SGL-2. This is the first time that Moody's has assigned both such ratings to AYE. The company's other ratings, including the Ba2 senior unsecured rating, remain unaffected. The Ba1 Senior Implied rating reflects the credit profile of the AYE corporate family of companies, which includes investment grade utility operating subsidiaries as well as a holding company whose Ba2 senior unsecured rating reflects its still high balance leverage. The Ba1 Senior Implied rating also reflects the company's improved financial performance and the expectation that AYE's credit profile will continue to improve over the next 2 to 3 years, with further debt reduction and substantial improvement in cash flow, and that there will be a reasonably supportive regulatory response to rate filings to recover increased costs and outlays for environmental spending. ALLIANCE IMAGING: June 30 Balance Sheet Upside-Down by $51.6 Mil. ----------------------------------------------------------------- Alliance Imaging, Inc. (NYSE:AIQ) reported results for the second quarter and first six months ended June 30, 2005. Revenue was $108.4 million for the second quarter of 2005, in line with the Company's guidance range, which was $106.5 million to $109.5 million. The second quarter 2005 revenue of $108.4 million represents a decrease of $1.1 million, or 1.0%, compared to $109.5 million reported in the second quarter of 2004. For the first six months of 2005, revenue was $214.4 million compared to $215.1 million in the same period of 2004, a decrease of 0.3%. Alliance's Adjusted EBITDA (earnings before interest expense, net of interest income; income taxes; depreciation expense; amortization expense; minority interest expense and non-cash stock-based compensation) was $41.8 million in the second quarter of 2005. Adjusted EBITDA was in line with the Company's second quarter guidance range of $41.5 million to $43.5 million. The second quarter 2005 Adjusted EBITDA of $41.8 million represents a decrease of $1.6 million, or 3.6%, compared to $43.4 million reported in the second quarter of 2004. Of this decrease, $1 million was due to the Company recording $1.0 million in the provision for doubtful accounts in the second quarter of 2005, or 1.0% of revenue, compared to no amounts in the second quarter of 2004 due to the collection of higher than normal amounts of aged accounts receivable in the second quarter of 2004. For the first six months of 2005, Adjusted EBITDA totaled $83 million compared to $84.2 million in the first six months of 2004, a decrease of $1.2 million, or 1.5%. As discussed above, $1 million of this decrease was due to the Company recording $1.5 million in the provision for doubtful accounts in the first six months of 2005, or 0.7% of revenue, compared to $0.5 million, or 0.2% of revenue, in the first six months of 2004 due to the collection of higher than normal amounts of aged accounts receivable in the first half of 2004. As stated in the Company's first quarter 2005 earnings release, the Company modified its definition of Adjusted EBITDA to conform to a similar measure used in Alliance's amended credit agreement. Adjusted EBITDA now includes minority interest expense and excludes employment agreement costs and other income and expense, net. Cash flow provided by operating activities was $23.6 million in the second quarter of 2005 compared to $25.1 million in the corresponding quarter of 2004, and was $50.7 million and $61 million for the first six months of 2005 and 2004, respectively. Alliance made $28.0 million of net payments on its long-term debt in the first six months of 2005. The Company's cash and cash equivalents balance decreased by $700,000 to $20 million at June 30, 2005 from $20.7 million at Dec. 31, 2004. "Alliance continues to focus on implementing the Company's core initiatives: stabilizing our core mobile MRI business, growing our PET and PET/CT business, expanding Alliance's fixed-site business, primarily in partnership with hospitals and health systems, and developing a unified, performance-oriented culture," Paul S. Viviano, Chairman of the Board and Chief Executive Officer, said. "Healthcare providers are experiencing increased utilization pressures from insurers, which impacts Alliance's business. Despite these factors, diagnostic imaging plays a significant role in healthcare, and we believe that Alliance is positioned for long-term success." The Company is reaffirming guidance for full year 2005. Revenue is expected to range from $427 million to $437 million; Adjusted EBITDA is expected to range from $166 million to $172 million; and earnings per share to range from $0.44 to $0.51 per share. For the third quarter of 2005, revenue is expected to range from $107 million to $110 million and Adjusted EBITDA is expected to range from $41.5 million to $43.5 million. Alliance Imaging -- http://www.allianceimaging.com/-- is a leading national provider of shared-service and fixed-site diagnostic imaging services, based upon annual revenue and number of systems deployed. Alliance provides imaging services primarily to hospitals and other healthcare providers on a shared and full- time service basis, in addition to operating a growing number of fixed-site imaging centers. The Company had 465 diagnostic imaging systems, including 352 MRI systems and 57 PET or PET/CT systems, and over 1,000 clients in 43 states at June 30, 2005. ALLIED HOLDINGS: Ct. Directs Joint Administration of Ch. 11 Cases ----------------------------------------------------------------- Allied Holdings, Inc., and its 23 debtor-affiliates sought and obtained a Court order authorizing the joint administration of their Chapter 11 cases for procedural purposes only. All pleadings relating to any of the Debtors' cases will bear a joint caption. The Court clerk will file and maintain all of those pleadings under the existing docket for Allied Holdings, Inc. The Court permits the Debtors to combine notices to creditors. The joint caption will read: IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF GEORGIA NEWNAN DIVISION _______________________________ | In re: | Chapter 11 ALLIED HOLDINGS, INC., et al. | Case Nos. 05-12515 | through 05-12537 Debtors. | Jointly Administered | | Judge Drake _______________________________| Rule 1015(b) of the Federal Rules of Bankruptcy Procedure provides that the Court may order the joint administration of the estates of a debtor and one or more affiliates: (b) Cases Involving Two or More Related Debtors. If . . . two or more petitions are pending in the same court by or against . . . a debtor and an affiliate, the court may order a joint administration of the estates. According to Thomas H. King, executive vice president and chief financial officer of Allied Holdings, Inc., the Debtors are "affiliates" as that term is defined in Section 101(2) of the Bankruptcy Code. "I anticipate significant activity during these cases and believe that most hearings and contested matters will apply to all of the Debtors' cases equally. Consequently, joint administration of these cases will promote the economical and efficient administration of the Debtors' estates, unencumbered by the procedural problems otherwise attendant to the administration of separate, albeit related, cases. Additionally, joint administration will avoid the burdensome necessity of duplicating notices to creditors," he says. Mr. King adds that joint procedural administration of the Debtors' cases will also benefit creditors because creditors who respond to motions affecting multiple Debtors or who file their own motions affecting multiple Debtors will not be forced to prepare and file multiple sets of papers that may be identical except for their captions. "No creditor will be prejudiced by joint administration. Joint administration is merely procedural; it has no impact on creditors' substantive rights," Mr. King emphasizes. Joint administration, Mr. King notes, will also relieve the Court of making numerous duplicative orders and keeping numerous duplicative files. "Furthermore, supervision of the administrative aspects of these Chapter 11 cases by the Office of the United States Trustee will be simplified." Headquartered in Decatur, Georgia, Allied Holdings, Inc. -- http://www.alliedholdings.com/-- and its affiliates provide short-haul services for original equipment manufacturers and provide logistical services. The Company and 22 of its affiliates filed for chapter 11 protection on July 31, 2005 (Bankr. N.D. Ga. Case Nos. 05-12515 through 05-12537). Jeffrey W. Kelley, Esq., at Troutman Sanders, LLP, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they estimated more than $100 million in assets and debts. (Allied Holdings Bankruptcy News, Issue No. 1; Bankruptcy Creditors' Service, Inc., 215/945-7000) AMCAST INDUSTRIAL: Exits Chapter 11 With $20 Million New Financing ------------------------------------------------------------------ Amcast Industrial Corporation and its debtor-affiliates disclosed that they successfully emerged from chapter 11 protection. The U.S. Bankruptcy Court for the Southern District of Ohio, Western Division, confirmed the Debtors' Third Amended Joint Plan of Reorganization on July 29, 2005, following an overwhelming support of the Debtors' secured and unsecured creditors. Terms of the Plan Under the terms of the plan, Amcast's pre-petition senior lenders put in place a long-term capital structure by exchanging their former holdings of Amcast senior secured debt for $13 million in senior secured debt and $51 million in secured subordinated debt, with the remainder in equity. As a consequence, these institutions now own all of the company's common stock and equity. In addition, a group of the pre-petition lenders have committed to lend the reorganized Amcast up to $20 million pursuant to a new revolving credit agreement with customary terms and conditions. The lender's legal and bankruptcy counsel in this restructuring transaction is Haynes and Boone, LLP. Barrier Advisors, LP serves as financial and turnaround advisor to the lenders. "We are pleased to have this type of strategic commitment to our company from the lenders," said Byron Pond, Amcast's former chairman and CEO. "They have worked with us throughout the reorganization and understand our business thoroughly; the entire management team appreciates the support received from them and our other constituents, including our suppliers, customers and employees." Amcast is very pleased that Mr. Pond's leadership and contribution will continue in his ongoing role as a member of the company's newly formed board of directors. During the case, Amcast divested its remaining non-automotive businesses and intends to focus on the continued successful penetration of its global customer base from three plants in Indiana: Fremont, Gas City and Franklin. The reorganization also provided the opportunity to downsize corporate overhead while positioning the company to more efficiently and strategically focus on its customers and the marketplace. Amcast will maintain its substantial marketing and engineering presence in the Detroit area. "We believe this is good news for us and for our customers," Mr. Pond continued. "We have addressed the balance sheet issues that led to the decision to reorganize and can now make the necessary investments to ensure our future success. We have some exciting new technologies under development and look forward to sharing them with the market. We are also increasing our marketing presence among both North American and transplant manufacturers. We envision substantial growth in the wheel and aluminum component sectors, facilitated by a more appropriate capital structure and ample liquidity." Mr. Pond noted that during the restructuring process Amcast fulfilled all of its supply obligations to its customers and continued to be awarded new business. Amcast's largest customer, General Motors, also renewed its agreements with the company. "We will continue our commitment to provide the highest quality product and service that our customers have come to expect, and intensify our efforts to run a lean and responsive business," Mr. Pond said. Headquartered in Dayton, Ohio, Amcast Industrial Corporation -- http://www.amcast.com/-- is a manufacturer and distributor of technology-intensive metal products to end-users and supplier in the automotive and plumbing industry. The Company and its debtor- affiliates filed for chapter 11 protection on Nov. 30, 2004 (Bankr. S.D. Ohio Case No. 04-40504). Jennifer L. Maffett, Esq., at Thompson Hine LLP, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed total assets of $104,968,000 and total debts of $165,221,000. AMI SEMICONDUCTOR: Moody's Confirms Ba3 Rating on $320 Mil. Loan ---------------------------------------------------------------- Moody's Investors Service confirmed the ratings of AMI Semiconductor Inc. The ratings confirmation concludes a ratings review for possible downgrade under effect since June 16, 2005. The ratings outlook is stable. The confirmation follows the finalization of the financing plan for the company's proposed $135 million acquisition of the semiconductor division of Flextronics International Ltd. announced in June 2005. Financing for the transaction will consist of a $110 million tack-on to the existing term loan B. The remaining purchase amount will be funded through available cash balances. The financing alleviates Moody's concerns over liquidity, as it maintains AMI's availability under the $90 million revolver, along with cash balances in excess of $50 million following the acquisition. The capital structure also the reduces the likelihood that AMI expects to undertake an additional significant debt financed acquisition in the near term. The ratings confirmed include: * Corporate Family Rating (formerly known as Senior Implied Rating) at Ba3; * $90 million revolving credit facility maturing 2010 at Ba3; and * $210 million senior secured term loan B maturing 2012 at Ba3 (to be increased by $110 million to $320 million - The $110 million tack-on will also be assigned a Ba3 rating). The current rating reflects: * the company's solid credit metrics including pro forma (including the Flextronics semiconductor acquisition) trailing twelve months ended April 2, 2005 leverage (debt/EBITDA) of 2.2x and pro forma EBITDA interest coverage exceeding 8x; * the relative stability of the business model due to long product lives and moderate price volatility in the integrated mixed signal operations; * long-standing customer relationships; and * the company's low capital intensity which contributes to moderate operating leverage. Due to the similar nature of the business that AMI is acquiring, Moody's expects that there will be minimal integration issues associated with the transaction. The acquisition appears to be highly priced at about a 10 times mulitple of EBITDA. However, Moody's believes that the acquired businesses, which represented a peripheral operating segment to the seller, is likely to provide greater value in the near term to AMI than reflected in its historical results. Moody's believes that the acquisition, which operates in AMI's direct product areas and includes no manufacturing operations, carries little integration or execution risk. The stable ratings outlook reflects: * expectations for continued growth albeit at a slower rate in revenues over the next 18 months; * maintenance of stable margins; and * continuation of strong customer relationships. Nevertheless, near term organic revenue growth will be challenged absent the incremental revenues from the Flextronics acquisition. The financing structure for the acquisition preserves much of AMI's liquidity. Moody's expects the company will have more than $50 million of cash on its balance sheet and no borrowings under its revolving credit facility at the closing. However, Moody's notes that this level of liquidity is somewhat modest for a company in the volatile semiconductor segment. The ratings could face downward pressure if: * the company loses a significant number of customers; * the company further relevers the balance sheet through another major acquisition; or * if the company experiences integration issues with the Flextronics acquisition translating to revenue and/or cost synergies not being realized. Conversely, the ratings could face upward pressure if: * the company is able to materially delever its balance sheet either through reductions in overall debt coupled with improvement in operating performance; * increases and sustains its current profitability margins through top-line growth or effective cost containment efforts; or * free cash flow meaningfully improves. Headquartered in Pocatello, Idaho, AMI Semiconductor Inc. is a leader in designing and manufacturing mixed-signal application- specific integrated circuits and structured digital products. For the year ended December 2004, AMI recorded revenues of $517 million. ANDREWS PERFORMANCE: Voluntary Chapter 11 Case Summary ------------------------------------------------------ Debtor: Andrews Performance Transportation, Inc. P.O. Box 4723 Salinas, California 93912 Bankruptcy Case No.: 05-54729 Type of Business: The Debtor operates a trucking business. Chapter 11 Petition Date: August 4, 2005 Court: Northern District of California (San Jose) Judge: Marilyn Morgan Debtor's Counsel: Mark W. Hafen, Esq. Law Offices of Dozier and Hafen 325 Cayuga Street Salinas, California 93901 Tel: (831) 758-1031 Total Assets: $0 Total Debts: $1,207,102 The Debtor did not file a list of its 20 Largest Unsecured Creditors. APPLICA INC: Weak Operating Performance Cues S&P to Junk Ratings ---------------------------------------------------------------- Standard & Poor's Ratings Services lowered its corporate credit rating on small appliance manufacturer Applica Inc. to 'CCC+' from 'B-' and its subordinated debt rating on the company to 'CCC-' from 'CCC'. In addition, all ratings on the Miramar, Florida-based company were removed from CreditWatch with negative implications, where they were placed April 21, 2005. The outlook is negative. Applica had about $135 million of total debt outstanding June 30, 2005. "The downgrades reflect our concerns regarding Applica's continued weak operating performance and its tight liquidity position entering the second half of the year when the company's seasonal working capital needs typically reach their peak," said Standard & Poor's credit analyst David Kang. Net sales were down 19% and the company generated an operating loss of $35.6 million for the second half of the year. Operating performance continues to be negatively affected by inventory write-downs, higher product warranty returns, and losses in the company's Mexican operations. As such, credit protection measures have weakened substantially. APPLIED IMAGING: Second Quarter Net Loss Narrows 58% to $436,000 ---------------------------------------------------------------- Applied Imaging Corp. (Nasdaq: AICX) reported financial and operating results for the second quarter ended June 30, 2005. Total revenues for the three months ended June 30, 2005 were $4.9 million, up 15% from the $4.3 million generated in the second quarter of 2004. Total revenues for the six months ended June 30, 2005 were $9.8 million, up 7% from the $9.2 million produced in the same period last year. The Company narrowed its net loss by 58% to $436,000 for the quarter, as compared to a loss of $1.0 million in the comparable period last year. The Company also decreased its net loss for the six months ended June 30, 2005 by 43% to $947,000, versus a net loss of $1.7 million for the same period last year. "We are pleased to report progress in both our top- and bottom- line performance for the first half of 2005," said Robin Stracey, President and Chief Executive Officer of Applied Imaging Corp. "Our Cytogenetics system revenues are on track with our 2005 financial targets, with significant contributions from the business' overseas markets. Moreover, our Ariol(R) system revenues have been particularly strong in North America, with several system sales to strategically important cancer research and biopharmaceutical customers in Q2. In addition, we have continued to invest in enhancing the performance of our imaging platforms: CytoVision 3.6 was released earlier this year and Cytovision 3.7 and Ariol(R) 2.1 will be released in the second half." "In the last six months we have successfully resolved several legacy corporate issues, including completion of the expanded audit and subsequent restatement of our 2002, 2003 and interim 2004 financial statements and settling the patent infringement litigation with Clarient, Inc. (formerly ChromaVision Medical Systems). With these matters behind us, we are now fully focused on executing our long-term growth initiatives. This includes developing, obtaining necessary regulatory approvals for and commercializing our proprietary circulating tumor cell system and adapting our Ariol(R) platform to an ever broader range of clinical, cancer research and biopharmaceutical applications," asserted Mr. Stracey. Gross profit for the quarter was up by $316,000 to $2.9 million, compared to $2.6 million in the second quarter of 2004. The gross margin of 59% for the second quarter of 2005 was down slightly from the 60% in the same prior year period. For the six-month period ended June 30, 2005, gross profit for the quarter rose modestly by $145,000 to $5.8 million, from $5.6 million in the same period last year. Gross margin for the six-month period ended June 30, 2005 was 59%, compared to 61% in the same prior- year period. Operating expenses were $3.2 million for the quarter, as compared to $3.6 million in the second quarter of 2004. Operating expenses for the six-month period ended June 30, 2005 were $6.5 million, versus $7.2 million for the comparable 2004 period. The reduction in expenses was primarily attributable to a January 2005 initiative to streamline and simplify the Company's management structure, partially offset by expenses associated with the settlement of patent infringement litigation, ongoing accounting fees and incremental investments in the Company's Circulating Tumor Cell, Inc. subsidiary. "Our circulating tumor cell initiative is progressing well. We are actively working to standardize and optimize the reagents and protocols used in the blood sample preparation process and intend to establish our Ariol(R)-based system as the premier imaging and image analysis tool for the evaluation of CTC's. Unlike existing circulating tumor cell imaging devices, our system is designed not only to detect and count circulating tumor cells, but also to allow pathologists and researchers to visualize and analyze them morphologically, a key competitive differentiator", concluded Mr. Stracey. Financial Condition As of June 30, 2005, the Company had cash and cash equivalents of $3.0 million, compared to $2.8 million at March 31, 2005 and $3.9 million at Dec. 31, 2004. Applied Imaging Corp. -- http://www.aicorp.com/-- based in San Jose, California, is the leading supplier of automated imaging and image analysis systems for the detection and characterization of chromosomes and molecular markers in genetics and cancer applications. The Company markets a wide range of imaging and image analysis systems for fluorescence and brightfield microscopy, including the Company's Ariol(R), SPOT(TM) and CytoVision(R) product families. Applied Imaging has installed over 3,500 systems in over 1,000 laboratories in more than 60 countries. The Company is also developing a system for the detection, quantification and characterization of circulating tumor cells from the blood of cancer patients. Going Concern Doubt PricewaterhouseCoopers LLP raised substantial doubt about Applied Imaging Corp.'s ability to continue as a going concern after it audited the Company's financial statements for the fiscal year ended Dec. 31, 2004. The auditors point to the Company's recurring losses and negative cash flows from operations. As of Dec. 31, 2004, the Company had cash and cash equivalents on hand of $3.9 million, working capital of $603,000, and an accumulated deficit of $49.3 million. The Company intends to finance its operations primarily through its cash and cash equivalents, future financing and future revenues. ARGOSY GAMING: Reports Second Quarter 2005 Earnings --------------------------------------------------- Argosy Gaming Company (NYSE: AGY) reported results for the three months ended June 30, 2005. Net revenues for the second quarter of 2005 were $270.9 million, up 6.4% from second quarter 2004 net revenues of $254.6 million. EBITDA (earnings before interest, taxes, depreciation and amortization) increased to $68.7 million for the second quarter 2005, as compared to $66.2 million for the second quarter 2004. At Argosy Casino Baton Rouge, net revenues increased 21%, from $21.5 million to $26.1 million, and EBITDA increased 35%, from $5.0 million to $6.8 million, in the second quarters of 2004 and 2005 respectively, in part due to visitors to the city for a bowling conference that concluded July 4. In Sioux City, net revenues improved 24% and EBITDA increased 27% from the second quarter of 2004 to the same period of 2005 due to the addition of the renovated boat formally used at the Company's Riverside property. Net revenues for the property were $13.7 million and EBITDA was $4.3 million in the second quarter of 2005, up from net revenues of $11.0 million and EBITDA of $3.4 million in the second quarter of 2004. The Company's EBITDA margin (EBITDA as a percent of net revenues) was 25.4% for the second quarter of 2005, as compared to 26.0% for the same quarter in 2004. Interest expense for the second quarter of 2005 was $14.3 million as compared to $16.6 million for the second quarter of 2004. The reduction in interest expense was predominantly the result of a lower effective interest rate for the Company following a refinancing of the Company's $675 million Revolving Credit Facility and Term Loan B in September of 2004 and a lower outstanding balance on the Term Loan B. For the six months ended June 30, 2005, net income was $43 million ($1.44 EPS) on net revenues of $541.9 million, compared to net income of $22.5 million ($0.76 EPS) on net revenues of $518.7 million for the same period in 2004. For the six-month period ended June 30, 2004, results were negatively impacted by $0.52 per share in expenses related to the refinancing of the Company's 10-3/4% notes. Included in the six-month period ended June 30, 2005 were expenses related to the merger with Penn that negatively impacted results for the six months by $0.07. Argosy reported that debt decreased from $803.2 million as of March 31, 2005 to $764.6 million as of June 30, 2005. The Company spent $9.4 million in maintenance capital in the second quarter of 2005, for a total of $17.7 million for the first six months of the year. Project capital for the second quarter of 2005 was $13.5 million, predominantly for the work on the replacement garage and new hotel at the Company's Riverside property. In the second quarter of 2004, Argosy and the City of Lawrenceburg entered into an agreement whereby by making a substantial capital investment at its Lawrenceburg property, Argosy would receive a reduction in its payments to the city by five million dollars annually for ten years. In addition to reflecting the impact of this credit for the relevant quarter, the second quarter of 2004 also includes a $1.25 million credit for the first quarter of 2004. The results of the second quarter of 2004 also include expenses of approximately $0.02 per share associated with the refinancing of the Company's 10-3/4% notes due 2009. Merger Agreement On Nov. 3, 2004, Argosy entered into a definitive merger agreement with Penn National Gaming, Inc., under which all outstanding shares of Argosy are to be acquired for $47 per share. Included in the results of the second quarter of 2005 are $0.02 per share of expenses associated with the proposed merger. Pursuant to the merger agreement between Argosy and Penn, Argosy has agreed not to provide any guidance concerning its expected earnings or other performance. The transaction is still subject to certain regulatory approvals, and is expected to close in the third quarter of 2005. Argosy Gaming Company is a leading owner and operator of casinos and related entertainment and hotel facilities in the Midwestern and Southern United States. Argosy owns and operates the Argosy Casino-Alton in Illinois, serving the St. Louis metropolitan market; the Argosy Casino-Riverside in Missouri, serving the greater Kansas City metropolitan market; the Argosy Casino-Baton Rouge in Louisiana; the Argosy Casino-Sioux City in Iowa; the Argosy Casino-Lawrenceburg in Indiana, serving the Cincinnati and Dayton metropolitan markets; and the Empress Casino Joliet in Illinois serving the greater Chicagoland market. * * * As reported in the Troubled Company Reporter on June 6, 2005, Standard & Poor's Ratings Services ratings on casino owner and operator Argosy Gaming Co., including its 'BB' corporate credit rating, remain on CreditWatch with negative implications where they were placed on Nov. 3, 2004. The CreditWatch listing followed the company's announcement that it had agreed to be acquired by Penn National Gaming Inc. (BB-/Positive/B-2) in a transaction valued at $2.2 billion, including the assumption of debt. The transaction is expected to close during the second half of 2005, subject to regulatory approvals. Standard & Poor's expects that Argosy's existing bank facility will be refinanced upon closing of the transaction, and that the rating on this facility will be withdrawn. Argosy's subordinated note issues carry a change-of-control provision requiring Penn to initiate a tender offer. If any of the notes remain outstanding, Standard & Poor's expects to equalize their rating with Penn's existing subordinated debt rating, as Standard & Poor's is taking a consolidated approach to the credits, given the economic and strategic importance of the acquisition to Penn. However, Penn has publicly stated they intend to tender for these notes. Once the tenders are complete, ratings on these notes would also be withdrawn. ARMSTRONG WORLD: Reports Second Quarter Financial Results --------------------------------------------------------- Armstrong Holdings, Inc. (OTC Bulletin Board: ACKHQ) reported second quarter 2005 net sales of $919.0 million that were 1.7% higher than second quarter net sales of $903.5 million in 2004. Excluding the effects of favorable foreign exchange rates of $14.8 million, consolidated net sales increased by 0.1%. Operating income of $36.6 million was recorded for the second quarter of 2005 compared to $2.0 million in the second quarter of 2004. 2004 results include a non-cash charge of $60.0 million to reflect a goodwill impairment loss related to the European resilient flooring reporting unit. Excluding this non-cash charge, operating income was $62.0 million in 2004. The decline in operating income was primarily due to higher raw material and energy costs and increased charges for cost reduction initiatives. Resilient Flooring Resilient Flooring net sales were $317.6 million in the second quarter of 2005 and $321.9 million in the second quarter of 2004. Excluding the favorable impact of foreign exchange rates, net sales declined 2.9%. The decrease was primarily due to lower sales in the Americas, primarily residential vinyl products and laminate products. An operating loss of $3.9 million was recorded for the quarter compared to an operating loss in the second quarter of 2004 of $39.1 million. 2004 results include a non-cash charge of $60.0 million to reflect a goodwill impairment loss related to the European resilient flooring reporting unit. Excluding the $60.0 million charge, operating income declined $24.8 million. Operating results were negatively impacted by lower net sales, sales of lower margin products in Europe, increased costs to purchase PVC resins, increased charges for cost reduction initiatives and higher advertising and promotional expenses. These items were only partially offset by selling price gains and manufacturing efficiency improvements. Wood Flooring Wood Flooring net sales of $214.6 million in the second quarter of 2005 increased 0.2% from $214.1 million in the prior year. Units sold of pre- finished solid wood floors increased by approximately 2% in the second quarter primarily due to strong sales to home center retailers. Units sold of engineered hardwood floors increased 13% in the second quarter primarily due to continued strong overall demand. Net sales in the second quarter were negatively impacted by price declines, which were made in response to declining lumber prices. Operating income was $19.9 million in the second quarter of 2005 compared to $21.1 million in the second quarter of 2004. The decline in operating income was primarily attributable to selling price decreases and non-lumber inflationary cost pressures greater than declines in lumber costs. Textiles and Sports Flooring Textiles and Sports Flooring net sales in the second quarter of 2005 increased to $68.8 million from $65.1 million in 2004. Excluding the effects of favorable foreign exchange rates, sales were down 0.3% due to lower net sales related to sports flooring products, partially offset by increased sales of carpet flooring products. An operating loss of $0.5 million was recorded in 2005 compared to an operating loss in 2004 of $1.7 million. The 2005 operating loss decreased from 2004 as the benefit of lower selling, general and administrative expenses exceeded increased raw material costs. Building Products Building Products net sales of $262.7 million in the second quarter of 2005 increased from $247.3 million in the prior year. Excluding the effects of favorable foreign exchange rates, sales increased by 3.9%, primarily due to a 6% unit volume increase combined with higher prices, partially offset by lower product mix. Operating income decreased to $37.6 million from operating income of $38.4 million in the second quarter of 2004. The decline was due to inflationary cost pressures offsetting higher sales prices, increased charges for cost reduction initiatives, and a mix shift to lower margin sales in both the U.S. and Eastern Europe. Cabinets Cabinets net sales in the second quarter of 2005 of $55.3 million increased from $55.1 million in 2004. Net sales were essentially flat as price increases were mostly offset by volume declines. An operating loss of $3.3 million was recorded in 2005 compared to operating income of $1.5 million in the prior year. The decline was due to the impact of higher SG&A expenses (primarily consulting costs, as well as employee compensation and selling- related expenses), costs incurred to shut down the Morristown, Tennessee manufacturing plant and manufacturing inefficiencies in other plants resulting from the transfer of production from Morristown. Year-to-Date Results For the six-month period ending June 30, 2005, net sales were $1,759.7 million, an increase of 0.6% from the $1,748.5 million reported for the first six months of 2004. Increases were reported in the Textiles and Sports Flooring and Building Products segments, while the Resilient Flooring, Wood Flooring, and Cabinets segments reported decreases. Excluding the favorable impact of foreign exchange rates, consolidated net sales decreased 1.0%. Operating income in the first half of 2005 was $44.3 million. This compares to operating income of $42.8 million for the first six months of 2004. 2004 results include a non-cash charge of $60.0 million to reflect a goodwill impairment loss related to the European resilient flooring reporting unit. Excluding this non-cash charge results in an adjusted operating income of $102.8 million in 2004. The decline in adjusted operating income was primarily due to higher raw material and energy costs, increased charges for cost reduction initiatives, and higher SG&A expenses. A full-text copy of Armstrong's 2nd Quarter 2005 Financial Results on Form 10-Q is available for free at: http://ResearchArchives.com/t/s?ac Headquartered in Lancaster, Pennsylvania, Armstrong World Industries, Inc. -- http://www.armstrong.com/-- the major operating subsidiary of Armstrong Holdings, Inc., designs, manufactures and sells interior finishings, most notably floor coverings and ceiling systems, around the world. The Company and its debtor-affiliates filed for chapter 11 protection on December 6, 2000 (Bankr. Del. Case No. 00-04469). Stephen Karotkin, Esq., at Weil, Gotshal & Manges LLP, and Russell C. Silberglied, Esq., at Richards, Layton & Finger, P.A., represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $4,032,200,000 in total assets and $3,296,900,000 in liabilities. As of March 31, 2005, the Debtors' balance sheet reflected a $1.42 billion stockholders' deficit. (Armstrong Bankruptcy News, Issue No. 80; Bankruptcy Creditors' Service, Inc., 215/945-7000) ATA AIRLINES: Wants Plan Filing Period Extended Until January 9 --------------------------------------------------------------- Pursuant to Section 1121(d) of the Bankruptcy Code, ATA Airlines, Inc. and its debtor-affiliates ask the U.S. Bankruptcy Court for the Southern District of Indiana to extend the period during which they have the exclusive right to file a plan of reorganization to and including January 9, 2006. Jeffrey C. Nelson, Esq., at Baker & Daniels, in Indianapolis, Indiana, explains that, in addition to managing their day-to-day operations, the Debtors and their advisors have been evaluating all facets of their businesses and operations to determine the best method for returning value to their creditors, including, analyzing leases of aircraft used in their operations and executory contracts. The Debtors undertook two auctions, one of which culminated in the closing of a deal with Southwest Airlines, Inc., involving the sale of certain assets at Midway Airport in Chicago, Illinois. In addition, the Debtors have closed or are in the process of negotiating transactions to sell substantially all of the assets of Chicago Express Airlines, Inc., are reviewing and analyzing the multitude of claims filed against the their estates in preparation of drafting and filing claims objections, pursuing various financing alternatives, and investigating the sale of certain of their assets. Due to the complexity of the auctions and sale processes, the overall complexity of these Chapter 11 cases, and despite diligent efforts working towards a fair and equitable plan formulation, the Debtors require more time to continue to work diligently towards the filing of the Plan. According to Mr. Nelson, the Debtors will continue to keep the Official Committee of Unsecured Creditors, the Air Transportation Stabilization Board, and Southwest Airlines apprised of their business plans. 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. 30; Bankruptcy Creditors' Service, Inc., 215/945-7000) ATHLETE'S FOOT: Wants More Time to Decide on Two Sets of Leases --------------------------------------------------------------- Athlete's Foot, LLC, and its debtor-affiliate ask the U.S. Bankruptcy Court for the Southern District of New York to further extend the period within which they can elect to assume, assume and assign, or reject their remaining unexpired nonresidential real property leases. For their first group of unexpired leases, the Debtors are parties to five unexpired leases and they want until Sept. 7, 2005, to decide whether to assume or reject those leases. For the second group of unexpired leases, the Debtors are party to an unexpired lease consisting of their corporate office and they want until the date of the confirmation of a proposed chapter 11 liquidating plan to decide whether to assume or reject that lease. The Debtors explain that as part of their Orderly Liquidation Program, they are in the process of pursuing an orderly liquidation of their assets as expeditiously and efficiently as possible. The Debtors, as a sublessor to the five remaining leases of the first group, subleased those leases to various subtenants. All of those leases are the subject of pending motions with the Court to either assume and assign, or reject those leases. For their corporate office lease, the Debtors still need that office space in order to continue the administration of their Liquidation Program and until a proposed chapter 11 plan is confirmed. The Debtors relate that their request to further extend the lease decision period is out of an abundance of caution in the event that they will require additional time for any reason to conclude an assumption and assignment or a rejection. The Debtors assure the Court that the landlords of their remaining leases will not be prejudiced by the requested extension, as they are current on all post-petition obligations to those landlords. Headquartered in New York, New York, Athlete's Foot Stores, LLC, -- http://www.theathletesfoot.com/--operates approximately 125 athletic footwear specialty retail stores in 25 states. The Company and its debtor-affiliate filed for chapter 11 protection on December 9, 2004 (Bankr. S.D.N.Y. Case No. 04-17779). Bonnie Lynn Pollack, Esq., and John Howard Drucker, Esq., at Angel & Frankel, P.C. represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed total assets of $33,672,000 and total debts of $39,452,000. BANC OF AMERICA: Fitch Affirms Low-B Rating on 14 Cert. Classes --------------------------------------------------------------- Fitch Ratings affirms Banc of America Commercial Mortgage Inc., series 2003-2, commercial mortgage pass-through certificates: --$116.7 million class A-1 'AAA'; --$480.7 million class A-1A 'AAA'; --$106.3 million class A-2 'AAA'; --$168.1 million class A-3 'AAA'; --$482.3 million class A-4 'AAA'; --Interest-only class XC 'AAA'; --Interest-only class XP 'AAA'; --$56.7 million class B 'AA'; --$21 million class C 'AA-'; --$44.1 million class D 'A'; --$23.1 million class E 'A-'; --$21 million class F 'BBB+'; --$23.1 million class G 'BBB'; --$21 million class H 'BBB-'; --$18.9 million class J 'BB+'; --$10.5 million class K 'BB'; --$10.5 million class L 'BB-'; --$8.4 million class M 'B+'; --$8.4 million class N 'B'; --$4.2 million class O 'B-'; --$2.7 million class BW-A 'BBB'; --$1.2 million class BW-B 'BBB'; --$8.7 million class BW-C 'BBB-'; --$2.6 million class BW-D 'BB+'; --$3.6 million class BW-E 'BB'; --$3.2 million class BW-F 'BB'; --$3.1 million class BW-G 'BB-'; --$2.6 million class BW-H 'B+'; --$2.6 million class BW-J 'B'; --$2.1 million class BW-K 'B'; --$3.5 million class BW-L 'B-'. Fitch does not rate the $27.3 million class P or classes HS-A, HS- B, HS-C, HS-D, or HS-E. The rating affirmations reflect the stable pool performance and minimal paydown since issuance. As of the July 2005 distribution date, the pool's aggregate certificate balance has decreased 1.5% to $1.75 billion from $1.77 billion at issuance. To date, there have been no delinquent or specially serviced loans. No loans have paid off since issuance. Fitch has reviewed credit assessments of the Hines-Sumitomo Portfolio (9.2%), 1328 Broadway (7.7%), and Newgate Mall (2.5%) loans. Based on their stable performance, the loans maintain investment grade credit assessments. The Hines Sumitomo portfolio, the largest loan in the pool, is secured by three office properties, with a total of 1.2 million square feet. Two of them are located in New York, NY, and one in Washington, DC. The combined year-end 2004 debt service coverage ratio was 2.08 times (x) compared to 1.84x at issuance. The average occupancy was 99% as of YE 2004, unchanged since issuance. 1328 Broadway is secured by a 351,750 sf office property in New York, NY. The YE 2004 DSCR was 1.61x, up from 1.50x at issuance. The occupancy was 96% as of YE 2004, down from 99% at issuance. Newgate Mall is a 724,619 sf anchored retail center in Ogden, UT. The YE 2004 DSCR was 1.42x, up from 1.30x at issuance. The average occupancy was 95% as of YE 2004, unchanged since issuance. BLOCKBUSTER INC: Weak 2nd Qtr. Rentals Cue S&P's Negative Watch --------------------------------------------------------------- NEW YORK (Standard & Poor's) Aug. 3, 2005 Standard & Poor's Ratings Services placed its ratings for Dallas, Texas-based Blockbuster Inc., including the 'BB-' corporate credit rating, on CreditWatch with negative implications. "This action follows the company's announcement that its second- quarter movie rental business was hurt by weak DVD releases and that there is concern about the remainder of the year," said Standard & Poor's credit analyst Diane Shand. Industry fundamentals for the video rental market are weak, and Blockbuster's profitability is heavily dependent on that market. The company generated 65% of its total sales from its movie rental business in 2004, and its domestic rental same-store sales have been weak since 2001. Retail sales of videos have been growing faster than the rental market since at least 1993. Moreover, the rental market has declined slightly over the past three years, and is expected to decline annually at a low single-digit percentage rate over the next three years. In response to weak rental industry dynamics, Blockbuster is trying to increase customer traffic by eliminating late fees. This affects revenues by an estimated $400 million to $450 million and operating income by $250 million to $300 million. In addition, the company is attempting to transform itself into a home entertainment store: It has launched a national in-store rental subscription program and is expanding its store-in-store game concept. Blockbuster also is rolling out an online subscription plan and a movie trading business. BUILDING MATERIALS: Fitch Places BB+ Rating on $197MM Sr. Debt -------------------------------------------------------------- Fitch Ratings has initiated coverage on Building Materials Holding Corporation. Fitch assigns a 'BB+' rating to BMHC's senior secured debt. This rating applies to approximately $197 million in outstanding senior secured term notes as well as the company's secured revolving credit agreement. The Rating Outlook is Stable. The rating and Outlook reflect BMHC's improving operating performance, its focus on the large production homebuilders, and its diverse range of product and service offerings. Risk factors include the company's exposure to the cyclicality of the homebuilding industry, possible integration/financing issues related to its ongoing acquisition program, and the continued consolidation of BMHC's customer base. The rating and Outlook incorporate the expectation that BMHC will be able to maintain (or improve) its credit profile. Fitch also expects BMHC to employ the same disciplined growth strategy as in the past (wherein the company entered a market by purchasing a majority interest in an existing operation and retaining current management/owners). BMHC has a strong balance sheet and maintains healthy coverage ratios. The company's debt to EBITDA ratio has improved from 1.6 times (x) for fiscal 2004 to 1.4x for the latest 12 months from March 31, 2005. Debt to capitalization was 38.4% at the end of March 31, 2005 compared with 38.6% at year-end 2004 (and 40.8% at the end of 2003). This is beneath the company's target leverage ratio of 40%. BMHC's interest coverage ratio rose from 6.4x in fiscal 2003 to 9.5x in fiscal 2004 and further improved to 11.3x for the LTM from March 31, 2005. The company conducts business with 17 of the 25 largest production homebuilders in more than half of the top 40 residential markets in the U.S. BMHC's focus on the large homebuilders should benefit the company going forward. The large public builders have the opportunity to leverage their scale and capital in the period ahead. These companies (large builders) should be able to continue to gain market penetration and grow their businesses. Fitch believes that the large production builders are better prepared for a housing downturn (relative to their smaller competitors), which should provide some stability for BMHC. BMHC has realigned its business from its roots as solely a distributor of commodity wood products to its current position as one of the largest residential building products and construction services companies in the U.S. Building on key acquisitions in recent years, the company now delivers a growing range of residential construction services in key growth markets in the U.S. BMHC has additional opportunities to capture more value from the homebuilding supply chain through increased product and service offerings. As an example, the company, in the past two years, vertically integrated its Northern California construction services operation by adding materials distribution and truss manufacturing operations and strengthened its infrastructure to further enhance its construction services capabilities in the region. In Las Vegas, the company augmented its framing capabilities with concrete foundation services and captured an increased share of business in this market. The company has incremental revenue opportunities through further integration of its operating units. BMHC has grown significantly over the past five years, almost doubling its 2001 revenues of $1.1 billion to $2.1 billion in 2004. The company's growth strategy focuses on improving market share by increasing construction services primarily through acquisitions, as well as expanding its product and service offerings at existing operations. The company has purchased majority interest in three companies thus far in 2005, expanding its construction services in existing markets as well as entry into a new market. Fitch believes that acquisitions will continue to be a primary strategy for the company as it grows its business. The risk is that BMHC takes on a large acquisition or acquisitions at an inopportune time relative to the cycle, overpays and has trouble integrating the operations. This is somewhat tempered by the company's strategy to enter a market by purchasing a majority interest in an existing operation (with option to purchase the remaining interest) and retaining current management/owners, giving the company access to local labor markets and local decision makers. The past decade has seen consolidation in the distribution channels of the building products industry. New home sales from the top 10 U.S. homebuilders increased from approximately 10% of industry sales in 1993 to over 20% in 2004. The large builders are typically significant players in many of the largest, often high-growth metropolitan housing markets. Fitch expects more consolidation in the industry, with the large builders continuing to buy private, midsize companies and taking share from smaller builders. The top 10 U.S. homebuilders accounted for approximately 20% of BMHC's sales in 2004. The continued growth of the large homebuilders (and their efforts to look for cost savings) may eventually limit the pricing power of building products and construction services providers like BMHC. Homebuilding is a cyclical business affected by demographics, job creation, interest rates, and consumer confidence. Building products and construction services providers have benefited from a strong multiyear housing expansion during which most of these macro-economic drivers have been at historically favorable levels. Total housing starts grew 6.3% in 2002, 8.3% in 2003, and 5.8% in 2004, with improvements in all regions (except the Midwest in 2004). In the January to June 2005 period, housing starts improved 5.1%. In 2005, Fitch expects housing starts to be relatively flat compared with 2004 levels, which, to this point, have set a record for the current, extended up-cycle. Founded in 1987, BMHC is one of the largest residential building products and construction services companies in the U.S. with annual sales in excess of $2 billion. The company services homebuilders in Washington, Oregon, Montana, Idaho, California, Nevada, Colorado, Utah, Arizona, Texas, Illinois, Florida, Maryland, Virginia, Delaware, and the District of Columbia. BMHC competes in the homebuilding industry through two business segments: BMC West and BMC Construction. With locations in the western and southern states, BMC West distributes building products and manufactures building components for professional builders and contractors. BMC Construction provides construction services to high-volume production homebuilders through operations in key growth markets across the U.S. CALPINE CORP: Canadian Court Dismisses Harbert Litigation --------------------------------------------------------- Calpine Corporation (NYSE: CPN) disclosed that the Supreme Court of Nova Scotia dismissed Harbert Distressed Investment Master Fund, Ltd.'s application for relief and denied all relief to Harbert and all other bondholders that purchased Finance II bonds on or after Sept. 1, 2004. This litigation relates to the outstanding Calpine-guaranteed bonds of Calpine's subsidiary Calpine Canada Energy Finance II ULC. The Court, however, stated that a remedy should be granted to any bondholder, other than the Calpine respondent companies, that purchased Finance II bonds prior to Sept. 1, 2004 and that continues to hold those bonds on Aug. 2, 2005. The Court directed Wilmington Trust Company, Trustee for the Finance II bonds, to provide the face amount of qualifying bonds and the identity of the holders of such bonds by Aug. 31, 2005. The Court stated that, upon receipt of the information from the Trustee, it will then issue a final order requiring Calpine to maintain in the control of its subsidiary Calpine Canada Resources Company sufficient proceeds from the sale of the Saltend Energy Centre to cover the face amount of such bonds. If there are insufficient proceeds for this purpose, Calpine will be required to place in the control of CCRC an additional amount which, when added to the net Saltend sale proceeds, will cover the face value of all such bonds. The final order will further provide that CCRC shall diligently conduct its business in a proper and efficient manner so as to preserve and protect its business and assets. Pending the final order, the Court issued an interim order under which Calpine must maintain the net Saltend sale proceeds in the control of CCRC. Any party to the proceeding has the right to appeal the final order to the Nova Scotia Court of Appeal. Calpine Corporation -- http://www.calpine.com/-- supplies customers and communities with electricity from clean, efficient, natural gas-fired and geothermal power plants. Calpine owns, leases and operates integrated systems of plants in 21 U.S. states, three Canadian provinces and the United Kingdom. Its customized products and services include wholesale and retail electricity, natural gas, gas turbine components and services, energy management, and a wide range of power plant engineering, construction and operations services. Calpine was founded in 1984. It is included in the S&P 500 Index and is publicly traded on the New York Stock Exchange under the symbol CPN. * * * As reported in the Troubled Company Reporter on June 23, 2005, Standard & Poor's Ratings Services assigned its 'CCC' rating to Calpine Corp.'s (B-/Negative/--) planned $650 million contingent convertible notes due 2015. The proceeds from that convertible debt issue will be used to redeem in full its High Tides III preferred securities. The company will use the remaining net proceeds to repurchase a portion of the outstanding principal amount of its 8.5% senior unsecured notes due 2011. S&P said its rating outlook is negative on Calpine's $18 billion of total debt outstanding. As reported in the Troubled Company Reporter on May 16, 2005, Moody's Investors Service downgraded the debt ratings of Calpine Corporation (Calpine: Senior Implied to B3 from B2) and its subsidiaries, including Calpine Generating Company (CalGen: first priority credit facilities to B2 from B1). CALPINE CORP: Posts $298.5 Million Net Loss in Second Quarter ------------------------------------------------------------- Calpine Corporation (NYSE: CPN) reported financial and operating results for the three and six months ended June 30, 2005. "During the second quarter, spark spreads were mixed, and Calpine experienced several unplanned equipment outages in key power markets," Peter Cartwright, Calpine president and CEO, said. "Financial results were further impacted by power plant and development project asset impairments and service agreement cancellations, totaling just over $200 million. These were partially mitigated by approximately $129 million of income from repurchase of debt. "While results for the quarter were disappointing, Calpine continues to make significant progress in advancing our strategic initiative to de-lever our balance sheet and reduce interest expense and operating costs. In just over two months since our May rollout, Calpine has completed or announced over $2 billion of transactions toward attaining these goals, and since the beginning of the third quarter, we have lowered total debt by approximately $1.3 billion to $17.4 billion. "Although demand in the second quarter was dampened by mild weather, especially in April and May, since June we have seen strong demand for electricity and improving spark spreads in our major power markets," continued Mr. Cartwright. "Our recently restructured long-term service arrangements with our major equipment manufacturers will advance Calpine's program to lower operating costs, improve plant performance and enhance our major maintenance capabilities." 2005 Second Quarter Financial Results For the three months ended June 30, 2005, Calpine reported revenue of $2.2 billion, representing an increase of 0.5% over the same period in the prior year. Including the discontinued operations discussed below, Calpine recorded a net loss per share of $0.66, or a net loss of $298.5 million, compared to a net loss per share of $0.07, or a net loss of $28.7 million, for the same quarter in the prior year. Gross profit decreased by $58.8 million to a loss of $31.5 million in the three months ended June 30, 2005, compared to the same period in the prior year. This change is due primarily to a $106.2 million impairment charge related to the sale of the Morris Power Plant, which sale was pending at the end of the quarter. Although total spark spread margin increased by $38.6 million period-to-period, it did not increase in line with the increases in transmission purchase expense, depreciation and interest expense associated with new power plants coming on line. During the three months ended June 30, 2005, financial results were positively impacted by $129.2 million of income recorded from repurchase of various issuances of debt and negatively impacted by $33.9 million in long-term service agreement cancellation charges. In addition, Calpine recorded $45.5 million in project development expense due to the write-off of three projects in suspended development. Interest expense increased $63.2 million between periods primarily due to an increase in the average interest rate and lower capitalization of interest expense as fewer plants were in active construction. 2005 Six-Months Results For the six months ended June 30, 2005, Calpine reported revenue of $4.3 billion, representing an increase of 4.2% over the same period in the prior year. Including the discontinued operations discussed below, Calpine recorded a net loss per share of $1.04, or a net loss of $467.2 million, compared to a net loss per share of $0.24, or a net loss of $99.9 million, for the same period in the prior year. Gross profit decreased by $24.8 million, or 34%, to $48.3 million in the six months ended June 30, 2005, compared to the same period in the prior year. This change is due primarily to a $106.2 million impairment charge related to the sale of the Morris Power Plant. Despite improvements in market fundamentals, total spark spread -- which increased by $144.8 million, or 19%, in the six months ended June 30, 2005, compared to the same period in 2004 -- did not increase in line with the increases in plant operating expense, transmission purchase expense, depreciation, and interest expense associated with new power plants coming on line. During the six months ended June 30, 2005, financial results were positively impacted by $150.9 million of income recorded from repurchase of various issuances of debt and negatively impacted by $33.9 million in long-term service agreement cancellation charges. In addition, Calpine recorded $45.5 million in project development expense due to the write-off of three projects in suspended development. Interest expense increased $142.3 million between periods primarily due to an increase in the average interest rate and lower capitalization of interest expense as fewer plants were in active construction. Strategic Initiative Update On May 25, 2005, Calpine launched a strategic initiative aimed at reducing debt and enhancing the company's financial strength. The program is targeting debt reduction of approximately $3 billion by the end of 2005, $275 million of annual interest savings and approximately $200 million in annual operating cost reductions. During the second quarter, Calpine entered into negotiations for the proposed sale of two gas-fired power plants, representing approximately 600 megawatts of capacity. Subsequent to June 30, 2005, Calpine: -- sold all of its remaining domestic oil and gas exploration and production properties and assets for $1.05 billion, less adjustments, transaction fees and expenses, and less approximately $75 million to reflect the value of certain oil and gas properties for which the company was unable to obtain consents to assignment prior to closing. The company expects to receive the remaining consents in the near future. With the completion of this transaction, Calpine expects to record, subsequent to June 30, 2005, a pre-tax gain on the sale of assets of approximately $350 million; -- completed the sale of the 1,200-megawatt Saltend Energy Centre in Hull, England, generating total gross proceeds of $862.5 million, for an estimated pre-tax gain of $6 million. The two existing series of Redeemable Preferred Shares relating to the Saltend Energy Centre were redeemed in connection with the sale; -- reached an agreement with Siemens Westinghouse to restructure Calpine's long-term relationship and service agreements. The restructuring provides greater operating and turbine maintenance flexibility for Calpine, resolves outstanding issues between the companies and provides an option to purchase extended warranties for Calpine turbines in construction and in storage; -- announced a 15-year Master Products and Services Agreement with General Electric International, Inc., which replaces the nine remaining long-term service agreements related to Calpine's GE 7FA turbine fleet. Calpine will benefit from the ability to strengthen its major maintenance capabilities, improve power plant performance and lower operating costs; -- sold its 50% interest in the 175-megawatt Grays Ferry Cogeneration Facility for $37.4 million; -- completed the sale of the company's 156-megawatt Morris Power Plant for approximately $84.5 million; and -- purchased approximately $138.9 million of its 9-5/8% First Priority Senior Secured Notes due 2014 under the terms of a tender offer. Other Financing Transactions During the second quarter, Calpine completed these financing transactions: -- issued $650 million of 7-3/4% Contingent Convertible Notes due 2015 in June 2005. The company, in July 2005, used a portion of the net proceeds to redeem the remaining $517.5 million outstanding of 5% HIGH TIDES III preferred securities, of which $115.0 million was held by Calpine. The company used the remaining net proceeds to repurchase a portion of the outstanding principal amount of its 8-1/2% Senior Unsecured Notes due 2011; -- received funding for Metcalf Energy Center, LLC's $155 million offering of 5.5-Year Redeemable Preferred Shares and five-year, $100 million Senior Term Loan. A portion of the net proceeds was used to repay $50.0 million outstanding on the original Metcalf project financing, with the remaining net proceeds to be used as permitted by the company's existing indentures. -- received funding for its $123.1 million, non-recourse project finance facility to complete the construction of the 79.9-megawatt Bethpage Energy Center 3. Approximately $55 million of the funding was used to reimburse Calpine for costs spent to date on the Bethpage 3 project. An additional amount of approximately $11.2 million will be released upon satisfying certain conditions. The balance of funds will be used for transaction expenses, the final completion of the project and to fund certain reserve accounts. Calpine ended the quarter with cash and cash equivalents on hand of approximately $636.2 million. In addition to this amount, the company's current portion of restricted cash totaled approximately $993.9 million, including $402.5 million used in July 2005 to redeem the remaining HIGH TIDES III preferred securities held by third parties. During the three months ended June 30, 2005, Calpine repurchased Senior Notes in open market transactions totaling $479.8 million in principal. The company repurchased the Senior Notes for cash totaling $337.9 million plus accrued interest as follows (in thousands): Senior Notes Principal Cash Payment ------------ --------- ------------ 10-1/2% due 2006 $3,485.0 $2,753.2 7-5/8% due 2006 1,335.0 1,041.3 8-3/4% due 2007 3,000.0 1,665.0 8-1/2% due 2008 25,500.0 18,297.5 7-3/4% due 2009 35,000.0 20,865.0 8-5/8% due 2010 37,468.0 24,077.4 8-1/2% due 2011 374,000.0 269,154.8 ---------- ---------- Total repurchases $479,788.0 $337,854.2 Also, in June 2005, Calpine repurchased $94.3 million in aggregate outstanding principal amount of 6% Contingent Convertible Notes due 2014 in exchange for 27,539,826 shares of Calpine common stock. The company recorded a pre-tax loss of $7.9 million on the exchange, which includes the write-off of the associated unamortized deferred financing costs and unamortized original issue discount. For the three months ended June 30, 2005, the company recorded an aggregate pre-tax gain of $129.2 million on the above debt repurchases after the write-off of unamortized deferred financing costs and unamortized discounts. A major power company, Calpine Corporation -- http://www.calpine.com/-- supplies customers and communities with electricity from clean, efficient, natural gas-fired and geothermal power plants. Calpine owns, leases and operates integrated systems of plants in 21 U.S. states and three Canadian provinces. Its customized products and services include wholesale and retail electricity, natural gas, gas turbine components and services, energy management, and a wide range of power plant engineering, construction and operations services. Calpine was founded in 1984. It is included in the S&P 500 Index and is publicly traded on the New York Stock Exchange under the symbol CPN. * * * As reported in the Troubled Company Reporter on June 23, 2005, Standard & Poor's Ratings Services assigned its 'CCC' rating to Calpine Corp.'s (B-/Negative/--) planned $650 million contingent convertible notes due 2015. The proceeds from that convertible debt issue will be used to redeem in full its High Tides III preferred securities. The company will use the remaining net proceeds to repurchase a portion of the outstanding principal amount of its 8.5% senior unsecured notes due 2011. S&P said its rating outlook is negative on Calpine's $18 billion of total debt outstanding. As reported in the Troubled Company Reporter on May 16, 2005, Moody's Investors Service downgraded the debt ratings of Calpine Corporation (Calpine: Senior Implied to B3 from B2) and its subsidiaries, including Calpine Generating Company (CalGen: first priority credit facilities to B2 from B1). CALPINE CORP: Sells Saltend to Normantrail for GBP498.4 Million --------------------------------------------------------------- On July 28, 2005, Calpine Corporation and its indirect, wholly owned subsidiaries Calpine UK Holdings Limited, and Quintana Canada Holdings, LLC, sold the entire issued share capital of Saltend Cogeneration Company Limited and Calpine UK Operations Limited to Normantrail (UK CO 3) Limited, a partnership formed by International Power PLC, Mitsui & Co., Ltd., pursuant to the terms of a share sale and purchase agreement among the Seller Parties, the Purchaser, IPR and Mitsui. SCCL is the owner of, and UK OpCo is the operator of, the Saltend Energy Centre, a 1200 MW (nominal) natural gas-fired cogeneration facility located in Hull, England. Pursuant to the Agreement, Calpine and the Seller have provided certain customary warranties and indemnities, and the Seller Guarantor has guaranteed the payment by the Seller of liabilities in respect of all claims under the Agreement other than claims for breach of a warranty. The obligations of the Purchaser are guaranteed as to 70% by IPR and 30% by Mitsui. The total amount payable by the Purchaser under the Agreement is GBP498.4 million comprising an amount payable for the Sale Group shares and an amount to repay intercompany loans made to SCCL by certain of its affiliates. The purchase price is subject to a GBP for GBP post-closing net working capital adjustment, subject to an upwards cap determinable on the basis of completion accounts prepared in accordance with the procedures set out in the Agreement. GBP 20 million of the purchase price has been placed in escrow and will be retained for one year following closing of the sale, provided that the Seller will be entitled to receive GBP5 million from the escrow every three months, subject to the Purchaser making any claims under the Agreement in such period, which claims may be satisfied from amounts in escrow. The net proceeds, after the redemption of two of our existing series of Redeemable Preferred Shares, and the reasonable transaction costs and adjustments associated with this sale, are being held under the control of Calpine's subsidiary Calpine Canada Resources Company pursuant to an Interim Order issued by the Supreme Court of Nova Scotia, pending a Final Order, in the litigation commenced in May 2005 by Harbert Distressed Investment Master Fund, Ltd. Pursuant to an August 2, 2005, decision by the Court in the case, the Court stated its intention to issue a Final Order which would, in effect, adjust the amount required to be so held so that it will be sufficient to cover the face amount of certain qualifying Calpine-guaranteed bonds of our subsidiary, Calpine Canada Energy Finance II ULC. The qualifying bonds will be those purchased by a bondholder (other than certain Calpine entities) prior to September 1, 2004, that continues to hold those bonds on August 2, 2005. The sale closed on July 28, 2005. Calpine Corporation -- http://www.calpine.com/-- supplies customers and communities with electricity from clean, efficient, natural gas-fired and geothermal power plants. Calpine owns, leases and operates integrated systems of plants in 21 U.S. states, three Canadian provinces and the United Kingdom. Its customized products and services include wholesale and retail electricity, natural gas, gas turbine components and services, energy management, and a wide range of power plant engineering, construction and operations services. Calpine was founded in 1984. It is included in the S&P 500 Index and is publicly traded on the New York Stock Exchange under the symbol CPN. * * * As reported in the Troubled Company Reporter on June 23, 2005, Standard & Poor's Ratings Services assigned its 'CCC' rating to Calpine Corp.'s (B-/Negative/--) planned $650 million contingent convertible notes due 2015. The proceeds from that convertible debt issue will be used to redeem in full its High Tides III preferred securities. The company will use the remaining net proceeds to repurchase a portion of the outstanding principal amount of its 8.5% senior unsecured notes due 2011. S&P said its rating outlook is negative on Calpine's $18 billion of total debt outstanding. As reported in the Troubled Company Reporter on May 16, 2005, Moody's Investors Service downgraded the debt ratings of Calpine Corporation (Calpine: Senior Implied to B3 from B2) and its subsidiaries, including Calpine Generating Company (CalGen: first priority credit facilities to B2 from B1). CARDIAC SERVICES: Can Use GECC's Cash Collateral Until Sept. 30 --------------------------------------------------------------- The Honorable Judge Keith M. Lundin of the U.S. Bankruptcy Court for the Middle District of Tennessee, Nashville Division, gave Cardiac Services, Inc., continued access to General Electric Capital Corporation's cash collateral until Sept. 30, 2005. The Debtor's indebtedness to GECC stems from a Master Installment Sale Agreement totaling $16,641,658.51. GECC holds liens on substantially all the Debtor's assets, including 15 Mobile Cath Labs, equipment, fixtures, inventory, accounts receivable, general intangibles, and contract rights. To provide GECC with adequate protection required under Sections 361(2) and 363(e) under the U.S. Bankruptcy Code for any diminution in the value of its collateral, the Debtor will grant GECC replacement liens to the same extent, validity and priority as the prepetition liens. The Debtor will use the cash collateral to fund its operations, payroll, and other operating expenses that are necessary to maintain the value of the estate. The Debtor is authorized to use the cash collateral so long as the total disbursements don't exceed: July August September ---- ------ --------- Total Authorized Disbursements $297,476 $353,434 $298,076 A full-text copy of the interim order authorizing the Debtor to use GECC's cash collateral is available for free at http://ResearchArchives.com/t/s?ae The Court will convene a Final Cash Collateral Hearing on Sept. 20, 2005, at 9:00 a.m. in Courtroom Two, Customs House, Second Floor, 701 Broadway, in Nashville, Tennessee. Elliot Warner Jones, Esq., Bridgette M. Stahlman, Esq., and Jeffrey S. Norwood, Esq., at Husch & Eppenberger, LLC, represent General Electric Capital Corporation. Headquartered in Nashville, Tennessee, Cardiac Services, Inc., provides surgical services, mobile catherization and peripheral vascular labs, and associated equipment. The Company filed for chapter 11 protection on March 8, 2005 (Bankr. M.D. Tenn. Case No. 05-02813). Paul E. Jennings, Esq., at Paul E. Jennings Law Offices, P.C., represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it estimated assets and debts of $10 million to $50 million. CARRIER ACCESS: Delivers Restated 2003 & 2004 Financial Results --------------------------------------------------------------- Carrier Access Corporation (NASDAQ: CACSE), a manufacturer of broadband communications equipment, reported restated financial results for the fiscal years ended December 31, 2003 and 2004. Carrier Access has restated its consolidated financial results for the fiscal years 2003 and 2004 and all the interim periods for these years in its amended annual report on Form 10-K/A filed with the Securities and Exchange Commission on Aug. 2, 2005. Carrier Access is in the process of diligently completing its quarterly reports on Form 10-Q for the first and second quarters of 2005. Carrier Access expects to file its quarterly reports on Form 10-Q for the first and second quarters of 2005 with the SEC on or before Sept. 2, 2005. Accordingly, the Company sought an exception from the NASDAQ Listing Qualifications Panel for additional time to regain compliance with the NASDAQ listing requirements and was recently notified that it was granted an exception provided that it files its amended annual report on Form 10-K/A on or before Aug. 2, 2005, and its quarterly reports on Form 10-Q for the first and second quarters of 2005 by Sept. 2, 2005. There can be no assurance that the Panel will grant any additional exception or that we will be able to file the quarterly reports on Form 10-Q by Sept. 2, 2005. "Today we reported our restated financial results for fiscal years 2003 and 2004 and related interim periods. The completion of this restatement is a key step in the update of current financial filings," said Roger Koenig, chief executive officer and chairman. "Despite the significant energy devoted to our recent financial review, our overall business and customer commitments have not been affected. We have announced new customers, and extended our industry-leading solutions further into radio access networks and converged IP access markets. We have also taken actions to strengthen our internal controls, processes and infrastructure. We are excited about the market opportunities for radio access networks and converged IP access and are confident in our ability to play a leadership role." Restated revenues for fiscal year 2003 were $62.5 million compared with $50.2 million for fiscal year 2002. Restated revenues for fiscal year 2004 were $95.5 million compared with $62.5 million (restated) for fiscal year 2003. Restated net income for fiscal year 2003 was $1.5 million, compared with a net loss for fiscal year 2002 of $52.7 million. Restated net loss for fiscal year 2004 was $1.8 million, compared with net income (restated) for fiscal 2003 of $1.5 million. Material Weakness The Company has identified certain material weaknesses in its internal control over financial reporting as of Dec. 31, 2004. Management concluded that the Company did not maintain effective controls over certain aspects of its review of financial statements for the fiscal years ended Dec. 31, 2003, and 2004, and for each of the following quarters because of four material weaknesses: -- Management did not comply with the Company's established policies and procedures requiring a review of its consolidated statement of cash flows. This failure to comply with established policies and procedures resulted in material misstatements in its Dec. 31, 2004 consolidated statement of cash flows. Specifically, there were material misstatements in cash flows from operating activities and cash flows from investing activities. These misstatements were corrected prior to the original filing of its 2004 Annual Report on Form 10-K. -- The Company did not have effective policies and procedures to evaluate customer arrangements for the appropriate application of revenue recognition criteria as contemplated by generally accepted accounting principles in the U.S. This deficiency resulted in material misstatements to its financial statements, specifically the: * overstatement of revenue, costs of sales, and accounts receivable; and * understatement of inventory in its previously filed consolidated financial statements as of and for the years ended December 31, 2003 and 2004, and for the interim periods contained therein. -- the Company did not have effective policies and procedures over accounting for its inventory reserves to prevent the write up of inventory once it had been written down in a previous fiscal accounting period. This deficiency resulted in material misstatements of inventory and cost of sales in its previously filed consolidated financial statements as of and for the years ended December 31, 2003 and 2004, and for the interim periods contained therein. -- the Company lacked the depth of personnel with sufficient technical accounting expertise to identify and account for complex transactions in accordance with generally accepted accounting principles in the U.S. This deficiency contributed to the aforementioned misstatements and resulted in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements would not be prevented or detected. Accordingly, the Company restated these consolidated financial statements to correct of these errors. A material weakness is a control deficiency, or a combination of control deficiencies, that results in a more than a remote likelihood that a material misstatement of the annual or interim financial statements would not be prevented or detected in a timely manner by management or by employees in the normal course of performing their assigned functions. Restatement of Consolidated Financial Statements As a result of the financial review, Carrier Access has restated its consolidated financial results for fiscal years 2003 and 2004 and all the interim periods in 2003 and 2004 as embodied in its amended annual report on Form 10-K/A. The restatements include a number of adjustments, the largest of which relate to revenue, cost of sales, accounts receivable, and inventory reserves. The restatement is primarily related to revenue recognition issues, specifically title transfer, continuous assessment of probability of collection on certain transactions, and inventory valuation. Adjustments that result in a reduction of revenue in 2003 and 2004 have been or are expected to be recognized in subsequent periods in 2004 and 2005. Adjustments to inventory are primarily to increase reserve levels previously reported. The restatement had no effect on the Company's cash flows from operations. An overview of adjustments by period include: * 2004 -- Restated revenues were $95.5 million compared with $101.4 million as originally reported. Restated net inventory as of Dec. 31, 2004 was $32.0 million compared with $29.7 million as originally reported. -- Restated net loss was $1.8 million, compared with net income of $0.9 million, or $0.03 per share, as originally reported. * 2003 -- Restated revenues for fiscal 2003 were $62.5 million compared with $62.6 million as originally reported. Restated net income was $1.5 million, compared with $2.5 million as originally reported. Carrier Access' restated 2003 and 2004 annual financial statements are included in its amended annual report on Form 10-K/A filed with the SEC. Investors are encouraged to read this filing for a more complete description of the financial restatement. Fiscal 2005 First and Second Quarter Results Carrier Access expects its fiscal 2005 second quarter revenues to be in the range of $18.5 million to $19.5 million. Preliminary second quarter revenues include approximately $1.5 million in revenue that was previously reported in the fourth quarter of 2004. The Company anticipates a net loss for the second quarter in the range of $0.04 to $0.06 per share. In addition the Company expects that previously announced revenue for the first quarter of 2005 will increase by approximately $3 million to include revenue that was previously reported in fourth quarter of 2004, resulting in reported revenue of between $14 to 15 million, and net loss of between $0.12 to $0.14 per share. These preliminary first and second quarter 2005 results are based on management's initial analysis of first and second quarter 2005 operating results. These preliminary results are unaudited and are subject to modification. The Company will provide additional financial and operating details for the first and second quarters of 2005 in a conference call to be scheduled on or before Sept. 2, 2005. Carrier Access (NASDAQ: CACSE) -- http://www.carrieraccess.com/-- provides consolidated access technology designed to streamline the communication network operations of service providers, enterprises and government agencies. Carrier Access products enable customers to consolidate and upgrade access capacity, and implement converged IP services while lowering costs and accelerating service revenue. Carrier Access' technologies help our customers do more with less. CATHOLIC CHURCH: Court Denies Spokane's Cry to Continue Hearing --------------------------------------------------------------- As previously reported, the Diocese of Spokane asked Judge Williams to continue the hearing on exclusivity until after the Court decides on the Property of the Estate issues and the Bar Date Motion is heard. The Diocese has requested that objecting parties voluntarily continue the August 1 hearing date, but counsel for the Tort Litigants Committee refused to continue the hearing unless the Diocese agreed to the Tort Litigants' demands for a mid-October 2005 termination of exclusivity. Tort Litigants Respond On behalf of the Committee of Tort Litigants, John W. Campbell, Esq., at Esposito, George & Campbell, PLLC, in Spokane, Washington, argues that the Diocese of Spokane does not state how the pendency of the issues on "property of the estate" and the "bar date" are causes for continuing the hearing on the request to extend the exclusive periods. Mr. Campbell warns the U.S. Bankruptcy Court for the Eastern District of Washington that the Diocese is simply attempting to defer liability for its lack of leadership in the effort to confirm a plan and to continue exclusivity little by little. If the Diocese wants an extension, the Diocese should explain its inaction in dealing with the Bar Date Motion, Mr. Campbell asserts. The Diocese must also be held to dates certain for filing a plan in the Chapter 11 case. "The case needs to move forward," Mr. Campbell reminds the Court. The Court should not allow the Diocese to connive a default exclusivity extension. However, Mr. Campbell explains that the Tort Litigants understand that the Court is extremely busy at this time. If a hearing on exclusivity imposes undue burdens on the Court and its resources, the Tort Litigants consent to an appropriate continuance of the hearing. * * * Judge Williams denies Spokane's request for a continued hearing on the Diocese's request to extend the exclusive periods. The Court will convene a hearing today as scheduled. The Archdiocese of Portland in Oregon filed for chapter 11 protection (Bankr. Ore. Case No. 04-37154) on July 6, 2004. Thomas W. Stilley, Esq., and William N. Stiles, Esq., at Sussman Shank LLP, represent the Portland Archdiocese in its restructuring efforts. In its Schedules of Assets and Liabilities filed with the Court on July 30, 2004, the Portland Archdiocese reports $19,251,558 in assets and $373,015,566 in liabilities. (Catholic Church Bankruptcy News, Issue No. 36; Bankruptcy Creditors' Service, Inc., 215/945-7000) CELESTICA INC: Completes Repurchase of $612 Million LYONs --------------------------------------------------------- Celestica Inc. (NYSE:CLS, TSX: CLS/SV) completed its previously announced cash tender offer for the repurchase of any or all of its US$614,435,000 aggregate principal amount of Liquid Yield Option(TM) Notes due 2020 (Zero Coupon-Subordinated) (CUSIP No. 15101QAA6). The Offer expired on August 2, 2005 at 5 pm EDT. As of the Expiration Date, Celestica has accepted for purchase LYONs having a total principal amount of US$ 612,286,000 at maturity. The purchase price for tendered LYONs was equal to US$572.82 per US$1,000 principal amount at maturity. Celestica has accepted for payment all of the LYONs validly tendered on or prior to the Expiration Date, representing 99.65% of the aggregate principal amount of the LYONs. The aggregate cash purchase price was US$350,729,666.52 million. US$ 2,149,000 principal amount at maturity of LYONs remains outstanding after the completion of the Offer. JPMorgan Chase Bank acted as Depositary in the Offer. Celestica, Inc. -- http://www.celestica.com/-- is a world leader in the delivery of innovative electronics manufacturing services -- EMS. Celestica operates a highly sophisticated global manufacturing network with operations in Asia, Europe and the Americas, providing a broad range of integrated services and solutions to leading OEMs (original equipment manufacturers). Celestica's expertise in quality, technology and supply chain management, enables the company to provide competitive advantage to its customers by improving time-to-market, scalability and manufacturing efficiency. * * * Celestica's 7-5/8% senior subordinated notes due 2013 and 7-7/8% senior subordinated notes due 2011 carry Moody's Investors Service's and Standard & Poor's single-B ratings. CENTENNIAL COMMS: Will Restate First Quarter Report Due to Error ---------------------------------------------------------------- Centennial Communications Corp. (NASDAQ: CYCL) will restate its financial statements for the three and nine months ended February 28, 2005, to correct an error in the amount of deferred income taxes included in the calculation of the gain on disposition of the Company's previously owned cable television subsidiary, Centennial Puerto Rico Cable TV Corp. Centennial Cable was sold on December 28, 2004 and the disposition was accounted for as a discontinued operation. The correction of this error will result in non-cash adjustments to the Company's gain on disposition of discontinued operations, net income from discontinued operations, consolidated net income and total stockholders' deficit. The restatement will not affect previously reported revenue, adjusted operating income, cash flow or income from continuing operations. The net effect of the restatement as of and for the three and nine months ended February 28, 2005 is: * increase gain on disposition of discontinued operations by $24,272,000; * increase net income from discontinued operations by $15,579,000; * increase consolidated net income by $15,579,000; and * decrease total stockholders' deficit by $15,579,000. The Company's management believes that the accounting error inadvertent. The Company identified the error through application of certain internal controls that were implemented during the fiscal fourth quarter of 2005. Accordingly, the Company believes that, prior to year-end, it remediated the control weakness associated with these adjustments. The Company intends to present additional detail regarding the restatement in its Annual Report on Form 10-K for the year ended May 31, 2005. Centennial Communications (NASDAQ: CYCL), based in Wall, New Jersey, is a leading provider of regional wireless and integrated communications services in the United States and the Caribbean with over 1 million wireless subscribers. The U.S. business owns and operates wireless networks in the Midwest and Southeast covering parts of six states. Centennial's Caribbean business owns and operates wireless networks in Puerto Rico, the Dominican Republic and the U.S. Virgin Islands and provides facilities-based integrated voice, data, video and Internet solutions. Welsh, Carson Anderson & Stowe and an affiliate of the Blackstone Group are controlling shareholders of Centennial. For more information regarding Centennial, visit http://www.centennialwireless.com/ http://www.centennialpr.com/and http://www.centennialrd.com/ As of Feb. 28, 2005, Centennial Communications' stockholders' deficit narrowed to $487,810,000 compared to a $548,641,000 deficit at May 31, 2004. CESAR CEDANO: Case Summary & 20 Largest Unsecured Creditors ----------------------------------------------------------- Debtor: Cesar Cedano Herrera dba Mi Sala 1623 Avenue Jesus T. Pi�eiro San Juan, Puerto Rico 00920 Bankruptcy Case No.: 05-07055 Chapter 11 Petition Date: August 3, 2005 Court: District of Puerto Rico (Old San Juan) Debtor's Counsel: Carmen D. Conde Torres, Esq. C. Conde & Assoc. 254 Calle de San Jose, Suite 5 San Juan, Puerto Rico 00901-1523 Tel: (789) 729-2900 Estimated Assets: $1 Million to $10 Million Estimated Debts: $1 Million to $10 Million Debtor's 20 Largest Unsecured Creditors: Entity Claim Amount ------ ------------ AAA Unknown P.O. Box 70101 San Juan, PR 00936-8101 Banco Popular de Puerto Rico Unknown P.O. Box 362708 San Juan, PR 00936-2708 Banco Popular de Puerto Rico Unknown AMEX P.O. Box 70100 San Juan, PR 00936 BPPR Unknown Flexicuenta P.O. Box 70354 San Juan, PR 00936-8354 BPPR Unknown Multicuenta P.O. Box 70354 San Juan, PR 00936-8354 BPPR Unknown P.O. Box 70354 San Juan, PR 00936-8354 BPPR Unknown P.O. Box 70354 San Juan, PR 00936-8354 CRIM Unknown P.O. Box 195387 San Juan, PR 00918-5387 Department of Labor Unknown P.O. Box 1020 San Juan, PR Department of Treasury of Puerto Rico Unknown P.O. Box 902410 San Juan, PR 00902-4140 Doral Bank Unknown P.O. Box 308 Cata�o, PR 00963-0308 Doral Bank Unknown P.O. Box 71529 San Juan, PR 00936-8629 First Data Merchant Service Unknown P.O. Box 173845 Denver, CO 80217-3845 IRS Unknown Philadelphia, PA 19255 IRS Unknown Philadelphia, PA 19255 MBNA Unknown P.O. Box 15137 Wilmington, DE 19886-5137 State Insurance Fund Unknown P.O. Box 42006 San Juan, PR 00940-2006 Telecheck Unknown P.O. Box 60028 City of Industry, CA 91716-0028 VISA of PR Unknown P.O. Box 70100 San Juan, PR 00936 Wells Fargo Bank Unknown P.O. Box 29746 MAC # S4101-050 Phoenix, AZ 85038-9746 CHARTER COMMS: June 30 Equity Deficit Widens to $5.1 Billion ------------------------------------------------------------ Charter Communications, Inc. (Nasdaq: CHTR) reported financial and operating results for the three and six months ended June 30, 2005. The Company also provided its year to date results compared to pro forma results for the same 2004 period reflecting the sales of certain cable systems in March and April 2004 as if these sales occurred on Jan. 1, 2004. "Our focus on disciplined operational improvement is gaining traction, and beginning to show positive results," said Charter Interim President and CEO Robert May. "While customer additions were impacted by competition in certain markets and seasonality characteristic of the second quarter, we are gaining ground in terms of customer retention and additions, a result of our targeted approach to customer growth. We are encouraged by these mid-year results, but realize there is more to be done." During the second quarter of 2005 Charter: -- expanded its segmented approach to selling its products, tailoring marketing messages to various consumer categories; -- increased average monthly total revenue per analog video customer 10% and increased high-speed Internet (HSI) revenue per HSI customer 5% compared to the second quarter of 2004; -- added a net 5,600 revenue generating units (RGUs), driven by the addition of 43,800 HSI customers and 12,500 telephone customers, offset by the loss of 9,000 digital video customers and 41,700 analog video customers; -- continued to invest in new product opportunities including telephone and advanced set-top terminals; and -- grew revenues 7% and adjusted EBITDA 4% compared to the second quarter of 2004. "In the near term, we are focused on improving the value proposition for our customers; developing more sophisticated customer care capabilities; executing growth strategies for new services; managing our operating costs; and identifying opportunities to continue to improve our balance sheet and liquidity," said Mr. May. "And I'm confident we have the personnel, the infrastructure, the products and the services necessary to achieve our goals and objectives." Second Quarter Results Second quarter 2005 revenues were $1.323 billion, an increase of $84 million, or 7%, over second quarter 2004 revenues of $1.239 billion. The increase in revenues was primarily driven by growth in HSI revenues and average revenue per customer. For the three months ended June 30, 2005, HSI revenues increased $45 million, or 25%, reflecting 310,800 net additional HSI customers since June 30, 2004, as well as a 5% increase in average revenue per HSI customer in the second quarter of 2005 compared to the same 2004 period. Video revenues increased $15 million, or 2%, compared to the second quarter of 2004, primarily due to a 5% increase in average monthly video revenue per analog video customer and an increase in digital customers served, partially offset by the loss of analog video customers during the period. Commercial revenues increased $11 million, or 19%, and advertising sales revenues increased $3 million, or 4%, compared to the year ago quarter. Other revenue increased $10 million, or 12%, for the second quarter of 2005 compared to the second quarter of 2004, primarily due to increased telephone and franchise fee revenue. Second quarter 2005 operating costs and expenses were $825 million, an increase of $66 million, or 9%, compared to the year ago quarter. The rise in second quarter 2005 operating costs and expenses over 2004 primarily resulted from a $32 million, or 20%, increase in service costs, a $22 million, or 7%, increase in programming costs, and a $17 million, or 8%, increase in general and administrative costs. Increased labor and maintenance costs to support our infrastructure, increased equipment maintenance, an increase in franchise fees as a result of increased revenues and higher fuel prices drove the rise in service costs. Programming costs grew as a result of price increases, particularly in sports programming, partially offset by a decrease in analog video customers and a reduction related to changes in estimates of programming related liabilities resulting from the renewal of programming contracts during the quarter. General and administrative costs increased due to increases in salaries and benefits, property taxes and professional fees, partially offset by a decrease in bad debt expense. These increases were partially offset by a $5 million, or 14%, decrease in marketing costs, as the Company exercised discipline in spending while continuing to develop its segmented marketing approach. Charter reported income from operations of $110 million for the second quarter of 2005 compared to $15 million for the second quarter of 2004. The increase in income from operations was driven by variances discussed above, as well as a decrease of $89 million in special charges due to litigation costs recorded in the second quarter of 2004 related to the settlement of the securities class action lawsuits. Net loss applicable to common stock and loss per common share for the second quarter of 2005 were $356 million and $1.18, respectively. For the second quarter of 2004, Charter reported net loss applicable to common stock and loss per common share of $416 million and $1.39, respectively. The $60 million decrease in net loss applicable to common stock for the second quarter of 2005 compared to the same year ago period is primarily the result of changes in revenues and expenses discussed above, as well as gains on equity investments and extinguishment of debt. These increases were partially offset by increased interest expense and a small net loss on derivative instruments and hedging activities, compared to the net gain recorded for the second quarter of 2004. Year to Date Results Revenues for the six months ended June 30, 2005 were $2.594 billion, an increase of $170 million, or 7%, over pro forma revenues for the same 2004 period of $2.424 billion. For the six months ended June 30, 2005 operating costs and expenses were $1.621 billion, an increase of $127 million, or 9%, compared to the same pro forma year ago period. Service costs increased $56 million, or 18%, programming costs increased $55 million, or 8%, and general and administrative costs increased $15 million, or 4%, compared to the pro forma year ago period. Charter reported income from operations of $161 million for the six months ended June 30, 2005 compared to $78 million for the same pro forma 2004 period. The increase in income from operations was driven by variances discussed above, as well as a decrease of $95 million in special charges primarily due to litigation costs recorded in the second quarter of 2004 related to the settlement of the securities class action lawsuits, partially offset by $39 million of impairment charges recorded during the first six months of 2005 and the $104 million gain on sale of assets primarily related to assets sales occurring in March and April 2004. Liquidity Adjusted EBITDA totaled $498 million for the three months ended June 30, 2005, an increase of $18 million, or 4%, compared to the year ago period. Adjusted EBITDA for the six months ended June 30, 2005 was $973 million, an increase of 5% compared to pro forma adjusted EBITDA of $930 million for the six months ended June 30, 2004. Net cash flows from operating activities for the six months ended June 30, 2005 were $181 million, compared to $168 million for the year ago period. Expenditures for property, plant and equipment for the second quarter of 2005 were $331 million, compared to second quarter 2004 expenditures of $200 million. For the six months ended June 30, 2005 expenditures for property, plant and equipment were $542 million, while expenditures for the same 2004 period totaled $390 million. The increases were primarily driven by spending on scalable infrastructure related to telephone, video on demand and digital simulcast; support capital related to our investment in infrastructure and service improvements; and customer premise equipment primarily related to the continued demand for advanced digital set-tops. Un-levered free cash flow for the second quarter of 2005 was $167 million compared to second quarter 2004 un-levered free cash flow of $280 million. For the six months ended June 30, 2005, un- levered free cash flow was $431 million, compared to $553 million for the year ago period. The increases in 2005 capital expenditures more than offset adjusted EBITDA growth, resulting in lower un-levered free cash flow during the 2005 periods. Charter reported negative free cash flow of $219 million for the second quarter of 2005 compared to $60 million for the second quarter of 2004. Negative free cash flow for the six months ended June 30, 2005 was $326 million, compared to $87 million for the same 2004 period. Higher capital expenditures and interest on cash-pay obligations contributed to the increase in negative free cash flow. As of June 30, 2005, Charter had $19.2 billion of outstanding indebtedness and $40 million of cash on hand. Net availability of funds under the Charter Communications Operating, LLC credit facility was approximately $870 million. The Company believes cash on hand at June 30, 2005, cash flows from operating activities and the amounts available under its credit facilities will be sufficient to meet cash needs throughout 2005. Financing As part of the Company's previously announced ongoing efforts to improve liquidity and extend maturities, in June 2005, Charter Operating issued, in a private placement, approximately $62 million principal amount of new notes with terms identical to Charter Operating's 8.375% Senior Second Lien Notes due 2014, in exchange for $62 million of Charter Communications Holdings, LLC 8.25% Senior Notes due 2007. During second quarter 2005, Charter also purchased, in private transactions, from a small number of institutional holders, a total of $97 million principal amount of the 4.75% convertible senior notes due 2006, leaving $25 million principal amount outstanding. In July 2005, the Securities Exchange Commission declared effective the registration on Form S-1 covering both the convertible senior notes due 2009 and the related share lending agreement. On July 29, 2005, Charter completed the first issuance of Class A common stock under the share lending agreement. The Company issued 27.2 million shares of stock at $1.25 per share. Charter may offer up to an additional 122.8 million more in future offerings. Charter will not receive any of the proceeds from the sale of Class A common stock under the share lending agreement. Charter Communications, Inc. -- http://www.charter.com/-- a broadband communications company, provides a full range of advanced broadband services to the home, including cable television on an advanced digital video programming platform via Charter Digital(TM), Charter High-Speed(TM) Internet service and Charter Telephone(TM). Charter Business(TM) provides scalable, tailored and cost-effective broadband communications solutions to organizations of all sizes through business-to-business Internet, data networking, video and music services. Advertising sales and production services are sold under the Charter Media(R) brand. At June 30, 2005, Charter Communications' balance sheet showed a $5.1 billion in stockholders' deficit, compared to a $4.4 billion at Dec. 31, 2004. COLLINS & AIKMAN: Ford & Labor Union Object to Contract Rejection ----------------------------------------------------------------- The motion of the Official Committee of Unsecured Creditors in Collins & Aikman Corporation and its debtor-affiliates' chapter 11 cases to reject all unprofitable, burdensome contracts and close or moth ball all unprofitable plants drew objection from United Steelworkers and Ford Motor Company. United Steelworkers The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union has been the bargaining agent of about 2,800 production and maintenance employees of the Debtors and its non-debtor affiliate Collins & Aikman Canada, Incorporated. The United Steelworkers represents employees at: -- the Debtors' facilities at Canton, in Ohio; and Athens, Nashville, and Springfield, in Tennessee; and -- non-debtor Collins & Aikman Canada's facilities at Gananoque, Kitchener, Mississauga, Port Hope, and Stratford, in Ontario, Canada. In addition, the United Steelworkers recently received a majority of votes in a National Labor Relations Board representation election concerning the Debtors' facility at Americus, in Georgia. The Debtors filed administrative objections to the results of that election. Bruce A. Miller, Esq., at Miller Cohen, PLC, in Detroit, Michigan, relates that by virtue of the obligations owing under many collective bargaining agreements with the Debtors, the United Steelworkers is one of the largest creditors of the Debtors' estates, and serves as a member of the Official Committee of Unsecured Creditors. The United Steelworkers shares the Committee's strong concerns about the "cash burn" and correlation of these losses to the structure and pricing of the Debtors' contract with its customers. The United Steelworkers likewise share the Committee's desire that the Debtors promptly engage all key stakeholder in the near term to negotiate the reorganization of the Debtors' businesses. However, the United Steelworkers parts way with the Committee in respect to its request to immediately shut down all unprofitable plants. The Committee cites no authority supporting this extraordinary remedy. The United Steelworkers want to protect the jobs of its members in the United States and Canada from the Committee's blunderbuss approach. The United Steelworkers recently received a copy of a brief and inconclusive listing of the Debtors' "underperforming" plants. Mr. Miller notes that the brief listing does not contend that the so-called "underperforming" plants are failing to meet fixed costs. Thus, the Committee's desire to take these plants out of operation will deprive the estate of the revenue generated through continue operation, Mr. Miller argues. According to Mr. Miller, the United Steelworkers is not aware of any analysis addressing of alternative ways in which the Debtors could improve the productivity and reduce costs at each of their plants so at to improve profitability. The United Steelworkers is also not aware of any analysis of future market trends that would reflect whether a facility that is presently unprofitable may someday become profitable because of changing conditions. In addition, the United Steelworkers is not aware of any analysis of the environmental remediation costs that would be associated with the shutdown of any of the Debtors' facilities. Without this necessary data, the Court could never determine that the closure of any of the Debtors' facilities comports with sound business judgment. "In short, the Committee asks the Court to authorize the Debtors to shutdown its facilities blind to the effect that the closure of any particular facility could have on the overall reorganization," Mr. Miller asserts. The United Steelworkers encourages all parties-in-interest to engage immediately in good faith negotiations directed at preserving these businesses. The United Steelworkers recognizes that it and other unions representing the Debtors' employees may have substantial role to play in this process. Ford "The Committee's Motion to Compel is without purpose, and the relief requested is without basis in law. To grant the motion would be to permit the Committee to usurp the Debtors' rights in this case without justification," Stephen S. LaPlante, Esq., at Miller, Canfield, Paddock & Stone, PLC, in Detroit, Michigan, argues. Ford Motor Company points out that the Debtors are just beginning to review their contracts and do not know which ones are unprofitable or whether unprofitable contracts are their primary problem. However, without any factual basis, the Committee is completely convinced that the contracts are the problem, Mr. LaPlante notes. While the Committee claims to want to promote a fair and equitable renegotiation of the unprofitable contracts, the Motion seeks to force a solution that can only harm the Debtors by poisoning their long-term customer relationships, Mr. LaPlante says. The Committee's proposed solution is in stark contrast to the framework already worked out among the Debtors and their six largest customers, including Ford, according to Mr. LaPlante. Even as the Committee was drafting its request, the Debtors and their customers were hard at work setting up financial relief to afford the Debtors the time needed to begin the process of reviewing their contracts and renegotiating any identified as being unprofitable. Mr. LaPlante reminds the Court that the customers, including Ford, accepted, for purposes of moving the Debtors' cases forward, the Debtors' assumption that some of the contracts must be unprofitable and put together a financing package containing $82.5 million of price increases to tide the Debtors over while the contracts could be reviewed. Headquartered in Troy, Michigan, Collins & Aikman Corporation -- http://www.collinsaikman.com/-- is a global leader in cockpit modules and automotive floor and acoustic systems and is a leading supplier of instrument panels, automotive fabric, plastic-based trim, and convertible top systems. The Company has a workforce of approximately 23,000 and a network of more than 100 technical centers, sales offices and manufacturing sites in 17 countries throughout the world. The Company and its debtor-affiliates filed for chapter 11 protection on May 17, 2005 (Bankr. E.D. Mich. Case No. 05-55927). When the Debtors filed for protection from their creditors, they listed $3,196,700,000 in total assets and $2,856,600,000 in total debts. (Collins & Aikman Bankruptcy News, Issue No. 9; Bankruptcy Creditors' Service, Inc., 215/945-7000) COLLINS & AIKMAN: J.R. Automation Wants to Get Paid for Equipment ----------------------------------------------------------------- On August 31, 2004, Collins & Aikman Corporation issued a purchase order for the purchase of a square disc processing system with bowl feeder for discs and foam to be manufactured by J.R. Automation Technologies, LLC, successor by merger to J.R. Automation Technologies, Inc. As of February 3, 2005, the Equipment was substantially complete. However, J.R. Automation refused to deliver the Equipment unless it is paid for in cash or adequate assurance of payment is provided. J.R. Automation believed that the Debtors were insolvent at that time. Timothy Hillegonds, Esq., at Warner Norcross & Judd LLP, in Grand Rapids, Michigan, relates that J.R. Automation has not delivered the Equipment and has not transferred title to the Debtors. Therefore, the Equipment is not property of the estate. As a precaution, J.R. Automation filed a financing statement with the states of Delaware and Michigan pursuant to the Michigan Special Tools Lien Act to obtain a statutory lien on the Equipment. J.R. Automation asked the Debtors to determine whether they will take delivery of and title to the Equipment upon payment. However, the Debtors have not responded. Moreover, no payment has been received. The Debtors owe J.R. Automation $1,652 for the Equipment. J.R. Automation asks the Court to lift the automatic stay to allow it to take all steps necessary to either: a. treat the nonpayment of the purchase price for the Equipment as a default of the Purchase Order and resell the Equipment; b. cancel the Purchase order under Section 440.2703 of the Michigan Compiled Laws Annotated; or c. exercise any other rights that it may have under the provisions of state law. Headquartered in Troy, Michigan, Collins & Aikman Corporation -- http://www.collinsaikman.com/-- is a global leader in cockpit modules and automotive floor and acoustic systems and is a leading supplier of instrument panels, automotive fabric, plastic-based trim, and convertible top systems. The Company has a workforce of approximately 23,000 and a network of more than 100 technical centers, sales offices and manufacturing sites in 17 countries throughout the world. The Company and its debtor-affiliates filed for chapter 11 protection on May 17, 2005 (Bankr. E.D. Mich. Case No. 05-55927). When the Debtors filed for protection from their creditors, they listed $3,196,700,000 in total assets and $2,856,600,000 in total debts. (Collins & Aikman Bankruptcy News, Issue No. 9; Bankruptcy Creditors' Service, Inc., 215/945-7000) COLLINS & AIKMAN: Wants to Extend Deadline to Remove Actions ------------------------------------------------------------ Collins & Aikman Corporation and its debtor-affiliates ask the U.S. Bankruptcy Court for the Eastern District of Michigan to extend the time within which they may file notices of removal of the actions until the date an order is entered confirming a plan or reorganization in their Chapter 11 cases. Joseph M. Fischer, Esq., at Carson Fischer, P.L.C., in Birmingham, Michigan, tells the Court that the Debtors are involved in a variety of cases, including employment-related litigation and administrative proceedings, environmental cases, asbestos-related cases, contract disputes, personal injury cases, securities litigation and a number of collection matters. At this stage of their Chapter 11 cases, the Debtors have not had an opportunity to determine which Actions they will seek to remove. Since the Petition Date, the Debtors and their advisors have been focused on activities that are critically important to their reorganization, including stabilizing and maintaining day-to-day operations, developing and implementing an overall business plan to serve as the basis for a plan or reorganization, analyzing and negotiating contracts and relationships with customers and suppliers, and preparing the schedules of assets and liabilities and statements of financial affairs -- in addition to responding to numerous pleading filed by the Official Committee of Unsecured Creditors and other third parties. Thus, Mr. Fischer notes, the Debtors have not had sufficient time to analyze the Actions and make the appropriate determinations concerning their removal before the deadline. As of the Petition Date, the Debtors were parties to about 100 civil actions pending in various forums. Most, if not all, of the Actions are subject to removal pursuant to Section 1452 of the Judiciary Code, which applies to claims relating to bankruptcy cases. Mr. Fischer relates that the Debtors' decision whether to seek removal of any particular Action will depend on a number of factors, including: a) the importance of the Action to the expeditious resolution of the Debtors' Chapter 11 cases; b) the time it would take to complete the Action in its current venue; c) the presence of federal questions in the proceeding that increase the likelihood that one or more aspects thereof will be heard by a federal court; d) the relationship between the Action and matters to be considered in connection with the Debtors' plan of reorganization, the claims allowance process and the assumption or rejection of executory contracts; and e) the progress made to date in the Action. The Debtors believe that the extension will provide their management and advisors sufficient time to consider and make fully informed decisions and will ensure that the Debtors' valuable rights can be exercised in an appropriate manner. Mr. Fischer explains that the rights of the parties to the Actions will not be prejudiced by the extension since the Actions will not be proceeding in their courts due to the automatic stay. Headquartered in Troy, Michigan, Collins & Aikman Corporation -- http://www.collinsaikman.com/-- is a global leader in cockpit modules and automotive floor and acoustic systems and is a leading supplier of instrument panels, automotive fabric, plastic-based trim, and convertible top systems. The Company has a workforce of approximately 23,000 and a network of more than 100 technical centers, sales offices and manufacturing sites in 17 countries throughout the world. The Company and its debtor-affiliates filed for chapter 11 protection on May 17, 2005 (Bankr. E.D. Mich. Case No. 05-55927). When the Debtors filed for protection from their creditors, they listed $3,196,700,000 in total assets and $2,856,600,000 in total debts. (Collins & Aikman Bankruptcy News, Issue No. 9; Bankruptcy Creditors' Service, Inc., 215/945-7000) CREST 2002-IG: Fitch Holds BB Rating on $14 Million Class D Notes ----------------------------------------------------------------- Fitch Ratings upgrades one class and affirms three classes of notes issued by CREST 2002-IG, Ltd. These rating actions are effective immediately: The rating on these classes has been upgraded: -- $78,000,000 class B notes to 'AA' from 'A+'; The ratings on these classes have been affirmed: -- $512,211,034 class A notes at 'AAA'; -- $40,000,000 class C notes at 'BBB+'; -- $14,000,000 class D notes at 'BB'. CREST 2002-IG is a collateralized debt obligation that closed on May 16, 2002. CREST 2002-IG is composed of 34% senior unsecured real estate investment trust securities and 66% commercial mortgage-backed securities, and was selected by the collateral administrator, Structured Credit Partners, LLC, a subsidiary of Wachovia Corporation, prior to closing. The collateral administrator is limited to sales of credit impaired, credit risk, and defaulted securities. Fitch has reviewed the credit quality of the individual assets comprising the portfolio. In addition, Fitch conducted cash flow modeling utilizing various default timing and interest rate scenarios. Since the last rating action in September 2004, 18.9% of the portfolio collateral has been upgraded, 14.3% by more than one rating notch. The rating upgrade reflects the positive rating migration and increased seasoning of the portfolio. According to the trustee report dated July 30, 2005, all the coverage and portfolio quality tests are passing their trigger levels. Additionally, no collateral has defaulted since closing. The rating of the class A notes addresses the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The ratings of the class B notes, class C notes and class D notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. Fitch conducted cash flow modeling utilizing various default timing and interest rate scenarios to measure the breakeven default rates going forward relative to the minimum cumulative default rates required for the rated liabilities. As a result of this analysis, Fitch has determined that the original ratings assigned to the class A, class C and class D notes still reflect the current risk to noteholders, however the current ratings assigned to the class B notes no longer reflect the current risk to noteholders and has subsequently improved since closing. Fitch will continue to monitor and review these transactions 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/ CUMMINS INC: S&P Lifts Rating on $28 Million Series 2001-4 Certs. ----------------------------------------------------------------- Standard & Poor's Ratings Services raised its rating on the $28,000,000 Structured Asset Trust Unit Repackagings Cummins Engine Co. Debenture-Backed Series 2001-4 certificates to 'BBB-' from 'BB+'. The rating action reflects the raising of the corporate credit and senior unsecured ratings on Cummins Inc. on July 28, 2005. Structured Asset Trust Unit Repackagings Cummins Engine Co. Debenture-Backed Series 2001-4 certificates is a swap-independent synthetic transaction that is weak-linked to the underlying collateral, Cummins Inc.'s 5.65% debentures due March 1, 2098. DEAN FOODS: Earns $81.2 Million of Net Income in Second Quarter --------------------------------------------------------------- Dean Foods Company (NYSE: DF) earned $0.52 per diluted share from continuing operations for the quarter ended June 30, 2005, as compared to $0.39 per diluted share from continuing operations in the second quarter of 2004. Net income from continuing operations for the second quarter of 2005 totaled $81.2 million, compared with $63.3 million in the prior year second quarter. On an adjusted basis, diluted earnings from continuing operations increased 36% to $0.53 per share, compared to $0.39 in last year's second quarter. Adjusted net income from continuing operations for the second quarter was $82.7 million compared to $63.3 million in the second quarter of 2004. "Our second quarter results demonstrate further progress toward meeting our operational and strategic goals," said Gregg Engles, chairman and chief executive officer. "Our Dairy Group turned in another strong quarter, and WhiteWave Foods posted significantly increased profitability. Additionally, we successfully completed the spin-off of TreeHouse Foods, signed a definitive agreement to divest our Marie's dressings and Dean's dips businesses, and lowered our future interest expense through an amendment of our bank credit facility." Net sales for the second quarter totaled $2.6 billion, on par with the second quarter of 2004, primarily due to higher fluid dairy volumes and increased sales at WhiteWave Foods, which were offset by the pass-through of lower raw milk and butterfat costs in the Dairy Group. Consolidated operating income from continuing operations in the second quarter totaled $173.5 million versus $147.2 million in the second quarter of 2004. Adjusted second quarter operating income totaled $175.9 million, a 19.5% increase compared to $147.2 million in the second quarter of 2004. The company's adjusted second quarter 2005 operating margin was 6.71%, up 110 basis points versus the second quarter of the prior year. The increase in the consolidated operating margin was primarily due to the positive impact of lower raw milk and butterfat costs and increased profitability at WhiteWave Foods. Included in operating income for the second quarter of 2005 is a $3.9 million charge, which represents one half of the total expense related to the accelerated vesting of stock units issued to key employees in January 2003. The balance of this expense, or approximately $0.02 per share net of tax, will be recognized in the third quarter of 2005. The acceleration of these stock units occurred because the price of the company's common stock achieved a price appreciation target that represents an increase of more than 50% from the stock price on the date of the grant. Offsetting second quarter expenses is a gain of $4.5 million recorded in the second quarter due to the favorable settlement of class action litigation related to high-fructose corn syrup purchases made by the company in prior years. The company repaid $117.4 million of debt during the second quarter, bringing total debt repayments for the year to $269.1 million. Long-term debt as of June 30, 2005 was approximately $3.0 billion, including $56 million due within one year that is reported as part of current liabilities. At the end of the quarter, approximately $1 billion of the company's senior credit facility was available for future borrowings. Segment Results Dairy Group net sales for the second quarter were $2.2 billion, 2% lower than the second quarter of 2004. The sales decrease was primarily due to the pass-through of lower raw milk and butterfat costs, partially offset by a 4.1% increase in fluid milk volumes. The Class I mover, which is an indicator of the company's raw milk costs, averaged $14.18 per hundredweight in the second quarter of 2005, 22% lower than the same period in 2004. Dairy Group operating income in the second quarter was $175.1 million, an increase of 11% over last year. Operating margins increased 90 basis points to 7.8% of sales due primarily to the positive impact of lower raw milk and butterfat costs, and the receipt of the $4.5 million settlement from class action litigation related to prior period high-fructose corn syrup purchases. WhiteWave Foods reported second quarter net sales of $284.1 million, a 12% increase compared to the second quarter of 2004. The increase was driven by sales growth in the company's core brands. Operating income for WhiteWave Foods in the second quarter was $28.7 million, an increase of 160% over the $11.0 million reported in the second quarter of 2004. Operating margin for the second quarter of 2005 was 10.1%, an increase of 574 basis points compared to the prior year second quarter. The improvement in operating margin was the result of sales growth, increased manufacturing and distribution efficiency and lower year over year marketing spending during the quarter. Recent Developments * On June 27, the company completed the previously announced spin-off of its Specialty Foods division, now known as TreeHouse Foods. The newly created firm is headquartered in the Chicago, Illinois area and trades on the NYSE under the ticker symbol "THS". * As part of management's strategy to further focus the company on its core dairy and branded businesses, Dean Foods recently entered into an agreement to sell its Marie's dressings and Dean's dips businesses to Ventura Foods. Pending customary governmental antitrust review, the company expects the transaction to close in the third quarter. The sale is expected to be approximately $0.02 dilutive to the balance of the year. * During the quarter the company successfully amended its bank credit facility to reduce borrowing costs. * Subsequent to the end of the second quarter, the Company has made open market purchases of its common stock totaling 1.9 million shares for a total cost of $68.8 million. The Company has $49.2 million remaining under its current repurchase authorization. Outlook for the Remainder of 2005 "Our business outlook for the remainder of the year has improved. Based on second quarter results that exceeded our expectations and continuing strong business trends, we believe that operating performance for the year will be better than our previous expectations," said Mr. Engles. "We expect this improvement in our business outlook to increase earnings per share by approximately three cents. This increase is offset by approximately four cents due to the dilution from the divestiture of Marie's dressings and Dean's dips businesses and the acceleration of employee stock unit vesting. Our expectations are now for earnings to range between $1.97 and $2.02 per share in 2005. For the third quarter, we anticipate adjusted earnings from continuing operations of between $0.49 and $0.51 per share." The company's earnings guidance excludes the impact of facility closing and reorganization costs and any non-recurring or one-time gains or losses. Results for Six Months ended June 30, 2005 The company's net sales from continuing operations increased 6% to $5.2 billion for the six months ended June 30, 2005, compared with $4.9 billion during the first six months of 2004. The increase was due to sales growth at WhiteWave Foods and volume growth in the Dairy Group, which was partially offset by the pass-through of lower raw dairy commodity costs. Net income from continuing operations for the first half of the year totaled $137.0 million, compared with $119.4 million in the first six months of 2004. Diluted earnings per share from continuing operations for the six months ended June 30, 2005 totaled $0.88, compared with $0.73 in the first six months of 2004. On an adjusted basis, net income from continuing operations for the six months totaled $144.3 million, an increase of 16% over $124.1 million in the same period of 2004. Adjusted diluted earnings per share from continuing operations for the first six months of 2005 totaled $0.92 compared with $0.76 in the first six months of 2004. The company reported operating income for the six-month period ended June 30, 2005 of $306.9 million versus $278.9 million in the same period of 2004. Adjusted operating income for the first six months of 2005 totaled $318.8 million, an increase of 11% versus $286.5 million in the same period of last year. Adjusted operating income margins for the six months were 6.13%, an increase of 29 basis points versus the prior year's first six months. For the quarter ended June 30, 2005, the adjusted results reported above differ from the company's results under GAAP by excluding a $2.4 million charge ($1.5 million net of tax) primarily related to previously announced reorganizations and facility closings, including consolidation of WhiteWave Foods Company. For the six months ended June 30, 2005, the adjusted results reported above differ from the company's results under GAAP by excluding: a) an $8.8 million charge ($5.4 million net of tax) related to consolidation activities at WhiteWave Foods and previously announced reorganizations and facility closings in the Dairy Group, and b) a $3.1 million charge ($1.9 million net of tax) related to severance payments made to the former president of WhiteWave Foods. For the six months ended June 30, 2004, the adjusted results reported above differ from the company's results under GAAP by excluding a net $7.6 million charge ($4.6 million net of income tax) related to Dairy Group plant closings in Madison Wis., South Gate Calif., San Leandro Calif., and Wilkesboro N.C., which was partly offset by a gain on the sale of a Dairy Group plant closed in Hawaii in 2003. Dean Foods Company is one of the leading food and beverage companies in the United States. Its Dairy Group division is the largest processor and distributor of milk and other dairy products in the country, with an extensive refrigerated direct- store-delivery network. Through its WhiteWave and Horizon Organic brands, Dean Foods Company also owns the nation's leading soymilk and organic milk brands. The company's Specialty Foods Group is a leading manufacturer of private label pickles and non- dairy powdered coffee creamers. Dean Foods Company and its subsidiaries operate approximately 120 plants in 36 U.S. states, Spain, Portugal and the United Kingdom, and employ approximately 29,000 people. * * * As reported in the Troubled Company Reporter on Feb. 1, 2005, Fitch Ratings has affirmed the ratings for Dean Foods Company following the announcement that Dean will pursue a tax-free spin-off of its Specialty Foods Group to Dean shareholders. Fitch rates Dean's: -- Senior secured credit facility 'BBB-'; -- Senior unsecured notes 'BB'. -- Rating Outlook Positive. As of Sept. 30, 2004, Dean had approximately $3.3 billion of debt. For the latest 12 months ended Sept. 30, 2004, Dean's total debt- to-earnings before interest taxes depreciation and amortization (EBITDA) was 3.8 times, its EBITDA-to-interest incurred was 5.0x, and its net cash from operating activities-to-total debt was 13.6%. DEPARTMENT 56: S&P Rates Proposed $275 Million Senior Loan at BB- ----------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B+' corporate credit rating to giftware and tabletop wholesaler Department 56 Inc. At the same time, Standard & Poor's assigned its 'BB-' rating and its '1' recovery rating to the company's proposed $275 million senior secured credit facilities. The credit facilities are rated one notch higher than the corporate credit rating; this and the '1' recovery rating indicate that lenders can expect full recovery of principal in the event of a default or bankruptcy. All ratings are based on preliminary offering statements and are subject to review upon final documentation. Proceeds from the new credit facilities will be used to finance Department 56's announced $190 million acquisition of tabletop products manufacturer and distributor Lenox Inc. from Brown-Forman Corp. (A/Stable/A-1). The outlook is negative. Standard & Poor's estimates that Department 56 will have about $203.5 million of total debt outstanding upon the closing of the transaction. The ratings on Department 56 reflect its: * narrow business focus, * limited size, * customer concentration, and * leveraged financial profile. Somewhat mitigating these factors are Lenox's portfolio of well- recognized brands and leading market positions within select categories of the highly competitive, fragmented giftware and tabletop industries. "Although the acquisition will significantly increase Department 56's scale and breadth of product offering, we are concerned with the company's ability to integrate this sizable acquisition," said Standard & Poor's credit analyst David Kang. DUANE READE: Posts $10.3 Million Net Loss in Second Quarter ----------------------------------------------------------- Duane Reade Holdings, Inc., reported financial results for the second quarter and first half ended June 25, 2005. Second Quarter Results Net sales were $399.5 million compared to $402.1 million in the previous year. The decline was entirely due to reduced levels of pharmacy resale activity. Total store sales were $374.6 million, up 2.6% over the previous year. Total same-store sales increased 0.5%, with a pharmacy same-store sales increase of 0.2% and a front-end same-store sales increase of 0.7%. The percentage of more profitable but lower-priced generic prescriptions to total prescriptions increased by 4.7% over the previous year resulting in a negative impact on pharmacy same-store sales of 2.8%. Pharmacy same-store sales were also adversely impacted by 1.9% due to the negative publicity and reduced consumer demand for arthritis medications and certain other high volume drugs and approximately 1.4% due to increased mail order penetration resulting from conversion of certain third party plans to mandatory mail order requirements. The front-end same-store sales increase reflects the favorable impact of the improved Dollar Rewards customer loyalty card program implemented in March 2005 as well as a generally improved level of consumer demand observed since the end of last year. The front-end same-store sales increase was adversely impacted by approximately 0.5% due to the shift of Easter holiday sales into the first quarter this year from last year's second quarter. Net loss was $10.3 million, compared to net income of $2.5 million in the previous year. The loss reflects: (i) increased non-cash depreciation and amortization expenses of $8.6 million resulting from the application of purchase accounting related to the July 30, 2004 acquisition of the Company; (ii) increased interest expenses of $8.2 million, primarily related to higher debt levels resulting from refinancing the Company's debt as part of the same acquisition; (iii) higher consulting and litigation-related legal expenses of $1.9 million; (iv) non-cash acquisition-related lease accounting expenses of $1.4 million; (v) reduced real estate related income of $1.1 million; (vi) higher acquisition transaction and related costs of $700,000; and (vii) increased store labor costs. These items were partially offset by a tax benefit of $8.3 million compared to a tax provision of $1.6 million last year. Cash flow provided by operating activities was $8.0 million or 2.0% of sales, compared to $7.8 million or 2.0% of sales in the previous year. "During the second quarter we continued to roll out several major projects to improve customer service throughout our stores and strengthen operations," Anthony J. Cuti, Chairman of the Board and Chief Executive Officer, said. "Specifically, with respect to the front-end we have introduced new merchandising and promotional programs that include stronger incentives for the Dollar Rewards frequent shopper program and this contributed to increases in both customer traffic and the frequency of customer visits. As a result, we posted the second consecutive quarter of positive front-end same-store sales increases and the trend has continued into the early part of the third quarter. With respect to pharmacy sales, while this portion of our business continues to be challenged, our direct purchasing programs and increased utilization of generic alternatives have continued to result in improved pharmacy margins. We expect these specific programs, as well as an ongoing focus on inventory management and shrink reduction, to further strengthen our sales and earnings performance in the second half." First Half Results Net sales for the first half increased to $794.3 million from $785.4 million in the previous year. Total store sales were $741.3 million reflecting an increase of 3.7% over the prior year. Total same-store sales increased 1.2%, with pharmacy and front-end same- store increases of 1.1% and 1.3%, respectively. The aforementioned factors impacting second quarter store sales were largely operative for the first half as well. Net loss for the six month period was $23.1 million, compared to net income of $4.3 million in the previous year. The decline is attributable to: (i) an increase in non-cash depreciation and amortization expenses of $17.2 million resulting from the application of acquisition-related purchase accounting; (ii) an interest expense increase of $16.0 million primarily attributable to debt-related financing associated with the July 30, 2004 acquisition of the Company; (iii) increased consulting and litigation-related legal costs of $3.9 million; (iv) higher non-cash store occupancy expenses of $3.1 million associated with acquisition-related lease accounting; (v) reduced real estate related income of $1.9 million; and (vi) higher labor costs. These costs were partially offset by a tax benefit of $18.8 million, compared to a tax provision of $2.9 million in the previous year. During the first half, the Company opened three new stores and closed eight stores, compared with seven new stores opened and one store closed in the prior year period. Pre-opening expenses were $0.2 million, compared to $0.4 million in the previous year. Accounting Restatements The Company filed a Form 10-K/A on May 16, 2005 summarizing the impact of certain restatements resulting from changes in accounting practices. Founded in 1960, Duane Reade is the largest drug store chain in the metropolitan New York City area, offering a wide variety of prescription and over-the-counter drugs, health and beauty care items, cosmetics, greeting cards, photo supplies and photofinishing. As of June 25, 2005, the Company operated 250 stores. * * * As reported in the Troubled Company Reporter on May 27, 2005, Moody's Investors Service downgraded all ratings of Duane Reade Inc., including the second-lien senior secured notes (2010) to B3 and the 9.75% senior subordinated notes (2011) to Caa2, and assigned a negative rating outlook. The rating downgrade was prompted by weak operating performance even as the New York metro economy has recovered over the previous year and Moody's belief that the high fixed charge burden will challenge Duane Reade's ability to soon become free cash flow positive. The negative rating outlook considers that ratings could again be lowered within the next 12 to 18 months if working capital uses cash or liquidity becomes a concern. Ratings downgraded are: -- $160 million second-lien senior secured notes (2010) to B3 from B2; -- $195 million 9.75% senior subordinated notes (2011) to Caa2 from Caa1; -- Senior implied rating to B3 from B2; and the -- Long-term issuer rating to Caa3. Moody's does not rate the $250 million revolving credit facility that is collateralized by a first-lien on accounts receivable, inventory, and pharmacy prescription files. DUANE READE: Moody's Junks $50 Mil. Sr. Second Lien Notes Add-On ---------------------------------------------------------------- Moody's Investor's Service assigned a Caa1 rating to the proposed $50 million face value add-on to the existing issue of $160 million floating rate 2nd-Lien notes (2010) of Duane Reade, Inc, downgraded to Caa1 the existing floating rate notes (2010), and downgraded to Caa3 the 9.75% senior subordinated notes (2011). Net proceeds from the incremental debt will be used to pay down the unrated 1st-Lien secured revolving credit facility. As part of the transaction, the revolving credit facility commitment will be reduced to $225 million from $250 million. The downgrade reflects Moody's concern that cash flow may not materially exceed cash interest expense over the next four quarters and the uncertain prospects of management's plans to reduce leverage and improve the company's cash flow profile by enhancing operations and inventory efficiency. The rating outlook is stable. These rating is assigned: -- $50 million add-on to the floating rate senior second-lien notes (2010) at Caa1. The other ratings are lowered as: -- $160 million floating rate senior second-lien notes (2010) to Caa1 from B3, -- $195 million 9.75% senior subordinated notes (2011) to Caa3 from Caa2, and the -- Corporate Family Rating (previously called the Senior Implied Rating) to Caa1 from B3. Moody's does not rate the revolving credit facility that is collateralized by a first-lien on accounts receivable, inventory, and pharmacy prescription files. Negatively impacting the ratings are: * the company's highly leveraged financial condition; * the exposure to the economic fortunes of a restricted geographic region (Manhattan and surrounding areas); and * Moody's opinion that free cash flow will remain negative even with a scaled-back store development program. Also limiting the ratings are: * recent pressures on merchandise margins partially due to high shrink and reduced vendor incentives; * Moody's belief that further profitable expansion within Manhattan will prove challenging given the existing density of Duane Reade locations; and * the high level of competition from large drugstore chains in the outer boroughs and suburbs. The ratings also incorporate the risk that business partners could become concerned about operating and liquidity trends. However, the ratings recognize: * the company's leading market share in New York City generally (and Manhattan specifically); * Moody's expectation that revolving credit facility availability will cover free cash flow deficits beyond the end of 2006; and * the relatively small maintenance capital expenditure requirement given the modern condition of the company's store base. The expectation that prescription drug sales will strengthen and Moody's opinion that the company has significant asset value in the form of accounts receivable, inventory, prescription drug files, and below-market leases also benefit the ratings. The stable rating outlook at the new outlook acknowledges Moody's opinion regarding recovery value in a distressed scenario. A further downgrade is currently unlikely, but would occur if asset coverage were to materially decline. Over the medium-term, ratings could migrate upward if average unit volume and operating profit trends reverse such that cash flow (as measured by EBITDA) covers capital investment and cash interest expense and the company has reasonable prospects for improving leverage and fixed charge coverage. The Caa1 rating on the senior secured notes considers that, in addition to guarantees from the operating subsidiaries, this class of debt has a second priority lien relative to the unrated revolving credit facility with respect to the most easily monetizable assets of accounts receivable, inventory, and pharmacy files. The secured notes have a first-lien on all other tangible and intangible assets. Moody's believes that recovery on this class of debt would be high in a hypothetical default scenario. The Caa3 rating on the 9.75% senior subordinated (2011) note issue considers the guarantees of the company's operating subsidiaries. However, this subordinated class of debt is contractually junior to significant amounts of more senior obligations. The more senior claims principally are comprised of the revolving credit facility, the secured notes, and $88 million of trade accounts payable. In a hypothetical default scenario with the revolving credit facility fully utilized, Moody's does not expect that residual enterprise value after liquidation of tangible assets and repayment of the secured debt would cover this class of debt. Recent marketing initiatives and efforts to limit shrink on the front-end have not been successful, and pharmacy sales have been notably impacted following the introduction of mandatory mail- order by several local third-party payers. EBITDA margin (excludes one-time charges) declined to 3.0% in the first half of 2005 from 4.9% and 5.4% in the same periods of 2004 and 2003, respectively. Relative to earlier expectations, Moody's now believes that delays in revenue and operating profit growth will postpone substantial improvements in financial flexibility. Even assuming the success of initiatives to improve sales and reduce shrink over the second half of 2005, Moody's expects that the company will experience free cash flow deficits in 2005 and 2006. For at least the next twelve months, Moody's anticipates that excess availability on the revolving credit facility will remain greater than the maintenance level so the sole financial covenant (fixed charge coverage) will not become a constraint. Duane Reade Inc, headquartered in New York City, operates 250 drug stores principally in Manhattan and the outer boroughs of New York City. Revenue for the twelve months ending June 2005 equaled $1.6 billion. DUANE READE: S&P Junks Proposed $50 Million Senior Notes -------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'CCC+' rating to Duane Reade Inc.'s proposed $50 million senior floating-rate notes due 2010, which are being issued under Rule 144A with registration rights. Proceeds from the notes will be used to repay a portion of the company's existing $250 million asset-based revolving credit facility. Upon completion of the transaction, the revolving credit facility will be reduced to $225 million. Existing ratings on Duane Reade, including the 'CCC+' corporate credit rating, were affirmed. The outlook is negative. "Ratings reflect Duane Reade's leveraged capital structure, thin cash flow protection measures, weak financial flexibility, and narrow geographic focus," explained Standard & Poor's credit analyst Diane Shand. The company is one of the largest drug chains in the New York metropolitan area; more than half of its 250 stores are in Manhattan. Duane Reade's operating performance has been declining since the fourth quarter of 2001. The company's operating margin fell to 11.8% in 2004, from 12.5% the previous year and a high of 16.4% in 2000. The margin dropped to 11.2% in the first half of 2005 from 12.6% in the prior-year period. The erosion is attributable to: * weak sales of high-margin front-end merchandise, * increased labor expense, * an increased portion of low-margin pharmacy sales, and * greater competition from national drugstore chains and the mail-order divisions of pharmacy benefit managers. Margins are expected to remain under pressure in the near term, as Duane Reade's front-end merchandising strategy appears to be struggling and PBMs' mail order businesses are taking share from its pharmacy business. Cash flow protection measures are very thin, with EBITDA coverage of interest at 1.1x for the 12 months ended June 25, 2005. Because of the sharp drops in EBITDA, leverage has increased dramatically. Total debt to EBITDA was 10.8x for the 12 months ended June 25, 2005. DUKE FUNDING: Fitch Rates $32 Million Subordinated Notes at BB+ --------------------------------------------------------------- Fitch Ratings assigns these ratings to Duke Funding High Grade III, Ltd. and Duke Funding High Grade III, Inc.: -- $443,500,000 class A-1A senior secured floating-rate notes due 2049 'AAA'; -- $1,306,500,000 class A-1B1 senior secured floating-rate notes due 2049 'AAA'; -- $1,306,500,000 class A-1B2 senior secured fixed-rate interest-only notes due 2049 'AAA'; -- $102,000,000 class A-2 senior secured floating-rate notes due 2049 'AAA'; -- $8,000,000 class B-1 senior secured floating-rate notes due 2049 'AA+'; -- $8,000,000 class B-2 senior secured floating-rate notes due 2049 'AA-'; -- $44,000,000 class C-1 junior secured floating-rate deferrable interest notes due 2049 'A+'; -- $44,000,000 class C-2 junior secured floating-rate deferrable interest notes due 2049 'A-'; -- $12,000,000 class D mezzanine secured floating-rate deferrable interest notes due 2049 'BBB'; -- $32,000,000 subordinated notes due 2049 'BB+'. Duke High Grade III is an arbitrage cash flow collateralized debt obligation managed by Duke Funding Management, LLC. The ratings of the class A-1A, class A-1B1, class A-2, class B-1 and class B-2 notes address the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date. The ratings of the class C-1, class C-2 and class D notes address the likelihood that investors will receive ultimate interest payments, as per the governing documents, as well as the aggregate outstanding amount of principal by the stated maturity date. The rating of the class A-1B2 notes addresses the likelihood that investors will receive only full and timely payments of interest as per the governing documents. The rating of the subordinated notes addresses the likelihood that investors will receive only the ultimate payment of principal by the stated maturity date. The ratings are based upon the credit quality of the underlying assets, 100% of which will be purchased by the transaction's close, in addition to credit enhancement provided by support from subordination, excess spread, and protections incorporated in the structure. Proceeds from the issuance will be invested primarily in a portfolio of residential mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities. The collateral supporting the capital structure will have a maximum Fitch weighted average rating factor of 1.60 ('AA-/A+'). Duke High Grade III will have a four-year reinvestment period during which collateral principal payments will be reinvested according to the criteria outlined in the governing documents. The collateral manager has the ability to sell 15% of the collateral per year on a discretionary basis during the reinvestment period. Defaulted securities may be sold at any time and credit improved securities may be sold at any time during the reinvestment period. Duke Funding High Grade III, Ltd. is a Cayman Islands exempted company. Duke Funding High Grade III, Inc. is a Delaware corporation. For more information, please see the presale report titled 'Duke Funding High Grade III, Ltd.', available on the Fitch Ratings web site at http://www.fitchratings.com/ Additional information about the collateral manager is also available at http://www.fitchratings.com/ DVI INC: Trust Wants Merrill Lynch to Produce Privileged Documents ------------------------------------------------------------------ Dennis J. Buckley, the Liquidating Trustee of the DVI Liquidating Trust, asks the U.S. Bankruptcy Court for the District of Delaware to compel Merrill Lynch & Co., Inc., Merrill Lynch Mortgage Capital Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated to produce some non-privileged documents found on the Merrill entities' privileged log. The Trustee also wants the lenders' witnesses to testify before Aug. 22, 2005. On October 21, 2003, the Court approved the appointment of R. Todd Neilson as the examiner of in DVI Inc. and its debtor-affiliates' chapter 11 cases. The examiner filed his report on April 7, 2004. Among the issues flagged by the examiner for further review and investigation in connection with the Debtors' improper accounting practices, was whether any of the Debtors' lenders were parties to DVI's improper practices. Merrill Lynch's Involvement Merrill Lynch, a multi-national financial management and advisory company, played various roles in the Debtors' finances and operations. Among other things, Merrill Lynch: * provided a $150 million warehouse credit facility to DVI, portions of which were secured by collateral that had previously been pledged to other lenders; * provided $500 million annually to DVI in off-balance sheet loans; * benefited from DVI's success in inducing Fleet Bank to release a collateral with a face value of $315 million; * financed senior secured notes which were secured by equipment leases that DVI had transferred to one or more entities including DVI Receivables Corp. XIV and DVI Receivables Corp. XV; * underwrote a series of securitization based on repackaged loans owned by the Debtors; * as the underwriters of the securities to be sold as part of DVI's quarterly securitization, the lenders selected the financed contracts to be pooled (transferred to a non-debtor entity) for contribution to a securitization; and * owned or held interests in one or more securitizations sponsored by the Debtors. Rule 2004 Probe On December 21, 2004, at the behest of the Liquidating Trustee, the Court ordered Merrill Lynch to submit to a formal examination under Rule 2004 of the Federal Rules of Bankruptcy Procedure. Merrill Lynch was asked to produce all documents related to its transactions with the Debtors. Privilege Log On May 22, 2005, Merrill Lynch informed the Liquidating Trustee that they were ready to present their documents for examination. However, the lenders withheld some documents on the basis of privilege. The Liquidating Trustee argued that most of the documents identified on the Privilege Log were not protected by any privilege. In response, Merrill Lynch produced fifteen of the withheld documents to prove that they were indeed privileged, including documents exchanged between: * Merrill Lynch and the firm of Thacher Proffitt & Wood, LLP, which represented the lenders in the DVI securitizations; * Merrill Lynch and the accounting firm of Plant & Moran; and * employees reflecting counsel's advice. Deposition of Witnesses On May 27, 2005, Marshall Gilinsky, Esq., at Anderson Kill & Olick, P.C., counsel for the liquidating trustee, asked Merrill Lynch's counsel, Gregory Ballard, Esq., at Cadwalader, Wickersham & Taft LLP, to provide the names of the witnesses that the lenders intend to present for deposition as well as the topics and dates on which each witness would testify. Mr. Ballard, the Liquidating Trustee says, responded that there was no urgency in proposing dates since Merrill Lynch isn't required to present witnesses until August 22, 2005. To date, Merrill Lynch has yet to provide the dates of the depositions. The Liquidating Trustee explains that he still needs to depose approximately 23 witnesses. Based on their testimony, the Liquidating Trustee will decide whether or not he will sue Merrill Lynch. The Trustee has until Aug. 25, 2005, to initiate causes of action. Accordingly, Mr. Buckley urges the Court to compel Merrill Lynch to produce the withheld documents and compel the witnesses to appear for their depositions before the August 22 deadline. DVI, Inc., the parent company of DVI Financial Services, Inc., and DVI Business Credit Corporation, provide lease or loan financing to healthcare providers for the acquisition or lease of sophisticated medical equipment. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. Del. Case No. 03-12656) on Aug. 25, 2003. Bradford J. Sandler, Esq., at Adelman Lavine Gold and Levin PC, represents the Debtors in their restructuring efforts. When the Company filed for protection from its creditors, it listed $1,866,116,300 in total assets and $1,618,751,400 in total debts. On Nov. 24, 2004, Judge Walrath confirmed the Amended Joint Plan of Liquidation filed by DVI, Inc., and its debtor-affiliates. DYNEGY INC: $2.35 Billion Asset Sale Prompts S&P to Watch Ratings ----------------------------------------------------------------- Standard & Poor's Ratings Services placed its 'B/B-2' corporate credit rating on Dynegy Inc. on CreditWatch with developing implications as a result of the announced sale of the firm's midstream business to Targa Resources Inc. for $2.35 billion. As of March 31, 2005, the Houston, Texas-based energy company had $5.326 billion of debt outstanding. The developing CreditWatch listing indicates that the ratings could be raised, lowered, or affirmed. "The rating action reflects the uncertainty regarding the use of the proceeds from the midstream sale as well as the sustainability of Dynegy's remaining business lines," said Standard & Poor's credit analyst John Kennedy. Notably, a substantial amount of sale proceeds could be used to significantly lower debt levels and improve the company's financial profile, which would be conducive for credit quality. Conversely, Dynegy has stated that some proceeds could be used to fund strategic growth opportunities. Standard & Poor's cannot determine at this time the level of debt reduction (above the required $783 million stipulated in its bank agreements) or the amount, nature, and credit risks of any potential investments. Standard & Poor's expects to resolve the CreditWatch listing in advance of the transaction's close (targeted for the fourth quarter of 2005) after reviewing Dynegy's reconstituted business profile and financial policy. EASYLINK SERVICES: Taps Grant Thornton to Audit 2005 Financials --------------------------------------------------------------- EasyLink Services Corporation, (NASDAQ: EASY) engaged Grant Thornton LLP as its independent registered public accounting firm for the year ending Dec. 31, 2005. Grant Thornton is the industry's 5th largest firm with 2004 revenues of $2.1 billion and offices in 110 countries. The decision to engage Grant Thornton was made by EasyLink's Audit Committee. "Grant Thornton LLP ranks highest among audit firms serving clients with revenues up to $1 billion in the J.D. Power and Associates 2004 Audit and Tax Firm Performance Study," Michael Doyle, VP and CFO of EasyLink, said. "They are well suited to the audit and tax needs of EasyLink." Going Concern Doubt KPMG LLP expressed substantial doubt about EasyLink's ability to continue as a going concern after it audited the Company's financial statements for the fiscal year ended Dec. 31, 2004. The Company said it again received that going concern qualification notwithstanding the significant improvements in its financial condition and results of operations over the past three years. The auditors point to the Company's working capital deficiency and an accumulated deficit. The Company also received qualified opinions from its auditors in 2000, 2001, 2002 and 2003. Second Quarter 2005 Filing The Company intends to release its second quarter 2005 results after the market closes on Monday, August 15, and hold a conference call to discuss those results the following day. This release is slightly delayed from EasyLink's standard schedule in order to give Grant Thornton adequate time to initiate its engagement with EasyLink and to complete its review of EasyLink's second quarter results. Due to the timing of the engagement of Grant Thornton, however, it may be necessary to further delay the release for a short period of time after Aug. 15, 2005, to allow Grant Thornton to complete their review. EasyLink had previously issued second quarter guidance to include $20-21 million in total revenues with break-even to a net loss of $0.02 per share in net results. EasyLink is now projecting revenue and earnings within that guidance with revenues just over $20 million and slightly positive net income. EasyLink will provide further details when it announces its 2005 second quarter results. EasyLink Services Corporation (NASDAQ: EASY) -- http://www.EasyLink.com/-- headquartered in Piscataway, New Jersey, is a leading global provider of services that power the exchange of information between enterprises, their trading communities, and their customers. EasyLink's global network handles over 1 million transactions every business day on behalf of over 60 of the Fortune 100 and thousands of other companies worldwide. The Company facilitate transactions that are integral to the movement of money, materials, products, and people in the global economy, such as insurance claims, trade and travel confirmations, purchase orders, invoices, shipping notices and funds transfers, among many others. EasyLink helps companies become more competitive by providing the most secure, efficient, reliable, and flexible means of conducting business electronically. ENRON CORP: Inks Pact Allowing WestLB's Claim for $539 Million -------------------------------------------------------------- Prior to the Petition Date, EPC Estate Services, Inc., formerly known as National Energy Production Company, and NEPCO Power Procurement Company, entered into various contracts for the procurement and construction for the "Quachita Project" and the "McAdams Project." Enron Corp. guaranteed NEPCO's and NEPCO Power's performance under the Contracts. To pay for its subsidiaries obligations' under the Contracts, Enron entered into a Master Letter of Credit and Reimbursement Agreement, dated as of July 13, 2000, with WestLB A.G, formerly known as Westdeutsche Landesbank Girozentrale. Pursuant to the Agreement, WestLB issued and, subsequently paid for, letters of credit for the account of Enron in favor of the developers to the Projects -- TPS McAdams and Ouachita Power, LLC: Date Issued Amount Beneficiary ----------- ------ ----------- 8/04/2000 $16,146,750 Ouachita 8/14/2001 $23,332,908 McAdams WestLB filed Claims against the Debtors concerning the L/Cs: Claim No. Debtor Letter of Credit --------- ------ ---------------- 9217 Enron McAdams L/C 22168 NEPCO Power McAdams L/C 22169 NEPCO McAdams L/C 9218 Enron Ouachita L/C 22170 NEPCO Ouachita L/C The Claims allege that: (i) the Debtors are liable to reimburse WestLB for the amounts paid under the L/Cs, plus fees and interest under the Reimbursement Agreement; (ii) NEPCO and NEPCO Power failed to use payments made to them by McAdams and Ouachita to pay subcontractors and suppliers to the Projects -- instead, they transferred all amounts received to Enron, which was not paying NEPCO and NEPCO Power's debts when due; (iii) The amounts paid under the L/Cs were not used to replace funds that should have been paid to the subcontractors and suppliers under the Projects; and (iv) WestLB is subrogated to the rights of McAdams, Ouachita, NEPCO and NEPCO Power, and the corresponding subcontractors and suppliers to the Projects. The parties disagree as to the allowability and amounts of the Claims. On January 2002, WestLB commenced adversary proceedings against Enron in connection with the Projects. Under the consolidated adversary proceedings, WestLB alleged that in excess of $36,000,000 paid to NEPCO and NEPCO Power that was "swept" into Enron's centralized cash management system should be impressed with a constructive trust in their favor. The Debtors dispute that they have any liability to WestLB. On February 21, 2003, WestLB commenced an action in the United States District Court for the Southern District of New York for claims of approximately $39 million on charges that the former NEPCO officers conspired with Ouachita Power and TPS McAdams to cause wrongful draws on the L/Cs. WestLB also asserts that, because SNC-Lavalin Constructors, Inc., purchased substantially all of NEPCO's assets, SNC is the "successor" to NEPCO and liable to WestLB for the draws under the L/Cs. To resolve their disputes, the Reorganized Debtors and WestLB agree that: (1) The McAdams Enron Claim will be reduced and allowed as a Class 4 general unsecured claim for $523,332,908; (2) The Ouachita Enron Claim will be reduced and allowed as a Class 4 general unsecured claim for $16,146,750; (3) WestLB will be entitled to a single satisfaction of the Allowed Claims; (4) WestLB waives and withdraws with prejudice the WestLB McAdams NEPCO Claim, the McAdams NEPCO Power Claim and the Ouachita NEPCO Claim; (5) Neither party admits fault or liability of any sort; (6) The District Court Litigation and the Swept Funds Litigation will be dismissed with prejudice and without the assessment of costs against any party to those proceedings; and (7) The parties release each other from claims in connection the Allowed Claims, the Withdrawn Claims, the Swept Funds Litigation, the District Court Litigation, the Agreements, the Guarantees, the Projects and the L/Cs. Headquartered in Houston, Texas, Enron Corporation -- http://www.enron.com/-- 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. 153; Bankruptcy Creditors' Service, Inc., 15/945-7000) ENRON CORP: Wants Court to Okay Amendments to Plan Schedule S ------------------------------------------------------------- Reorganized Enron Corporation and its debtor-affiliates circulated to their creditors and filed with the Court an amended Schedule S to their Plan Supplement filed in March 2004. The Schedule lists the instruments and types of claims that are entitled to the benefits of subordination according to the provisions of the Enron Subordinated Debentures, the Enron TOPrS Debentures or the Loan Agreement executed in connection with: * the Enron Capital Resources, L.P. 9% Cumulative Preferred Securities, Series A; or * the Enron Capital LLC 8% Cumulative Preferred Securities. The Reorganized Debtors ask the Court to approve the amended Schedule. The Reorganized Debtors note that inclusion of an instrument or type of claim in the list will not, nor will it be construed to, be an admission as to the ultimate allowance of the claim, nor will it preclude the Reorganized Debtors from objecting to a claim on any grounds available to them. Similarly, nothing contained in the Schedule will preclude the Reorganized Debtors from seeking equitable subordination of any claims. The Reorganized Debtors inform the Court that distributions with respect to the Schedule will begin no sooner than October 2005 and may not begin until April 2006 or thereafter. They explain that the ability to distribute to senior indebtedness is contingent on a number of factors, including, but not limited to: (i) entry of a final order by the Bankruptcy Court approving the amended Schedule S; and (ii) liquidation of senior claims. The Reorganized Debtors advise affected creditors to consult with their counsel as to their entitlement to the benefits of the subordination provisions. A full-text copy of the amended Schedule S is available at no extra charge at: http://bankrupt.com/misc/Enron_amendedscheduleS.pdf Headquartered in Houston, Texas, Enron Corporation -- http://www.enron.com/-- 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. 154; Bankruptcy Creditors' Service, Inc., 15/945-7000) EPOCH INVESTMENTS: Pays $75,000 to Gabriel Del Virginia ------------------------------------------------------- The Honorable Judge Allan L. Gropper of the U.S. Bankruptcy Court for the Southern District of New York authorized Epoch Investments, L.P., fka Empyrean Investment, L.P., to pay $75,000 to Gabriel Del Virginia, Esq. The payment is for legal services rendered in connection to Mr. Del Virginia's representation of Mr. Omar Amanat and Epoch. The payment will come from: -- an account maintained at Sanford Bernstein and identified as the Epoch Account for $37,500; and -- an account maintained in the custody of Citicorp Trust, South Dakota as trustee for the Amanat Family Support Trust for $37,500. The Court also directed Citigroup and Sanford Bernstein to freeze all funds remaining in the Epoch Account and the Amanat Family Account until further Court order. The Court also ordered Epoch, Epique, Osman Amanat, Omar Amanat, Sabiya Amanat, Irfan Amanat, Sharif Amanat, Jamal Mahmood or any person or entity that they control, or are related to, including, but not limited to, the Amanat Family Support Trust, not to transfer any funds held in the Epoch Account and the Amanat Family Account without the Court's authority. Headquartered in New York, Epoch Investments, L.P., fka Empyrean Investment, L.P.'s creditor, MarketXT Holdings, Inc., filed an involuntary chapter 11 petition against the company on May 12, 2005 (Bankr. S.D.N.Y. Case No. 05-13470). Alan Nisselson, Esq., at Brauner Baron Rosenzweig & Klein, LLP, is the chapter 11 Trustee of MarketXT Holdings. Gabriel Del Virginia, Esq., of New York, represents Epoch. Leslie S. Barr, Esq., at Brauner Baron Rosenzweig & Klein, LLP, represents Mr. Nisselson. MarketXT Holdings asserts a $2.5 million claim against Epoch. FC CBO: S&P Removes BB-Rated Senior Notes from Creditwatch ---------------------------------------------------------- Standard & Poor's Ratings Services affirmed its rating on the senior notes issued by FC CBO Ltd./FC CBO Corp., an arbitrage CBO transaction, and removed it from CreditWatch with positive implications, where it was placed June 16, 2005. Standard & Poor's noted that the senior notes have benefited from de-levering since the previous upgrade, which has increased the senior priority notes par value test to 125.7%, compared with a ratio of 114.3% at the time of the last upgrade. However, the second priority notes, which are subordinate to the senior priority notes, are currently carrying approximately $36.2 million in capitalized interest. Under a number of cash flow run scenarios, this accrued interest can be paid out of principal cash even as the senior priority notes remain outstanding. As a result, the cash flow analysis generated by Standard & Poor's for the transaction does not support an upgrade to the senior priority notes at this time. Rating Affirmed And Removed From Creditwatch Positive FC CBO Ltd. Rating ------ Class To From ----- -- ---- Senior notes BB BB/Watch Pos Other Outstanding Rating FC CBO Ltd. Class Rating ----- ------ Second priority notes CC FIRST MERCURY: S&P Rates $65 Million Senior Unsecured Notes at BB ----------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'BB' counterparty credit rating to First Mercury Holdings Inc. and its 'BB' senior debt rating to FMHI's $65 million floating-rate seven-year senior unsecured notes, which are due in 2012. Standard & Poor's also said that the outlook on FMHI is stable. About $60 million of the proceeds from the notes are expected to be used to buy out the remaining shares from current long-term minority shareholders to increase Glencoe Capital's share from the current 32% minority ownership to a 55% majority ownership status. Jerome Shaw, the company's co-founder and CEO, is expected to reduce his equity participation to 29% from the current 33%, with the remaining 16% interest residing with company management. The remaining $5 million is expected to be used to bolster surplus at the wholly owned main insurance operating entity, First Mercury Insurance Co. The rating is based on FMHI's strong GAAP interest coverage from the consolidated earnings of its wholly owned subsidiary, First Mercury Financial Corp., which in turn derives its earnings from its wholly owned insurance and noninsurance operations. Standard & Poor's believes that a softening rate environment could lead to lower premium volumes and higher combined ratios, which would affect 90% of FMFC's operating segments. If such pressures led to GAAP interest coverage falling to less than 4x, this could lead to downward pressure on the rating given that the company's strong interest coverage acts as an offset to the high initial pro forma debt to capital. FIRST UNION: Fitch Holds Low-B Rating on Six Certificate Classes ---------------------------------------------------------------- Fitch Ratings upgrades First Union National Bank Commercial Mortgage Trust's commercial mortgage pass-through certificates, series 2001-C3: --$33.8 million class B to 'AAA' from 'AA'; --$12.3 million class C to 'AA+' from 'AA-'; --$23.5 million class D to 'AA-' from 'A'; --$11.3 million class E to 'A+' from 'A-'; --$12.3 million class F to 'A-' from 'BBB+'; --$12.3 million class G to 'BBB+' from 'BBB'; --$12.3 million class H to 'BBB' from 'BBB-'. In addition, Fitch affirms the following classes: --$138 million class A-2 at 'AAA'; --$435.5 million class A-3 at 'AAA'; --Interest-only class IO-I at 'AAA'; --Interest-only class IO-II at 'AAA'; --$18.4 million class J at 'BB+'; --$14.3 million class K at 'BB'; --$6.1 million class L at 'BB-'; -- $4.1 million class M at 'B+'; --$6.1 million class N at 'B'; --$4.1 million class O at 'B-'. Fitch does not rate the $22.5 million class P certificates. The class A-1 certificates have been paid in full. The rating upgrades are the result of scheduled amortization and defeasance since issuance. As of the July 2005 distribution date, the pool's aggregate certificate balance has decreased 6.42% to $766.3 million from $818.8 million at issuance. Currently, seven assets (7.5%) are in special servicing, including the third-largest asset in the transaction (4.2%). The loan is collateralized by a multifamily property in Malvern, PA, and is current. The loan transferred to the special servicer due to imminent default. The special servicer is negotiating with the borrower for a full payoff and partial prepayment premium. The second-largest specially serviced asset is real estate owned. The special servicer is in the process of marketing the property for sale and has received some potential offers. A small loss to the trust is possible once the asset is liquidated. FIRST UNION: Fitch Holds Junk Rating on $8.7 Mil. Class M Certs. ---------------------------------------------------------------- First Union National Bank Commercial Mortgage Trust's commercial mortgage pass-through certificates, series 2000-C1 are upgraded by Fitch Ratings: --$38.8 million class B to 'AAA' from 'AA'; --$34.9 million class C to 'A+' from 'A'; --$11.6 million class D to 'A' from 'A-'; --$25.2 million class E to 'BBB+' from 'BBB'; --$11.6 million class F to 'BBB' from 'BBB-'. In addition, Fitch affirms these classes: --$24.8 million class A-1 at 'AAA'; --$480.9 million class A-2 at 'AAA'; --Interest-only class, IO at 'AAA'; --$29.1 million class G at 'BB+'; --$7.8 million class H at 'BB'; --$3.9 million class J at 'BB-'; --$7.8 million class K at 'B+'; --$5.8 million class L at 'B'; --$8.7 million class M remains 'CCC'. The $8.8 million class N is not rated by Fitch. The rating upgrades are a result of paydown, scheduled amortization and defeasance resulting in increased credit enhancement levels. 11 loans (8%) have been fully defeased. As of the July 2005 distribution date, the transaction's aggregate principal balance has decreased 9.6% to $699.9 million from $776.3 million at issuance. To date, the transaction has realized losses in the amount of $5.7 million. Currently, there are no delinquent or specially serviced loans, although Fitch identified 19 loans of concern suffering from declines in occupancy. 134 of the original 143 loans remain outstanding with an average loan size of $5.2 million. The transaction is geographically diversified with the largest concentrations in Florida (13.3%) and California (9.6%). FRONTLINE CAPITAL: Can Continue Transactions with Assisted Living ----------------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of New York authorized FrontLine Capital Group to continue performing its duties as a debtor-in-possession in connection with its wholly owned subsidiary, RSI Fund Management, LLC, and its other affiliates, by negotiating and executing documents and taking other actions necessary to consummate the transactions described in its request involving the Assisted Living Investments, LLC platform. The Court approved the Debtor's request on July 25, 2005. The Debtor's wholly owned subsidiary, RSI Fund Management, LLC, is the managing member of RSVP Holdings, LLC. RSVP Holdings is the managing member of Reckson Strategic Venture Partners, LLC, which in turn has invested in operating companies in real estate and real estate related market sectors. New World Realty Management, LLC, an entity owned by two individuals, has been retained by RSVP Holdings and acts as asset manager of the assets and investments of Reckson Strategic. The Assisted Living Platform A Reckson Strategic subsidiary owns a controlling interest of $7 million in mezzanine notes and $4 million of other pari passu mezzanine notes that are secured by a portfolio of eight assisted living facilities. The Mezzanine Notes are in third position, junior to a first mortgage on the borrower's properties in the aggregate amount of approximately $50.5 million, and a second lien on the borrower's properties with an accrued balance of approximately $19 million. The Assisted Living Inc. Transaction An agreement was recently negotiated with the second lienholder pursuant to which the holders of the Mezzanine Notes, which includes Reckson Strategic's subsidiary, will be able to purchase the second lien position, with an accrued balance of approximately $19 million, for the discounted sum of $7.1 million. To finance the proposed purchase, the Mezzanine Noteholders are currently negotiating a separate non-recourse loan with typical non-recourse carve-outs for certain specific prohibited acts, for the $7.1 million purchase price and related closing costs. Once the proposed purchase is consummated, the Mezzanine Noteholders, including Reckson Strategic's subsidiary, will have substantially reduced the amount of liens presently senior to their position against the borrower's properties and will provide the Mezzanine Noteholders with both the second and third lien positions. The transaction significantly enhances their overall position, particularly since the Mezzanine Noteholders are proposing to finance 100% of the funds needed to acquire the second lienholder's position on a non-recourse basis. Simply put, Reckson Strategic's subsidiary and the other Mezzanine Noteholers will be acquiring an approximately $19 million senior lien position at a steep discount of only approximately $7.1 million, with very minimal risk. The Debtor explained that the Assisted Living transaction will maximize the anticipated return to the Reckson Strategic subsidiary participating in the transaction, which in turn will maximize the value of the Debtor's assets and benefit its estate and creditors. Headquartered in New York City, FrontLine Capital Group is a holding company that manages its interests in a group of companies that provide a range of office related services. The Company filed for chapter 11 protection on June 12, 2002 (Bankr. S.D.N.Y. Case No. 02-12909). Mickee M. Hennessy, Esq., at Westerman Ball Ederer & Miller LLP, represents the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed $264,374,000 in assets and $781,374,000 in debts. FRONTLINE CAPITAL: Gets OK to Revise Agreement with F. Adipietro ---------------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of New York authorized FrontLine Capital Group to continue performing its duties as a debtor-in-possession in connection with its wholly- owned subsidiary, RSI Fund Management, LLC, and its other affiliates, with respect to supplementing an Incentive and Retention Agreement dated March 30, 2004, entered into with Frank Adipietro. On April 28, 2004, the Court authorized the Debtor to perform its duties as a debtor-in-possession with respect to its wholly owned subsidiary, RSI Fund Management, LLC and other entities, in connection with an Incentive and Retention Income Agreement dated March 30, 2004, with Mr. Adipietro. The Agreement was entered into by RSI Fund, Reckson Strategic Venture Partners, LLC and Mr. Adipietro. The Agreement stated that Mr. Adipietro would continue to be involved in the sale by Reckson Strategic and Reckson Asset Partners, LLC of their jointly-owned student housing businesses through an initial public offering of stock by a newly-formed real estate investment trust. That IPO transaction was completed last year. Since April 2004, Mr. Adipietro has also continued to deal with unexpected residual matters relating to the oversight, management and disposition of Reckson Strategic's remaining Student Housing platform assets that were not included in the IPO, and he has also provided additional services with respect to various other platforms. The additional services performed by Mr. Adipietro that were not contemplated under the original Incentive and Retention Agreement merited supplemental compensation and prompted the Debtor to file a request with the Court to expand the retention of Mr. Adipietro. The Debtor explains that Mr. Adipietro's services is important for the continued success, development and completion of transactions relating to Reckson Strategic's platforms, and will significantly enhance recoveries that will flow upstream to the Debtor's estate. The terms of the Court-approved Supplement to the Incentive and Retention Agreement are: a) Mr. Adipietro will receive an additional incentive payment of $225,000, provided, that if he receives distributions from his ownership interest in an entity called RSVP Management Partners, LLC in excess of $1 million, then Mr. Adipietro agrees to split all amounts above $1 million 50-50 with RSI Fund, until RSI Fund has received $121,500; b) the date in which Mr. Adipietro may voluntarily terminate his services under paragraph 3(E) of the Incentive and Retention Agreement is extended from July 15, 2005, up to Sept. 15, 2005; and c) the Incentive and Retention Agreement otherwise remains the same and in full force and effect, and will be collectively known as the Supplemental Incentive and Retention Agreement. Headquartered in New York City, FrontLine Capital Group is a holding company that manages its interests in a group of companies that provide a range of office related services. The Company filed for chapter 11 protection on June 12, 2002 (Bankr. S.D.N.Y. Case No. 02-12909). Mickee M. Hennessy, Esq., at Westerman Ball Ederer & Miller LLP, represents the Debtor in its restructuring efforts. When the Company filed for protection from its creditors, it listed $264,374,000 in assets and $781,374,000 in debts. GE COMMERCIAL: S&P Puts Low-B Ratings on Six Certificate Classes ---------------------------------------------------------------- Standard & Poor's Ratings Services assigned its preliminary ratings to GE Commercial Mortgage Corp. Series 2005-C3's $2.116 billion commercial mortgage pass-through certificates series 2005- C3. The preliminary ratings are based on information as of Aug. 3, 2005. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. The preliminary ratings reflect: * the credit support provided by the subordinate classes of certificates, the liquidity provided by the trustee, * the economics of the underlying loans, and * the geographic and property type diversity of the loans. Classes A-1, A-2, A-3, A-AB, A-4, A-1A, A-J, B, C, D, E, and X-P are currently being offered publicly. The remaining classes will be offered privately. Standard & Poor's analysis determined that, on a weighted average basis, the pool has a debt service coverage of 1.60x, a beginning LTV of 97.7%, and an ending LTV of 89.2%. A copy of Standard & Poor's complete presale report for this transaction can be found on RatingsDirect, Standard & Poor's Web- based credit analysis system, at http://www.ratingsdirect.com/ The presale can also be found on the Standard & Poor's Web site at http://www.standardandpoors.com/ Preliminary Ratings Assigned GE Commercial Mortgage Corp. Series 2005-C3 Class Rating Preliminary Recommended amount credit support(%) ----- ------- ----------- ----------------- A-1 AAA $71,000,000 20.000 A-2 AAA $247,755,000 20.000 A-3 AAA $220,000,000 20.000 A-4 AAA $118,168,000 20.000 A-5 AAA $75,000,000 20.000 A-AB AAA $74,053,000 20.000 A-6A AAA $386,682,000 30.000 A-6B AAA $55,241,000 20.000 A-1A AAA $444,990,000 20.000 A-J AAA $161,353,000 12.375 B AA+ $13,226,000 11.750 C AA $29,096,000 10.375 D AA- $21,161,000 9.375 E A $34,387,000 7.750 F A- $18,516,000 6.875 G BBB+ $23,806,000 5.750 H BBB $21,161,000 4.750 J BBB- $31,742,000 3.250 K BB+ $7,936,000 2.875 L BB $7,935,000 2.500 M BB- $10,581,000 2.000 N B+ $2,645,000 1.875 O B $7,935,000 1.500 P B- $7,936,000 1.125 Q N.R. $23,806,258 0.000 X-C* AAA TBD N/A X-P* AAA TBD N/A * Interest only class with a notional amount. N.R. - Not rated. TBD - To be determined. N/A - Not applicable. GRAY TELEVISION: Spins-Off Newspaper & Wireless Units ----------------------------------------------------- Gray Television, Inc.'s (NYSE: GTN; GTN.A) Board of Directors has approved a plan to spin-off its Newspaper Publishing and Graylink Wireless businesses to its shareholders, which will result in a newly created and separately traded public company named Triple Crown Media, Inc. Gray expects that as a result of the spin-off, both Gray and Triple Crown Media will be better able to focus their separate financial and operational resources on their own businesses and executing their own strategic plans. In addition, Gray believes that both Gray and Triple Crown Media will have greater strategic and financial flexibility to support future growth opportunities. Gray Television, Inc., owns 31 television stations serving 27 television markets. The combined station group has 23 stations ranked #1 in local news audience and 22 stations ranked #1 in overall audience within their respective markets and reaches approximately 5.5% of total U.S. TV households. In addition, with 16 CBS-affiliated stations, Gray is the largest independent owner of CBS affiliates in the country. * * * As reported in the Troubled Company Reporter on June 8, 2005, Standard & Poor's Ratings Services assigned a 'BB-' rating and a recovery rating of '1' to Gray Television Inc.'s proposed $400 million senior secured bank facility, indicating high expectation of a full recovery of principal in a default scenario. The new ratings are based on preliminary terms and conditions. At the same time, Standard & Poor's affirmed its 'B+' long-term corporate credit rating on Gray. The outlook remains positive. As reported in the Troubled Company Reporter on June 6, 2005, Moody's Investors Service upgraded today all of the long term ratings of Gray Television, Inc., by one notch. Additionally, Moody's assigned Ba1 ratings to Gray's $400 million in new senior secured credit facilities ($100 million Revolving Credit Facility, $100 million term loan A facility, $200 million term loan B facility). The rating outlook is stable. Proceeds from the new senior secured transaction plus cash on hand will be used to repay the company's $374 million in existing senior secured credit facilities. GRAY TELEVISION: Bull Run to Merge into Triple Crown Spin-Off ------------------------------------------------------------- Gray Television, Inc.'s (NYSE: GTN; GTN.A) and Bull Run Corporation (OTC: BULL) inked a definitive agreement to merge Bull Run into Triple Crown Media immediately following the spin-off of Triple Crown from Gray. This agreement is subject to certain closing conditions, including an affirmative vote of Bull Run's shareholders. Gray's Newspaper Publishing business consists of five daily newspapers with total daily circulation of approximately 120,000 and Sunday circulation of approximately 160,000. Gray's GrayLink Wireless business is a leading provider of primarily paging and other wireless services in non-major metropolitan areas in Alabama, Florida and Georgia, where it also operates 14 retail locations. Upon completion of the spin-off, each common shareholder of Gray will receive as a dividend one share of common stock of Triple Crown Media for every 10 shares of Gray common stock and for every 10 shares of Gray class A common stock. No Gray shareholder vote will be required to effect the spin-off, and no consideration will be required to be paid by Gray's shareholders to receive the common stock of Triple Crown Media. On the date of the spin-off, Triple Crown Media will distribute $40 million to Gray, which Gray intends to use to reduce its outstanding indebtedness. Immediately following the spin-off, it is planned that Bull Run will be merged with and into a wholly owned subsidiary of Triple Crown Media. In the merger, Bull Run common shareholders will receive 0.0289 shares of Triple Crown Media for each share of Bull Run common stock held. In the merger, Bull Run preferred stock held by non-affiliated holders will be redeemed for its current redemption value. Holders of preferred stock and other loans to Bull Run who are affiliates of Bull Run, including J. Mack Robinson, the current Chairman and Chief Executive Officer of Gray and Chairman of the Board of Bull Run, will receive: -- shares of Triple Crown Media common stock in exchange for shares of Bull Run series F preferred stock and accrued and unpaid dividends thereon; -- shares of Triple Crown Media series A preferred stock in exchange for shares of Bull Run series D and series E preferred stocks and accrued and unpaid dividends thereon; and -- shares of Triple Crown Media series B preferred stock in exchange for cash previously advanced to Bull Run. On a combined basis, after the merger, current shareholders of Gray will own approximately 95% of the outstanding common stock of Triple Crown Media and certain holders of Bull Run preferred stock and current holders of Bull Run common stock will hold the remaining 5%. Triple Crown Media has received a long-term financing commitment from bank lenders that will accommodate the payment of the distribution to Gray and the refinancing of all of Bull Run's bank and subordinated indebtedness. Triple Crown Media will combine Gray's Newspaper Publishing and Graylink Wireless businesses with Bull Run's sole operating business, Host Communications, Inc., under the leadership of Thomas J. Stultz, current Chief Executive Officer of Host, and the former President of Gray's Newspaper Publishing business. Over the past twelve months, on a combined basis, Triple Crown Media would have had net revenue of approximately $115 million. "We believe the spin-off is a very intelligent way to separate our businesses in a tax-efficient manner that allows our broadcasting and Newspaper Publishing businesses to maximize their strategic objectives, and by combining with Bull Run, Triple Crown Media will benefit from the proven leadership of Tom Stultz, and combine complementary businesses. In addition, the transactions avoid the incurrence of significant standalone costs that Triple Crown Media would need to incur were it spun off in a standalone transaction." commented Robert S. Prather, Jr., President of Gray Television. Thomas J. Stultz, President and CEO of Host Communications and former President of Gray's Newspaper Publishing business, stated, "I am very excited about the prospects of combining the revenue from the Newspaper Publishing and Graylink Wireless businesses with the growth potential we have with Host. This will be a great combination of businesses that complement one another and will serve to accelerate the growth in each of these businesses beyond what they could achieve independently." Following the transaction, Thomas J. Stultz will serve as Chief Executive, President and a director of Triple Crown Media. During Mr. Stultz's prior tenure as President of Gray's Newspaper Publishing business, the business grew from three newspapers with revenues of approximately $21.9 million in 1995 to five newspapers with revenues of approximately $44.8 million in 2004. In his short tenure at Bull Run, the turnaround of the business has produced significant growth in net revenues and operating income. Frederick J. Erickson, current Bull Run Chief Financial Officer, will serve as CFO of Triple Crown Media. With respect to the transactions described: -- Banc of America Securities LLC has acted as a financial advisor to Gray; -- Houlihan Lokey Howard & Zukin Financial Advisors, Inc., has acted as a financial advisor to the special committee of the Board of Directors of Triple Crown Media, Inc.; and -- SunTrust Robinson Humphrey has acted as a financial advisor to Bull Run. About Bull Run Bull Run Corporation, through its sole operating subsidiary, Host Communications, Inc., is engaged in the Collegiate Marketing and Production Services business and Association Management Services business. The Collegiate Management and Production Services business provides sports marketing and production services to a number of collegiate conferences and universities and, through a contract with CBS Sports, on behalf of the National Collegiate Athletic Association. The Association Management Services business provides various associations with services such as member communication, recruitment and retention, conference planning, Internet web site management, marketing and administration. About Gray Television Gray Television, Inc., owns 31 television stations serving 27 television markets. The combined station group has 23 stations ranked #1 in local news audience and 22 stations ranked #1 in overall audience within their respective markets and reaches approximately 5.5% of total U.S. TV households. In addition, with 16 CBS-affiliated stations, Gray is the largest independent owner of CBS affiliates in the country. * * * As reported in the Troubled Company Reporter on June 8, 2005, Standard & Poor's Ratings Services assigned a 'BB-' rating and a recovery rating of '1' to Gray Television Inc.'s proposed $400 million senior secured bank facility, indicating high expectation of a full recovery of principal in a default scenario. The new ratings are based on preliminary terms and conditions. At the same time, Standard & Poor's affirmed its 'B+' long-term corporate credit rating on Gray. The outlook remains positive. As reported in the Troubled Company Reporter on June 6, 2005, Moody's Investors Service upgraded today all of the long term ratings of Gray Television, Inc., by one notch. Additionally, Moody's assigned Ba1 ratings to Gray's $400 million in new senior secured credit facilities ($100 million Revolving Credit Facility, $100 million term loan A facility, $200 million term loan B facility). The rating outlook is stable. Proceeds from the new senior secured transaction plus cash on hand will be used to repay the company's $374 million in existing senior secured credit facilities. IFT CORP: Posts $887,189 Net Loss in Second Quarter --------------------------------------------------- IFT Corporation (Amex: IFT) reported operating results for the second quarter surpassed its expectations and plans to open a manufacturing facility in Texas. For the quarter ended June 30, 2005: -- IFT's revenue was $5,206,176 as compared to revenue of $586,629 in the second quarter of 2004, a 787% increase. -- IFT's net loss was $887,189 as compared to a net loss of $1,555,501 in the second quarter of 2004, a 43% decrease. "Our revenue increased considerably in the second quarter as compared to the same period in 2004, while our gross profit margin increased from 14% for the first quarter of 2005 to 19% for the six months ended June 30, 2005," stated Michael T. Adams, CEO of IFT. "The net loss for the second quarter was due to $368,364 in non-cash compensation expense, a portion of which relates to our early implementation of SFAS No. 123R for Share-Based Payments and an increase in SG&A resulting from selling and marketing expenses supporting our significant revenue growth, opening new sales offices and arranging new distribution channels for a broader reach of customers," concluded Mr. Adams. During the second quarter of 2005: -- Effective April 1, 2005, Infiniti Products, Inc., a Florida corporation, merged with and into LaPolla Industries, Inc., an Arizona corporation, whereupon the separate existence of Infiniti Products, Inc. ceased and LaPolla Industries, Inc. continued as the surviving corporation. -- On June 2, 2005, the Company and the Chairman of the Board signed a Promissory Note with a national institution granting access to funds in the amount of $2,000,000, which may be drawn against from time to time for the operations of the Company. The Note bears interest at a rate equal to 1- month LIBOR plus two and one-quarter percent (2.25) per annum, and has a maturity date of June 1, 2006. "After the first full quarter of results with our LaPolla Industries, Inc. subsidiary, the trends in both market opportunity and market penetration have met our expectations," commented Douglas J. Kramer, President and COO of IFT. "There are many positive sales and marketing developments underway as a result of the strong professional team that now makes up LaPolla. Both the Commercial and Retail Divisions continue to establish the LaPolla brands within their respective market place. Groundwork is well underway in establishing LaPolla Coatings(TM), Infiniti Paints and Coatings(TM) and HardScape(TM) as potentially major product lines in both roofing products and retail market segments of our business," continued Mr. Kramer. "The remainder of the 2005 fiscal year will remain strong and the growth will come as our latest efforts begin to come to fruition. New relationships are being established from a vendor and customer standpoint, both of which are critical to our ultimate success. The internal infrastructure at LaPolla continues to follow a structured and definitive path to assure that our growth is well managed and supported. Our customers and vendors are continuing to see that LaPolla's first priority is quality. Our corporate commitment is to quality for both products and service. In keeping with our growth plans, we are scheduled to open a manufacturing facility in Texas at the end of the third quarter of this year," concluded Mr. Kramer. Third-Quarter Outlook IFT expects third quarter sales to exceed $5.2 Million and gross profit margin to exceed 19%. Going Concern Doubt The Company's unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of operations, certain adverse conditions and events cast substantial doubt upon the validity of this assumption. Factors contributing to this substantial doubt include recurring losses from operations and net working capital deficiencies. As mentioned in the Financial Condition, Liquidity and Capital Resources section in the Company's Form 10-Q for the Quarterly Period Ended June 30, 2005, the Company assess its liquidity by the ability to generate cash to fund our operations. Historically, the Company relied principally on related party funding from its Chairman over the past six years and outside investors to meet its working capital and other corporate needs. "We are beginning to see substantial improvement in our ability to generate enough cash from our operations to meet our working capital requirements," the Company said this week. "Although our dependence is decreasing based on our increase in revenues and profit margins, we still currently depend on support from the Chairman, the discontinuance of which and the unavailability of support otherwise, could result in the Company ceasing operations." IFT Corporation is a publicly traded holding company focused on acquiring and developing companies that operate in the coatings, paints, foams, sealants, and adhesives markets. LaPolla Industries, Inc., acquired by IFT Corp. for approximately $2 million in Feb. 2005 using cash borrowed from its chairman, markets, sells, manufactures and distributes acrylic roof coatings, roof paints, sealers, roofing adhesives, and polyurethane foam and wall systems to the home improvement retail and commercial/industrial construction industries. LaPolla generates approximately $8 million in annual revenues. IMPAX LABS: Expects $800,000 Net Loss for 2004 with New Policy -------------------------------------------------------------- IMPAX Laboratories, Inc. (NASDAQ:IPXLE) provided additional information concerning its progress in filing its annual report on Form 10-K for the year ended December 31, 2004 and its quarterly reports on Form 10-Q for the three months ended March 31, 2005 and the three and six months ended June 30, 2005 and estimated results for these periods. IMPAX previously disclosed that the uncertainty with respect to its financial statements for these periods relates exclusively to the determination of the appropriate periods in which to recognize revenues from sales of products covered by its strategic alliance agreement with a subsidiary of Teva Pharmaceutical Industries Ltd. The Company said it has sought the advice of the Office of the Chief Accountant of the Securities and Exchange Commission in the expectation that OCA's response will enable the Company to complete its financial statements and file the two delayed reports and its second quarter report for 2005. In March 2005, IMPAX and Teva agreed upon the net sales and margin amounts allocable to IMPAX from Teva's 2004 sales under the agreement and further agreed not to make any adjustments to those amounts. The Company's request to OCA includes discussion of a proposed new revenue-recognition policy with respect to these revenues and several alternatives that the Company has considered. The Company's independent auditors have advised the Company that they have not yet concluded whether they agree with the proposed policy, and it is possible that advice received from OCA or the Company's auditors will result in adoption of a revenue- recognition policy different from those the Company has considered to date. Whatever policy is ultimately adopted, however, will have no effect upon the Company's liquidity or cash position. If the Company were to make no change in its revenue-recognition policy it would expect to report: * revenues of approximately $124.7 million and net income of approximately $800,000, for the year ended December 31, 2004; * revenues of approximately $39.6 million and net income of approximately $6.1 million, for the three months ended March 31, 2005; * revenues of $38.5 million and net income of $3.9 million, for the three months ended June 30, 2005; and * revenues of $76.8 million and net income of $10 million, for the six months ended June 30, 2005. Net income for the three- and six-month periods ended June 30, 2005 includes the write-off of approximately $3.8 million of previously deferred financing costs associated with the Company's $95 million 1.25% Convertible Senior Subordinated Debentures due 2024, which were repaid on June 27, 2005. If the Company changes to the revenue-recognition policy proposed in its request to OCA: * the expected year-end results will change to revenues of approximately $138.6 million and net income of approximately $800,000; * the expected first-quarter results will change to revenues of approximately $35.6 million and net income of approximately $6.1 million; and * the expected second-quarter results will change to revenues of approximately $35.6 million and net income of approximately $3.9 million. One of the alternative policies the Company considered and rejected would defer recognition of all 2004 revenues relating to products subject to the Teva agreement to the first quarter of 2005. If the Company were to adopt this alternative it would expect to report revenues of approximately $83.2 million and net loss of $23.3 million, for the year ended December 31, 2004 and revenues of approximately $81.1 million and net income of approximately $30.3 million, for the three months ended March 31, 2005. Through the first half of 2005 R & D expenses were approximately $3 million for the Company's branded products and $9 million for its generic products. The Company expects to continue to invest in research and development and expects to spend an additional $7- $8 million for branded products and $15-$16 million for its generic products in the second half of 2005. Additionally, through the first half of 2005, the Company invested $7.1 million in capital projects and expects to spend an additional $12-$14 million during the second half of 2005, primarily on plant capacity and research laboratory expansion. The Company also reported that its available cash and investments at June 30, 2005 was approximately $50 million after repayment of the $95 million of debentures described above and approximately $7 million in borrowings under its senior bank facilities. Common shares outstanding totaled 58,959,328 at June 30, 2005 and there were approximately 62.2 million average shares outstanding on a fully diluted basis for the three months ended June 30, 2005. IMPAX Laboratories, Inc. -- http://www.impaxlabs.com/-- is a technology-based specialty pharmaceutical company applying its formulation expertise and drug delivery technology to the development of controlled-release and specialty generics in addition to the development of branded products. IMPAX markets generic products through its Global Pharmaceuticals division and intends to market its products through the IMPAX Pharmaceuticals division. Additionally, where strategically appropriate, IMPAX has developed marketing partnerships to fully leverage its technology platform. IMPAX Laboratories is headquartered in Hayward, California, and has a full range of capabilities in its Hayward and Philadelphia facilities. * * * Notice of Default from Debtholder IMPAX received a notice, dated April 22, 2005, from a holder of more than 25% aggregate principal amount of its 1.250% Convertible Senior Subordinated Debentures due 2024, stating that the Company failed to file its Annual Report on Form 10-K for the year ended December 31, 2004 with the SEC as required by the governing Indenture and requiring that the Company remedy such default forthwith. Under the Indenture, if the Company fails to file the Annual Report within 60 days after the date of the notice, it will constitute an "event of default" under the Indenture and thereafter either the Trustee or the holders of 25% in aggregate principal amount of the Debentures then outstanding, by notice to the Company, may declare the principal of and premium, if any, on all the Debentures then outstanding and the interest accrued thereon to be due and payable immediately. As reported in the Troubled Company Reporter on May 25, 2005, the Company received a Nasdaq Staff determination letter indicating that IMPAX failed to comply with the requirement for continued listing set forth in NASDAQ Marketplace Rule 4310(c)(14) because IMPAX failed to file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. As previously reported, on April 5, 2005 IMPAX received a Nasdaq Staff determination letter indicating that IMPAX failed to comply with the requirement for continued listing set forth in NASDAQ Marketplace Rule 4310(c)(14) because IMPAX failed to file its Annual Report on Form 10-K for the fiscal year ended December 31, 2004 with Nasdaq and, therefore, IMPAX's common stock would be subject to delisting from The Nasdaq Stock Market. IMPSAT FIBER: Subsidiaries Complete $125.6 Mil. Debt Restructuring ------------------------------------------------------------------ IMPSAT, the Argentine subsidiary of IMPSAT Fiber Networks, Inc. (OTC BB:IMFN), IMPSAT, S.A., and its Brazilian subsidiary, IMPSAT Comunicacoes Ltda., executed definitive amended and restated financing agreements to restructure $125.6 million in aggregate principal outstanding indebtedness of IMPSAT Argentina and IMPSAT Brazil pursuant to separate credit agreements that are each guaranteed by IMPSAT. A special committee of IMPSAT's board of directors approved the transaction on July 28, 2005. The special committee is composed solely of independent directors, and had its own special counsel. The committee was formed to evaluate and negotiate the restructuring following the acquisition of the Indebtedness by Morgan Stanley Senior Funding, Inc., and, through participation, accounts of WRH Partners Global Securities, L.P. and/or certain of its affiliates. The special committee retained Lehman Brothers Inc. as its exclusive financial advisor, and received an opinion from Lehman Brothers that the restructuring transaction is fair to IMPSAT, IMPSAT Argentina and IMPSAT Brazil. Under the terms of the agreements, following the restructuring: -- an initial paydown of principal on the Indebtedness of $18.3 million will be made upon the closing of the transaction; -- the remaining principal amount of the Indebtedness ($38.9 million owed by IMPSAT Argentina and $68.4 million owed by IMPSAT Brazil) is scheduled to be repaid in the aggregate amounts of $5 million in 2006, $20 million in 2007, $25 million in 2008 and $57.3 million in 2009; -- the outstanding restructured Indebtedness will bear interest at an annual rate of 12.0%, payable semi-annually in arrears in cash, and the parties have agreed upon amendments to the financial covenants to reflect current financial and operating conditions; -- the outstanding restructured Indebtedness will be callable by the Borrowers at a cost of 101% during the first year and at par thereafter. In addition, the Indebtedness is refinanceable at par during the first 90 days if IMPSAT and the Borrowers are able to obtain financing at better terms. The restructured debt will continue to be unconditionally guaranteed by IMPSAT and to be secured by security interests in the collateral to the same extent as the Indebtedness was secured before the restructuring; and, -- subject to certain terms and conditions, the Holders and the Borrowers each have an option to further amend and restate the agreements to provide that IMPSAT will be the primary obligor, and each of IMPSAT Argentina and IMPSAT Brazil will guarantee the agreement under which it is currently the primary obligor with such guarantees to be secured by the same collateral as is securing the existing agreements. "We are pleased to have concluded after 6 months of intensive work and negotiations this financial restructuring," Ricardo Verdaguer, President and Chief Executive Officer of IMPSAT, said. "With this new capital structure, IMPSAT achieves debt reduction, extension of amortizations at attractive interest rates, greater flexibility in its covenants. We believe the Company is now positioned to take advantage of opportunities to grow and generate additional value." IMPSAT Fiber Networks, Inc. -- http://www.impsat.com/-- is a leading provider of private telecommunications network and Internet services in Latin America. The Company offers integrated data, voice, data center and Internet solutions, with an emphasis on broadband transmission, including IP/ATM switching, DWDM, and non-zero dispersion fiber optics. It also provides telecommunications, data center and Internet services through our networks, which consist of owned fiber optic and wireless links, teleports, earth stations and leased satellite links. IMPSAT owns and operates 15 metropolitan area networks in some of the largest cities in Latin America, including Buenos Aires, Bogota, Caracas, Quito, Guayaquil, Rio de Janeiro and Sao Paulo. Going Concern Doubt Based on its current liquidity position and its history of losses, the Company has received a going concern qualification in the report of its independent registered public accounting firm included in the Annual Report on Form 10-K for the year ended Dec. 31, 2004. As previously announced, the Company has formed a Special Committee of its Board, with Lehman Brothers Inc. as its exclusive financial advisor, to explore recapitalization alternatives. These alternatives may take the form of a repurchase, refinancing or rescheduling of payment terms of indebtedness of the Company and/or its operating subsidiaries, a potential capital infusion, or other types of transactions. There can be no assurance, however, that any such transaction will be successfully negotiated or consummated. INSIGHT MIDWEST: Moody's Rates $1.125 Billion Term Loan C at Ba3 ---------------------------------------------------------------- Moody's Investors Service assigned a Ba3 rating to the $1.125 billion term loan C of Insight Midwest Holdings, LLC (Midwest Holdings). This term loan replaces Midwest Holding's existing term loan B of identical size, maturity, and amortization profile, and Moody's withdrew the Ba3 rating on that security. The refinancing reduced pricing on the term loan by 75 basis points and enhanced flexibility under the bank leverage covenant. Midwest Holdings is a wholly owned subsidiary of Insight Midwest LP, which is 50% owned by Insight Communications Company, Inc. Moody's also upgraded the Insight holding company notes to Caa1 from Caa2 reflecting increased liquidity and the resultant improved ability to service the notes, which convert to cash pay in 2006. The upgrade also incorporates the diminished likelihood of impairment given the attractive valuation of incumbent cable assets relative to Insight's debt burden. Notwithstanding the improvement, these notes remain the most vulnerable within the company's capital structure. Moody's also affirmed Insight's B1 corporate family rating, which reflects: * the company's high leverage (approximately 6.2 times); * modest interest coverage (low 2 times range); * heightened business risk from increasing competition; and * concerns over the likely dissolution of its partnership with Comcast Corporation. Insight's technologically advanced cable plant and well-clustered assets, expected benefits from continued growth of high speed data subscribers and from the roll out of new services, and its good liquidity profile support the ratings. A summary of today's ratings actions: Insight Midwest Holdings, LLC: * $1.125B Senior Secured Term Loan C due Dec. 2009 -- Ba3 assigned * $1.125B Senior Secured Term Loan B due Dec. 2009 -- Ba3 withdrawn * $425mm Senior Secured Reducing Revolver due June 2009 -- Ba3 affirmed * $425mm Senior Secured Term Loan A due June 2009 -- Ba3 affirmed Insight Communications Co., Inc.: * Corporate Family Rating -- B1 affirmed * 12 1/4% Senior Unsecured Discount Notes due 2011 -- upgrade to Caa1 from Caa2 * Speculative Grade Liquidity -- SGL-2 affirmed Outlook -- Stable Insight Midwest, L.P.: * 10 1/2% Senior Unsecured Notes due 2010 -- B2 affirmed * 9 3/4% Senior Unsecured Notes due 2009 -- B2 affirmed Insight's ratings continue to reflect significant financial risk, including high financial leverage of 6.2 times debt-to-EBITDA and modest EBITDA coverage of total interest in the low 2 times range. The company also faces intensifying business risk as the direct broadcast satellite operators and regional Bell operating companies accelerate their encroachment into Insight's traditional and ancillary business lines, as well as execution risk related to the roll-out of telephony. Furthermore, Comcast has announced its intention to dissolve its strategic partnership with Insight, which Moody's believes likely to increase both financial and business risk. Pro forma for the separation, Moody's estimates Insight's leverage would climb by slightly less than one turn. The separation would also eliminate the advantages of scale associated with purchasing programming in conjunction with Comcast, causing Insight's margins to erode. Insight's ratings benefit, however, from its upgraded network and well clustered assets, which in Moody's view position it well to respond to competition from RBOCs and DBS providers. Notwithstanding some competition-induced loss of pricing power and margin erosion, Moody's believes the anticipated increased penetration of new services has the potential to drive incremental revenue and cash flow growth and improve asset returns over the long term. Insight's strong liquidity profile, improved through a July 2005 amendment that reduced pricing and loosened the leverage covenant, also supports the ratings. On July 28, Insight's Board of Directors unanimously approved an acquisition offer from The Carlyle Group, in conjunction with Insight co-founders Sidney R. Knafel and Michael S. Willner. The transaction does not represent a change in control, does not trigger refinancing of the debt and would not increase Insight's leverage. As such, if consummated, Moody's does not anticipate any immediate effect on Insight's ratings but will consider the likely behavior of management under new ownership. Given Moody's observations of sponsor propensity to increase leverage, the transaction creates some additional event risk. Private ownership, however, also eliminates the need to cater to the equity markets' shorter term view, and Moody's deems Insight's resultant flexibility to invest in advanced services and manage its business for the long term a credit positive that somewhat offsets the higher event risk. The stable outlook reflects increased comfort with the company's liquidity profile and ability to remain in compliance with the leverage covenants in its credit facility and Moody's expects continued EBITDA growth as Insight drives penetration of advanced services. Although Moody's notes the additional cash interest on the discount notes (which convert to cash pay in the third quarter of 2006) and still high capital expenditures will consume much of this EBITDA growth. Given uncertainty over the timing and ultimate outcome of the Comcast separation as well as Insight's strategic direction should the Carlyle transaction occur as proposed, an upgrade over the next 12 to 18 months is unlikely. Conversely, a negative trend in operations, the inability to execute a telephony strategy, or a return to leverage about 7 times debt/EBITDA, could pressure the ratings down. Moody's considers Insight's debt of over 6 times trailing twelve months EBITDA to be high, and EBITDA coverage of interest of 2.1 times total interest expense and 2.5 times cash interest expense remains weak. Notably, the coverage ratios will begin to converge when the Insight discount notes convert to cash pay in the third quarter of 2006. Insight transitioned to positive free cash flow from operations in 2004, but free cash flow remains modest at less than 5% of debt, and this ratio will likely remain low throughout 2005 and into 2006 given high projected capital expenditures to support Insight's telephony initiative and further penetration of advanced services (including spending on advanced set top boxes and preparation for digital simulcast). Insight benefits, however, from good external liquidity, which somewhat mitigates the expected increase in financial and business risk should Comcast sever its partnership with Insight at the end of 2005 (the dissolution could take 1 to 2 years from the date of notification). Moody's notches the Ba3 senior secured ratings on the Midwest Holdings bank credit facility up from the B1 corporate family rating because of its senior-most claim in the consolidated capital structure. The B2 senior unsecured ratings for the Midwest senior notes reflect the effective subordination of these claims to all secured debt, as well as structural subordination given the absence of upstream guarantees from the operating subsidiaries (as provided to the bank group). The Caa1 rating for the Insight Communications, Inc. senior discount holding company notes reflects the incremental structural subordination of this debt to all subsidiary obligations and expectation for it to absorb the majority of losses in a default scenario. Furthermore, these lenders can only look to 50% of any residual equity value coming from Midwest. Insight Communications is a domestic cable television operator with ownership interests in entities serving approximately 1.3 million subscribers located in: * Ohio, * Indiana, * Kentucky, and * Illinois. The company maintains its headquarters in New York. INTERLINE BRANDS: Prices 7,750,000 Common Shares at $19 Per Share ----------------------------------------------------------------- Interline Brands, Inc. (NYSE: IBI), a national distributor and direct marketer of maintenance, repair and operations products, priced the secondary offering of 7,750,000 shares of its common stock. The offering price was $19.00 per share, and the transaction is expected to close on Tuesday, Aug. 9, 2005. All of the 7,750,000 shares are being sold by selling stockholders. The selling stockholders have also granted the underwriters a 30-day over-allotment option to purchase an additional 1,162,500 shares. Neither the company nor management is selling any shares of common stock. Accordingly, the company and management will not receive any proceeds from the secondary offering. Credit Suisse First Boston LLC and Lehman Brothers Inc. are joint bookrunning managers, J.P. Morgan Securities Inc. is lead managing underwriter and Robert W. Baird & Co. Incorporated, William Blair & Company, L.L.C. and SunTrust Capital Markets, Inc. are co- managing underwriters for the secondary offering. A prospectus relating to the secondary offering can be obtained from Credit Suisse First Boston LLC at 11 Madison Avenue, New York, New York 10010 or Lehman Brothers Inc. c/o ADP Financial Services, Integrated Distribution Services, 1155 Long Island Avenue, Edgewood, NY 11717, Tel: 631-254-7118. Interline Brands, Inc., is a leading national distributor and direct marketer with headquarters in Jacksonville, Florida. Interline provides maintenance, repair and operations products to approximately 150,000 professional contractors, facilities maintenance professionals, specialty distributors, and other customers across North America and Central America. * * * As reported in the Troubled Company Reporter on July 13, 2005, Standard & Poor's Ratings Services assigned its 'BB' bank loan rating and '1' recovery rating to Jacksonville, Florida-based Interline Brands Inc.'s $150 million term loan due 2010, which replaces Interline's previous $100 million term loan due 2009. At the same time, Standard & Poor's raised its bank loan rating to 'BB' from 'BB-' and assigned its '1' recovery rating to Interline's $100 million revolving credit facility due 2008. Standard & Poor's also affirmed its 'BB-' corporate credit rating and 'B' senior subordinated debt rating on Interline. The outlook is stable. KB TOYS: Court Extends Solicitation Period to Sept. 1 ----------------------------------------------------- The U.S. Bankruptcy Court for the District of Delaware extended the period during which KB Toys, Inc., and its debtor-affiliates, have the exclusive right to solicit acceptances of their proposed Joint Plan of Reorganization. The Debtors' exclusive solicitation period now runs through Sept. 1, 2005. On July 15, 2005, the Court approved the adequacy of the Disclosure Statement explaining the Joint Plan of Reorganization proposed by the Debtors and the Official Committee of Unsecured Creditors. One of the largest toy retailers in the United States, KB Toys, Inc. -- http://www.kbtoys.com/-- (which once boasted 1,200 stores) operates about 650 stores under four formats: * KB Toys mall stores, * KB Toy Works neighborhood stores, * KB Toy Outlets and KB Toy Liquidator, and * KB Toy Express (in malls during the holiday season). The company along with its affiliates filed for chapter 11 protection on January 14, 2004 (Bankr. Del. Case No. 04-10120). The chapter 11 filing resulted in nearly 600 store closures and 4,000 layoffs. In March 2004, KB Toys sold its KBToys.com Internet business to an affiliate of D. E. Shaw, which renamed the company eToys Direct. Joel A. Waite, Esq., at Young, Conaway, Stargatt, & Taylor, represents the toy retailer. When the Debtors filed for protection from its creditors, they listed consolidated assets of $507 million and consolidated debts of $461 million. KCS ENERGY: Earns $20.9 Million of Net Income in Second Quarter --------------------------------------------------------------- KCS Energy, Inc. (NYSE: KCS) reported financial and operating results for the three and six months ended June 30, 2005. "2005 is shaping up to be the best year in the Company's history," James W. Christmas, Chairman and Chief Executive Officer, said. "The outstanding drilling results seen in the first quarter continued in the second quarter, with a total of 111 wells drilled in the first six months. As a result of the continued high success rates in drilling a record number of wells, production has increased significantly. For the quarter, gross production was up 29%, and production, net of delivery obligations under the production payment sold in 2001, was up 37% compared to last year's quarter. This significant increase in production, coupled with a 19% increase in oil and gas prices, led to record cash flow before net changes in assets and liabilities of $52.8 million, an 80% increase over last year's quarter. For the six months ended June 30, 2005, cash flow before net changes in assets and liabilities was $99.1 million, a 68% increase over the six months ended June 30, 2004. Based on this, the Board of Directors has approved an 18% increase in our capital budget, exclusive of acquisitions, to $225 million, which we anticipate can be funded through internally generated cash flow. We are also further increasing our production guidance to an estimated 49-52 BCFE gross and 45-48 BCFE net, compared to 35 BCFE net last year." Increased production, coupled with increased commodity prices, resulted in a 125% increase in income before income taxes for the three months ended June 30, 2005. Income tax expense for the three months ended June 30, 2005 was $13.6 million, compared to $0.9 million for the three months ended June 30, 2004, when the Company was recording income taxes at significantly less than the full statutory rates. Net income for the three months ended June 30, 2005 increased 44% to $20.9 million, compared to $14.5 million, or $0.30 per basic share for the three months ended June 30, 2004. Income before income taxes for the six months ended June 30, 2005 increased 75% to $64.4 million. Income tax expense for the six months ended June 30, 2005 was $24.1 million, compared to $2.9 million for the six months ended June 30, 2005, when the Company was recording income taxes at significantly less than the full statutory rates. Net income for the six months ended June 30, 2005 increased 19% to $40.4 million, or $0.81 per basic share and $0.80 per diluted share, compared to $33.9 million, or $0.70 per basic share and $0.69 per diluted share, for the six months ended June 30, 2004. Hedging Program The Company's hedging program consists of a series of transactions designed to limit exposure to downside price movements while continuing to allow significant participation in increasing prices. The Company's current hedge positions are summarized as: Average Average Type Hedge Amount Price 3RD Qtr. 2005 Gas - Swap 53,533 MMBTU/day $6.94 Gas - Collar 5,000 MMBTU/day $5.50/$7.61 Oil - Swap 1,130 BOPD $43.18 4TH Qtr. 2005 Gas - Swap 45,217 MMBTU/day $7.51 Gas - Collar 5,000 MMBTU/day $5.50/$7.61 Oil - Swap 996 BOPD $44.22 2006 Gas - Swap 31,726 MMBTU/day $7.28 Gas - Collar 1,233 MMBTU/day $6.75/$8.25 Oil - Swap 332 BOPD $51.35 1ST & 2nd Qtrs. 2007 Gas - Swap 12,459 MMBTU/day $7.78 The Company has also sold "call options" giving the purchaser of the options the right to buy 10,000 MMBTU per day for each month during November 2005 through March 2006 at a price of $8.00 per MMBTU. The Company received $1.2 million ($.805 per MMBTU) in consideration of conveying this option. In addition, the Company will deliver 9.4 MMCFEPD in the remainder of 2005 and 8.7 MMCFEPD in January 2006 under the production payment sold in 2001, and amortize the associated deferred revenue at the weighted average discounted price received in 2001 of approximately $4.05 per MCFE. The Company also has agreed to sell 2,000 MMBTU per day of Michigan natural gas production through March 31, 2006 at a realized price of $7.24 per MMBTU. * * * As reported in the Troubled Company Reporter on Apr. 7, 2005, Moody's Investors Service assigned a B3 rating to KCS Energy, Inc.'s proposed $75 million senior unsecured notes add-on offering to the company's existing $175 million 7.125% notes due 2012. Moody's also affirmed the company's B2 senior implied rating and the speculative grade liquidity rating at SGL-2. The rating outlook remains stable. The add-on notes offering will be used to partially fund the previously announced acquisition of approximately 48 Bcfe of proved reserves primarily located in the company's North Louisiana-East Texas core areas for $94.7 million. The purchase price on a daily unit of production basis is a record high $125,826 and $11.84/boe ($1.97/mcfe) on total proved reserves fully loaded for the roughly $50 million of engineered development capex on the existing proved undeveloped reserves being acquired. KIRKER ENTERPRISES: Jones Day Represents Ad Hoc Noteholder Group ---------------------------------------------------------------- Paul D. Leake, Esq., at Jones Day represents an Ad Hoc Group of Noteholders of Kirker Enterprises. American International Group, Inc., and General Electric Co., Inc., are members of that ad hoc group. No concrete details are available about the engagement, any talks between the company and the ad hoc group, or the company's outstanding debt securities. The disclosure appeared in a pleading filed by the law firm this week in another company's chapter 11 proceeding. Privately held Kirker Enterprises -- http://www.kirkerent.com/-- develops and manufactures bulk nail enamel. Kirker is the largest manufacturer of nail polish in the United States, producing over 1,000 colors and using more than 25 different formulas to supply nail enamel to the world's leading cosmetic companies. Kirker also reportedly produces after-market automobile coatings. The company is based in Patterson, New Jersey. Kirker has more than 300 employees working at two manufacturing locations in the U.S. and one in Europe. A number of professionals at Fidelco Advisory Services, Inc., in Millburn, N.J., serve as Kirker officers and directors, and Fidelco was involved in the company's "acquisition . . . and its subsequent roll ups," according to a brochure posted at http://www.fidelco.com/FidelcoOverview.pdf Allied Capital Corp. disclosed in its 1995 Annual Report that it provided buyout financing to Kirker Enterprises, Inc., in May 1995. "One of the factors that attracted Allied Capital to this particular small business is the industry's barriers to entry, which keep competition low," Allied told its investors. "Over the past 45 years, Kirker has developed the technological capabilities required to handle the complexities of the manufacturing process, and their product innovations have made many of the formulas and the related manufacturing processes proprietary," Allied Capital continued. In that May 1995 transaction, Allied Capital provided $2.3 million in subordinated debentures, and received warrants to acquire, at a nominal exercise price, an equity interest in the company. Allied Capital valued its equity interest in Kirker at $2.9 million in its 2003 Annual Report. Allied Capital reported the value of that equity interest at $1.1 million at June 30, 2004. That equity interest does not appear in Allied Capital's Annual Report for the year ending Dec. 31, 2004. KMART CORP: Marion Stafford Wants Stay Lifted to Pursue Action -------------------------------------------------------------- Marion Stafford asks the U.S. Bankruptcy Court for the Northern District of Illinois to terminate the Plan Injunction or modify the automatic stay to allow her to pursue a personal injury claim against Kmart Corporation in the Wayne County Circuit Court, State of Michigan. Before the Petition Date, Ms. Stafford sustained injuries caused by an employee in a Kmart store in Detroit, Michigan. Ms. Stafford filed a claim in Kmart's Chapter 11 case. Carl L. Collins, III, Esq., in Detroit, Michigan, relates that, on June 30, 2004, Ms. Stafford received a letter from Kmart's claim examiner summarily reducing her claim to less than $50,000. Ms. Stafford's counsel attempted to negotiate the claim, but was advised that the offer was not negotiable. Kmart has unilaterally attempted to reclassify the claim to a 6.25% payout of an offer of $19,500 to $1,219. Mr. Collins asserts that Ms. Stafford should be allowed to pursue her lawsuit because: (i) there is a substantial difference of opinion obviously between the parties as to the value of the claim; and (ii) Ms. Stafford is willing to agree with the provisions on ultimate liquidation of claims but believes that by going forward in State Court, there can be an equitable result as opposed to one that is being forced on her by Kmart. Mr. Collins contends that any limitation or restriction on any award that Ms. Stafford receives in the Circuit Court by virtue of previous bankruptcy orders are inapplicable as Kmart has, in bad faith, refused to comply with previous bankruptcy orders mandating mediation in the event that she makes a request to pursue the mediated resolution. 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. 99; Bankruptcy Creditors' Service, Inc., 215/945-7000) KMART CORP: Settling Employees' 401(k) Lawsuit for $11.5 Million ---------------------------------------------------------------- Kmart Corporation has agreed to pay $11.5 million to settle a class action lawsuit filed by employees who lost their retirement savings under the company's 401(k) plans, The Detroit News reported. Former officers and directors who were named defendants in the lawsuit will reimburse workers about $11.5 million, Detroit News said. The losses will be covered by a $25 million insurance policy Kmart maintained for its executives. More than 50,000 employees lost over $100 million in the aggregate when Kmart filed for bankruptcy in 2002. Judge Avern Cohn of the United States District Court for the Eastern District of Michigan will hold a "fairness" hearing to consider approval of the settlement. The employees are expected to recover 5% of their retirement savings. 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. 99; Bankruptcy Creditors' Service, Inc., 215/945-7000) LA PALOMA: Moody's Rates Proposed $370 Million Facilities at Ba3 ---------------------------------------------------------------- Moody's Investors Service has assigned a Ba3 rating to La Paloma Generating Company, LLC's proposed $370 million First Lien credit facilities, including its $305 million First Lien term loan due 2012 and its $65 million senior secured working capital facility due 2010. Moody's also assigned a B2 rating to La Paloma's proposed $170 million Second Lien term loan facility due 2013. La Paloma's rating outlook is stable. Proceeds from the offering, along with $180 million being contributed as equity, will be used to finance Complete Energy Holdings, LLC's acquisition of La Paloma, a four-unit natural gas- fired generating plant, for $561 million, and to fund various reserve accounts, ongoing working capital requirements, possible purchase adjustments, and closing costs associated with the financing. The ratings reflect the degree of contracted cash flow from two separate tolling agreements with Southern California Edison Company (SCE: Baa1 senior unsecured debt; stable outlook) and Morgan Stanley Capital Group, Inc. which should provide on average more than 68% of the expected operating margin through 2012. MSCG's obligations under the tolling agreement are guaranteed by Morgan Stanley (Aa3: senior unsecured debt; negative outlook). The SCE tolling agreement covers La Paloma's units 1 and 2 (470 megawatts (MWs) of capacity) through December 31, 2007. Under the MSCG tolling agreement, MSCG is required to pay capacity payments (regardless of plant availability) for the right to capacity at one of the four La Paloma units (240 MWs) from September 1, 2005 through December 31, 2012 and the right to capacity at two of the four LaPaloma units (480 MWs) from January 1, 2008 through December 31, 2012. La Paloma is obligated to deliver energy to MSCG on a firm basis, whether from the tolled units, the uncontracted unit, or third party purchases. Both tolling agreements require each toller to deliver natural gas to the La Paloma units for conversion into electric energy at a predetermined energy margin. Operating cash flows generated from these tolling agreements with SCE and MSCG are expected to cover required annual interest and principal on La Paloma's First Lien and Second Lien debt each year over the term of the financing. The ratings also consider the attractive market position of the La Paloma units as a newly built, highly efficient natural gas plant whose approximately 7,000 Btu/kWh heat rate and access to both Northern and Southern California grids position the plant well relative to existing in-state natural gas fired generation. This attractive position is particularly true given the relatively tight regional supply that persists in California, the state's reliance on imported power, and the ongoing challenges to build energy infrastructure in the state. Management intends to leave one of the four La Paloma units uncontracted in order to help satisfy its obligations under the three contracted units should any of these three units be out of service for maintenance, and to earn incremental merchant margin for La Paloma. Margins from merchant energy sales are expected to be a principal source of cash flow used to retire outstanding indebtedness under the First Lien term loan through the cash sweep mechanism in the financing documents. While cash margins from merchant energy sales are expected to be a principal driver for debt reduction, Moody's expects the project's year over year credit metrics to be reasonably predictable. La Paloma's adjusted funds from operations to total operating company funded debt is expected to range from 10% to 12% in most years under the company's base case, while adjusted FFO to total operating company funded debt is expected to be around 6% to 7% in most years based solely on cash flows derived from contracted capacity and energy sales. The ratings further reflect the operational improvements that have been made at La Paloma and at other similar units by Alstom, the turbine manufacturer. While the entire Alstom turbine fleet initially suffered design problems, the fleet's performance, including the performance at La Paloma, has improved due to a retrofit program implemented by Alstom to address these shortfalls. Performance test results on three of the four La Paloma units indicate net output consistent with the guarantee under the EPC contract and heat rate levels close to guaranteed levels. While the performance test results of the fourth unit is not yet available, the results from the other three La Paloma units, as well as the results from the majority of the Alstom fleet, which now have a meaningful operating history, suggest that the historical design problems have been adequately addressed. The ratings consider the amount of consolidated leverage that will exist at La Paloma and at its intermediate holding company, CEH/La Paloma Holding Company, LLC, at closing. Of the $180 million of equity being contributed to La Paloma, $100 million of the proceeds will come from a loan at LPHC. At closing, including the LPHC debt of $100 million, the project will have consolidated funded debt per kw of $538/kw and consolidated debt to total consolidated capital of 87%. With required amortization and mandatory cash sweeps applied to the principal outstanding, the project's consolidated debt per kw could decline to the $315/ kw range by 2012 under the company's base case. Moody's notes that there are several features of the holding company debt which limits the rights of the holding company creditors relative to the rights of the First and Second Lien debt holders. For one, the holding company debt does not have any acceleration rights against La Paloma should there be a payment default at LPHC. Further, lenders to the holding company will acknowledge the separateness of LPHC from La Paloma at closing, and there will be other separateness provisions in place within the La Paloma/LPHC legal structure, including the appointment of independent directors at LPHC and La Paloma Acquisition Co, LLC, the entity which will hold 100% of the La Paloma membership interests following the closing of the acquisition. Lastly, LPAC's Limited Liability Company Agreement will provide the minority owners, whose investment at closing will be $80 million, with certain approval and consent rights concerning matters at La Paloma, including a voluntary bankruptcy filing of La Paloma. The ratings acknowledge the limited track record and financial resources of Complete as the indirect controlling owner of La Paloma. As a relatively new company, Complete's only other holding is its minority ownership interest in LSP Energy Limited Partnership, a 837 MW natural gas-fired project in Batesville, Mississippi. Similar to the current arrangement at LSP Energy, management at Complete intends to provide the full scope of La Paloma's operation and maintenance, commercial and financial services through its wholly owned CEP La Paloma Operating Company, LLC. CEP Opco intends to subcontract certain aspects of the commercial operations of La Paloma to Fulcrum Power Services. While this arrangement should adequately address the day-to-day operational management of La Paloma, Moody's views the limited track record and financial resources of Complete as a credit weakness particularly if an extended operating problem occurred at any of the four La Paloma units. The B2 rating on the Second Lien term loan incorporates the relatively weak collateral position of creditors, given the amount of First Lien debt that will be encumbered at closing. In addition to the $370 million of First Lien credit facilities established at La Paloma, there will be a $250 million Special Letter of Credit issued for the benefit of MSCG. Drawings under the Special LOC can only occur if there is an event of default by La Paloma and a termination event under the tolling arrangement between MSCG and La Paloma, and any drawings under the Special LOC reimbursement agreement will be secured by a First Lien on the La Paloma assets pari-passu with the debt under the First Lien credit facilities. In light of the amount of total First Lien debt that will be pledged to creditors at closing relative to an expected collateral value of around $650 million (as determined by the independent consultant), little residual value could be available to the Second Lien holders under a worst case scenario in which the MSCG toll is terminated and the cost of replacement power has increased substantially such that the entire amount of the Special LOC is drawn. Moody's notes that the likelihood of this scenario is remote and acknowledges that the amount of the potential First Lien claim under the Special LOC declines over time as MSCG's payment obligations under the toll reduce. Moody's also notes that the amount of First Lien debt should decline over time as excess cash, principally generated from merchant energy sales, is applied to reduce First Lien debt through the cash sweep mechanism in the financing documents, all of which will help increase the residual value available to Second Lien holders. Notwithstanding these factors, Moody's has widened the notching between the First Lien debt and the Second Lien debt to reflect the weakened collateral position of the Second Lien debt. Under the $305 million First Lien term loan agreement, $265 million will be available for term loans, of which $244 million will be drawn at closing to fund the La Paloma acquisition with the remaining $21 million drawn at any time within the first year from closing to make payments to the lenders for improvements made by Alstom. The remaining $40 million consists of a synthetic letter of credit facility, $30 million of which may only be used to secure obligations to MSCG under the MSCG toll and the remaining $10 million of which may be used for working capital requirements. Working capital needs will be further satisfied under the $65 million secured working capital facility. Both the First Lien and Second Lien debt will benefit from a fairly tight project finance waterfall structure and both term loans will have dedicated cash funded debt service reserves equal to six months of required principal and interest. Additionally, 50% of any excess cash flow generated, after funding all required reserve accounts, will be swept for mandatory repayment of First Lien term loan debt. The cash sweep can increase to 75% during periods when the outstanding amount under the First Lien term loan is in excess of the targeted First Lien term loan amount at each payment period. There will be a restricted payments test, which includes the payment of distributions to its owner, that requires the debt service coverage ratio of 1.25x for restricted payments to be made, and a financial covenant requiring the debt service coverage ratio to be at least 1.20x. Substantially all of the assets and equity interests of La Paloma, including all project agreements and contracts, will be pledged to the creditors as part of the collateral pool. La Paloma's rating outlook is stable reflecting the expected predictability of cash flows generated at La Paloma over the life of the financing principally from the tolling agreements with SCE and MSCG. The stable outlook also incorporates the expectation of sound operating performance at the four-unit La Paloma plant and the likelihood of a reasonably healthy merchant energy marketplace in California. Limited near-term prospects for a rating upgrade exist given the amount of leverage at La Paloma, the limited track record and financial resources of Complete as an owner and operator, and the project's reliance on a sustainable merchant energy market for substantial debt retirement. Conversely, the rating could be downgraded should there be prolonged operating problems at the plant, which negatively impacts the receipt of capacity payments from the tollers and reduces the ability of the project to generate meaningful additional merchant revenues causing leverage to remain high. Located in Kern County, California, La Paloma owns an approximately 1,000 MW natural gas-fired, combined cycle generating facility. Upon satisfaction of all conditions in the Purchase and Sale Agreement dated as of May 10, 2005, La Paloma will become a wholly-owned subsidiary of LPAC and an indirect 55.6% subsidiary of LPHC, with the other 44.4% owned by 6 parties whose contributions range from approximately $2.2 million to $27.1 million. LPHC will be wholly-owned by Complete, a privately held operator of electric generation. Complete is headquartered in Houston, Texas and is approximately 80% owned by individuals and approximately 20% owned by Engage Investments, LP. LB-UBS COMMERCIAL: Credit Enhancement Cues Fitch to Lift Ratings ---------------------------------------------------------------- Fitch Ratings upgrades LB-UBS Commercial Mortgage, series 2000-C3, commercial mortgage pass-through certificates: --$71.8 million class B to 'AAA' from 'AA+'; --$48.9 million class C to 'AA+' from 'A+'; --$19.5 million class D to 'AA' from 'A'; --$13 million class E to 'AA-' from 'A-'; --$13 million class F to 'A+' from 'BBB'; --$11.7 million class G to 'A-' from 'BBB-'; --$20.9 million class H to 'BBB' from 'BB+'; --$16.3 million class J to 'BBB-' from 'BB'; --$9.7 million class K to 'BB' from 'BB-'. In addition, Fitch affirms these classes: --$247.4 million class A-1 at 'AAA'; --$641.2 million class A-2 at 'AAA'; --Interest-only class X at 'AAA'. The $10.4 million class L, $11.7 million class M, $3.9 million class N, and $9.6 million class P certificates are not rated by Fitch. Fitch's upgrades are the result increased credit enhancement levels due to paydown and defeasance since Fitch's last rating action. There are currently four loans in special servicing representing 1.82% of the transaction. The largest loan, Foshay Tower (.83%), is located in Minneapolis, MN. The loan transferred to the special servicer due to a technical default when the borrower cancelled a letter of credit which secured its obligation to perform required repairs at the property. The special servicer is working with the borrower to correct the technical default. The loan remains current and losses are not expected at this time. Two of the four specially serviced assets are real estate owned. The special servicer has listed for sale an industrial property in Troy, MI and received some interest from potential purchasers. The second REO is a multifamily property located in Newton, NC. Sale of the property has been suspended to allow occupancy to stabilize. Fitch expects losses on both REO properties at liquidation; however the unrated class P will absorb the losses. Fitch reviewed the performance of the Cherry Creek (12.74%), Annapolis Mall (9.35%), Westfield Portfolio (7.19%), and Sangertown Square Mall (4.25%) loans which have investment grade credit assessments. Servicer reported debt service coverage ratio as of year-end 2004 was 2.49 times(x), 2.11x, 1.84x, and 1.67x respectively and all loans reported occupancy greater than 95%. MAC-GRAY CORP: Moody's Rates New $125 Million Unsec. Notes at B1 ---------------------------------------------------------------- Moody's Investors Service has assigned a B1 rating to Mac-Gray Corporation's $125 million of proposed senior unsecured notes and a B1 corporate family rating. This is the first time Moody's has rated the company. The rating outlook is stable. The B1 ratings are supported by: * the company's fairly stable and recurring cash flow due to its strong market position; * significant installed laundry equipment base; * moderate financial leverage; * experienced management team; * geographic diversity; * long-term contracts with little customer concentration; and * high customer retention. The ratings also reflect the business risks associated with integrating and improving the profitability of the operations of the company's $110 million January 2005 acquisition to a level commensurate with Mac-Gray's legacy operations and the company's exposure to potentially adverse fluctuations in multi-unit housing vacancy rates as evidenced by modest revenue and EBITDA declines during the period from 2000-2003 when vacancy rates increased. In addition, the ratings incorporate the company's competitive pressures and relatively high capital costs, which include advanced contract payments. Given the company's fairly stable and recurring cash flow, with 90% of the installed equipment base subject to long-term leases, the stable outlook assumes the company will maintain a ratio of debt to EBITDA-less incentive payments at, or below, 4.0x, free cash flow-to-debt in the mid to high single digits, operating margins in the high single digits, and minimum EBIT interest coverage of at least 1.3x. Failure to maintain these levels due to weaker than anticipated operating results and/or a significant cash-financed acquisition, of a similar magnitude to the January 2005 asset acquisitions, could put some negative pressure on the rating. Conversely, Moody's would consider a ratings upgrade if following an improvement in the profitability of the company, debt to EBITDA-less incentive payments dropped to under 3.5x, free cash flow-to-debt was 10%, and EBIT interest coverage was 2.0x. Moody's assigned the B1 rating on the $125 million senior unsecured notes at the corporate family rating level given that the notes account for almost 75% of total debt and assumes that the company will not borrow additional funds from the secured revolver. However, should the company draw additional funds from the secured revolver, Moody's could notch the senior unsecured notes down one rating level even if the corporate family rating did not change. The senior notes will be guaranteed by all but one of Mac-Gray's subsidiaries, which is not wholly owned, whose liabilities and assets as well as total revenue and income contributed are not material. Moody's believes that, with nearly $165 million in senior secured and unsecured debt (the company will maintain nearly $40 million outstanding on it senior secured revolver), tangible asset coverage of debt is a fairly weak 0.75x, even assuming no haircut on the value of current assets and PP&E, which will not likely be the case in a distress scenario. While asset coverage improves to approximately 1.3x if you add back the $115 million in intangible value of contracts from the January 2005 acquisition, Moody's believes the value of those contracts will be significantly impaired in an adverse operating environment. In addition, in a distress situation, were the company to draw on the senior secured to the full extent available ($120 million), asset coverage of debt deteriorates significantly. Mac-Gray is the second largest supplier of outsourced laundry services to multi-unit housing and the largest provider to the college and university market in North America. In addition to this core business, which accounts for 83% of total revenues, the company also engages in leasing and distributing laundry equipment. The outsourced laundry services market is highly fragmented, with Mac-Gray, Coinmach Corporation (B2 corporate family rating), and Web Service having the second, first, and third largest market shares, respectively. The rest of the market comprises small, private and family-owned operations. Although competition is intense, Mac-Gray's size and scale, particularly following the January 2005 acquisition, together with its well- established reputation with an experienced management and geographical diversity give it considerable competitive advantages and economies of scale. Moody's believes that Mac-Gray's laundry service fulfills a basic human need insulating it somewhat from general economic cycles. About 90% of the company's installed equipment base is located on premises subject to long-term leases for which the company experienced renewal rates approximating 97%, in terms of existing machines retained, over the past 5 calendar years. Revenues are thus highly predictable and stable, even in a difficult economic environment. Although declines in occupancy rates may result in lower revenues, Moody's believes Mac-Gray's broad geographic diversity and low customer concentration can mitigate weakness in any given geographic region. Over the next several years, given the need to maintain the existing machine base and to acquire new locations, Mac-Gray's capital reinvestment needs are high, and it is assumed they will not exceed $30-40 million per year. About $25-35 million of capex is for machine maintenance, replacement and growth, and roughly $4-6 million is capitalized for advance location payments, which Moody's views as an operating expense and subtracts from EBITDA. The company, however, has considerable flexibility with regards to the level and timing of its capital spending. For several years, Mac-Gray's maintenance capital expenditure has been consistently at or above equipment depreciation. Working capital needs are minimal since a significant portion of operating expense is paid after cash is collected from machines. Following the January 2005 asset acquisition, Moody's expects Mac- Gray's business strategy will focus on the continued integration of those assets in order to improve their profitability given high G&A and corporate overhead expenses that reduced those operation's EBIT margins to under 2% in 2004. In addition, Moody's believes that given the mature nature of the low-growth laundry service market, the company will increase revenue and cash flow through adding new customers in existing regions and improving the net contribution per machine through operating efficiencies and selective price increases. The rating assumes that potential acquisitions are likely to be small and selective. Moody's has also assigned a speculative grade liquidity rating of SGL-2 to Mac-Gray. The SGL-2 rating reflects the company's "good" liquidity position based on expectations of positive free cash flow in FY2005, the company's reasonable cash balance, moderate working capital requirements, approximately $37 million outstanding on its $120 million revolver, whose total availability is expected to be limited by a maximum senior leverage ratio of 4.25 times (the leverage ratio will be 3.54x immediately following the senior unsecured notes transaction), and reasonable flexibility afforded under its financial covenants. The rating is hampered by limited alternative liquidity sources and the reduction in financial flexibility associated with the January 2005 acquisition. The proceeds from the senior unsecured notes will be used to refinance $121 million of the existing senior credit facilities and pay fees and expenses. Mac-Gray, headquartered in Cambridge, Massachusetts, is a national provider of laundry management services to multi-unit housing and US college and university markets. The company also sells a patented line of appliances for the limited-space living environment and operates a laundry equipment distribution business. LTM 2Q 2005, the company reported revenues of $254.2 million pro forma as if the January 2005 acquisition occurred on January 1, 2004. MAC-GRAY: S&P Rates Proposed $125 Million Senior Notes at B+ ------------------------------------------------------------ Standard & Poor's Ratings Services assigned its 'BB' corporate credit rating to laundry equipment services provider Mac-Gray Corp. At the same time, Standard & Poor's assigned its 'B+' rating to the company's proposed $125 million senior unsecured notes due 2015, reflecting its junior position within the company's capital structure. The outlook is stable. Pro forma for the transaction, the Cambridge, Massachusetts-based company will have approximately $170 million of debt outstanding. Net proceeds from the note offering will be used to repay the company's existing $76 million term loan and about half of its borrowings under its (unrated) revolving credit facility, as well as pay related fees and expenses. "The ratings on Mac-Gray reflect its moderately high leverage, relatively narrow business focus, and its small sales and earnings base," said Standard & Poor's credit analyst Jean Stout. "These factors are partly offset by its position as a leading supplier of debit card and coin-operated laundry equipment services in the highly fragmented and regional U.S. laundry market, and its relatively stable and predictable cash flow stream," added Ms. Stout. MALCOM BOHANON: Case Summary & 20 Largest Unsecured Creditors ------------------------------------------------------------- Debtor: Malcom S. Bohanon aka Stan Bohanon 228 Woburn Williamsburg, Virginia 23188 Bankruptcy Case No.: 05-52012 Type of Business: The Debtor has interests in Eagle Holdings LLC; MPX, Inc., and Express Postal & Printing Inc. Chapter 11 Petition Date: August 2, 2005 Court: Eastern District of Virginia (Newport News) Debtor's Counsel: Barry W. Spear, Esq. Law Office of Barry W. Spear 729 Thimble Shoals Boulevard, Suite 3-C McCale Professional Park Newport News, Virginia 23606 Tel: (757) 591-2742 Total Assets: $928,394 Total Debts: $1,097,280 Debtor's 20 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Old Point National Bank Guaranty for Eagle $100,000 1 West Mellen Street Holding, LLC Note Hampton, VA 23663 Crystal Tinsley $45,000 428 Fleming Street Wylie, TX 75098 Wells Fargo Financial Trade Debt for $40,000 Leasing Eagle Holdings LLC P.O. Box 6434 Carol Stream, IL 60197 SunTrust 2004 Toyota 4 Runner $37,000 Value of security: $30,000 McLaws Properties Lease Guaranty $30,000 GMAC Finance 2004 GMC Envoy $28,000 Value of security: $23,000 Old Point National Bank Trade debt for $25,000 Express Postal & Printing Capital One Auto Finance 2003 Chevrolet $14,800 Astro Van Value of security: $10,000 Citizens & Farmers Bank Guaranty $8,900 Providian Credit Card $5,806 Direct Merchants Bank Credit Card $4,146 Dell Credit Card $2,905 First National Bank Omaha Credit Card $2,510 Capital One Credit Card $2,218 Capital One Credit Card $1,653 Lowes Credit Card $1,545 Capital One Credit Card $1,284 Sentara HealthCare Medical Bill $1,188 Capital One Credit Card $1,016 Household Bank Credit Card $910 MEDIA GENERAL: Improved Finances Prompt S&P's Positive Watch ------------------------------------------------------------ Standard & Poor's Ratings Services placed its 'BB+' corporate credit and senior unsecured debt ratings on newspaper and television broadcasting company Media General Inc. on CreditWatch with positive implications. "The CreditWatch listing reflects the company's improving financial profile as it has focused on using its cash flow after capital expenditures and dividends for debt reduction over the past several years," said Standard & Poor's credit analyst Donald Wong. The Richmond, Virginia-headquartered company is expected to seek acquisitions in its core Southeast region. However, the timing and magnitude of such transactions are uncertain. Standard & Poor's will review its ratings on Media General after evaluating whether the company will be able to maintain a financial profile consistent for a higher rating despite the prospects for debt-financed acquisitions. If Standard & Poor's raises the ratings, it would be to 'BBB-'. MERIDIAN AUTOMOTIVE: Can Purchase Insurance from Liberty Mutual --------------------------------------------------------------- The U.S. Bankruptcy Court for the District of Delaware gave Meridian Automotive Systems, Inc., and its debtor-affiliates authority to purchase some of their workers compensation and employers liability, automobile liability and general liability insurance pursuant to insurance programs provided by Liberty Mutual Group and its subsidiaries effective, nunc pro tunc, to July 1, 2005. The Debtors require insurance coverage to be able to continue operating substantial portions of their business and avoid potential violation of their credit agreements. Edward J. Kosmowski, Esq., at Young Conaway Stargatt & Taylor, LLP, in Wilmington, Delaware, relates that Liberty Mutual has been providing certain insurance coverage to the Debtors for the past four years under certain insurance programs. Mr. Kosmowski informs the Court that Liberty Mutual currently provides insurance coverage to the Debtors for certain workers compensation and employers liability, automobile liability and general liability pursuant to an insurance program that is set to expire on July 1, 2005. With respect to the Current Issue Program, the Debtors and Liberty Mutual have agreed on a short term renewal to and including July 19, 2005, pursuant to which the Debtors will make payments of premiums, assessments and surcharges of approximately $160,000 to Liberty Mutual on or before July 1, 2005. The parties also have reached an agreement regarding the terms and conditions with respect to the purchase of workers compensation and employers liability, automobile liability and general liability insurance coverage, which would begin July 19, 2005, and continue through and including July 1, 2006. Headquartered in Dearborn, Mich., Meridian Automotive Systems, Inc. -- http://www.meridianautosystems.com/-- supplies technologically advanced front and rear end modules, lighting, exterior composites, console modules, instrument panels and other interior systems to automobile and truck manufacturers. Meridian operates 22 plants in the United States, Canada and Mexico, supplying Original Equipment Manufacturers and major Tier One parts suppliers. The Company and its debtor-affiliates filed for chapter 11 protection on April 26, 2005 (Bankr. D. Del. Case Nos. 05-11168 through 05-11176). James F. Conlan, Esq., Larry J. Nyhan, Esq., Paul S. Caruso, Esq., and Bojan Guzina, Esq., at Sidley Austin Brown & Wood LLP, and Robert S. Brady, Esq., Edmon L. Morton, Esq., Edward J. Kosmowski, Esq., and Ian S. Fredericks, Esq., at Young Conaway Stargatt & Taylor, LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $530 million in total assets and approximately $815 million in total liabilities. (Meridian Bankruptcy News, Issue No. 12; Bankruptcy Creditors' Service, Inc., 215/945-7000). MERIDIAN AUTOMOTIVE: Gets Court Nod to Employ PwC as Accountants ---------------------------------------------------------------- As previously reported in the Troubled Company Reporter on May 18, 2005, Meridian Automotive Systems, Inc., and its debtor-affiliates seek authority from the U.S. Bankruptcy Court for the District of Delaware to employ PwC, nunc pro tunc, to April 26, 2005, to provide accounting and auditing services. PwC will perform audit services for the Debtors including the audit of the Debtors' consolidated financial statements at December 31, 2004, and for the years then ending. If requested, PwC will also: (a) perform audits of the Debtors' Employee Benefits Plans for the years ending 2002 and 2003; and (b) provide other accounting, auditing, tax and other services as needed. * * * Judge Walrath approves Debtors' application on these conditions: (1) PricewaterhouseCoopers LLC's services to the Debtors will be limited to: (a) auditing the Debtors' consolidated financial statements at December 31, 2004, and for the years then ending; (b) auditing the Debtors' Employee Benefit Plans for years ending 2002 and 2003; (c) preparing expatriate tax returns for the Debtors' employees; (d) reviewing the Debtors' corporate tax returns; (e) tax structuring consultation, which will not involve the preparation of forms and software that are related to the Debtors' discrete vendor supply arrangements; and (f) other Court-approved services; (2) PwC will credit $31,576 to the Debtors, provided that the firm will no longer receive any payments from the Debtors on account of its allowed postpetition fees and expenses until the time as the Credit is exhausted; (3) at the earlier of (x) the conclusion of the firm's engagement or (y) the closing of the Debtors' cases to the extent that the firm's allowed fees and expenses do not equal or exceed the Credit, the firm will pay the Credit, less its allowed fees and expenses, to the Debtors; and (4) PwC waives all of its claims against the Debtors. Headquartered in Dearborn, Mich., Meridian Automotive Systems, Inc. -- http://www.meridianautosystems.com/-- supplies technologically advanced front and rear end modules, lighting, exterior composites, console modules, instrument panels and other interior systems to automobile and truck manufacturers. Meridian operates 22 plants in the United States, Canada and Mexico, supplying Original Equipment Manufacturers and major Tier One parts suppliers. The Company and its debtor-affiliates filed for chapter 11 protection on April 26, 2005 (Bankr. D. Del. Case Nos. 05-11168 through 05-11176). James F. Conlan, Esq., Larry J. Nyhan, Esq., Paul S. Caruso, Esq., and Bojan Guzina, Esq., at Sidley Austin Brown & Wood LLP, and Robert S. Brady, Esq., Edmon L. Morton, Esq., Edward J. Kosmowski, Esq., and Ian S. Fredericks, Esq., at Young Conaway Stargatt & Taylor, LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $530 million in total assets and approximately $815 million in total liabilities. (Meridian Bankruptcy News, Issue No. 12; Bankruptcy Creditors' Service, Inc., 215/945-7000). METROMEDIA FIBER: Dist. Ct. Agrees County Franchise Fee Improper ---------------------------------------------------------------- The Honorable Colleen McMahon of the U.S. District Court for the Southern District of New York agrees with a U.S. Bankruptcy Court for the Southern District of New York's decision to disallow a claim filed by Montgomery County, Maryland. The Honorable Adlai S. Hardin ruled that the County's unpaid franchise fee imposed on Metromedia Fiber Network, Inc., violated the Federal Telecommunications Act of 1996. Nature of the Montgomery County Dispute Montgomery County is a home-rule county with a charter form of government. County Commissioners have "power to make all such rules and regulations with reference to the use of the roads, street, avenues, lanes, alleys and bridges of the county by telephone . . . companies." On June 22, 1999, through a franchise agreement, Metromedia gained access to the public right-of-way in Montgomery County to construct, install, operate and maintain fiber optic network facilities. Under the agreement, Metromedia was required to make twice a year payments equivalent to 5% of its gross revenue to Montgomery County. The Franchise Agreement expired on June 28, 2001. Since then, Metromedia ceased to make any fees but continued to locate its facilities in the County's right-of-way. As a result, the County prevented the Debtor from carrying out normal system operations and business. Also, the County refused to issue permits needed to relocate part of Metromedia's network. Montgomery also denied Metromedia's application for a permit to construct additional facilities in order to expand its customer base. Franchise Fee Dispute Metromedia argued that the statutes' local franchise requirements, including the franchise fee, impeded the Company's ability to provide telecommunication services. As a whole, Metromedia didn't challenge the County ordinance but rather claimed that the ordinance must be interpreted in a way consistent with the Federal Telecommunications Act to the extent that it is applied to telecommunication services providers. Metromedia pointed out that the incumbent local exchange provider, Verizon-Maryland Inc., is exempted from any franchise application process including the 5% franchise fee imposed by the County on all providers of telecommunications services. The Bankruptcy Court's Decision 2nd or 4th Circuit Law? Montgomery County argued to the District Court that the Bankruptcy Court's interpretation of the dispute should have been based on the Fourth Circuit Court of Appeals' opinion rather than the Second Circuit's because Montgomery County is located in the Fourth Circuit. The Second Circuit's opinion states that "whether the fees are competitively neutral should be determined based on future costs of providing services, not sunk costs incurred in the past, because that is the playing field on which the competition will take place." Judge McMahon said that the County's argument was wrong as a matter of law. The Southern District of New York is in the Second Circuit. This means that the Second Circuit decision become the law of the circuit and are binding upon all inferior courts. She emphasized that other circuits' opinions are not binding on the Second Circuit. FTA Section 253 Violation The Bankruptcy Court reminded Montgomery County that the FTA was enacted by Congress to end the longstanding regime of state- sanctioned monopolies. The FTA fundamentally restructured the local telephone markets. Under Section 253, all state and local regulations that prohibit or have the effect of prohibiting any company's ability to provide telecommunications services are preempted. Judge Adlai ruled that the County violated Section 253 by refusing to allow Metromedia access and use of its telecommunications facilities in Montgomery County. Also, the Court viewed the exemption given to Verizon-Maryland from paying the required franchise fee as an unfair practice. Judge McMahon says that Judge Adlai's interpretation of Section 253 and its applicability to the 5% Franchise Fee based on the Second Circuit's opinion is correct and proper. Metromedia Fiber Network, Inc., and most of its domestic subsidiaries commenced voluntary Chapter 11 cases (Bankr. S.D.N.Y. Case No. 02-22736) on May 20, 2002. When Metrodmedia filed for protection form its creditors, it listed $7,024,208,000 in total assets and $4,262,000,000 in total debts. Metromedia Fiber emerged from chapter 11 on Sept. 8, 2003, and changed its name to AboveNet Inc. MCI INC: Will Release 2005 2nd Quarter Results on August 9 ---------------------------------------------------------- MCI, Inc. (NASDAQ: MCIP) will announce its second quarter 2005 financial results before market open on Tuesday, August 9, 2005. The Company will host a conference call that day at 8:30 a.m. EDT to discuss its results. A live webcast of the conference call will be available at http://www.mci.com/investor An archive of the presentation will be available for replay for 30 days. Headquartered in Clinton, Mississippi, WorldCom, Inc., now known as MCI -- http://www.worldcom.com/-- is a pre-eminent global communications provider, operating in more than 65 countries and maintaining one of the most expansive IP networks in the world. The Company filed for chapter 11 protection on July 21, 2002 (Bankr. S.D.N.Y. Case No. 02-13532). On March 31, 2002, the Debtors listed $103,803,000,000 in assets and $45,897,000,000 in debts. The Bankruptcy Court confirmed WorldCom's Plan on October 31, 2003, and on April 20, 2004, the company formally emerged from U.S. Chapter 11 protection as MCI, Inc. (WorldCom Bankruptcy News, Issue No. 96; Bankruptcy Creditors' Service, Inc., 215/945-7000) * * * As reported in the Troubled Company Reporter on March 1, 2005, Standard & Poor's Ratings Services placed its ratings on Denver, Co.-based diversified telecommunications carrier Qwest Communications International, Inc., and subsidiaries, including the 'BB-' corporate credit rating, on CreditWatch with negative implications. This follows the company's counter bid to Verizon Communications, Inc., for long-distance carrier MCI, Inc., for $3 billion in cash and $5 billion in stock. MCI also has about $6 billion of debt outstanding. The ratings on MCI, including the 'B+' corporate credit rating, remain on CreditWatch with positive implications, where they were placed Feb. 14, 2005 following Verizon's announced agreement to acquire the company. The positive CreditWatch listing for the MCI ratings reflects the company's potential acquisition by either Verizon or Qwest, both of which are more creditworthy entities. However, the positive CreditWatch listing of the 'B+' rating on MCI's senior unsecured debt assumes no change to the current MCI corporate and capital structure under an assumed acquisition by Qwest, such that this debt would become structurally junior to other material obligations. "The negative CreditWatch listing of the Qwest ratings reflects the higher business risk at MCI if its bid is ultimately successful," explained Standard & Poor's credit analyst Catherine Cosentino. As a long-distance carrier, MCI is facing ongoing stiff competition from other carriers, especially AT&T Corp. Moreover, MCI is considered to be competitively disadvantaged relative to AT&T in terms of its materially smaller presence in the enterprise segment and fewer local points of presence -- POPs. The latter, in particular, results in higher access costs relative to AT&T. Qwest also faces the challenge of integrating and strengthening MCI's operations while improving its own underperforming, net free cash flow negative long-distance business. These issues overshadow the positive aspects of Qwest's incumbent local exchange carrier business that were encompassed in the former developing outlook. As reported in the Troubled Company Reporter on Feb. 22, 2005, Moody's Investors Service has placed the long-term ratings of MCI, Inc., on review for possible upgrade based on Verizon's plan to acquire MCI for about $8.9 billion in cash, stock and assumed debt. These MCI ratings were placed on review for possible upgrade: * B2 Senior Implied * B2 Senior Unsecured Rating * B3 Issuer rating Moody's also affirmed MCI's speculative grade liquidity rating at SGL-1, as near term, MCI's liquidity profile is unchanged. As reported in the Troubled Company Reporter on Feb. 22, 2005, Standard & Poor's Ratings Services placed its ratings of Ashburn, Virginia-based MCI Corp., including the 'B+' corporate credit rating, on CreditWatch with positive implications. The action affects approximately $6 billion of MCI debt. As reported in the Troubled Company Reporter on Feb. 16, 2005, Fitch Ratings has placed the 'A+' rating on Verizon Global Funding's outstanding long-term debt securities on Rating Watch Negative, and the 'B' senior unsecured debt rating of MCI, Inc., on Rating Watch Positive following the announcement that Verizon Communications will acquire MCI for approximately $4.8 billion in common stock and $488 million in cash. MILLENNIUM AMERICA: Moody's Rates $250 Million Facility at Ba2 -------------------------------------------------------------- Moody's Investors Service assigned Ba2 ratings to the $250 million guaranteed secured bank facility of Millennium America Inc. Millennium Inorganic Chemicals Ltd. will be a co-borrower under the facility. Both Millennium America Inc. and MICL are wholly owned subsidiaries of Millennium Chemicals Inc. Millennium is a wholly owned subsidiary of Lyondell Chemical Company. Additionally, Moody's affirmed all existing ratings for Millennium, Lyondell and Equistar Chemicals, LP and noted that the outlook for Lyondell and Equistar remains positive. The rating actions are summarized below: Ratings assigned: -- Millennium America Inc. and Millennium Inorganic Chemicals Ltd. -- US$125 million guaranteed secured revolving credit facility (US Tranche) - Ba2 -- US$25 million guaranteed secured revolving credit facility (Australian Tranche) - Ba2 -- US$100 million guaranteed secured term loan (Australian Term Facility) - Ba2 Ratings affirmed: Lyondell Chemical Company: -- Corporate family rating - B1 -- Senior secured notes and debentures - B1 -- Senior subordinated notes due 2009 - B3 -- Liquidity rating - SGL-1 Millennium Chemicals Inc.: -- Senior unsecured convertible debt - B1. Millennium Americas Inc.: -- Guaranteed senior secured credit facility - Ba2* -- Guaranteed senior unsecured notes and debenture - B1. Equistar Chemicals, LP: -- Senior unsecured notes and debentures - B2 * rating will be withdrawn upon closing of the new credit facility The Ba2 ratings on the credit facility of Millennium America Inc. are two notches above Lyondell's B1 corporate family rating reflecting: * strong collateral coverage; * elevated cash balances at Millennium; * the anticipation of improving financial performance from Millennium's wholly owned operations and a continuing stream of cash dividends from Equistar over the next 12-18 months; and * the benefit of a restrictive payments clauses in both this facility and Millennium America Inc.'s notes due in 2008. The $125 million US Tranche is secured by a lien on domestic accounts receivable and inventory, which should provide more than adequate coverage, even on a distressed basis. In addition, this facility has a lien on 65% of the capital stock of Millennium's international subsidiaries and a first priority lien on dividends from Equistar. Furthermore, this tranche is guaranteed by Millennium, and Millennium US Op Co. LLC, the primary operating subsidiary of Millennium America. The US$25 million Australian Tranche and US$100 million Australian Term Facility are secured by substantially all of Millennium's tangible and intangible assets in Australia. While the book value of the operating assets is not sufficient to fully cover the facility, Moody's believes that these operating assets have significant value due to their relatively stable (on a US dollar basis) earnings stream ($50-60 million EBITDA per year). Moreover, the Australian Tranche and Term Facility will be guaranteed by all material Australian subsidiaries, the Australian parent of MICL, Millennium, Millennium America and Millennium US OP Co, LLC. Additionally, in the event of a default or bankruptcy, there are reciprocal agreements among the lenders that will cause each lender to hold a ratable interest in each tranche of the facility. The new credit facility does allow up to $150 million of dividends to Lyondell providing Millennium meets certain financial tests, including but not limited to, the US tranche remaining undrawn at the time the dividend is paid. While these tests do not ensure that Millennium will continue to maintain an elevated cash balance, the restricted payments clause in the 2008 notes ($475 million 9.25% guaranteed senior unsecured notes due 2008) should prevent cash balances from falling precipitously prior to repayment of the notes maturing in 2006. Moody's also noted that as a result of this new facility, combined with additional dividends from Equistar, Millennium could have over $500 million of cash by the end of the third quarter (assuming modest repurchases of existing debt). The stable outlook reflects Moody's belief that Millennium's credit profile will continue to improve due to the cyclical recovery in its commodity chemical operations and a continuing stream of dividends from Equistar over the next 12-18 months. Additionally, the repayment of roughly $500 million of debt by the fourth quarter of 2006 will significantly improve the company's credit profile. However, Millennium also has another $475 million debt maturity in 2008 that will require refinancing unless there is an extended peak in the current commodity chemicals cycle. The 2008 notes are important because they are the only public notes to contain a restricted payments clause. Once these notes are repaid, Moody's will no longer be able to maintain a higher rating for Millennium. As of June 30, 2005, Millennium's credit metrics have improved significantly with its total debt to EBITDA ratio, including dividends from Equistar, at 2.9 times (4.7 times excluding the Equistar dividend) and an EBITDA to interest coverage ratio of 4.75 times (2.8 times excluding Equistar dividends). These ratios are modestly different from the bank covenant calculations, since they are based on report financials and do not exclude certain non-cash expenses. When applying Moody's Standard Financial Adjustments, which include the capitalization of pension liabilities and operating leases, Millennium's debt rises to $1.8 billion, total debt to EBITDA is slightly higher at 3.0 times and EBITDA to interest is slightly lower at 4.2 times. The affirmation of Lyondell's and Equistar's ratings reflects their improving financial profile and continuing repayment of debt. By the end of August, Lyondell's consolidated debt will have declined by over $1 billion in the past 12 months. The positive outlook reflects Moody's anticipation that Lyondell's (propylene oxide and related products) and Millennium businesses will continue to expand operating margins (excluding extraordinary items) and that Equistar's EBITDA will not decline from the second quarter levels until the later half of 2006. If Equistar's margins improve significantly in the third and into the fourth quarter, Moody's would likely place Lyondell's ratings under review for upgrade due to the potential for additional debt reduction. If Equistar's EBITDA falls significantly below $250 million and margins in Lyondell's other businesses decline, Moody's could return to a stable outlook. Lyondell's ability to generate free cash flow over the next several years is crucial to its ratings, as the consolidated company (including Equistar and Millennium) has roughly $4.5 billion of debt maturing over the next 4 years. Given Moody's conservative projections for the current ethylene cycle, Lyondell could be required to refinance a majority of this debt prior to the next downturn. Hence, it would be difficult for Moody's to raise the company's ratings more than one notch without a clear resolution to this issue. Lyondell's liquidity rating at SGL-1 reflects its elevated cash balance, dividend streams from Equistar and LCR, and the improving financial performance in its inorganic chemicals and propylene oxide and related products segments, which should cover all fixed costs and allow for $700-800 million of debt reduction in 2005. The SGL-1 also reflects the significant amount of availability under Lyondell's $475 million credit agreement, which is undrawn, and roughly $400 million of availability, as of June 30, 2005, roughly $425 million of availability under Equistar's $700 million asset-backed credit facilities and roughly $100 million under Millennium's new facilities. Additionally, the SGL-1 reflects the substantial room under the covenants in Lyondell's and Millennium's facilities and the absence of covenants in Equistar's credit facilities. The SGL-1 rating also reflects Lyondell's access to an upsized $150 million accounts receivable program with roughly $75 million of availability. Headquartered in Houston, Texas, Lyondell Chemical Company manufactures: * propylene oxide, * MTBE and toluene di-isocyanate, and * co-product styrene. Both Equistar Chemicals LP and Millennium Chemicals Inc. are wholly owned subsidiaries of Lyondell. Lyondell also participated in a refinery joint venture with CITGO Petroleum Corporation - Lyondell-CITGO Refining Company Ltd. Equistar is a leading North American producer of commodity petrochemicals and plastics. Millennium Chemicals is among the largest global producers of titanium dioxide pigments and acetyls. Lyondell-CITGO Refining Company (58.75% owned by Lyondell) is a refiner that has the unique ability to process 100% heavy sour crude oil from Venezuela. These combined entities reported revenues of nearly $24 billion for the LTM dated June 30, 2005. MIRANT CORP: Asks Court for Summary Judgment on Pokalsky's Claims ----------------------------------------------------------------- Mirant Corporation, Mirant Services, LLC, and Mirant Americas Energy Marketing, LP, asked the Court for a summary judgment on Joseph T. Pokalsky's claims. On May 3, 1996, Mr. Pokalsky entered into an Employment Agreement with Southern Electric International, Inc. Pursuant to the Employment Agreement, Mr. Pokalsky was to be employed for three years and was to receive: (i) a $200,000 annual base salary, (ii) guaranteed bonus payments of $200,000 per year on May 1 of 1997, 1998 and 1999, and (iii) other bonus payments governed by the Southern Energy Marketing Executive Incentive Pay Plan. Among the bonuses provided to Mr. Pokalsky by the Incentive Plan was a Phantom Equity Grant. This PE Grant was tied to certain percentage increases in the Fair Market Value of Southern Energy Trading and Marketing and vested as to Mr. Pokalsky: (i) 25% at the end of 1997, (ii) 25% at the end of 1998, (iii) 25% at the end of 1999, and (iv) 25% at the end of 2000. Resignation or Termination? In February 1998, Mr. Pokalsky was informed by two Mirant executives that he was being removed from his current position. The possibility of Mr. Pokalsky assuming a new position within Mirant to develop an international energy trading business was discussed. The parties dispute whether the result of this meeting was a resignation by Mr. Pokalsky or a termination (without cause) by Mirant. Mr. Pokalsky alleges that he was terminated because no formal offer was ever made. On the other hand, Mirant alleges that Mr. Pokalsky simply refused to consider a reassignment and thus made a unilateral decision to resign. On April 20, 1998, Mirant forwarded a letter to Mr. Pokalsky indicating that it accepted his resignation and would provide Mr. Pokalsky with $545,000 as severance pay. According to Mirant, Mr. Pokalsky was paid greater than $545,000: (i) the $200,000 payments guaranteed for both May 1, 1998, and May 1, 1999, (ii) a $160,000 bonus for 1997, (iii) $66,000 in prorated salary, and (iv) $10,000 in unused vacation pay. Mr. Pokalsky claims that right after he was informed of his removal, he was escorted off Mirant's premises by security personnel without being given an opportunity to retrieve certain personal belongings from his office. Mr. Pokalsky later asked Mirant to return his belongings, but Mirant said it could not locate certain of the materials Mr. Pokalsky requested. Mirant offered to compensate Mr. Pokalsky for the lost items. Mr. Pokalsky did not respond to this proposal. Employment at Energy Imperium While Mr. Pokalsky was employed by Mirant, Mirant retained Energy Imperium to produce a customized energy trading software system for use in Mirant's business. Mr. Pokalsky executed the agreement on Mirant's behalf. Donald Jefferis served as a consultant to Mirant and was then hired, inter alia, to implement the software system constructed by EI. Shortly after Mr. Pokalsky's employment with Mirant concluded, he was employed by EI. Mr. Pokalsky alleges that he was promised ownership of a percentage of the equity in EI upon becoming an employee. On July 17, 1998, representatives of Mirant and EI held a meeting to discuss the working relationship between the companies. Among the representatives present were Mr. Jefferis, Mr. Pokalsky and Ricardo Medina, President of EI. At the meeting, Mirant informed EI that it would require a representative of EI to work full-time on site at Mirant for EI to fulfill its obligations under their agreement. EI disagreed that this was necessary, and, shortly after the meeting began, the EI representatives terminated discussions and left the premises. Mr. Jefferis later sent a letter to Mr. Medina informing him of Mirant's position that EI had materially breached the agreement between the parties and further directed Mr. Medina to vacate Mirant's premises and return all keys and electronic access cards. In the letter, Mr. Jefferis stated that "Joe Pokalsky stated [at the meeting] that you would not provide the services during the hours and at the location set forth in the Memorandum" and that Mr. Pokalsky's assertions at the meeting concerning the intent of the parties at the time of execution of the agreement, being at that time employed by Mirant, "raises some issues regarding his interest in and duties to you and us at the time that he executed the referenced agreement." At the time Mr. Pokalsky became employed by EI, EI was in negotiations with Altra Energy Technologies, Inc., for Altra's acquisition of EI. Following termination of the contractual relationship between Mirant and EI, Altra acquired EI, but at a purchase price of approximately half of what it had proposed prior to the dispute between Mirant and EI. The number of Altra shares distributed to the owners of EI was also significantly reduced from the number originally proposed. Georgia Action Mr. Pokalsky filed a complaint in Georgia state court on April 14, 2000, seeking recovery for, inter alia: (i) breach of contract based on Mirant's failure to make payments to Mr. Pokalsky on account of his PE Grant, (ii) injuries suffered as a result of defamatory statements made by Mr. Jefferis, and (iii) conversion of the personal belongings not returned by Mirant to Mr. Pokalsky following his departure from the company. Mirant answered the Complaint and subsequently moved for summary judgment, which was granted in part and denied in part by order of the state court dated March 21, 2003. Mr. Pokalsky's Claims On November 24, 2003, Mr. Pokalsky filed three separate proofs of claim seeking $10,000,000 to $15,000,000 in damages based on the causes of action asserted in the Complaint. The Debtors objected to the claims. Court's Opinion The Court must determine whether summary judgment may be granted to dispose of Mr. Pokalsky's claims. According to Judge Lynn, summary judgment is proper when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. A. Breach of Contract Judge Lynn notes that Mirant and Mr. Pokalsky differ as to the nature of Mr. Pokalsky's termination. "The record contains sufficient evidence to support either view and a genuine issue of material fact thus exists, the resolution of which is necessary before the court can reach the initial conclusion as to which section of the Employment Agreement Mirant may or may not have breached." Even if the court were able to determine conclusively which section of the Employment Agreement applies to this dispute, Judge Lynn says, summary judgment would still not be appropriate. "In viewing the record in a light most favorable to Mr. Pokalsky, the court concludes that Mr. Pokalsky has succeeded in putting forth evidence demonstrating that a genuine issue of material fact exists as to whether his PE Grant had a positive value at the time of his separation from Mirant. Accordingly, the Motion, as to Mr. Pokalsky's breach of contract claim, must be denied." B. Defamation Because Mr. Pokalsky was domiciled in Georgia at the time of the alleged defamation and because the alleged defamation occurred in Georgia, Judge Lynn applies Georgia law to Mr. Pokalsky's claim. Mr. Pokalsky's defamation claim is based on two categories of communication from Mr. Jefferis: -- statements made by Mr. Jefferis in his July 17, 1998 letter to Mr. Medina; and -- oral statements allegedly made by Mr. Jefferis to individuals in the business community. Mr. Pokalsky's claim that Mr. Jefferis' July 17, 1998 letter to Medina was defamatory is based on two passages in that letter: "At our meeting this morning, Friday, July 17, 1998, we perceived that each party fully understood the parameters, requirements and timing of the activities under the work plan for the last six (6) months of calendar 1998. However, Joe Pokalsky stated that you would not provide the services during the hours and at the location set forth in the Memorandum accompanying Scott Hobby's June 29, 1998 letter to John Fry. "In response to our assertion that such refusal was a breach of the referenced agreement . . . Joe Pokalsky responded that regardless of the wording of the referenced agreement, the intent of that agreement was that we did not have the right to direct you as to where and when your services would be performed under that agreement. He bolstered his argument by asserting that he was the officer of Southern Energy Trading and Marketing, Inc. that executed the referenced agreement on behalf of that company. . . . Some minutes earlier to that assertion [sic], Joe Pokalsky also indicated that he is principal [sic] in Energy Imperium and accordingly, his later assertion raises some issues regarding his interest in and duties to you and us at the time that he executed the referenced agreement." Judge Lynn contends that the first passage is no more than a statement reflecting Mr. Jefferis' interpretation of Mr. Pokalsky's comments at the July 17, 1998 meeting. The second passage contains no direct attack on Mr. Pokalsky's honesty or morality and does not assert that he is guilty of any crime. The Court concludes that the use of innuendo would be necessary to find such a meaning in Mr. Jefferis' words. The Court also concludes that Mr. Jefferis' statement that "some issues" regarding Mr. Pokalsky's interests and duties were raised by Mr. Pokalsky advocating an interpretation of an agreement (which he executed on behalf of Mirant) inconsistent with Mirant's reading of the agreement at the time of the meeting is not, on its face, a statement which would tend to damage Mr. Pokalsky in his business. Therefore, because Mr. Pokalsky has failed to present any evidence which would allow the Court to conclude, without resort to strained construction or the use of innuendo, that Mr. Jefferis' statements fit the definition of libel per se under Georgia law, summary judgment in favor of Mirant is warranted on this theory of defamation. Mr. Pokalsky claims that he suffered monetary injury from Mr. Jefferis' statements in connection with Altra's purchase of EI. Mr. Pokalsky alleges that he was granted a percentage of the equity interest in EI when he began employment with EI and that he was to be compensated for this at the time Altra purchased EI. Mr. Pokalsky also alleges that he was entitled to receive a cash payment, in addition to compensation for his equity interest in EI, upon Altra's purchase of EI. Mr. Pokalsky contends that Mr. Jefferis' statements: (i) delayed the closing of Altra's purchase of EI, (ii) resulted in Altra purchasing EI at a significantly reduced price than it had previously offered, (iii) strained Mr. Pokalsky's business relationship with EI, and (iv) ultimately caused Mr. Pokalsky to receive a number of shares in Altra that was one third less than what he was entitled to receive based on his equity interest in EI and caused the cancellation of the cash payment due to him at the Altra closing. The Court does not believe Mr. Jefferis' statements caused these things to happen. "Rather, the record demonstrates that the delay and reduction in purchase price were due to Mirant's termination of the agreement with EI. [Mr.] Jefferis' statements were simply an explanation of Mirant's position that EI had materially breached the agreement and why Mirant believed it was entitled to pursue the course of action it chose." The Court finds it implausible to assume that if Mirant and EI had been able to resolve their differences and continue their working relationship following Mr. Jefferis' letter, that the purchase price paid by Altra for EI would have dropped in the manner it did. Rather, any delay in the Altra closing and the reduced purchase price were a direct result of EI losing, in Mr. Pokalsky's words in his deposition, Mirant as a "primary customer". Judge Lynn likewise concludes that Mr. Pokalsky has shown no evidence indicating that any strain between Mr. Pokalsky and EI following Mr. Jefferis' letter and any decision by EI to reduce Mr. Pokalsky's compensation at the Altra closing could be attributed to Mr. Jefferis' statements. "Again, [Mr.] Jefferis' statements reflect his interpretation of [Mr.] Pokalsky's statements at the meeting, as a representative of EI, and why those statements justified Mirant's termination of its relationship with EI. If, as Mr. Pokalsky stated in his deposition, Mr. Medina informed Mr. Pokalsky that Mr. Pokalsky should bear responsibility for the collapse of the relationship between Mirant and EI and thus reduced the compensation Mr. Pokalsky should have received at the Altra closing, and Mr. Pokalsky believes this was unjust and violated some agreement between Mr. Pokalsky and EI, then any fault that exists lies with EI, not Mirant." In the absence of evidence of special damages, Judge Lynn finds that no genuine issue of material fact exists on Mr. Pokalsky's defamation claim on a theory of libel per quod, and summary judgment in favor of Mirant is appropriate. The Court further concludes that summary judgment in favor of Mirant on Mr. Pokalsky's defamation claim is appropriate because Jefferis' written statements are exempt from prosecution under Georgia law. The Georgia Code provides that communications privileged and immune from attack as libel include "[s]tatements made with a good faith intent on the part of the speaker to protect his or her interest in a matter in which it is concerned." According to Judge Lynn, Mr. Pokalsky has failed to present evidence demonstrating that Mr. Jefferis' statements in the July 17, 1998 letter do not fall squarely within this privilege. "Even viewing the record in a light most favorable to Mr. Pokalsky, the court can only conclude that the statements were made to protect Mirant's interests in its dealings with EI by explaining Mirant's reasons for declaring EI in default and terminating the agreement." C. Conversion In order to make out a prima facie case for conversion under Georgia law, Mr. Pokalsky must show that: (i) he has title or a right of possession to the property at issue, (ii) Mirant has actual possession of the property, (iii) he demanded that Mirant return the property to him, and (iv) Mirant has refused to return the property. Judge Lynn notes that Mr. Pokalsky has failed to present the Court with any evidence to support the second and fourth elements of his conversion claim. "The evidence demonstrates that Mirant did not refuse to return any materials to Mr. Pokalsky, but rather returned what it could locate and made a reasonable effort to compensate Mr. Pokalsky for that which it could not. Thus, no genuine issue of material fact exists as to Mr. Pokalsky's claim for conversion and the Motion must be granted." 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. 71; Bankruptcy Creditors' Service, Inc., 215/945-7000) MIRANT CORP: Court Approves Settlement Agreement with Citibank -------------------------------------------------------------- On October 22, 2001, a participation agreement was entered into among a group of lenders, consisting of: 1. MC Equipment Revolver Statutory Trust; 2. Mirant Americas Development Capital, LLC; 3. State Street Bank and Trust Company of Connecticut, N.A., as Trustee; and 4. certain Note Holders and Certificate Holders, and their agent, Citibank, N.A. Pursuant to the Participation Agreement, MADC arranged for a financing for the acquisition of certain electric power generation equipment. Mirant Corporation guaranteed MADC's obligation. On February 15, 2002, Alstom Power Inc. and MC Equipment entered into two agreements for the purchase and installation of steam turbine generation equipment for Mirant's facilities located in North Carolina and Georgia. Notwithstanding the entry into the Equipment Agreements, on October 16, 2003, MADC notified Alstom that it did not intend to accept delivery of the equipment. MC Equipment asserted: * Claim No. 6471 against MADC for claims arising under the Participation Agreement for $214,221,482; and * Claim No. 6473 against Mirant for claims arising under the Guaranty for $214,221,482. As previously reported, Alstom asked the Court for relief from the automatic stay to terminate the Equipment Agreements and to dispose of the Equipment. Mirant, MADC, and Alstom subsequently entered into a stipulation modifying the automatic stay. The parties agreed to allow the members of the Lender Group to enter into a termination and settlement agreement that terminates the Equipment Agreements and provides for mutual releases of the parties. But MC Equipment and its Trustee, U.S. Bank, N.A., were unwilling to enter into the Termination and Settlement Agreement with Alstom. MC Equipment and U.S. Bank want MADC and Mirant to waive certain defenses relating to whether MC Equipment and U.S. Bank took commercially reasonable steps to mitigate any claims against MADC and Mirant in connection with the financing transaction. Alstom's Arbitration Proceeding In April 2005, Alstom commenced an arbitration proceeding against MC Equipment seeking a determination that: (1) the Equipment Agreements were repudiated and abandoned by MC Equipment; (2) Alstom may dispose of the Equipment for its own account; and (3) Alstom is entitled to recover certain costs. Michelle C. Campbell, Esq., at White & Case LLP, in Miami, Florida, recounts that subsequent to the commencement of the arbitration proceeding, Citibank approached MADC indicating that MC Equipment and U.S. Bank could not enter into the Termination and Settlement Agreement because MADC had preserved its rights to assert the mitigation defenses against MC Equipment and U.S. Bank. Citibank argues that entry by MC Equipment and U.S. Bank into the Termination and Settlement Agreement would waive any defenses that they had to assert against the mitigation defenses. MC Equipment and U.S. Bank maintain that they could assert claims against MADC and Mirant pursuant to the Participation Agreement for any damages that they may incur resulting from the arbitration proceeding, Ms. Campbell notes. While they dispute the validity of the claims, MADC and Mirant have determined that: * the mitigation defenses offer little to no value; and * any of the value is outweighed by the potential indemnification claims for costs and damages that may be asserted by MC Equipment and U.S. Bank against MADC and Mirant arising from the arbitration proceeding. Citibank contends that it took steps to mitigate the claims of MC Equipment and U.S. Bank against MADC and Mirant. These steps, Citibank alleges, included utilizing PA Consulting to approach various power brokers, power companies and other potential purchasers regarding the acquisition of the Equipment. PA Consulting also approached various members of the Lender Group, utilizing their internal and external contacts to determine whether any other parties had any interest in acquiring the Equipment. Based on Citibank's representations and to avoid the incurrence of any claims arising from the arbitration proceeding, MADC and Mirant agree to enter into a Settlement Agreement with: a. MC Equipment and U.S. Bank, as the successor-in- interest to State Street Bank and Trust Company; and b. Citibank, N.A., as agent for certain Note Holders and Certificate Holders under the Participation Agreement. The pertinent provisions of the Settlement Agreement are: a. Citibank's representations are expressly incorporated into the Settlement Agreement; b. MC Equipment and U.S. Bank will enter into the Termination and Settlement Agreement provided that it is on terms acceptable to the parties, including Alstom's agreement to withdraw the arbitration proceeding with prejudice; c. MADC and Mirant will be deemed to have waived the mitigation defenses immediately on the execution of the Termination and Settlement Agreement by MC Equipment and U.S. Bank; and d. In exchange for the waiver of the mitigation defenses, MC Equipment and U.S. Bank will be deemed to have waived any claims that each may possess against MADC and Mirant resulting from costs or damages incurred by MC Equipment and U.S. Bank, arising from the arbitration proceeding. Judge Lynn approves the parties' 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. 71; Bankruptcy Creditors' Service, Inc., 215/945-7000) MORGAN'S FOODS: Equity Deficit Narrows to $3.3 Million in May 2005 ------------------------------------------------------------------ Morgan's Foods, Inc., reported its financial results for the quarterly period ended May 22, 2005. Revenues for the quarter ended May 22, 2005, were $20,760,000 compared to $18,343,000 for the quarter ended May 23, 2004. This increase of $2,417,000 was primarily due to a 15.6% increase in comparable restaurant revenues, which was partially offset by $285,000 in revenues lost due to the closing of three restaurants. The increase in comparable restaurant revenues was primarily the result of effective product promotions by the franchisors during the quarter including the $.99 KFC snacker sandwich. Food, paper and beverage costs for the first quarter increased as a percentage of revenue from 30.4% in fiscal 2005 to 30.9% in fiscal 2006. This increase was primarily the result of the $.99 KFC snacker sandwich having relatively high food costs which was partially offset by efficiencies generated from higher average restaurant volumes. Labor and benefits decreased as a percentage of revenue for the quarter ended May 22, 2005 to 25.7% compared to 29.9% for the year earlier quarter. The decrease was primarily due to efficiencies resulting from higher average restaurant volumes and decreased health care costs of $296,000. Restaurant operating expenses decreased as a percentage of revenue to 24.6% in the first quarter of fiscal 2006 compared to 26.1% in the first quarter of fiscal 2005. This decrease was primarily due to efficiencies resulting from higher average restaurant volumes as well as reduced general insurance costs of $73,000 which were partially offset by increased bonus expense of $201,000 resulting from the Company's substantially improved performance. Depreciation and amortization was relatively unchanged at $750,000 and $783,000 for the first quarters of 2006 and 2005, respectively. General and Administrative Expenses General and administrative expenses decreased from $1,273,000 in the first quarter of fiscal 2005 to $1,151,000 for the first quarter of fiscal 2006 primarily as a result of three senior officers of the Company reducing their salaries and other benefits to near zero while the remainder of the Company's executive team and some of its management took pay cuts during the fourth quarter of fiscal 2005 which continued into the first quarter of fiscal 2006. Gain on Restaurant Assets The Company experienced a gain on restaurant assets of $255,000 for the first quarter of fiscal 2006 compared to a loss of $270,000 for the first quarter of fiscal 2005. The 2006 amount is primarily due to the receipt of $261,000 of property damage and business interruption insurance proceeds. These insurance proceeds relate to three restaurants damaged from the Hurricane Ivan storm system. Insurance proceeds which will result in a gain are recognized in the financial statements only when such gains are realized, which is generally upon receipt of the proceeds. The 2005 amount includes impairment losses of $266,000 on three restaurants to reduce their carrying values to their estimated fair values. Operating Income Operating income in the first quarter of fiscal 2006 increased to $2,234,000 or 10.8% of revenues compared to $183,000 or 1.0% of revenues for the first quarter of fiscal 2005. Operating income increased primarily due to efficiencies resulting from higher average restaurant volumes, decreased health care costs and the receipt of $261,000 in property insurance proceeds. Interest expense on bank debt decreased to $995,000 in the first quarter of fiscal 2006 from $1,036,000 in the first quarter of fiscal 2005 due to lower debt balances during the fiscal 2006 quarter. Interest expense on capitalized leases was substantially unchanged from the prior year first quarter. Other income was substantially unchanged at $29,000 in the first quarter of fiscal 2006 and $17,000 in the first quarter of fiscal 2005. The provision for income taxes for the first quarter of fiscal 2006 and 2005 was zero due to the Company's net loss in the first quarter of fiscal 2005 and its operating loss carryforwards which will be used to offset the Company's fiscal 2006 net income, if achieved. Liquidity and Capital Resources Cash flow activity for the first quarters of fiscal 2006 and fiscal 2005 is presented in the Consolidated Statements of Cash Flows. Cash provided by operating activities was $2,530,000 for the quarter ended May 22, 2005 and $67,000 for the quarter ended May 23, 2004. The increase in cash provided by operating activities was primarily due the Company's increased profitability during the first quarter of fiscal 2006. The Company paid bank and capitalized lease debt of $433,000 in the first quarter of fiscal 2006 and had Capital expenditures of $465,000 primarily as a result of expenditures required to repair one fire-damaged restaurant the majority of which either has or will be recovered through property insurance. The Company's debt arrangements require the maintenance of a consolidated fixed charge coverage ratio of 1.2 to 1 regarding all of the Company's mortgage loans and the maintenance of individual restaurant fixed charge coverage ratios of between 1.2 and 1.5 to 1 on certain of the Company's mortgage loans. The consolidated and individual coverage ratios are computed quarterly, based upon financial results for the preceding twelve months. At the end of fiscal 2005 and the first quarter of fiscal 2006, the Company was not in compliance with the consolidated ratio or with individual restaurant ratios relating to a substantial portion of its debt. As of the year ended Feb. 27, 2005, and the first quarter of fiscal 2006, waivers of the fixed charge coverage ratio violations were not obtained from the lenders. Due to noncompliance with the fixed charge coverage ratios and as required by Emerging Issues Task Force No. 86-30, the Company has classified all of its debt as current as of Feb. 27, 2005 and May 22, 2005. The Company has initiated an operational and financial restructuring process which management believes, but cannot assure, will allow the Company to satisfy the lenders without a forced repayment of the debt prior to its scheduled maturities. A full text copy of the Quarterly Report is available for free at: http://ResearchArchives.com/t/s?9f Morgan's Foods, Inc., operates, through wholly owned subsidiaries, KFC restaurants under franchises from KFC Corporation and Taco Bell restaurants under franchises from Taco Bell Corporation. As of June 24, 2005, the Company operates 73 KFC restaurants, 7 Taco Bell restaurants, 14 KFC/Taco Bell "2n1's" under franchises from KFC Corporation and franchises or licenses from Taco Bell Corporation, 3 Taco Bell/Pizza Hut Express "2n1's" operated under franchisees from Taco Bell Corporation and licenses from Pizza Hut Corporation, 1 KFC/Pizza Hut Express "2n1" operated under a franchise from KFC Corporation and a license from Pizza Hut Corporation and 1 KFC/A&W "2n1" operated under a franchise from KFC Corporation and a license from A&W Restaurants, Inc. The Company's fiscal year is a 52 & 53-week year ending on the Sunday nearest the last day of February. At May 22, 2005, Morgan's Foods' equity deficit narrowed to $3,317,000 from a $4,574,000 deficit at Feb. 27, 2005. Going Concern Doubt Deloitte & Touche, LLP, expressed substantial doubt about Morgan's Foods, Inc.'s ability to continue as a going concern after it audited the Company's financial statements for the year ended Feb. 27, 2005. The auditing firm points to the Company's recurring losses, shareholders' capital deficiency and non- compliance with its debt agreements. Morgan's Foods' reduced debt payment schedule and covenant violations could result in the exercise of certain remedies available to the lender which may include calling of the debt, acceleration of payments or foreclosure on the Company's assets which secure the debt. The Company's other lenders have similar remedies available to them based on covenant violations and the cross default provisions of those debt agreements. The lenders have not initiated any of these remedies and management believes, but cannot assure, that these actions will not be taken prior to the Company completing the financial restructuring described above. However, the recurring losses from operations and shareholders' deficiency that the Company has sustained result in significant uncertainty as to the Company's ability to complete the financial restructuring if the lenders initiate these remedies. Consequently, there is substantial doubt that the Company will be able to continue as a going concern and therefore, if applicable, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business. NATIONAL BEDDING: Moody's Reviews $300 Million Debts' Ba3 Rating ---------------------------------------------------------------- Moody's Investors Service placed the debt ratings of National Bedding Company (d/b/a Serta Mattress Company) under review for possible downgrade following the announcement that a definitive agreement for the sale of the company has been signed. Ratings under review for possible downgrade include: * $75 million secured revolving credit facility at Ba3; * $75 million secured term loan A at Ba3; * $150 million secured term loan B at Ba3; and * corporate family rating (formerly known as the senior implied rating) at Ba3. On August 2, 2005, Ares Management LLC and Teachers' Private Capital announced that they had signed a definitive agreement to buy National Bedding. Terms of the transaction were not disclosed. The review reflects the risk of a material increase in the financial leverage of the company following the acquisition by two private equity firms. As of December 31, 2004, National Bedding's adjusted leverage was 4x. Leverage is adjusted for the capitalization of operating leases as described in Moody's Global Standard Adjustments. Moody's review will evaluate the strategic and financial plans of the new owners, including the standing of the existing debt in the new capital structure, and the company's recent operating performance. Moody's will withdraw its ratings on National Bedding's existing debt if the company's financing plans result in repayment. National Bedding Company, based in Hoffman Estates, Illinois, is a major manufacturer of mattresses under the Serta brand name. Net sales in 2004 approximated $600 million. ON TOP: Wants to Hire Cox Stein as Lead Bankruptcy Counsel ---------------------------------------------------------- On Top Communications, LLC and its debtor-affiliates ask the U.S. Bankruptcy Court for the District of Maryland for permission to employ Cox, Stein & Pettigrew Co., L.P.A., as their general bankruptcy counsel. The Debtors remind the Court that they have a pending request to employ Thomas S. Lackey, Esq., as their local counsel. Cox Stein says it will exert every effort to avoid duplication of services with Mr. Lackey. Cox Stein will: a) advise the Debtors with respect to their powers and duties as debtors and debtor-in-possessions in the continued operation of their businesses and management of their properties; b) assist the Debtors in formulating a plan of reorganization and an accompanying disclosure statement and obtaining approval of that disclosure statement and confirmation of that plan; c) prepare and file on behalf of the Debtors of all necessary applications, motions, orders, reports, adversary proceedings and other pleadings and documents required in their chapter 11 cases; d) appear in Bankruptcy Court and protect the interests of the Debtors before that Court; and e) perform all other legal services for the Debtors that are necessary in their chapter 11 cases. Grady L. Pettigrew, Jr., Esq., a Member of Cox Stein, is one of the lead attorneys for the Debtors. Mr. Pettigrew disclosed that his Firm received a $5,000 retainer. Mr. Pettigrew charges $275 per hour for his services. Mr. Pettigrew reports Cox Stein professionals bill: Designation Hourly Rate ----------- ----------- Counsel $120 - $275 Paraprofessionals $80 - $110 Cox Stein assures the Court that it does not represent any interest materially adverse to the Debtors or their estates. Headquartered in Lanham, Maryland, On Top Communications, LLC, and its affiliates acquire, own and operate FM radio stations located in the Southeastern United States. The Company and its debtor- affiliates filed for chapter 11 protection on July 29, 2005 (Bankr. D. Md. Case No. 05-27037). When the Debtors filed for protection from their creditors, they estimated assets and debts of $10 million to $50 million. ORGANIZED LIVING: Wants Plan Filing Period Stretched to Dec. 30 --------------------------------------------------------------- Organized Living, Inc., asks the U.S. Bankruptcy Court for the Southern District of Ohio to extend until December 30, 2005, the time within which it has the exclusive right to file a plan of reorganization and disclosure statement. The Debtor also wants the Court to extend its exclusive period to solicit plan acceptances through February 28, 2006. The Debtor says that it has been unable to develop a reorganization plan because it has spent substantial time preparing for and conducting an orderly liquidation of its assets. The Debtor began chain-wide store closing sales on June 18, 2005. The Debtor explains that, with a reduced workforce, it can't prepare and file a cohesive, organized plan of liquidation before the current exclusivity period expires on September 1, 2005. The Debtor believes that it will make significant progress in the administration of the estate and submit a liquidating plan of reorganization by December 30, 2005. Headquartered in Westerville, Ohio, Organized Living, Inc., -- http://www.organizedliving.com/-- is an innovative retailer of storage and organization products for the home and office with stores throughout the U.S. The Company filed for chapter 11 protection on May 4, 2005 (Bankr. S.D. Ohio Case No. 05-57620). Tim Robinson, Esq., at Squire Sanders & Dempsey represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it estimated assets and debts of $10 million to $50 million. OWENS CORNING: Earns $67 Million of Net Income in Second Quarter ---------------------------------------------------------------- Owens Corning (OTC: OWENQ) reported financial results for the second quarter ending June 30, 2005. For the second quarter, the company posted net sales of $1.590 billion, an increase of 10.3%, compared to net sales of $1.441 billion for the same period last year. For the first six months of 2005, sales totaled $2.992 billion, a 12.9% increase from the year prior. During the first half of the year, strong demand for many of the company's products continued, particularly in insulation and roofing markets. The increase in sales reflects a favorable pricing environment for many products, and higher sales volumes in both its building materials and composite solutions business segments. Increased volumes resulted from continued strength in the United States housing and remodeling markets, an improving global economy, and strong demand for the company's residential roofing products in the Southeastern United States, created in part by the Florida hurricanes of 2004. "Second quarter sales were the highest of any quarter in our company's history," said Dave Brown, president and chief executive officer. "Strong sales and improved pricing helped to offset energy, material and product delivery-related cost pressures. Our continued focus on operational improvement and domestic and global expansion positions us well for the remainder of the year." "Our commitment to safety also continued to yield measurable results in the second quarter with a reduced number of recordable injuries to our employees," said Mr. Brown. During the second quarter, the company reported income from operations of $169 million and net income of $67 million, or $1.13 per diluted share, compared to income from operations of $93 million and net income of $33 million, or $0.55 per diluted share, for the second quarter the year prior. The company's cash position continues to be strong, ending the second quarter with a cash balance of $1.048 billion, compared to $874 million for the same period in 2004. In connection with the company's Chapter 11 process, on March 31, 2005, a federal district court issued a ruling estimating the total liability against Owens Corning for personal injury or death caused by exposure to asbestos to be $7 billion. As a result of the court's estimation, the company increased its recorded reserves for asbestos-related liability in the first quarter of 2005 by an aggregate $4.342 billion. The non-cash charge of $4.342 billion in the first quarter resulted in a year- to-date loss from operations of $4.112 billion. During the same period in 2004, the company recorded income from operations of $128 million. When communicating to its Board of Directors and employees regarding the operating performance of the company, management excludes certain items, including items related to the company's Chapter 11 proceedings, asbestos liabilities and restructuring activities. In the second quarter of 2005, such items were a net credit of $17 million, compared to $28 million in charges during the same period in 2004. For the first six months of 2005, such items were $4.342 billion for the non-cash asbestos charge from the first quarter and additional net charges of $19 million, compared to a net charge of $33 million for the same period in 2004. Excluding these items, the company's income from operations for the second quarter 2005 increased 25% over the same period last year, and 55% for the for the first half of 2005 compared to 2004. The company recognizes that excluding these items is not necessarily a more meaningful measure of performance than is operating income (loss) reported on a GAAP basis. In addition, such presentation is not necessarily indicative of the results that the company would have achieved if the company was not subject to Chapter 11 proceedings. A full-text copy of Owens Corning's Form 10-Q report is available for free at the Securities and Exchange Commission at: http://ResearchArchives.com/t/s?ad Headquartered in Toledo, Ohio, Owens Corning -- http://www.owenscorning.com/-- manufactures fiberglass insulation, roofing materials, vinyl windows and siding, patio doors, rain gutters and downspouts. The Company filed for chapter 11 protection on October 5, 2000 (Bankr. Del. Case. No. 00-03837). Mark S. Chehi, Esq., at Skadden, Arps, Slate, Meagher & Flom, represents the Debtors in their restructuring efforts. At Sept. 30, 2004, the Company's balance sheet shows $7.5 billion in assets and a $4.2 billion stockholders' deficit. The company reported $132 million of net income in the nine-month period ending Sept. 30, 2004. (Owens Corning Bankruptcy News, Issue No. 113; Bankruptcy Creditors' Service, Inc., 215/945-7000) PC LANDING: Can Continue Using Cash Collateral Until September 30 ----------------------------------------------------------------- The U.S. Bankruptcy for the District of Delaware gave PC Landing Corp. and its debtor-affiliates, permission to: a) continue using Cash Collateral securing repayment of pre- petition obligations to Deutsche Bank AG, New York Branch, CIBC Inc., and Goldman Sachs Credit Partners L.P.; and b) grant adequate protection to the Bank Group for continued use of the Cash Collateral. Under a Credit Agreement dated July 30, 1998, the Debtors' owe approximately $716 million to the Bank Group. The Debtors need access to Cash Collateral securing repayment of that loan to fund the continued operation and uninterrupted service of their PC-1 fiber optic cable systems -- their main business operations -- and to administer their chapter 11 cases. The Debtors' use of the Cash Collateral will be governed by the terms of a consensual Court-approved Third Amended and Restated Cash Collateral Stipulation with the Bank Group. The Court granted the Debtors permission to use the Cash Collateral for a two-month period, from July 31, 2005, through September 30, 2005 in strict compliance with this Budget: Aug. 2005 Sept. 2005 ---------- ---------- Total Cash OA&M Expense $1,725,434 $905,334 Total G&A Expense - Cash $1,000,348 $914,348 Total Restructuring Expenses $70,000 $90,000 Contingency Expenses $139,789 $95,484 Expenses for Bank Professionals & U.S. Trustee Fees - - ---------- ---------- Total Expenses $2,935,571 $2,005,166 To adequately protect their interests, the Bank Group is granted Post-Petition Liens and an Administrative Priority Claim in substantially all of the Debtors' assets coming into existence after the bankruptcy Petition Date, to the extent of any Cash Collateral diminution. Headquartered in Dallas, Texas, PC Landing Corporation and its debtor-affiliates, own and operate one of only two major trans- Pacific fiber optic cable systems with available capacity linking Japan and the United States. The Debtor filed for chapter 11 protection on July 19, 2002 (Bankr. Del. Case No. 02-12086). Laura Davis Jones, Esq., at Pachulski Stang Ziehl Young Jones & Weintraub, P.C., represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they estimated assets of over $10 million and estimated debts of more than $100 million. PC LANDING: Creditors Must File Proofs of Claim by Aug. 15 ---------------------------------------------------------- The U.S. Bankruptcy Court for the District of Delaware set Aug. 15, 2005, as the deadline for all creditors owed money by PC Landing Corporation and its debtor-affiliates, on account of claims arising prior to July 19, 2002, to file formal written proofs of claim. Creditors must deliver their claim forms to: Clerk of the Court U.S. Bankruptcy Court for the District of Delaware 824 North Market Street, 3rd Floor Wilmington, Delaware 19801 Headquartered in Dallas, Texas, PC Landing Corporation and its debtor-affiliates, own and operate one of only two major trans- Pacific fiber optic cable systems with available capacity linking Japan and the United States. The Debtor filed for chapter 11 protection on July 19, 2002 (Bankr. Del. Case No. 02-12086). Laura Davis Jones, Esq., at Pachulski Stang Ziehl Young Jones & Weintraub, P.C., represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they estimated assets of more than $100 million. PROXIM CORP: Asks Court to Allow Limited Liquidation of Collateral ------------------------------------------------------------------ Proxim Corporation and its debtor-affiliates ask the U.S. Bankruptcy Court for the District of Delaware to lift the automatic stay so that Silicon Valley Bank can liquidate two certificates of deposit and withdraw funds from a deposit account. The Debtors want SVB to liquidate the collateral to repay or reduce its obligations to the bank. The Debtors' obligation arises from standby letters of credit SVB extended to Winthrop Resources Corporation and ACP 2800 Corporate Park Drive LLC in 2003 and an Accounts Receivable Financing Agreement with Proxim Corporation. These obligations are secured by first priority security interests on two certificates of deposit and funds deposited in a blocked account. Under the credit agreements, the Debtors consented to repay SVB for all obligations arising from the letters of credit including all amounts drawn by Winthrop Resources and ACP 2800 plus accrued interests, drawing fees, commissions and attorney's fees incurred by the bank in connection with the agreement. As of June 21, 2005, the amount payable to SVB in connection with the letters of credit is approximately $1,455,427. Interest continues to accrue in the amount of $443 per day. Under the Accounts Receivable Financing Agreement, the Debtor is obliged to repay SVB for all attorney's fees and costs incurred in protecting or enforcing its rights in the collection of the Debtors' outstanding obligations. These fees total approximately $9,000 to date. Objections to a Stipulation between Proxim and SVB must be filed with the Court by 4:00 p.m. on August 17, 2005. The Honorable Peter J. Walsh will receive any objections at a hearing at 10:00 a.m. on August 22, 2005. Headquartered in San Jose, California, Proxim Corporation -- http://www.proxim.com/-- designs and sells wireless networking equipment for Wi-Fi and broadband wireless networks. The Debtors provide wireless solutions for the mobile enterprise, security and surveillance, last mile access, voice and data backhaul, public hot spots, and metropolitan area networks. The Debtor along with its affiliates filed for chapter 11 protection on June 11, 2005 (Bankr. D. Del. Case No. 05-11639). When the Debtor filed for protection from its creditors, it listed $55,361,000 in assets and $101,807,000 in debts. QUIGLEY COMPANY: Sept. 15 Bar Date Includes Silica Claims --------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of New York set Sept. 15, 2005, as the deadline for all Quigley Company, Inc.'s creditors owed money on account of claims arising prior to Sept. 3, 2004, to file written proofs of claim. The Debtor estimates that there are approximately 162,700 personal injury claims, including 4,600 Silica-Related PI Claims. The Official Committee of Unsecured Creditors have requested that Silica-related PI claims be subject to the Sept. 15 Claims Bar Date in order to facilitate the progress of the Debtor's case and avoid unnecessary disputes. As a result, the Debtor has agreed to amend the motion to include Silica-related PI claims among the claims subject to the General Claims bar date and omit it from the Excluded claims. Headquartered in Manhattan, Quigley Company is a subsidiary of Pfizer, Inc., which used to produce and market a broad range of refractories and related products to customers in the iron, steel, glass and other industries. The Company filed for chapter 11 protection on Sept. 3, 2004 (Bankr. S.D.N.Y. Case No. 04-15739) to resolve legacy asbestos-related liability. When the Debtor filed for protection from its creditors, it listed $155,187,000 in total assets and $141,933,000 in total debts. Michael L. Cook, Esq., at Schulte Roth & Zabel LLP, represents the Company in its restructuring efforts. Albert Togut, Esq., at Togut Segal & Segal serves as the Futures Representative. ROGERS COMMUNICATIONS: Completes $223 Million Debt-for-Equity Swap ------------------------------------------------------------------ On June 30, 2005, Rogers Communications Inc. issued a notice of redemption for all of its $224.78 million face amount of 5.75% convertible debentures due Nov. 26, 2005, for an aggregate redemption amount of approximately $223 million. Prior to expiration of the redemption period on Aug. 2, 2005, debenture holders converted an aggregate $224.5 million face amount of debentures 7,715,417 into Class B Non-Voting shares of RCI. The remaining aggregate $285,000 face amount of debentures has been redeemed in cash for an aggregate redemption amount of $282,800. Rogers Communications Inc. (TSX: RCI; NYSE: RG) -- http://www.rogers.com/-- is a diversified Canadian communications and media company engaged in three primary lines of business. Rogers Wireless Inc. is Canada's largest wireless voice and data communications services provider and the country's only carrier operating on the world standard GSM/GPRS technology platform; Rogers Cable Inc. is Canada's largest cable television provider offering cable television, high-speed Internet access, voice-over- cable telephony services and video retailing; and Rogers Media Inc. is Canada's premier collection of category leading media assets with businesses in radio and television broadcasting, televised shopping, publishing and sports entertainment. On July 1, 2005, Rogers completed the acquisition of Call-Net Enterprises Inc. (now Rogers Telecom Holdings Inc.), a national provider of voice and data communications services. * * * As reported in the Troubled Company Reporter on June 14, 2005, Fitch Ratings has initiated coverage of Call-Net Enterprises Inc. and assigned a 'B-' rating to its senior secured notes. Fitch also places the ratings of Call-Net on Rating Watch Positive due to the CDN$330 million all-stock acquisition of Call-Net by Rogers Communications Inc. (rated 'BB-' by Fitch). Approximately US$223 million of debt securities are affected by these actions. As reported in the Troubled Company Reporter on May 31, 2005, Standard & Poor's Rating Services affirmed its 'BB' long-term corporate credit ratings and 'B-2' short-term credit ratings on Rogers Communications Inc., Rogers Wireless Inc., and Rogers Cable Inc. S&P said the outlook is stable. SAFETY-KLEEN: Court Okays Stipulation in Dispute with M. Black -------------------------------------------------------------- Maureen Black asks the U.S. Bankruptcy Court for the District of Delaware to lift the permanent injunction provided by the Debtors' Plan of Reorganization and the Confirmation Order to allow her to pursue her personal injury action against Safety-Kleen. Benjamin Snyder, Esq., at Prickett, Jones & Elliott, P.A., in Dover, Delaware, contends that a Section 524 permanent injunction does not prevent a tort claimant from pursuing a debtor's insurance company because the discharge does not affect the liability of the debtor's insurer and the debtor is not exposed to liability. Mr. Snyder asserts that Safety-Kleen will not suffer any significant prejudice by being joined in the lawsuit for the limited purpose of determining liability because any judgment obtained will be enforced only against proceeds available under the applicable insurance policy. Mr. Snyder clarifies that Ms. Black is simply seeking to prosecute her personal injury action to recover insurance proceeds that will not burden or be inconsistent with the Debtors' reorganization. Parties Stipulate To resolve their dispute, the Reorganized Debtors and Maureen Black stipulate and agree that: (a) The discharge injunction set forth in the Confirmation Order and the Debtors' Joint Plan of Reorganization will be modified for the sole purpose of permitting Ms. Black to prosecute the State Court Action to settlement or a final and non-appealable judgment, provided however: (1) Ms. Black may enforce any final and non-appealable judgment, entered by a court of competent jurisdiction, settlement, or other disposition of the State Court Action against the Reorganized Debtors without further Court order only to the extent that any settlement or final judgment is satisfied by the Reorganized Debtors' available liability insurance policies, and subject to the Reorganized Debtors' collection of all or a portion of that judgment from the Available Coverage; (2) The Available Coverage does not include "self-insurance," "fronted" insurance or under "self-insurance," "matching deductible" coverage or any other policies that do not require actual and ultimate payment by an insurer of the settlement or judgment; (3) Under no circumstances will the Reorganized Debtors seek, or be required to seek, to satisfy any judgment under self-insured retentions or policies constituting "fronted" insurance or under "self- insurance" or under policies providing for " matching deductible" or under other policies that do not require actual and ultimate payment by an insurer, of the judgment; (4) The Available Coverage is comprised solely of the automotive personal injury coverage in existence as of October 1, 1999, the date of the alleged automobile accident, that is responsive to Ms. Black's claims, and which requires actual and ultimate payment by the insurers of any settlement or final and non-appealable judgment obtained by Ms. Black; (5) Nothing will be deemed to grant Ms. Ratke any rights against the Available Coverage that are greater that those provided by applicable law; and (6) If Ms. Black obtains a settlement with, or final and non-appealable judgment against, the Reorganized Debtors, the Reorganized Debtors will make all reasonable efforts to collect the settlement or judgment from the Available Coverage, subject to the provisions contained; (b) Ms. Black will fully release the Reorganized Debtors from any claims for punitive damages, breach of contract, battery, intentional infliction of emotional distress, intentional misrepresentation, fraud, concealment or any other claims; and (c) Nothing will affect the parties' rights to prosecute or defend against the merits of the allegations asserted in the State Court Action. Judge Walsh approves the parties' Stipulation. Headquartered in Delaware, Safety-Kleen Corporation -- http://www.safety-kleen.com/-- provides specialty services such as parts cleaning, site remediation, soil decontamination, and wastewater services. The Company, along with its affiliates, filed for chapter 11 protection (Bankr. D. Del. Case No. 00-02303) on June 9, 2000. Gregg M. Galardi, Esq., at Skadden, Arps, Slate, Meagher, represents the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $3,031,304,000 in assets and $3,333,745,000 in liabilities. (Safety-Kleen Bankruptcy News, Issue No. 88; Bankruptcy Creditors' Service, Inc., 215/945-7000) SATELITES MEXICANOS: S. Maza Files Sec. 304 Petition in S.D.N.Y. ---------------------------------------------------------------- Sergio Autrey Maza, the foreign representative appointed in Satelites Mexicanos, S.A. de C.V.'s Mexican bankruptcy proceedings, filed a Section 304 petition in the U.S. Bankruptcy Court for the Southern District of New York on Aug. 4, 2005. Mr. Maza filed the petition to enjoin U.S. creditors from commencing, continuing or enforcing any action against the Debtor's estates, or otherwise disrupting Satmex's concurso mercantil proceeding in Mexico. Mr. Maza is also the Debtor's acting Chief Executive Officer and Chairman of the Board of Directors. The Debtor is the subject of an involuntary chapter 11 petition filed by a group of secured and unsecured noteholders with the U.S. Bankruptcy Court for the Southern District of New York on May 25, 2005. The petitioning creditors are members of an ad hoc committee of holders of Satmex's Senior Secured Floating Rate Notes due 2004 and 10-1/8% Senior Notes due 2004. The Ad Hoc Noteholders Committee and the Ad Hoc Bondholders Committee collectively hold more than $385 million of Satmex's outstanding debt. Settlement Agreement The Sec. 304 petition is part of the settlement agreement reached between the Debtor and the group of petitioning secured and unsecured noteholders regarding the noteholders' involuntary petition and Satmex's motion to dismiss the petition on jurisdictional grounds. Under the terms of the agreement, the noteholders will withdraw their involuntary chapter 11 petition upon the commencement of the Sec. 304 proceeding. Section 304 of the Bankruptcy Code allows a foreign debtor (such as Satmex) to commence a proceeding that is ancillary (or related) to a foreign proceeding (such as Satmex's Concurso Mercantil). Section 304 also allows a U.S. Bankruptcy Court to protect assets or property of a debtor that are in the U.S. by issuing an injunction preventing any action against that property. Under the terms of the agreement in principle, the creditors have reserved the right to make a motion to the U.S. Bankruptcy Court seeking the dismissal of the 304 petition or the termination of any injunction ordered by the Court upon the occurrence of certain conditions. These conditions include: -- any attempt to revoke or terminate Satmex's concessions; and -- any failure of Satmex to present a restructuring proposal to the Creditors by Oct. 31, 2005. The creditors also have the right to come back to the U.S. Bankruptcy Court seeking relief if Satmex 6 is not launched by June 30, 2006. Principal Indebtedness Satmex's principal indebtedness includes: (i) $320 million in principal amount of high yield bonds due November 2004, issued on Feb. 2, 1998, between Satmex and The Bank of New York as Indenture Trustee; and (ii) $203.4 million in principal amount of senior secured floating rate notes due June 2004, issued on March 4, 1998, between Satmex and Citibank, N.A., as Indenture Trustee. As of May 25, 2005, the full principal amount and certain accrued and unpaid interest remained outstanding on the high yield bonds and the floating rate notes. Menoscabo Default In 1997, Firmamento Mexicano, S. de R.L. de C.V., a joint venture between Loral Space & Communication, Ltd., and Principia, S.A. de C.V., consummated an acquisition of 75% of the then-issued outstanding capital stock of Satmex from the Mexican government. As a result, Satmex became a wholly owned direct subsidiary of Servicios Corporativos Satelitales, S.A. de C.V., which is in turn a wholly owned subsidiary of Firmamento. The remaining 25% of Satmex's outstanding capital stock, at the time, was retained by the Mexican government. In connection with the purchase, Servicios agreed to pay the Mexican government $125.1 million plus interest, which is reflected in a promissory note referred to as a Menoscabo. Payment of the Menoscabo is secured by Loral's and Principia's interests in Firmamento. The Mexican government, which currently owns 23.57% of Satmex's outstanding common stock, indirectly holds a security interest in another 70.71% equity interest in Satmex as collateral securing the Menoscabo. On Sept. 30, 2003, Servicios defaulted on the Menoscabo debt. As a result of the default, the Mexican government could initiate proceedings against Servicios, which may include foreclosure on the Firmamento equity and possibly transfer of that equity. The Menoscabo default also constituted a default under the indentures. Mexican Bankruptcy Proceedings The Debtor filed a voluntary concurso mercantil in the Second Federal District Court for Civil Matters for hte Feeral District of Mexico City on June 29, 2005. Following the petition, the Mexican Bankruptcy Court entered an order: (i) staying any foreclosure proceeding against the rights and assets of Satmex and prohibiting Satmex from transferring its valuables or funds to third parties; and (ii) prohibiting Satmex from disposing or encumbering its main properties or assets. Headquartered in Mexico, Satelites Mexicanos, S.A. de C.V., derives over 50% of its revenues from United States business, and all of the Company's over US$500 million in debt was issued in the United States and is governed by New York law. The Company's largest shareholder, Loral Space & Communications Ltd., is a United States public company also undergoing a Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York. The Company is forced into chapter 11 by a group of secured and unsecured noteholders on May 25, 2005 (Bankr. S.D.N.Y. Case No. 05-13862). The noteholders are represented by Wilmer Cutler Pickering Hale and Dorr LLP and Akin Gump Strauss Hauer & Feld LLP. Evercore Partners is the financial advisor to the Senior Secured Floating Rate Noteholders. Chanin Capital Partners is the financial advisor to the 10-1/8% Senior Noteholders. On June 29, 2005, the Debtor filed a voluntary concurso mercantil to restructure under Mexican laws, and later moved to dismiss the involuntary Chapter 11 petition in the U.S. Sergio Autrey Maza, in his capacity as the foreign representative appointed in Satmex's Mexican proceeding, filed a Sec. 304 petition on Aug. 4, 2005 (Bankr. S.D.N.Y. Case No. 05-16103). Matthew Scott Barr, Esq., at Milbank, Tweed, Hadley & McCloy LLP, represents Mr. Maza. As of May 31, 2005, the Debtor reports $900 million in total assets and $688 million in total debts. SATELITES MEXICANOS: Section 304 Petition Summary ------------------------------------------------- Petitioner: Sergio Autrey Maza Foreign Representative Chief Executive Officer and Chairman of the Board of Directors of Satmex Debtor: Satelites Mexicanos, S.A. de C.V. Boulevard Manuel Avila Camacho No. 40 Colonia Lomas de Chapultepec 11000, Mexico, D.F., Mexico Case No.: 05-16103 Type of Business: Sat,lites Mexicanos, S.A. de C.V. is the leading provider of fixed satellite services in Mexico and is expanding its services to become a leading provider of fixed satellite services throughout Latin America. Satmex provides transponder capacity to customers for distribution of network and cable television programming and on-site transmission of live news reports, sporting events and other video feeds. Satmex also provides satellite transmission capacity to telecommunications service providers for public telephone networks in Mexico and elsewhere and to corporate customers for their private business networks with data, voice and video applications, as well as satellite internet services. See http://www.satmex.com/ The Debtor is an affiliate of Loral Space & Communications Ltd. which filed for chapter 11 protection on July 15, 2003 (Bankr. S.D.N.Y. Case No. 03-41710). Some holders of prepetition debt securities filed an involuntary chapter 11 petition against the Debtor on May 25, 2005 (Bankr. S.D.N.Y. Case No. 05-13862). Section 304 Petition Date: August 4, 2005 U.S. Bankruptcy Court: Southern District of New York (Manhattan) U.S. Bankruptcy Judge: Robert D. Drain Mexican Bankruptcy Court: Second Federal District Court for Civil Matters for the Federal District of Mexico City Petitioner's Counsel: Matthew Scott Barr, Esq. Milbank, Tweed, Hadley & McCloy LLP 1 Chase Manhattan Plaza New York, New York 10005 Tel: (212) 530-5000 Fax: (212) 530-5219 Financial Condition as of May 31, 2005: Total Assets: $900,000,000 Total Debts: $688,000,000 SHURGARD STORAGE: Moody's Reviews Ba1 Preferred Stock Rating ------------------------------------------------------------ Moody's Investors Service placed Shurgard Storage Centers, Inc.'s senior unsecured debt rating of Baa3 and preferred stock rating of Ba1 (previously on negative outlook) under review with direction uncertain. According to Moody's, these rating actions reflect Public Storage's announcement today that it had made a proposal for the combination of Public Storage and Shurgard through a merger. Moody's noted that the proposed transaction possesses both risks and positive factors for Shurgard's creditors. On the risk side, Shurgard could be sold to another buyer in a leveraged transaction, or restructure its finances itself in an effort to unlock value. Such actions would likely result in a downgrade for Shurgard. In addition, a takeover or other restructuring could distract senior management from its core business. On the other hand, the acquisition of Shurgard by Public Storage would result in Shurgard's creditors being creditors of a much larger, industry- leading self-storage REIT with a history of conservative financial management. A ratings upgrade for Shurgard would reflect consummation of a merger with Public Storage. A rating downgrade would reflect a leveraged sale or recapitalization. Such rating changes -- up or down -- could be more than one notch. Other factors that could affect a downgrade of Shurgard include further weakness in its European operations, or any disclosure of additional material accounting or control weaknesses. Moody's last rating action for Shurgard took place in February 2005 at which time its ratings were downgraded to Baa3 with a negative outlook. These ratings were placed under review direction uncertain: Shurgard Storage Centers, Inc.: * Senior unsecured debt at Baa3; * senior unsecured debt shelf at (P)Baa3; * preferred stock at Ba1; and * preferred stock shelf at (P)Ba1. Shurgard Storage Centers, Inc. [NYSE: SHU] is a self-storage real estate investment trust (REIT) headquartered in Seattle, Washington, USA. At March 31, 2005, Shurgard had interests in over 634 properties in the USA and Europe totaling 40 million net rentable square feet, assets of $2.9 billion and equity of $879 million. SIRIUS SATELLITE: Offering $400M Sr. Notes to Institutional Buyers ------------------------------------------------------------------ SIRIUS Satellite Radio (NASDAQ:SIRI) reported the offering of $400 million in aggregate principal amount of Senior Notes due 2013 to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, and outside the United States in compliance with Regulation S under the Securities Act. The notes will be senior obligations of SIRIUS. SIRIUS intends to use the net proceeds from the offering to redeem all of its outstanding 15% Senior Secured Discount Notes due 2007 and 14�% Senior Secured Notes due 2009. The balance of the net proceeds will be used for general corporate purposes. SIRIUS Satellite Radio delivers more than 120 channels of the best commercial-free music, compelling talk shows, news and information, and the most exciting sports programming to listeners across the country in digital quality sound. SIRIUS offers 65 channels of 100% commercial-free music, and features over 55 channels of sports, news, talk, entertainment, traffic and weather for a monthly subscription fee of only $12.95. SIRIUS also broadcasts live play-by-play games of the NFL and NBA, and is the Official Satellite Radio partner of the NFL. * * * As reported in the Troubled Company Reporter on Aug. 4, 2005, Standard & Poor's Ratings Services assigned its 'CCC' rating to Sirius Satellite Radio Inc.'s proposed $500 million Rule 144A senior unsecured notes maturing in 2013. At the same time, Standard & Poor's affirmed its existing ratings on the New York, New York-based satellite radio broadcasting company, including its 'CCC' corporate credit rating. The new proposed notes will replace the company's previously proposed $250 million senior unsecured note offering, which was postponed in the second quarter of 2005. Standard & Poor's 'CCC' rating on the $250 million senior note issue was withdrawn. The outlook remains stable. Proceeds will be used to repay $57.4 million in debt and to boost liquidity. On a June 30, 2005, pro forma basis, Sirius had nearly $1.1 billion in debt. SIRIUS SATELLITE: Moody's Junks Proposed $500 Million Notes ----------------------------------------------------------- Moody's Investors Service assigned a Caa1 corporate family rating and a SGL-2 speculative grade liquidity rating for SIRIUS Satellite Radio, Inc., as well as a Caa1 rating for the proposed $500 million senior unsecured notes due 2013. Proceeds from the transaction will be used to retire $63 million of the remaining senior secured notes (15% senior secured discount notes due 2007 and 14.5% senior secured notes due 2009) as well as to fund operations and improve liquidity. The ratings reflect Moody's expectation that SIRIUS will continue to burn cash in the near- to intermediate term to support its growth, funding sizeable subscriber acquisition costs and marketing expenditures and other fixed costs (i.e. programming & content, satellite infrastructure, technology, headcount). These risks are offset by the progress that SIRIUS has made to date in expanding its subscriber base, and Moody's expectation that the company's sizeable investments in programming and content, as well as its relationships with auto manufacturers, will serve to support further growth. The rating outlook is stable. Moody's has assigned these ratings: -- a Caa1 corporate family rating; -- a Caa1 rating to the proposed $500 million senior unsecured notes due 2013; and -- a SGL-2 speculative grade liquidity rating. The rating outlook is stable. The Caa1 corporate family rating reflects the substantial business risk of the company's business model and the likelihood that SIRIUS will continue to fund its operations with cash on the balance sheet over the ratings horizon. The ratings remain constrained by: * management's short track record; * the company's inability to predict its costs structure; and * the challenge of prudently managing subscriber acquisition costs. The ratings also reflect the increasing competition from XM Satellite, currently the satellite radio industry leader with twice as many subscribers, for programming, auto manufacturer distribution agreements, and technology. The ratings are supported by: * the success the company has had to date in growing its subscriber base (1.8 million subscribers at 2Q'05); * the relationships and distribution agreements with auto manufacturers (exclusive arrangements with Ford, Daimler Chrysler and BMW), distribution deals with retailers (25,000 retail points); * investments in programming and content that differentiates SIRIUS from its competitor, XM Satellite (Cousin Brucie, Martha Stewart, Howard Stern, NBA, NFL, NASCAR); * the stable revenue stream associated with the company's subscription-based satellite radio service; and * access to the debt capital markets. Moody's also notes that SIRIUS' recent factory-installed agreement with Ford further strengthens its OEM distribution channels (Ford and Lincoln Mercury expect to generate up to one million subscribers over 2006 and 2007 model years). The stable outlook incorporates Moody's expectation that SIRIUS will continue to grow its subscriber base, balanced by Moody's belief it will burn cash until 2007 as the company attempts to attain a critical mass of subscribers. Additionally, while SIRIUS has made significant upfront investment in programming and content, Moody's does not believe that this will translate into subscriber growth until the intermediate term, given the long- dated nature of these contracts (i.e. Howard Stern in 2006, NASCAR in 2007). The outlook may be revised to positive if the company's progress in achieving free cash flow breakeven occurs sooner than Moody's expects. The ratings may face negative pressure if SIRIUS makes any additional sizeable cash investment in programming, satellite infrastructure, or spectrum. SIRIUS' SGL-2 rating reflects the good liquidity profile as projected over the next twelve months. Pro forma for the proposed debt issuance, SIRIUS will have about $960 million in cash on the balance sheet. Despite the lack of a bank credit facility, Moody's believes the company's significant cash balances will be adequate to fund operations, debt service, and all capital expenditure requirements over the liquidity rating time horizon. Given SIRIUS' rapid rate of growth and the cash consumptive nature of this business, Moody'ss expect the company to continue to burn cash over the SGL twelve-month time horizon. In the event that cash burn exceeds Moody's expectations or the company makes sizeable investment that substantially reduces its cash balances, a downward revision to the SGL rating may be warranted. The SGL-2 rating is also supported by absence of any near-term maturities and a debt capitalization profile composed primarily of low interest-bearing convertible debt securities. Additionally, Moody's believes that the company's assets, both satellites and technical infrastructure, would be of little value in a distressed scenario given their highly specialized purpose. The Caa1 rating for the senior unsecured notes reflects their contractual subordination to any future senior secured debt issuances and the lack of subsidiary guarantees. SIRIUS Satellite Radio, Inc., headquartered in New York, New York, provides subscription-based satellite radio services in the US. SITHE INDEPENDENCE: S&P Places B-Rated $559.5 Mil. Bonds on Watch ----------------------------------------------------------------- Standard & Poor's Ratings Services placed its 'B' rating on Sithe Independence Funding Corp.'s $559.5 million senior secured bonds (currently $482.7 million outstanding) on CreditWatch with developing implications. The rating action follows Standard & Poor's placement of the corporate credit rating on Dynegy Inc. (B/Watch Dev/B-2) on CreditWatch with developing implications as a result of the company's announced sale of its midstream business. Sithe Independence is a 1,000 MW combined-cycle, gas-turbine plant located in Scriba, N.Y. "The rating on Sithe Independence Funding's bonds reflects Dynegy's credit risk due to its 100% ownership of the project and the tolling agreements it has for almost the entire output of the project," said Standard & Poor's credit analyst Elif Acar. The developing CreditWatch listing (indicating that the ratings could be raised, lowered, or affirmed) for Dynegy reflects the uncertainty regarding the use of the proceeds from the midstream sale as well as the sustainability of the company's remaining business lines. Standard & Poor's expects to resolve the CreditWatch listing on Sithe Independence bonds as soon as the CreditWatch on Dyengy's rating is resolved. SOLUTIA INC: Delivers Second Quarter Financial Report to SEC ------------------------------------------------------------ Solutia Inc. disclosed to the Securities and Exchange Commission its financial performance for the second quarter ending June 30, 2005 in the 10-Q filing. Summary of Significant Second Quarter 2005 Events Reorganization Strategy Solutia continued to take positive actions in the second quarter 2005 to achieve its reorganization strategy, which involves the principal objectives of (i) managing the businesses to enhance Solutia's performance; (ii) making changes to Solutia's asset portfolio to maximize the value of the estate; (iii) achieving reallocation of "legacy liabilities"; and (iv) negotiating an appropriate capital structure. Recent actions regarding achievement of these principle objectives are explained further below. In addition, Solutia continues to pursue a consensual agreement on the plan of reorganization through negotiations with the other constituents in the bankruptcy case. However, as a result of the numerous uncertainties and complexities inherent in Solutia's bankruptcy proceedings, its ability to emerge and timing of emergence from bankruptcy are subject to significant uncertainty. Performance Enhancement Solutia benefited in the second quarter 2005 from several actions implemented during 2004 designed to enhance its performance. These included: (i) implementing significant general and administrative expense reductions; (ii) using more performance-based compensation and benefits programs; (iii) enacting key senior management changes, initiating a cost reduction program at Solutia's operating sites focused on actions such as lean manufacturing techniques, yield improvement, maintenance savings and utilities optimization; and (iv) implementing an enterprise-wide procurement effort. These actions have continued to help drive strong revenue growth and expansion of operating margins. In addition, Solutia continued to use the tools of bankruptcy to renegotiate and/or reject various contracts in the second quarter 2005 which will provide future savings to Solutia. Solutia amended its DIP financing agreement on June 1, 2005 and received bankruptcy court approval on July 25, 2005. The amendment reduces the interest rate on the term loan component of the DIP facility to LIBOR plus 4.25 percent from the previous interest rate of the greater of the prime rate plus 4.0 percent or 8.0 percent, extends the maturity date of the current facility to June 19, 2006 from the previous December 19, 2005, maturity date, and makes other minor modifications. No changes were made to the financial covenants contained in the DIP agreement aside from extending the financial covenant requirements to be commensurate with the new maturity date of the DIP agreement. Overall, these changes are expected to reduce Solutia's interest expense on the term loan component of the DIP facility up to $7 million based upon the new maturity date. Portfolio Evaluation Solutia's stated strategy is to build a portfolio of high- potential businesses that can consistently deliver returns in excess of Solutia's cost of capital. Solutia made several changes to re-shape its asset portfolio in 2004 as part of this strategy and continued these efforts in 2005 by exiting the acrylic fibers operations in the second quarter 2005 due to continued losses resulting primarily from significant foreign competition. Solutia also announced that its Greenwood, South Carolina plant will be the primary production facility for nylon industrial fibers. As a result of this decision, Solutia shut down its nylon industrial fiber manufacturing unit at its plant in Pensacola, Florida in the second quarter 2005. In addition, Solutia has initiated a sales process with respect to Astaris LLC, its 50/50 joint venture with FMC Corporation, and has received bankruptcy court approval for certain standard buyer protections involved in this sales process. Reallocation of Legacy Liabilities On June 7, 2005, Solutia reached an agreement-in-principle with Monsanto Company and the Official Committee of Unsecured Creditors in Solutia's Chapter 11 case that will serve as a framework for Solutia's plan of reorganization. The agreement-in-principle is subject to the negotiation of definitive documents, approval by Solutia's board of directors and various other conditions and contingencies, some of which are not within the control of Solutia, Monsanto or the Unsecured Creditors' Committee. Until a plan or reorganization consistent with the terms of the agreement- in-principle is confirmed by the bankruptcy court, the terms of the agreement-in-principle are not binding upon any party. Under the agreement-in-principle, Solutia would emerge from bankruptcy as an independent, publicly held company. The agreement-in-principle provides for $250 million of new investment in a reorganized Solutia which would be used to pay retiree benefits to those who retired prior to the spinoff, certain environmental remediation obligations of Solutia and other legacy liabilities. The $250 million would be raised in a rights offering to Solutia's unsecured creditors. Monsanto would be obligated to backstop the rights offering, exercising any rights not exercised by the unsecured creditors. The agreement-in-principle also provides that Monsanto would pay environmental remediation costs at sites including non-owned property adjacent to plant sites and certain owned, offsite disposal locations, provides a mechanism for sharing between Monsanto and Solutia responsibility for environmental liabilities at certain sites adjacent to the Anniston, Alabama and Sauget, Illinois plant locations, and provides that Monsanto would contribute $107 million, less certain expenses incurred, and litigation settlement costs paid, by Monsanto during the course of Solutia's Chapter 11 case, to make distributions to the holders of certain unsecured claims, including current tort and other legacy litigation claims. Furthermore, while Solutia filed for Chapter 11 in part to gain relief from the legacy liabilities it was required to assume when it was spun off from Pharmacia, the agreement-in-principle provides that Solutia will retain a portion of these legacy liabilities and the extent to which such relief will be achieved continues to be uncertain. Summary Results Of Operations The $47 million, or 7 percent, increase in net sales as compared to the second quarter 2004 was primarily a result of higher average selling prices of approximately 12 percent and favorable currency exchange rate fluctuations of approximately 1 percent, partially offset by lower sales volumes of approximately 6 percent. The $79 million improvement in operating income as compared to the second quarter 2004 resulted primarily from higher net sales, and lower charges, which are described in greater detail in the Results of Operations section below, partially offset by higher raw material and energy costs. The $136 million, or 10 percent, increase in net sales as compared to the six months ended June 30, 2004 was primarily a result of higher average selling prices of approximately 13 percent and favorable currency exchange rate fluctuations of approximately 1 percent, partially offset by lower sales volumes of approximately 4 percent. The $116 million improvement in operating income as compared to the six months ended June 30, 2004, resulted primarily from higher net sales and lower charges, partially offset by higher raw material and energy costs. The $28 million, or 10 percent, increase in net sales as compared to the second quarter 2004 resulted primarily from higher sales volumes of approximately 5 percent, an increase in average selling prices of approximately 3 percent and favorable currency exchange rate fluctuations of approximately 2 percent. Higher volumes were experienced in SAFLEX(R) and VANCEVA(R) plastic interlayer products and THERMINOL(R) heat transfer fluids, partially offset by lower volumes due to the shut-down of Solutia's chlorobenzenes operations in the second quarter 2004. Higher average selling prices were experienced across several product lines, including SAFLEX(R) and VANCEVA(R) plastic interlayer products, branded professional and retail film products, THERMINOL(R) heat transfer fluids and DEQUEST(R) water treatment chemicals, generally as a result of favorable market conditions and in response to the escalating cost of raw materials. The favorable exchange rate fluctuations occurred primarily as a result of the stronger euro in relation to the U.S. dollar in comparison to the second quarter 2004. Financial Analysis Solutia utilized its existing cash on-hand to finance operating needs and capital expenditures during the first six months of 2005. Cash used in operations was $26 million in the first six months of 2005, a change of $22 million from $4 million used in operations for the comparable period of 2004. This change in cash used in operations was primarily attributable to the build-up of post-petition accounts payable balances in the first six months of 2004 due to the timing of Solutia's Chapter 11 filing in late 2003 and subsequent improvements in vendor terms, resulting in a $99 million swing in the change in accounts payable in comparing the six months ended June 30, 2005 to the same period in 2004. Capital spending increased $7 million to $29 million in the first six months of 2005, compared to $22 million in the comparable period of 2004. The expenditures during the first six months of 2005 were used primarily to fund certain growth initiatives, as well as various capital improvements and certain cost reduction projects. Total debt of $1,219 million as of June 30, 2005, including $668 million subject to compromise and $551 million not subject to compromise, decreased by $34 million as compared to $1,253 million at December 31, 2004, including $668 million subject to compromise and $585 million not subject to compromise. This decrease in total debt resulted primarily from a decrease in the recorded amount of Solutia's Euronotes due to foreign currency translation changes in the first six months of 2005. As a result of the Chapter 11 filing, Solutia was in default on all its debt agreements as of June 30, 2005, with the exception of its DIP credit facility and Euronotes. Solutia's working capital increased by $16 million to $13 million at June 30, 2005, compared to $(3) million at December 31, 2004. The change was a result of the seasonal increase in working capital, partially offset by lower cash on-hand as of June 30, 2005. Solutia had a shareholders' deficit of $1,416 million at June 30, 2005 compared to a deficit of $1,444 million at December 31, 2004. The $28 million decrease in shareholders' deficit principally resulted from the $35 million of net income for the six months ended June 30, 2005, partially offset by the $7 million increase in accumulated other comprehensive losses due to currency translation adjustments. The weighted average interest rate on Solutia's total debt outstanding was approximately 8.5 percent at June 30, 2005, as compared to 9.0 percent at December 31, 2004. This decrease is primarily a result of the change in interest rates on the term loan component of Solutia's DIP facility in the second quarter 2005, as further explained below. While operating as a debtor-in-possession during the Chapter 11 proceedings, Solutia has ceased paying interest on its 6.72% debentures due 2037 and its 7.375% debentures due 2027. The amount of contractual interest expense not recorded during the first six months of 2005 and 2004, was approximately $16 million. At June 30, 2005, Solutia's total liquidity was $212 million in the form of $133 million of availability under the final DIP credit facility and approximately $79 million of cash on-hand, of which $67 million was cash of Solutia's subsidiaries that are not parties to the Chapter 11 proceedings. At December 31, 2004, Solutia's total liquidity was $246 million in the form of $131 million of availability under the final DIP credit facility and approximately $115 million of cash on-hand, of which $65 million was cash of Solutia's subsidiaries that are not parties to the Chapter 11 bankruptcy proceedings. A full-text copy of Solutia, Inc.'s Form 10-Q Report is available for free at http://ResearchArchives.com/t/s?af Headquartered in St. Louis, Missouri, Solutia, Inc. -- http://www.solutia.com/-- with its subsidiaries, make and sell a variety of high-performance chemical-based materials used in a broad range of consumer and industrial applications. The Company filed for chapter 11 protection on December 17, 2003 (Bankr. S.D.N.Y. Case No. 03-17949). When the Debtors filed for protection from their creditors, they listed $2,854,000,000 in assets and $3,223,000,000 in debts. Solutia is represented by Richard M. Cieri, Esq., at Kirkland & Ellis. (Solutia Bankruptcy News, Issue No. 44; Bankruptcy Creditors' Service, Inc., 215/945-7000) SPANISH BROADCASTING: Styles Media Makes Additional $15MM Deposit ----------------------------------------------------------------- Spanish Broadcasting System, Inc., amended an asset purchase agreement with Styles Media Group, LLC, and Spanish Broadcasting System Southwest, Inc. Under the terms of the amended agreement, Styles Media Group made an additional $15 million non-refundable deposit on the $120 million purchase price. The parties agreed to extend the closing date from July 31, 2005, to the date that is designated by Styles Media Group, but no later than Jan. 31, 2006. In addition, Styles Media Group will make an additional $20 million non-refundable deposit on the purchase price two days following the grant of the FCC license renewals. On Aug. 17, 2004, the Company entered into an asset purchase agreement with Styles Media Group, LLC, to sell the assets of radio stations KZAB-FM and KZBA-FM, serving the Los Angeles, California market. In connection with this agreement, Styles Media Group made a non-refundable $6 million deposit on the purchase price. On Feb. 18, 2005, Styles Media Group exercised its right under the agreement to extend the closing date until March 31, 2005, by releasing the deposit from escrow to the Company. On March 30, 2005, the Company entered into an amendment to the asset purchase agreement with Styles Media Group. In connection with this amendment, Styles Media Group made an additional $14 million non-refundable deposit on the purchase price and the Company agreed to extend the closing date from March 31, 2005, to the later date of July 31, 2005, or five days following the grant of the FCC Final Order. Time Brokerage Agreement On Aug. 17, 2004, the Company, through its wholly owned subsidiary, Spanish Broadcasting System SouthWest, Inc., entered into a time brokerage agreement with Styles Media Group pursuant to which Styles Media Group was permitted to begin broadcasting its programming on radio stations KZAB-FM and KZBA-FM beginning on Sept. 20, 2004. The time brokerage agreement will terminate upon the closing under, or termination of, the LA Asset Sale. The Company determined that, since it was not eliminating all significant revenues and expenses generated in this market, the pending LA Asset Sale did not meet the criteria to classify the stations' operations as discontinued operations. However, the Company reclassified the stations' assets as held for sale. On June 30, 2005, it had assets held for sale consisting of $63 million of intangible assets and $1.2 million of property and equipment for radio stations KZAB-FM and KZBA-FM. The Company said it intends to use the net cash proceeds received from the LA Asset Sale to repay certain amounts under the new senior secured credit facilities due 2013. Therefore, it has reclassified the senior secured credit facilities due 2013 balance from long-term debt to current debt. If the proposed LA Asset Sale does not close, it will be unable to use the anticipated proceeds from such sale to reduce our debt. New Credit Facilities Pay-down of Debt and Interest Rate Swap On June 10, 2005, the Company entered into new senior secured credit facilities with affiliates of Lehman Brothers, Merrill Lynch, and Wachovia Bank. The new credit facilities provided for an aggregate of $425 million in funded term loans (consisting of a $325 million first lien credit facility and a $100 million second lien credit facility), plus a $25 million revolving loan facility. On June 10, 2005, a portion of the proceeds from the new credit facilities ($123.7 million) was used to repay the Company's $135 million senior secured credit facilities due 2009 and accrued interest. Due to this repayment, the Company incurred a loss on early extinguishment of debt, totaling approximately $3.2 million, related to write-offs of deferred financing costs. The remaining proceeds, together with cash on hand, totaling approximately $357.5 million, were placed in escrow with the trustee to redeem all of our $335.0 million aggregate principal amount of 9-5/8% senior subordinated notes due 2009, including the redemption premium and accrued interest through redemption. On July 12, 2005, the 9-5/8% senior subordinated notes due 2009 were redeemed and we incurred a loss on extinguishment of debt, totaling approximately $29.4 million related to call premiums, the write- offs of discount and deferred financing costs. On June 29, 2005, the Company entered into a five-year interest rate swap to hedge against the potential impact of increases in interest rates on our first lien credit facility. The interest rate swap fixed our LIBOR interest rate for five years at 4.23%, plus the applicable margin (2.00% as of June 30, 2005). Spanish Broadcasting System, Inc. -- http://www.spanishbroadcasting.com/ -- is the largest Hispanic-controlled radio broadcasting company in the United States. After giving effect to a pending divestiture, the Company will own and operate 20 radio stations in the top Hispanic markets of New York, Los Angeles, Miami, Chicago, San Francisco and Puerto Rico, including the #1 Spanish-language radio station in the United States of America, WSKQ-FM in New York City. The Company also operates LaMusica.com, a bilingual Spanish-English online site providing content related to Latin music, entertainment, news and culture. * * * As reported in the Troubled Company Reporter on June 8, 2005, Moody's Investors Service upgraded the long term ratings of Spanish Broadcasting System, Inc., and concluded the review for possible upgrade initiated on Aug. 31, 2004. Additionally, Moody's assigned B1 ratings to Spanish Broadcasting System, Inc.'s first lien senior secured credit facilities ($25 million first lien revolving credit facility and $300 million first lien term loan) and a B2 rating to the $100 million second lien term loan. Moody's said the rating outlook is stable. The upgrade reflects the expectation of meaningful deleveraging and improvement in operating opportunities going forward, balanced by a still high debt burden and aggressive acquisition strategy. Moody's has assigned these ratings: i) B1 rating to the $25 million first lien revolving credit facility ii) B1 rating to the $300 million first lien term loan iii) B2 rating to the $100 million second lien term loan Moody's has upgraded these ratings: i) the $75 million of Cumulative Exchangeable Redeemable Preferred Stock to Caa1 from Caa2 ii) the senior implied rating to B1 from B2, and iii) the senior unsecured issuer rating to B2 from B3. Moody's says the outlook is stable. SUN HEALTHCARE: June 30 Balance Sheet Upside-Down by $117.4 Mil. ---------------------------------------------------------------- Sun Healthcare Group, Inc. (NASDAQ: SUNH) reported results for the second quarter ended June 30, 2005. For the quarter ended June 30, 2005, Sun reported total net revenues of $214.5 million and net income of $6.9 million, which included net income of $5.7 million on discontinued operations, compared with total net revenues of $204.8 million and net income of $7.3 million for the quarter ended June 30, 2004, which included a $4 million net loss on discontinued operations. The 2005 second quarter net income included a reduction of $12 million of excess reserves for general and professional liability insurance, offset by a $5.1 million increase in reserves for workers' compensation insurance related to incidents in prior periods. The 2004 second quarter net income included a reduction of $3 million of excess reserves for general and professional liability and workers' compensation insurance related to incidents in prior periods. The 2004 second quarter net income also included the forgiveness of $3.7 million of debt, a retroactive Medicaid rate increase of $1.0 million and $500,000 of restructuring-related vendor discounts. During its year-end 2004 earnings call, the Company's chief executive officer, Richard K. Matros disclosed Sun Healthcare's four-point agenda to continue focusing on: (i) improvements in same store operations; (ii) identifying the potential for further infrastructure realignment; (iii) the continued progress in resolving our general and professional liability legacy claims; and (iv) growing via acquisition. "We are seeing good progress in all of the initiatives for 2005. Since December 2003, our balance sheet liabilities related to general and professional liability exposures have improved by $30.8 million, which has positively impacted our equity," Mr. Matros said. "Substantially all of our operating units have shown sequential quarter over quarter improvement that has resulted in consolidated improvement in revenues, EBITDAR, EBITDA, net segment income and G&A in 2005. Additionally, on a year over year basis, we are seeing top- and bottom-line improvement in our inpatient, staffing and home health operations and have stabilized and improved revenues in our rehabilitation operations," he continued. For the quarter ended June 30, 2005, Sun reported income from continuing operations of $1.3 million, as compared to income from continuing operations of $11.3 million for the same period in 2004. The 2005 second quarter EBITDAR from continuing operations was $17.1 million in comparison with $24.6 million from continuing operations for the same period in 2004. For the six months ended June 30, 2005, Sun reported total net revenues of $421.7 million and net income of $5.8 million, which included net income of $6.0 million on discontinued operations, compared with total net revenues of $409.4 million and a net loss of $3.1 million for the six months ended June 30, 2004, which included a net loss of $10.8 million on discontinued operations. For the six months ended June 30, 2005, Sun reported a net loss on continuing operations of $0.3 million as compared to net income on continuing operations of $7.7 million for the same period in 2004. EBITDAR from continuing operations for the six months ended June 30, 2005, was $30.0 million as compared to $34.9 million for the same period in 2004. In-Patient Business Net revenues from inpatient services operations, which comprised 71 percent of Sun's second quarter total net revenue, increased 4.1 percent to $152.2 million from $146.2 million for the same period in 2004. The revenue gain was primarily attributable to: (i) a 110 basis point improvement in Medicare patient mix to 14.2 percent from 13.1 percent of total occupancy, and (ii) higher per diem rates in all payor categories, partially offset by a decline in overall occupancy of 30 basis points to 89.9 percent from 90.2 percent. The segment EBITDAR decreased 18.3 percent to $22.8 million for the quarter ended June 30, 2005, from $27.9 million for the same period in 2004. Significant factors contributing to this decrease were the previously mentioned $3.7 million gain on extinguishment of debt, a revenue increase attributable to 2003 of $1 million resulting from implementation of North Carolina's provider tax that was included in revenues for the second quarter of 2004 and a $1.1 million increase in employee health insurance expenses that occurred in 2005. "This marks the sixth consecutive quarter of year over year Medicare growth as a percent of revenues for SunBridge," said William Mathies, president of SunBridge Healthcare Corporation. "Our nursing facility teams have continued to make strides in developing their clinical competencies and converting those improved skills into new business." Ancillary Business Net revenues from Sun's ancillary business operations, comprised of SunDance Rehabilitation Corporation, CareerStaff Unlimited, Inc., SunPlus Home Health Services, Inc., and SunAlliance Healthcare Services, Inc., net of affiliated revenue, increased $3.9 million, or 6.7 percent, to $62.3 million for the quarter ended June 30, 2005, from $58.4 million for the same period in 2004. Segment EBITDAR for the ancillary operations for the quarter ended June 30, 2005, decreased $1.9 million, or 26.8 percent, over the same period in 2004, to $5.2 million from $7.1 million. "The majority of the increase in revenue is attributable to our three primary ancillary services operations of rehabilitation, medical staffing and home health services, and was due primarily to increased volume in existing contracts and new sales." Mr. Matros reported, "The EBITDAR decrease was primarily due to increases in wages and health insurance costs in our rehabilitation therapy services operations and strategic issues in our laboratory and radiology services operations." Acquisition of Peak Medical Corporation Mr. Matros disclosed that the previously announced acquisition of Peak Medical Corporation is on track for closing in the fourth quarter. "We are looking forward to completing this significant acquisition, as it is a critical component of the four-point agenda outlined to our shareholders earlier this year," said Matros. "We expect to mail our proxy statement to stockholders for this transaction in September, after our Board has determined a meeting date and we have finalized the pro forma financial information for the second quarter. The closing of the transaction will occur after our stockholders have approved it, we have received all necessary state regulatory approvals and other closing conditions have been met." 2005 Guidance Mr. Matros affirmed the previously provided 2005 guidance, stating, "We continue to be pleased with the improved performance in our operations and note that these results are consistent with the 2005 guidance that we provided in our March 2, 2005 earnings release." Sun Healthcare Group, Inc., with executive offices located in Irvine, California, owns SunBridge Healthcare Corporation and other affiliated companies that operate long-term and postacute care facilities in many states. In addition, the Sun Healthcare Group family of companies provides therapy through SunDance Rehabilitation Corporation, medical staffing through CareerStaff Unlimited, Inc., home care through SunPlus Home Health Services, Inc., and medical laboratory and mobile radiology services through SunAlliance Healthcare Services, Inc. At June 30,2005, Sun Healthcare's balance sheet showed a $117,463,000 stockholders' deficit, compared to a $123,380,000 deficit at Dec. 31, 2004. TOBACCO ROW: Judge Tice Confirms Chapter 11 Plan ------------------------------------------------ The Honorable Douglas O. Tice Jr. of the U.S Bankruptcy Court for the Eastern District of Virginia confirmed the Plan of Reorganization filed by Tobacco Row Phase 1a Development, L.P. Judge Tice confirmed the Plan on June 27, 2005. Judge Tice concludes that: 1) the Plan complies with the applicable provisions of Sections 1129(a)(1) through (13) of the Bankruptcy Code; 2) confirmation of the Plan is not likely to be followed by any further liquidation or the need for further financial reorganization of the Debtor, thereby satisfying Section 1129(a)(11) of the Bankruptcy Code; and 3) the Plan does not discriminate unfairly and is fair and equitable with respect to each class of claims and interests described in the Plan, satisfying Section 1129(b) of the Bankruptcy Code. Treatment of Claims and Interests Under the Plan The Plan groups claims and interest into eight classes. Impaired Claims consist of Allowed Unsecured Claims, totaling approximately $123,047.48. Holders of Allowed Unsecured Claims will retain their respective Claims against the Debtor after the Effective Date and will be paid in full within 30 days of the Plan's Effective Date. The Plan contains seven classes of Unimpaired Claims: 1) GNMA Claims will retain their legal, equitable, and contractual rights to which holders of those Claims are entitled pursuant to Section 1124(1) of the Bankruptcy Code; 2) Beal Bank Claims will be paid on or before the Effective Date, a total amount of $608,798.37 to satisfy its claim; 3) Community Claims will retain their legal, equitable, and contractual rights to which holders of those Claims are entitled pursuant to Section 1124(1) of the Bankruptcy Code; 4) SunAmerica Inc. Claims will retain their legal, equitable, and contractual rights to which holders of those Claims are entitled pursuant to Section 1124(1) of the Bankruptcy Code; 5) Richmond Claims will retain their legal, equitable, and contractual rights to which holders of those Claims are entitled pursuant to Section 1124(1) of the Bankruptcy Code; 6) Other Priority Claims will retain their legal, equitable, and contractual rights to which holders of those Claims are entitled pursuant to Section 1124(1) of the Bankruptcy Code; and 7) Interests consisting of SunAmerica Virginia Properties, Inc., TR-GP, Inc., and Richmond Development, L.L.C. will retain their respective Interests without modification. A full-text copy of the Plan is available for a fee at: http://www.ResearchArchives.com/_______________________________ Judge Tice further orders that the Debtor is directed: 1) to pay to CWCapital the amount of $65,000 by the Effective Date, which represents all monies necessary to satisfy the requirements of 11 U.S.C. Section 1124(2); and 2) to pay to the Bank of New York as Trustee the amount of $29,448.86 by the Effective Date, which represents all monies necessary to satisfy the requirements of 11 U.S.C. Section 1124(2). Headquartered in Richmond, Virginia, Tobacco Row Phase 1a Development, L.P., owns the Tobacco Row apartment buildings, which are in three former tobacco warehouse buildings, called the Cameron, Cameron Annex and Kinney buildings. The Company filed for chapter 11 protection on October 22, 2003 (Bankr. E.D. Va. Case No. 03-40033). Bruce H. Matson, Esq., and Christopher A. Jones, Esq., at LeClair Ryan, A Professional Corporation represents the Debtor. When the Company filed for protection from its creditors, it listed estimated assets and debts of $10 million to $50 million. TOWER AUTOMOTIVE: Wants Additional Time to Remove Civil Actions --------------------------------------------------------------- Tower Automotive Inc. and its debtor-affiliates ask the U.S. Bankruptcy Court for the Southern District of New York to further extend the period within which they may file notices of removal with respect to civil actions pending on the Petition Date, to and including the later to occur of: (x) December 31, 2005, or (y) 30 days after the entry of a Court order terminating the automatic stay with respect to the particular action that is sought to be removed. Anup Sathy, Esq., at Kirkland & Ellis LLP, in Chicago, Illinois, relates that since April 20, 2005, the Debtors' management personnel and professionals have been actively involved in supervising and implementing several key steps in the Debtors' reorganization, including, but not limited to: (a) amending the Debtors' schedules of assets and liabilities and statements of financial affairs; (b) identifying and terminating unprofitable business ventures; (c) continuing the process of reconciling reclamation claims; (d) stabilizing the Debtors' cash management system; (e) maintaining the Debtors' sensitive supply chain with their customers and vendors; (f) negotiating amendments and waivers with the Debtors' secured lenders; (g) marketing and selling certain non-core assets; (h) preparing and filing the Debtors' monthly operating reports; (i) reviewing various revenue enhancing alternatives; (j) developing a business plan; and (k) negotiating and settling claim and set-off issues among the Debtors' vendors and customers. "The Debtors believe the proposed time extension will provide sufficient additional time to allow them to consider, and make decisions concerning, the removal of the Civil Actions," Mr. Sathy says. "Unless such enlargement is granted, the Debtors believe they will not have sufficient time to consider the removal of the Civil Actions." The Court will hold a hearing to consider the Debtors' request at 11:00 a.m. (prevailing Eastern Time) on August 10, 2005. 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. 16; Bankruptcy Creditors' Service, Inc., 215/945-7000) TOWER AUTOMOTIVE: Reconciles Visteon's Prepetition Claims --------------------------------------------------------- As previously reported in the Troubled Company Reporter on May 17, 2005, Visteon Corp. asked the U.S. Bankruptcy Court for the Southern District of New York to lift the automatic stay to effect a set-off on its prepetition debt with Tower Automotive Inc. Tower, in turn, asked the Bankruptcy Court not to allow the set- off unless: (1) the amounts of the Visteon Prepetition Debt and Debtors' Prepetition Debt, including any amounts that Visteon has deducted from the Checks that it had previously asserted in the Reclamation Claim, are reconciled and fixed by agreement between the parties or by Court Order; and (2) Visteon remits a $714,639 payment to the Debtors. Pursuant to a Court order directing Visteon Corporation and the Debtors to fix their mutual prepetition claims, the parties stipulate that: (1) the Debtors owe Visteon $4,547,264 for component parts they purchased before the Petition Date; (2) Visteon owes the Debtors $582,736 for component parts purchased before the Petition Date; (3) the Debtors' Prepetition Debt will be set off against Visteon's Prepetition Debt, leaving Visteon with two allowed general unsecured non-priority claims in the aggregate amount of $3,964,527 in the Debtors' Chapter 11 cases: (i) a $2,509,403 general unsecured non-priority claim in Tower Automotive Lansing, LLC's Chapter 11 case; and (ii) a $1,455,124 general unsecured non-priority claim in Tower Automotive Products Company's Chapter 11 case; and (4) the automatic stay applicable to Visteon in the Debtors' cases is modified to the extent necessary to permit the effectuation of the set-off. 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. 16; Bankruptcy Creditors' Service, Inc., 215/945-7000) TOYS "R" US: Moody's Downgrades Corporate Family Rating to B1 ------------------------------------------------------------- Moody's Investors Service downgraded the corporate family rating of Toys "R" Us, Inc. to B1, the senior unsecured notes rating to B3, and the Speculative Grade Liquidity Rating to SGL-2, and left all ratings on review for possible further downgrade. These actions result from the significant increase in leverage as a result of the July 21, 2005 closing of the acquisition of Toys "R" Us, Inc. by a consortium consisting of Kohlberg Kravis Roberts & Co., Bain Capital Partners LLC, and Vornado Realty Trust for $6.6 billion plus the assumption of debt. Ratings downgraded and left on review for possible further downgrade: * corporate family rating downgraded to B1 from Ba1; * senior unsecured notes rating downgraded to B3 from Ba2; and * speculative grade liquidity rating to SGL-2 from SGL-1. The downgrades reflect the very significant increase in funded debt following closing of the acquisition. Of the $6.6 billion purchase price, the acquirers have contributed $1.2 billion in cash, leaving $5.4 billion to be financed via a combination of existing cash balances and committed debt facilities, in addition to the assumption of debt. The new owners have obtained $6.2 billion in secured commitments in various tranches, with borrowings under the secured revolving credit facility initially limited to $700 million to finance the acquisition. With LTM April 30, 2005 EBITDA of roughly $1 billion, leverage on both a funded and lease-adjusted basis will increase significantly. In addition, the structure of the new financing significantly impairs existing bondholders as a result of the pledging of assets, both domestically and internationally. It should also be noted that the structure of the financing permits significant real estate divestitures, and principally all of real estate sale proceeds are contractually required to repay bridge indebtedness. Moody's continuing review of Toys' long term ratings will focus on: 1) the final, funded capital structure for the company based on the new ownership; 2) the company's strategic plan, including the timing of the likely real estate rationalization plan and its impact on revenues and cash flows; 3) the level and timing of potential debt reductions as a result of likely real estate divestitures; and 4) likely future financial policy. The downgrade to SGL-2 of Toys' speculative grade liquidity rating reflects: * the reduced financial flexibility as a result of the increase in leverage which will impact free cash flow and the tighter covenants in the bridge facilities; * the very limited alternative sources of liquidity available as a result of the pledging of all operating assets; * the pledging of real estate necessary to secure the $800 million in CMBS financing; and * the negative pledge on all real estate. Moody's noted that significant asset sales will be required for Toys to meet the bridge loan covenant tests of 2.0x interest coverage and 6.5x leverage that become operable January 28, 2006. Moody's review will assess the internal and external sources of cash that are likely to be available to the company, as well as the likelihood that Toys will be able to comply with the covenants in its bridge loan facilities. Toys "R" Us, headquartered in Wayne, New Jersey, is the largest specialty retailer of toys, with FYE January 2005 revenues of $11.1 billion. It operates stores both in the U.S. and internationally, as well as the Babies "R" Us format. In addition, it sells online via the toysrus.com website which is operated in partnership with Amazon.com. US AIRWAYS: Asks Court to Allow Worldspan's $5 Mil. Admin. Claim ---------------------------------------------------------------- US Airways, Inc., and its debtor-affiliates want the U.S. Bankruptcy Court for the Eastern District of Virginia to allow an administrative priority claim in favor of Worldspan, L.P., as compensation for certain prepetition services rendered under the Worldspan Participating Carrier Agreement, effective February 1, 1991. The Debtors participate in the Worldspan Global Distribution (Reservations) System through the Worldspan PCA. Under the Worldspan PCA, the Debtors provide schedules, inventory, fares, fare rules and seat availability to the Worldspan GDS. Worldspan's subscribers use this information to sell seats on the Debtors' flights. In exchange for the distribution of its information, the Debtors pay Worldspan a fee through the Airline Clearing House system, explains Brian P. Leitch, Esq., at Arnold & Porter, in Denver, Colorado. The Debtors owe money to Worldspan for prepetition services. On September 14, 2004, the Court entered the Interline Order, providing for the assumption of certain multilateral contracts, including the Debtors' contract with the ACH for settlement of interline accounts though the ACH system. After the Petition Date, the Debtors decided not to pay the prepetition obligations under the GDS agreements, including the obligations owed under the Worldspan PCA. Worldspan disputed the Debtors' decision and claimed it was entitled to immediate payment of the prepetition obligations, plus interest and attorneys' fees. Worldspan filed a request for mediation under the ACH rules with the Secretary-Treasurer of the ACH. To avoid the costs of mediation and the associated uncertainties, the Debtors and Worldspan negotiated a settlement of the billing dispute. Under the Settlement, the Debtors will allow an administrative priority claim in favor of Worldspan for $5,114,172. The settlement amount excludes interest and attorneys' fees. The Debtors will pay the Worldspan administrative claim on the effective date of a plan of reorganization. Mr. Leitch tells Judge Mitchell that the Settlement is fair and reasonable as it would allow the Debtors to avoid the costs, expenses and uncertainty associated with mediation under the ACH rules and procedures. The Settlement also allows the Debtors to avoid payment of the prepetition obligations until the effective date of a plan of reorganization. If the Debtors assume the Worldspan PCA, the Debtors would have to make a cure payment for the same amount anyways. Accordingly, the Settlement is in the Debtors' best interests and should be approved by the Court. 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. 99; Bankruptcy Creditors' Service, Inc., 215/945-7000) US AIRWAYS: Bank of New York Wants Access to $600,000 Account ------------------------------------------------------------- The Special Project Bonds, Series 2, Continental Airlines, Inc., and Eastern Airlines, Inc., Project (LaGuardia East End Terminal Special Project Bonds) were issued by the Port Authority of New York and New Jersey to finance the construction of the US Air East End Terminal at LaGuardia Airport. The Bonds carry CUSIP Nos. 73358EAA2, 7335AB0 and 7335AC8. Originally, the Port Authority leased the East End Terminal to Eastern Airlines, Inc., and Continental Airlines, Inc., pursuant to a Facility Lease. To secure its obligations on the Bonds, Continental and Eastern, acting jointly and severally as mortgagor, executed a Leasehold Mortgage dated June 1, 1990, in favor of The Bank of New York, the Indenture Trustee for the Bonds. According to Leo T. Crowley, Esq., at Pillsbury, Winthrop, Shaw & Pittman, in New York City, upon issuance of the Bonds, a $600,000 Account was created for the limited purpose of allowing the Trustee to cure certain defaults under the Facility Lease. The Trustee asks Judge Mitchell of the U.S. Bankruptcy Court for the Eastern District of Virginia to lift the automatic stay to exercise its remedies and access the Account to procure reimbursement for unpaid fees and expenses on the Bonds. After Eastern ceased operations in 1991, Continental obtained exclusive possession of the East End Terminal and assumed sole responsibility for Eastern's obligations under the Facility Lease, the Leasehold Mortgage and related documents. On January 17, 1992, pursuant to an Assignment Agreement, Continental assigned the Facility Lease to the Debtors. The Debtors also assumed Continental's liability under the Leasehold Mortgage. As a result, the Debtors became the lessee under the Facility Lease and the mortgagor on the Leasehold Mortgage. Upon the Debtors' first bankruptcy petition, the Trustee retained GRA Inc., as consultants, to evaluate the Debtors' collateral under the Facility Lease and the Leasehold Mortgage and to provide advice on alternatives. Also, the Trustee appointed GBR Information Services as Bondholder communications agent. To date, the Debtors have neither assumed nor rejected the Facility Lease. The Debtors have paid postpetition rent, but have not paid related obligations. Specifically, the Debtors owe the Trustee $249,093 for fees and expenses. The prepetition fees total $158,431, consisting of: (a) $21,217 for the Bank of New York's fees; (b) $30,000 for GRA's slot appraisal; (c) $29,595 for GBR's other services; and (d) $77,619 for attorney's fees. For postpetition fees, the Trustee wants reimbursement of: -- $13,828 for Trustee's fees; and -- $76,834 for attorney's fees. The $249,093 in accrued fees and expenses, absent the bankruptcy filing, could be cured by the application of the $616,119 in the Account, Mr. Crowley tells Judge Mitchell. The Court must lift the automatic stay and allow the Trustee to access the Account, Mr. Crowley asserts. The Debtors' estate is not deprived of any value if the funds in the Account are released to the Trustee, as the Debtors only have a conditional right to the Account. "Since the Debtors have a significant presence at LaGuardia, which is considered one of the Debtors' focus cities, the Facility Lease will likely be assumed in a plan of reorganization," Mr. Crowley explains. Accordingly, the Debtors will be obligated to cure the default and pay the Trustee. If the Debtors reject the Facility Lease, the Trustee has a perfected security interest in the Account. Therefore, the Trustee, as a secured creditor, will be entitled to recover the $249,093. "In either case, it is inevitable that the Trustee will collect the amount owed." Mr. Crowley 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. 100; Bankruptcy Creditors' Service, Inc., 215/945-7000) US DATAWORKS: Posts $968,000 Net Loss in First Quarter 2006 ----------------------------------------------------------- US Dataworks (Amex: UDW) reported financial results for the first quarter of fiscal 2006. Revenues for the fiscal 2006 first quarter were $1.1 million compared to revenues of $903,132 for the same period a year ago. Operating loss for the first quarter was $939,962 compared to an operating loss of $957,035 for the first quarter of fiscal 2004. Net loss for the first quarter was $968,800, compared to a net loss of $1.4 million for the corresponding period in the prior year. "We are pleased to report year over year growth in revenues and, in particular, marked improvement in revenues over our recent fourth quarter of 2005 results," stated Charles E. Ramey, CEO of US Dataworks. "We are also pleased to have recently announced that we have exceeded the one billion (1,000,000,000) transaction threshold using our Clearingworks(TM) payment platform and remain confident about our growth opportunities over the next several years as the electronification(SM) of payment processing increases. "Additionally, we have added several new brand name accounts and believe our Clearingworks product suite is being embraced, embedded and standardized into the fabric of some of the world's name brand financial institutions." US Dataworks is a developer of payment processing solutions, focused on the Financial Services market, Federal, State and local governments, billers and retailers. Software developed by US Dataworks is designed to enable organizations to transition from traditional paper-based payment and billing processes to electronic solutions that automate end-to-end processes for accepting and clearing checks. Going Concern Doubt Ham, Langston & Brezina, LLP, expressed substantial doubt about US Dataworks Inc.'s ability to continue as a going concern after it audited the Company's financial statements for the year ended Mar. 31, 2005. The auditing firm points to the Company's losses and negative cash flow from operations. Revenues for the fiscal 2005 fourth quarter were $656,000 compared with revenues of $1,580,000 for the same period a year ago. Last year, the company closed a significant license upgrade transaction in the fourth quarter that resulted in approximately $900,000 of revenue and did not record a similar large licensing transaction in the current year. Operating loss for the quarter was $1,444,000 compared to an operating loss of $123,000 for the quarter ended March 31, 2004. Net loss for the fourth quarter was $1,447,000, or $0.05 per share, compared to a net loss of $344,000 or $0.01 per share, for the corresponding period in the prior year. USG CORP: Revises Non-Employee Directors' Compensation Program -------------------------------------------------------------- In a regulatory filing with the Securities and Exchange Commission, Stanley L. Ferguson, USG Corporation's Executive Vice President and General Counsel, reports that on July 20, 2005, the company approved revisions in its compensation program for non- employee directors. Mr. Ferguson discloses that effective July 1, 2005, each director's annual retainer increased from $48,000 to $60,000 -- payable quarterly at the rate of $15,000 -- and the quarterly retainer for committee chair persons increased from $1,600 to $2,000. There is no change in the $1,600 fee payable for each Board or committee meeting attended and for involvement in planning or preparing for Board or committee meetings and other Board related projects, including director education. In addition, in place of the 500 shares of common stock granted annually each July 1, Mr. Ferguson says that non-employee directors may elect to receive either $30,000 in cash or the equivalent paid in common stock, beginning on July 1, 2006. Mr. Ferguson notes that the terms of the common stock election will be finally determined later because any election to defer payment in stock is subject to new deferred compensation legislation for which USG is awaiting final guidance from the Internal Revenue Service. 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. 92; Bankruptcy Creditors' Service, Inc., 215/945-7000) VARIG S.A.: Accounts for 3.5% of Boeing's Total Portfolio --------------------------------------------------------- The Boeing Company discloses in a Form 10-Q filing with the U.S. Securities and Exchange Commission that at June 30, 2005, Viacao Aerea Rio-Grandense accounted for $327,000,000 or 3.5% of Boeing's total portfolio. On June 17, 2005, VARIG filed a request for reorganization which was granted on June 22, 2005 by Brazilian courts. Under the laws of Brazil, VARIG has 60 days from July 13, 2005, the date the court order was published in the official gazette, to present a reorganization plan. As of June 18, 2005, Boeing says VARIG has resumed making rent and maintenance reserve payments, except past due obligation payments. Boeing exercised early lease termination rights and took possession of two MD-11 aircraft from VARIG in April 2005 in the amount of $73,000,000. The aircraft were subsequently sold to another customer. At June 30, 2005, the VARIG portfolio consisted of two 737 aircraft and seven MD-11 aircraft. In recent years, VARIG has repeatedly defaulted on its obligations under leases with Boeing, which has resulted in deferrals and restructurings, some of which are ongoing. Boeing does not expect the VARIG transactions, including the impact of any future restructurings, to have a material adverse effect on its earnings, cash flows or financial position. 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. Sergio Bermudes, Esq., at Escritorio de Advocacia Sergio Bermudes, represents the carrier in Brazil 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. 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. 5; Bankruptcy Creditors' Service, Inc., 215/945-7000) VARIG S.A.: Taps Lufthansa Consulting as Restructuring Advisor -------------------------------------------------------------- Brazil's leading airline VARIG commissions the experts of Lufthansa Consulting with the reorganization and restructuring of the company. The consultancy contract with a term of six months was signed on 13 July 2005 in Rio de Janeiro. A LCG project team immediately started work on site. VARIG filed an application for the protection of creditors at the Bankruptcy Court analogous the U.S. legislation in Chapter 11. In accordance with Brazilian law the carrier must develop an appropriate restructuring plan within 60 days as well as the related business plan and submit these to the Bankruptcy Court. If the Court accepts the proposed plans, the implementation phase must be completed within a maximum period of 120 days thereafter. The project agreement with Lufthansa Consulting provides for the support of the airline during this procedure, which will be applied for the first time ever in Brazil. "We were looking for a consultant with an in-depth understanding of the industry, an interdisciplinary approach and strong implementation skills in order to generate short-term profitability gains, and long-term competitive advantages for VARIG. We have assigned the project to Lufthansa Consulting because we believe they meet these criteria", stated Omar Carneiro da Cunha, President of VARIG, during the contract signing ceremony. 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. Sergio Bermudes, Esq., at Escritorio de Advocacia Sergio Bermudes, represents the carrier in Brazil 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. 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. 5; Bankruptcy Creditors' Service, Inc., 215/945-7000) VERTIS INC: June 30 Balance Sheet Upside-Down by $508.6 Million --------------------------------------------------------------- Vertis, Inc., reported results for the three and six months ended June 30, 2005. Second quarter 2005 net sales of $393.9 million were on par with 2004 net sales of $394.1 million. For the six months ended June 30, 2005 net sales amounted to $779.7 million, a decline of $5.0 million, or 0.6%, versus 2004. Excluding the change in the pass- through cost of paper totaling $7.9 million in the second quarter and $17.5 million through June, net sales would have declined by 2% and 3% in the three- and six-month periods ended June 30, 2005, respectively. The second quarter net loss was $29.0 million while net loss for the first half was $159.0 million. The increase in net loss of $136.1 million through June 30 includes $112.4 million of non-cash asset impairment charges and an increase in restructuring charges of $15.3 million. "We completed a number of actions in the first half of 2005 that have streamlined our operations and reduced costs across the entire company. We reduced staffing levels by over 470 positions. The activities to date will provide over $32 million in annualized cost savings, over $7 million of which is included in our first half results," stated Dean D. Durbin, President and Chief Operating Officer. "Our trailing twelve-month EBITDA for covenant purposes improved to $176.5 million versus the $160 million minimum requirement. From a liquidity perspective, we ended the quarter with $99 million available on our revolving credit facility," stated Stephen E. Tremblay, chief financial officer. EBITDA for covenant purposes is not equivalent to the EBITDA amount included elsewhere in this earnings release, but rather is net of adjustments to exclude certain items as defined under the credit agreement. Mr. Tremblay also noted, "In the second quarter we resolved the contingency related to certain critical vendor payments which we first disclosed in 2003. The settlement resulted in a charge of $200,000 which is included in selling, general, and administrative expenses." Regarding the short-term outlook, Mr. Durbin stated, "Building on the second quarter momentum, we continue to expect year-over-year EBITDA growth for the full-year 2005. We are focusing on top-line growth, operational excellence, and reducing our overall cost base." North America Segment Net sales amounted to $363.4 million in the second quarter of 2005 versus $358.0 million in the second quarter of 2004, an increase of $5.4 million, or 1.5%. Through June 30, 2005 net sales amounted to $717.3 million compared to $711.8 million in 2004, a $5.5 million, or 0.8%, year-over-year increase. Excluding the increase in the pass-through cost of paper totaling $8.4 million in the second quarter and $18.4 million through June 30, net sales would have been on par with the second quarter of 2004 and 2% less than the first half of 2004. Commenting on the second quarter, Mr. Durbin, stated, "The double- digit growth in North America EBITDA is a significant achievement and represents a turnaround from what we experienced in the first quarter. Although volume, especially for retail inserts, has been less than expected, we are pleased with the improvement in pricing, including the impact of more favorable mix. We continue to manage our cost base and improve our operational effectiveness while pursuing top-line growth initiatives," noted Mr. Durbin. Europe Segment Net sales amounted to $30.5 million in the three months ended June 30, 2005 and $62.4 million in the six months ended June 30, 2005. "As we reported at the start of the second quarter, we are continuing to pursue strategic alternatives with respect to our UK direct mail business," said Mr. Durbin. "To date, however, difficult conditions in our European business have negatively impacted Vertis' overall financial performance." Vertis is the premier provider of targeted advertising, media, and marketing services. Its products and services include consumer research, audience targeting, media planning and placement, creative services and workflow management, targeted advertising inserts, direct mail, interactive marketing, packaging solutions, and digital one-to-one marketing and fulfillment. Headquartered in Baltimore, with facilities throughout the US and the UK, Vertis combines technology, creative resources, and innovative production to serve the targeted marketing needs of companies worldwide. At June 30, 2005, Vertis Inc.'s balance sheet showed a $508,603,000 stockholders' deficit, compared to a $348,560,000 deficit at Dec. 31, 2004. WESTERN WIRELESS: ALLTEL Deal Completion Cues S&P to Remove Watch ----------------------------------------------------------------- Standard & Poor's Ratings Services upgraded its ratings of Bellevue, Washington-based regional wireless carrier Western Wireless LLC, the successor by merger to Western Wireless Corp., including the long-term corporate credit rating, which was raised to 'A' from 'B-'. The ratings simultaneously were removed from CreditWatch, where they were placed with positive implications on Jan. 10, 2005, following the announced merger agreement between Little Rock, Arkansas-based diversified telecommunications carrier ALLTEL Corp. and Western Wireless. "We withdrew the rating on Western Wireless' $1.5 billion of secured bank facilities, because borrowings under this facility have been repaid by ALLTEL," said Standard & Poor's credit analyst Catherine Cosentino. "At the same time, we affirmed the existing ratings on ALLTEL, including the 'A' corporate credit rating, and assigned our 'A' rating to ALLTEL's $700 million unsecured revolving credit maturing in 2006," she continued. The outlook is negative. These actions follow the recent completion of the merger between ALLTEL and Western Wireless. Pro forma debt for the combined company as of March 31, 2005, was about $5.6 billion. The ratings on ALLTEL benefit from a well-managed regional wireless business, which has experienced good subscriber growth and postpaid churn in line with industry averages. The company's credit profile also is largely bolstered by the strength and stability of its incumbent local exchange carrier business, albeit in an increasingly competitive environment. The wireline business constitutes about one-third of the company's overall revenue base. With the Western Wireless merger, ALLTEL's domestic wireless business is expected to be about 67% of its total revenues. Ratings on ALLTEL also reflect the company's significant financial strength (as demonstrated by its generation of about $840 million in net free operating cash flow after capital expenditures and common and preferred dividends in 2004). The company continues to benefit from very good liquidity and a solid balance sheet. WINN-DIXIE: Objects to Heritage's Stand to Shorten Decision Period ------------------------------------------------------------------ As previously reported in the Troubled Company Reporter on July 1, 2005, on June 3, 2004, Winn-Dixie Stores, Inc., and its debtor-affiliates executed a contract for the purchase of goods from Heritage Mint, Ltd. Heritage began shipping goods on Feb. 15, 2005. The Contract contains recoupment and reconciliation provisions that allow Heritage to credit the Debtors' account upon their return of goods in "original factory seals unopened master cartons." Heritage asks the U.S. Bankruptcy Court for the Middle District of Florida to compel the Debtors to assume or reject the Contract. Heritage believes that the nature of its interests with respect to the deliveries, the returns and the Contract make immediate assumption or rejection necessary. If the Contract is rejected, the Debtors' estate and postpetition lenders may have claims to the goods to the extent of the valued of the postpetition deliveries, and thus, Heritage cannot receive the returns without Court approval. If the Contract is assumed, Heritage is obligated to accept the returns and enforce its recoupment rights. Debtors Object The Debtors ask the Court to deny Heritage Mint, Ltd.'s Motion because, among other things, Heritage has not established a compelling reason why the time for the Debtors to decide whether to assume or reject the Contract should be shortened. Cynthia C. Jackson, Esq., at Smith Hulsey & Busey, in Jacksonville, Florida, relates that the issue between the parties is that the Debtors want to return $400,000 in unsold goods but Heritage does not want to accept their return. Heritage believes that third parties may have claims against the Goods and is dissatisfied with the ramifications of the potential third party interests. This is not a compelling reason to require the Debtors to prematurely assume or reject the Contract, Ms. Jackson says. At this early stage of their complex Chapter 11 cases, the Debtors should not have to determine whether to assume or reject the Contract and provide one vendor better treatment than the other vendors. Moreover, Heritage will not be harmed by allowing the Debtors to return the Goods because the Debtors now understand that Heritage already has a purchaser for the Goods. The Debtors have thousands of contracts with their many vendors, are currently in the process of evaluating and analyzing their businesses, and are making progress in deciding which contracts to keep and which to reject. If the Motion is granted, numerous other vendors may bring similar motions seeking to shorten the time for the Debtors to assume or reject their contracts before the Debtors are ready to make that determination. Furthermore, Ms. Jackson points out that the Motion seeks to circumvent the reclamation reconciliation process by requiring the Debtors to assume or reject the Contract. The reclamation procedures and other provisions of the Final Reclamation Order are the sole and exclusive Court-approved method for the resolution of reclamation claims. The Debtors have served Heritage with a Statement of Reclamation pursuant to the terms of the Final Reclamation Order. If Heritage disagrees with its Statement of Reclamation, it should disagree in accordance with the terms of the Final Reclamation Order. Headquartered in Jacksonville, Florida, Winn-Dixie Stores, Inc. -- http://www.winn-dixie.com/-- is one of the nation's largest food retailers. The Company operates stores across the Southeastern United States and in the Bahamas and employs approximately 90,000 people. The Company, along with 23 of its U.S. subsidiaries, filed for chapter 11 protection on Feb. 21, 2005 (Bankr. S.D.N.Y. Case No. 05-11063). The Honorable Judge Robert D. Drain ordered the transfer of Winn-Dixie's chapter 11 cases from Manhattan to Jacksonville. On April 14, 2005, Winn- Dixie and its debtor-affiliates filed for chapter 11 protection in M.D. Florida (Case No. 05-03817 to 05-03840). D.J. Baker, Esq., at Skadden Arps Slate Meagher & Flom LLP, and Sarah Robinson Borders, Esq., and Brian C. Walsh, Esq., at King & Spalding LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $2,235,557,000 in total assets and $1,870,785,000 in total debts. (Winn-Dixie Bankruptcy News, Issue No. 18; Bankruptcy Creditors' Service, Inc., 215/945-7000). WINN-DIXIE: Vera Volovecky Wants Stay Lifted to Pursue Claim ------------------------------------------------------------ In April 2003, while purchasing groceries at a Winn-Dixie store in Baldwin County, Alabama, Vera Volovecky slipped and fell on a wet floor, which was being maintained without adequate notice to her. Brian P. Britt, Esq., at Kopesky & Britt, LLC, in Fairhope, Alabama, asserts that due to Winn-Dixie Stores, Inc., and its debtor-affiliates' negligence, Ms. Volovecky sustained injuries and damages. The impact on the floor has caused persistent pain in Ms. Volovecky's left hip and leg area. The injury disabled Ms. Volovecky to the extent that she could not work resulting in a loss of income. She continues to suffer pain in her lower back and hip area and continues to incur medical expenses. Ms. Volovecky filed a complaint in the Circuit Court of Baldwin County, Alabama, demanding judgment against the Debtors for $500,000 and costs. Accordingly, Ms. Volovecky asks the U.S. Bankruptcy Court for the Middle District of Florida to lift the automatic stay so that she may pursue her claims against the Debtors. Headquartered in Jacksonville, Florida, Winn-Dixie Stores, Inc. -- http://www.winn-dixie.com/-- is one of the nation's largest food retailers. The Company operates stores across the Southeastern United States and in the Bahamas and employs approximately 90,000 people. The Company, along with 23 of its U.S. subsidiaries, filed for chapter 11 protection on Feb. 21, 2005 (Bankr. S.D.N.Y. Case No. 05-11063). The Honorable Judge Robert D. Drain ordered the transfer of Winn-Dixie's chapter 11 cases from Manhattan to Jacksonville. On April 14, 2005, Winn- Dixie and its debtor-affiliates filed for chapter 11 protection in M.D. Florida (Case No. 05-03817 to 05-03840). D.J. Baker, Esq., at Skadden Arps Slate Meagher & Flom LLP, and Sarah Robinson Borders, Esq., and Brian C. Walsh, Esq., at King & Spalding LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $2,235,557,000 in total assets and $1,870,785,000 in total debts. (Winn-Dixie Bankruptcy News, Issue No. 18; Bankruptcy Creditors' Service, Inc., 215/945-7000). WINN-DIXIE: Wants to Deny Transamerica's Request for Payment ------------------------------------------------------------ Transamerica Life Insurance Company owned the property where the Debtors operate Winn-Dixie Store No. 1908 at The Village on Whitesburg, in Huntsville, Alabama. Winn-Dixie Atlanta, Inc., now Winn-Dixie Montgomery, Inc., is the tenant under a lease dated September 4, 1986. Transamerica is the landlord under that Lease pursuant to an assignment from the original landlord. Winn-Dixie Stores, Inc., is the guarantor of the obligations of the tenant under the Lease pursuant to the terms of a guaranty dated September 25, 1986. C. Timothy Corcoran, III, Esq., in Tampa, Florida, notes that Winn-Dixie Stores, Inc., and its debtor-affiliates have not sought to assume or reject the Lease. By an order issued on May 6, 2005, the Court extended the time for the Debtors' lease decision period to September 19, 2005. In that order, the Court also directed the Debtors to honor all postpetition rental obligations arising under the Lease. Transamerica believes the Debtors owe it $76,222 in postpetition rental obligations: Common Area Maintenance $36,777 Insurance 2,533 Property Tax 36,912 ------- Total $76,222 Pursuant to the Lease, Mr. Corcoran says, these amounts are required to be paid to Transamerica and have become due and payable after the filing of the Debtors' bankruptcy cases. Mr. Corcoran tells the U.S. Bankruptcy Court for the Middle District of Florida that Winn-Dixie failed to pay the amount on the due date. On May 19, 2005, Transamerica notified the counsel for the Debtors and the Official Committee of Unsecured Creditors regarding the default. Despite the warning, the Debtors still did not pay. By this application, Transamerica asks the Court to allow it an administrative expense claim for $76,222. The rental obligations are administrative expense obligations because, under the terms of the Lease, they became due and payable postpetition, Mr. Corcoran explains. Mr. Corcoran informs the Court that Transamerica sold the property and assigned the lease to VOW, LLC, an Alabama limited liability company. The terms of the sale give the Landlord the right to collect former delinquencies. If VOW receives payment for the delinquent lease, the payment should be forwarded to Transamerica Life Insurance Company, Mr. Corcoran says. Debtors Respond The Debtors point out that the Prepetition Invoice was sent to them on February 16, 2005 -- five days prior to the Petition Date. Thus, the Prepetition Invoice does not only accrue prepetition but was invoiced prepetition. Apparently, Transamerica contends that this debt is postpetition because the Prepetition Invoice was not received by the Debtors until March 3, 2005, Cynthia C. Jackson, Esq., at Smith Hulsey & Busey, in Jacksonville, Florida, notes. But regardless of whether the Prepetition Invoice was received prepetition or postpetition, Ms. Jackson argues that where the lease obligations at issue accrued prepetition and relate to prepetition use of the property, the clear majority of courts considering the issue have adopted the "accrual" approach and held that those obligations are prepetition obligations, notwithstanding that they may have "become due" postpetition. "The Prepetition Invoice relates entirely to amounts that accrued during the prepetition period and are, thus, not obligations that should be paid under section 365(d)(3) of the Bankruptcy Code," Ms. Jackson argues. Accordingly, the Debtors ask the Court to deny Transamerica's request. Headquartered in Jacksonville, Florida, Winn-Dixie Stores, Inc. -- http://www.winn-dixie.com/-- is one of the nation's largest food retailers. The Company operates stores across the Southeastern United States and in the Bahamas and employs approximately 90,000 people. The Company, along with 23 of its U.S. subsidiaries, filed for chapter 11 protection on Feb. 21, 2005 (Bankr. S.D.N.Y. Case No. 05-11063). The Honorable Judge Robert D. Drain ordered the transfer of Winn-Dixie's chapter 11 cases from Manhattan to Jacksonville. On April 14, 2005, Winn- Dixie and its debtor-affiliates filed for chapter 11 protection in M.D. Florida (Case No. 05-03817 to 05-03840). D.J. Baker, Esq., at Skadden Arps Slate Meagher & Flom LLP, and Sarah Robinson Borders, Esq., and Brian C. Walsh, Esq., at King & Spalding LLP, represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed $2,235,557,000 in total assets and $1,870,785,000 in total debts. (Winn-Dixie Bankruptcy News, Issue No. 19; Bankruptcy Creditors' Service, Inc., 215/945-7000). WORLDCOM INC: Wants Ebbers Litigation Stayed Pending Settlement --------------------------------------------------------------- Reorganized WorldCom, Inc. and its debtor-affiliates ask the U.S. Bankruptcy Court for the Southern District of New York to approve their settlement agreement with former WorldCom Chief Executive Officer Bernard J. Ebbers and the New York State Common Retirement Fund. The New York Fund is the lead plaintiff and class representative for the certified class in the case styled In re WorldCom Securities Litigation, 02 Civ. 3288 (DLC)(S.D.N.Y.) and certain related intercreditor arrangements with the Class. Mr. Ebbers is a defendant in the WorldCom Securities Litigation. Separation Agreement Timothy W. Walsh, Esq., at DLA Piper Rudnick Gray Cary US, LLP, in New York, relates that Mr. Ebbers owed the Debtors a $408.2 million loan, which was restructured and consolidated into a promissory note with a five-year maturity. Simultaneous with the restructuring of the Ebbers Loans, Mr. Ebbers agreed to resign as WorldCom's chief executive officer and director and the Debtors agreed to: -- pay Mr. Ebbers a lifetime pension of $1.5 million annually and upon his death, a lifetime pension of $750,000 annually to his spouse; -- provide Mr. Ebbers with lifetime medical and life insurance benefits; -- allow Mr. Ebbers to use WorldCom's aircraft on a limited basis; -- provide Mr. Ebbers a computer; -- lease Mr. Ebbers office space; -- accelerate the vesting of Mr. Ebbers' stock options and allow him up to five years to exercise them; -- continue in effect WorldCom's indemnification of Mr. Ebbers; and -- enter into a mutual release with Mr. Ebbers that would generally release WorldCom's claims against Mr. Ebbers except in connection with fraud, willful misconduct, gross negligence or criminal acts. Ebbers' Claims On January 22, 2003, Mr. Ebbers filed Claim No. 20659, asserting administrative expense claims and general unsecured claims for: -- amounts allegedly due or that become due under the Separation Agreement; -- WorldCom's indemnification and related expense reimbursement obligations under the Restated Bylaws of WorldCom, Inc.; and -- WorldCom's obligations under a guaranty and letter agreements executed thereunder. Mr. Ebbers also asserted a setoff claim relating to the assets and interests he pledged to the Debtors and sold during the Debtors' Chapter 11 cases. The Setoff Claim does not specify any amount but asserts claims to the extent of any liability of the Debtors. In October 2003, Mr. Ebbers filed Claim No. 36383, asserting a $12,166,752 unsecured non-priority claim on account of rejected stock options. The Ebbers Adversary Proceeding On July 9, 2004, the Debtors filed an adversary proceeding against Mr. Ebbers: (i) seeking avoidance as fraudulent transfers certain transactions between the Debtors and Mr. Ebbers that were executed within one year before the Petition Date; (ii) demanding immediate turn over of amounts Mr. Ebbers owed the Debtors under the Term Note; and (iii) objecting to Mr. Ebbers' claims. The Court stayed the Adversary Proceeding on November 29, 2004, except with respect to the Debtors' ability to file a summary judgment motion in connection with the Term Note. NY Fund Claims On January 21, 2003, the New York Fund filed Claim Nos. 18172 to 18176, as an individual creditor and as representative of the Class. Subsequently, the Debtors objected to certain claims related to securities fraud, including Claim Nos. 18172 to 18176. The Court expunged the vast majority of the Securities Fraud Claims in July 2003, and adjourned the hearing with respect to certain claimants that filed responses to the Debtors' Objection. The Debtors subsequently filed a summary judgment motion as to the Securities Fraud Claims, arguing that the claims are subordinated under Section 510(b) of the Bankruptcy Code and therefore are not entitled to any distributions under the Plan. The Summary Judgment Motion has been briefed and argued before Judge Adlai S. Hardin, Jr., and is currently under advisement. The Ebbers Settlement The United States Attorney for the Southern District of New York facilitated a three-way settlement discussion among the Debtors, the Class and Mr. Ebbers to negotiate a settlement, providing for the disposition of Mr. Ebbers' assets. Mr. Walsh relates that the Debtors, the Class and Mr. Ebbers have agreed to a proposed settlement to resolve the Adversary Proceeding, the Ebbers Claims and the NY Fund Claims. On July 22, 2005, the Debtors asked the United States District Court for the Southern District of New York to approve the Stipulation of Settlement with Mr. Ebbers. The District Court approved the Settlement on July 25, 2005. The principal terms of the Settlement with Mr. Ebbers are: (a) Mr. Ebbers will transfer all of his assets, excluding certain retained cash; certain oil and gas mineral interests; the residence in Jackson, Massachusetts, owned by Kristie Ebbers; certain IRA assets; and all personalty other than farm vehicles, to: * as to the Assets identified in the Term Sheet as the Certain Cash Assets, an escrow account under the control of the Class and for the exclusive benefit of the Class; and * as to all other Assets, a liquidating trust to be established for the purpose of liquidating assets and distributing proceeds to the Class and the Debtors; (b) Mr. Ebbers was obligated to satisfy the ERISA Note for $450,000, from the Excluded Assets before July 13, 2005. This requirement has been satisfied; (c) Mr. Ebbers will be required to pay certain attorneys' fees incurred from the Excluded Assets. Mr. Ebbers will be required to transfer from the Excluded Assets into an escrow account certain funds for the payment of future legal fees, with the unused amount payable to the Trust; (d) The Trust is to be established for the purposes of liquidating the Trust Assets and distributing the proceeds to the Debtors and the Class. The Debtors will contribute the Joshua Holdings promissory note, payable to Mr. Ebbers by Joshua Holdings, LLC, and endorsed to the Debtors as collateral security for payment of the Term Note, subject to its lien interest, to the Trust. The Debtors and the Class will be the beneficiaries of the Trust. Mr. Ebbers will cooperate fully with the Debtors, the Class and the individual or firm engaged as the liquidating agent of the Trust, as well as their professionals; (e) Mr. Ebbers will acknowledge unconditionally that: * The indebtedness under the Term Note is fixed and liquidated for $400,000,000; * The Indebtedness is presently due and payable; and * There are no defenses to the enforcement of the Term Note and the collection of the Indebtedness is not subject to any offsets, credits or deductions; and (f) Mr. Ebbers will withdraw, with prejudice, all claims and counterclaims asserted against the Debtors. The principal terms of the Settlement and Intercreditor Term Sheet are: (a) The net proceeds realized from the Trust Assets will be distributed in this manner: (1) The Debtors will be entitled to the first $300,000 of net proceeds realized from the Trust Assets. (2) Subject to the provision for the first $300,000, the Class will receive 100% of the net proceeds realized in the sale of the Tupelo Hospitality Company, LLC, assets. (3) Cash of BJE Properties, LLC, aggregating $173,000, will fund the initial costs of administration of the Trust. (4) Subject to the provisions regarding the allocation of net proceeds realized from the Trust Assets and except in connection with the prospective liquidation of the Note, the Class will receive 75% of the net proceeds of the Trust Assets. The Debtors will receive 25% of the net proceeds of the Trust Assets. (b) The Debtors agree that the MCI Recovery will be held in escrow by the Trust until the earlier of (1) the sale of the Note; or (2) the termination of the Trust. In the event the Note is not liquidated as of the date of the termination of the Trust, the Class will be entitled to the MCI Recovery, up to the capped amount of $8.5 million. The Note will be transferred from the Trust to the Debtors and the Debtors will be entitled to liquidate the Note for its own account. If the Note is liquidated prior to the termination of the Trust, the net proceeds of the Note and any additional net proceeds from the sale of Joshua Timberlands will be distributed two thirds to the Class and one third to the Debtors, and the Debtors will be entitled to receive the MCI Recovery in full. (c) Five percent of the net proceeds of the Trust will be set aside in escrow and available to fund appropriately documented settlements of claims of litigants against Mr. Ebbers arising during the period 1998 to 2002. The Third Party Claims Fund will expire 12 months from the date of the Trust Agreement. The unused balance of the Third Party Claims Fund, if any, will be distributed to the Class and the Debtors. (d) Subject to the satisfaction of certain conditions in the Term Sheet, the Trustee will establish an escrow account to fund Mr. Ebbers' legal fees and expenses in the event of a retrial of the criminal proceeding. In the event Mr. Ebbers' appeal to the Second Circuit Court of Appeals is denied or at the 15th month anniversary of the effective date of the Trust, whichever is earlier, the Retrial Reserve will be available for distribution to the Class and the Debtors. However, if a retrial is granted before the Anniversary Date but has not commenced by that date, the Retrial Reserve will be available to Mr. Ebbers after the Anniversary Date to pay legal fees and expenses of a retrial. (e) The New York Fund will withdraw, with prejudice, any and all claims it filed, individually and on behalf of the Class, in the Debtors' bankruptcy cases. Mr. Walsh states that these conditions must be satisfied prior to the effectiveness of the Settlement: (a) The Bankruptcy Court's approval of the Settlement; (b) Final approval of the Stipulation of Settlement; (c) The District Court's approval of the Settlement in the case styled Securities and Exchange Commission v. WorldCom, Inc., Civ.No. 02-CV-4963. This condition has been satisfied; and (d) The Bankruptcy Court's approval of the Reorganized Debtors' Motion for an order (i) authorizing and approving the compromise and settlement of Securities Class Action Proofs of Claim; and (ii) disallowing and expunging certain claims as duplicative. In the event the Settlement is not approved or fails to become effective for any reason, the balance of the MCI Recovery will be refunded to Mr. Ebbers, including interest accrued. All Trust Assets then held in the Trust will be returned to Mr. Ebbers. The Acknowledgement will be rescinded. Mr. Walsh relates that on July 11, 2005, Judge Cote granted preliminary approval of the Stipulation of Settlement, with the final approval hearing scheduled for September 9, 2005. Mr. Walsh asserts that under the terms of the Settlement, a mechanism will be established to ensure that the Debtors will participate meaningfully as a creditor with respect to substantially all of the remaining assets owned by Mr. Ebbers. Furthermore, by resolving all existing and potential disputes with Mr. Ebbers, the Debtors will be able to avoid the expense and delay of engaging in complex litigation that would require a significant amount of time and resources. Instead, the Debtors will receive a potentially significant distribution upon liquidation of the Trust Assets. The Reorganized Debtors further ask the Court to stay the Adversary Proceeding pending the effectiveness of the Settlement, upon final approval of the Stipulation of Settlement in the Class Litigation. Headquartered in Clinton, Mississippi, WorldCom, Inc., now known as MCI -- http://www.worldcom.com/-- is a pre-eminent global communications provider, operating in more than 65 countries and maintaining one of the most expansive IP networks in the world. The Company filed for chapter 11 protection on July 21, 2002 (Bankr. S.D.N.Y. Case No. 02-13532). On March 31, 2002, the Debtors listed $103,803,000,000 in assets and $45,897,000,000 in debts. The Bankruptcy Court confirmed WorldCom's Plan on October 31, 2003, and on April 20, 2004, the company formally emerged from U.S. Chapter 11 protection as MCI, Inc. (WorldCom Bankruptcy News, Issue No. 96; Bankruptcy Creditors' Service, Inc., 215/945-7000) W.R. GRACE: Wants to Sell SP Business to Sancap for $4.6 Million ---------------------------------------------------------------- Situated in Owensboro, Kentucky, W.R. Grace, Inc., and its debtor- affiliates run a Specialty Polymers business that manufactures and sells specialty polymers, including polyvinylidene chloride and other emulsion latex polymers used in packaging and other barrier applications. David W. Carickhoff, Esq., at Pachulski, Stang, Ziehl, Young, Jones & Weintraub P.C., in Wilmington, Delaware, relates that the SP Business was originally part of a business divested by W.R. Grace, Inc., in 1991. In July 2000, W.R Grace & Co.-Conn. reacquired the business for nominal consideration. Mr. Carickhoff tells Judge Fitzgerald that the business expectations underlying the acquisition were not realized. Mr. Carickhoff discloses that the SP Business' revenue and net income in 2004 -- assuming a 36% tax rate -- was $19,259,000 and ($282,000). The Debtors concluded that it had no strategic potential, and that its growth prospects fell below Grace's standards for return on investments. In February 2004, the Debtors began to actively pursue the sale of the SP Business. Mr. Carickhoff recounts that the Debtors prepared a list of possible buyers; but because of the age and specialized applicability of the assets, the Debtors determined to limit their contacts to seven prospective buyers in whose business the assets appeared to have strategic value. Subsequently, expressions of interest were received from Scott Bader PLC, Solvay America, Inc., ELCAT, and Yule Catto PLC. Mr. Carickhoff informs the U.S. Bankruptcy Court for the District of Delaware that all the interested parties were significant manufacturers, and Scott Bader and Solvay were producers of PVdC latex. Scott Bader, Solvay and ELCAT undertook due diligence and only Solvay completed the process. Those efforts, however, did not produce any final offers, and in March 2005, Grace decided to terminate the SP Business and liquidate its assets. Mr. Carickhoff explains that in examining the cost of terminating the SP Business, the Debtors obtained estimates for the liquidation of the assets indicating that the production assets would have minimal liquidation value. Because of the age of the buildings and environmental issues, the Debtors' real estate specialists believe that the land and buildings used in the business have minimal value. The announcement of the proposed closing of the SP Business elicited three expressions of interest from additional prospective buyers -- SANCAP Liner Technology, Inc., Grace Matthews, and Specialty Polymers Incorporated. Mr. Carickhoff states that SANCAP and Grace Matthews conducted due diligence, but only SANCAP made a final offer. Accordingly, pursuant to an order establishing procedures for the sale or abandonment of de minimis assets, the Debtors propose to sell their SP Business to SANCAP for $4,600,000 payable in cash on the closing date. The purchase price is subject to a post-closing adjustment dollar for dollar by any amount by which the current assets of the business as of the closing date are greater or lesser than the amount paid at the closing. The Sale of substantially all of the assets includes: (1) manufacturing facility buildings and fixtures, but not the land on which they are located; (2) machinery, equipment, and other tangible personal property; (3) inventories; (4) patents and patent applications, trademark registrations and applications, and other intellectual property; (5) accounts receivable; (6) contract rights; (7) transferable licenses and permits; and (8) document, records and files. As part of that transaction, the Debtors intend to lease land for nominal rent under a ground lease with an initial term of 40 years, plus three options to renew for successive periods of 20, 20 and 19 years. The Debtors will retain and indemnify SANCAP against all pre- closing liabilities, including environmental liabilities on the leased land. The Debtors advise that any party wishing to file an alternative bid for the SP Business must serve its bid in writing on the co- counsel for the Debtors, and counsel to: -- the Official Committee of Unsecured Creditors; -- the Official Committee of Property Damage Claimants; -- the Official Committee of Personal Injury Claimants; -- the Official Committee of Equity Holders; and -- the Futures Claimants' Representative. It must also be served to the Office of the United States Trustee. Any alternative bid must exceed the original offer and must contain terms that are otherwise equivalent or superior to the terms of the original offer. In the event that the Debtors do not receive any written objections to the Sale on or before August 5, 2005, the Debtors are authorized to proceed with the Sale without further Court approval. 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. 92; Bankruptcy Creditors' Service, Inc., 215/945-7000) YOUR HOME: Case Summary & 19 Largest Unsecured Creditors -------------------------------------------------------- Debtor: Your Home Oxygen, Inc. 2393 West 27th Street, Suite 519 Greeley, Colorado 80634 Bankruptcy Case No.: 05-29289 Type of Business: The Debtor sells medical supplies and equipment. See http://www.yourhomeoxygen.com/ Chapter 11 Petition Date: August 3, 2005 Court: District of Colorado (Denver) Judge: A. Bruce Campbell Debtor's Counsel: David Wadsworth, Esq. Sender & Wasserman, P.C. 1999 Broadway, Suite 2305 Denver, Colorado 80202 Tel: (303) 296-1999 Estimated Assets: $100,000 to $500,000 Estimated Debts: $1 Million to $10 Million Debtor's 19 Largest Unsecured Creditors: Entity Nature of Claim Claim Amount ------ --------------- ------------ Don Paul Respiratory Trade debt $900,000 Services, Inc. A Subdivision of Rotech Healthcare, Inc. 2533 11th Avenue Greeley, CO80631 VGM Financial Services Trade debt $71,370 P.O. Box 1620 Value of security: Waterloo, IA 52704 $64,000 Union Colony Bank Trade debt $64,850 1701 23rd Avenue Value of security: Greeley, CO 80634 $64,000 Union Colony Insurance Trade debt $12,000 Buckeye Welding Supply Trade debt $2,888 Rocky Mountain Health Plans Trade debt $2,631 Resource Property Management Trade debt $1,303 Respironics Trade debt $849 Valero Marketing & Supply Trade debt $496 DeBey's Service Trade debt $350 Care Medical and Rehab Trade debt $150 Equipment Aflac Wages $141 Coren Printing, Inc. Trade debt $122 Aflac Trade debt $95 Medline Industries Trade debt $82 Mallinckrodt, Inc. Trade debt $75 Respiratory Homeware Trade debt $58 Services Bratton's Office Equipment Trade debt $35 Valley Fire Extinguisher Trade debt $15 ZIFF DAVIS: Derek Irwin Leaves Post as Chief Financial Officer -------------------------------------------------------------- Ziff Davis Holdings Inc., the ultimate parent company of Ziff Davis Media Inc., disclosed that Derek Irwin will resign from his post as the Company's Chief Financial Officer, to assume a similar position at VNU Business Media (USA), a division of VNU, a leading global information and media company. The Company has begun the process of conducting an executive search for the Chief Financial Officer position. The Company intends to appoint Bart Catalane, its current President & Chief Operating Officer (and former Chief Financial Officer, before Mr. Irwin's promotion in December 2003) as Interim Chief Financial Officer, once Mr. Irwin's employment with the Company has officially ended and that Mr. Catalane will serve in that capacity until the Chief Financial Officer position is filled. In addition, the Company has recently promoted: * Martha Schwartz to Senior Vice President of Custom Solutions Group; * Angelo Mandarano to Senior Vice President of Ziff Davis Internet, Sales;, * Jim Louderback to Senior Vice President of Ziff Davis Internet, Edit; and * Elda Vale to Senior Vice President of Research and Corporate Marketing. "We thank Derek for his hard work over the last two and a half years and wish him success in his new position," said Bart Catalane. "At the same time we are also very excited about Martha's, Angelo's, Jim's and Elda's new roles at the Company and look forward to them bringing their outstanding content, customer and marketing instincts to these key positions. Ziff Davis has developed an extensive portfolio of new products and capabilities over the last several years and transformed its business to provide fully integrated marketing solutions. We know these talented professionals will do a fantastic job positioning and showcasing these capabilities to an enthusiastic and active marketplace." Ziff Davis Holdings Inc. -- http://www.ziffdavis.com/-- is the ultimate parent company of Ziff Davis Media Inc. Ziff Davis Media is a leading integrated media company serving the technology and videogame markets. The Company is an information services and marketing solutions provider of technology media including publications, websites, conferences, events, eSeminars, eNewsletters, custom publishing, list rentals, research and market intelligence. In the United States, the Company publishes 10 magazines including PC Magazine, Sync, ExtremeTech, DigitalLife, eWEEK, CIO Insight, Baseline, Electronic Gaming Monthly, Computer Gaming World and Official U.S. PlayStation Magazine. The Company exports the power of its brands internationally, with publications in 40 countries and 20 languages. Ziff Davis leverages its content on the Internet with 16 highly-targeted technology and gaming sites including pcmag.com, eweek.com, extremetech.com and 1UP.com. The Company also produces highly-targeted b-to-b events through its Custom Solutions Group and large-scale consumer technology events including DigitalLife. With its main headquarters and PC Magazine Labs based in New York, Ziff Davis Media also has offices and lab facilities in the San Francisco and Boston markets. At June 30, 2005, Ziff Davis Holdings Inc.'s balance sheet showed a $1,004,367,000 stockholders' deficit, compared to a $948,537,000 deficit at Dec. 31, 2004. ZIFF DAVIS: June 30 Balance Sheet Upside-Down by $1 Billion ----------------------------------------------------------- Ziff Davis Holdings Inc., the ultimate parent company of Ziff Davis Media Inc., reported operating results for its second quarter ended June 30, 2005. The Company's consolidated revenues totaled $45.3 million, representing a 12% decrease compared to revenues of $51.3 million for the second quarter ended June 30, 2004. The major portion of this decrease in revenues is related to declines in print advertising. The percentage decline in print advertising experienced by the Company is consistent with the technology publishing market as a whole, which decreased 9% or 901 pages in the second quarter of 2005 compared to 2004. "Our second quarter performance is reflective of a trend we have seen several times over the last few years, where print advertising and certain other discretionary promotional spending is trimmed by our customers in the face of uncertainty in their markets," said Robert F. Callahan, Chairman & CEO, Ziff Davis Holdings Inc. "Fortunately, many new areas of our business, particularly our online and event products, are recipients of increased spending activity, which is rapidly changing and diversifying our business model. As a result, we continue to invest and expand aggressively in these areas, which expenditures negatively impact earnings in the short-term. However, we are confident that Ziff Davis is building solid asset and enterprise value for its customers, investors and employees and is positioned to deliver strong results and earnings." At June 30, 2005, the Company had $45.5 million of cash and cash equivalents, representing an increase of $24.4 million versus the $21.1 million cash balance as of March 31, 2005. The increased cash balance primarily reflects the net increase of $27.0 million derived from the offering of $205.0 million of Senior Secured Floating Rate Notes completed on April 22, 2005, less payment of approximately $178.0 million to retire all outstanding indebtedness, including accrued interest, under the Company's former Amended and Restated Credit Agreement dated August 12, 2002 and payment of related fees and expenses, partially offset by $1.5 million of capital expenditures and $2.1 million of cash restructuring payments made during the second quarter of 2005. The Company also continued to maintain and improve its solid record of accounts receivable collection as Day Sales Outstanding for advertising receivables at June 30, 2005 were 38 DSO compared to 42 DSO at March 31, 2005. Consumer Tech Group The Consumer Tech Group is principally comprised of four magazines, PC Magazine, Sync, ExtremeTech and our newest launch, DigitalLife; a number of consumer-focused websites, including pcmag.com and extremetech.com; and the Company's consumer electronics event, DigitalLife. Revenue for the Consumer Tech Group for the second quarter ended June 30, 2005 was $16.6 million, down $4.5 million or 21% compared to $21.1 million in the same period last year. This decrease was primarily related to lower print advertising, subscription, event and list rental revenues for PC Magazine, which were partially offset by higher Sync magazine, ExtremeTech magazine and online revenues. Cost of production for the Consumer Tech Group for the second quarter ended June 30, 2005 was $4.0 million, reflecting a decrease of $1.0 million or 20% compared to $5.0 million in the prior year period. The decrease in production costs was primarily related to the PC Magazine circulation rate base reduction which resulted in a 33% decrease in its manufacturing, paper and distribution costs for the second quarter of 2005 versus 2004. This decrease was partially offset by incremental costs for the added issues of Sync and ExtremeTech magazines. Selling, general and administrative expenses for the Consumer Tech Group were $10.2 million for the second quarter ended June 30, 2005, reflecting an increase of $600,000 or 6% from $9.6 million in the same prior year period. The increase was primarily due to incremental costs to expand the Group's online content, sales and marketing areas, plus the addition of editorial costs for the extra issues of Sync and ExtremeTech magazines. These incremental expenditures were partially offset by over $1.8 million of PC Magazine cost savings for circulation, headcount and other expense reductions undertaken in connection with its circulation rate base reduction. Enterprise Group The Enterprise Group is comprised of several businesses in the magazine, Internet, event, research and marketing tools areas. The three magazines in this segment are eWEEK, CIO Insight and Baseline. The Internet properties in this segment are primarily affiliated with the Enterprise Group's brands, including eweek.com, cioinsight.com and baselinemag.com, but also include over 30 weekly eNewsletters and the eSeminars(TM) business, which produces sponsored interactive webcasts. This segment also includes the Company's Custom Solutions Group (CSG), which creates and manages several hundred sponsored events per year; Business Information Services (BIS), a research and marketing tools unit; and Contract Publishing, which produces custom magazines, white papers, case studies and other sales and marketing collateral for customers. Revenue for the Enterprise Group for the second quarter ended June 30, 2005 was $19.7 million compared to $19.3 million in the same period last year, reflecting a $400,000 or 2% improvement. The increase was primarily related to higher online revenues for advertising, eSeminars and virtual trade shows, which, including results for the two Internet companies acquired during the fourth quarter of 2004, grew by 84% during the second quarter of 2005 versus 2004. In addition, CSG event and BIS project revenues increased by over 60% for the second quarter of 2005, due to the increase in the number of events and BIS projects for the quarter. Cost of production for the Enterprise Group for the second quarter ended June 30, 2005 was $3.4 million, reflecting a decrease of $0.4 million or 11% compared to $3.8 million in the prior year period. The decrease in production costs was primarily related to the 2004 Business 4Site event not repeated in 2005 and was partially offset by higher online production costs due to an increase in the number of eSeminars and virtual trade shows. Selling, general and administrative expenses for the Enterprise Group were $14.4 million for the second quarter ended June 30, 2005, reflecting an increase of $2.9 million or 25% from $11.5 million in the same prior year period. The increase was primarily due to incremental costs to expand the Group's online content, sales and marketing areas; added CSG events and BIS projects costs resulting from higher sales in those areas; new business development expenditures in the Company's online paid content and tools area for IT professionals; and increased circulation mailing costs for eWEEK to acquire more new names for its reader database. These increases in expense were partially offset by the elimination of marketing costs incurred in 2004 for the Business 4Site event that was not repeated in 2005. Game Group The Game Group is focused on the videogame market and is principally comprised of three magazines (Electronic Gaming Monthly, Computer Gaming World and Official U.S. PlayStation Magazine) and 1UP.com, the Company's online destination for gaming enthusiasts. Revenue for the Game Group for the second quarter ended June 30, 2005 was $9.0 million, down $1.9 million or 17% compared to $10.9 million in the same period last year. A major portion of the decrease, $800,000, related to the discontinuation of GMR magazine and a reduction in the frequency of Xbox Nation magazine which occurred in the fourth quarter of 2004, due to anticipated softness in videogame advertising in the quarters preceding the launch of the new game consoles (Xbox 360, PlayStation 3 and Nintendo Revolution) starting in late 2005. The balance of the Game Group's revenue decrease in the second quarter of 2005 reflects a decline in newsstand and other single copy sales, primarily for Official U.S. PlayStation Magazine, that related to slower consumer demand in advance of the new game console cycle. Cost of production for the Game Group for the second quarter ended June 30, 2005 was $5.3 million, reflecting a decrease of $300,000 or 5% compared to $5.6 million in the prior year period. The second quarter 2005 savings realized by discontinuing GMR magazine and reducing the frequency of Xbox Nation magazine were partially offset by additional costs incurred for retail partner fees, videogame DVDs and premiums (e.g. posters, CDs, etc.) used to try to stimulate newsstand and subscriber sales. Selling, general and administrative expenses for the Game Group were $4.9 million for the second quarter ended June 30, 2005, reflecting a decrease of $1.4 million or 22% from $6.3 million in the same prior year period. The decrease was primarily due to savings in editorial, circulation and other costs realized as a result of discontinuing the publication of GMR magazine, reducing the frequency of Xbox Nation magazine and decreasing other general expenses. Ziff Davis Holdings Inc. -- http://www.ziffdavis.com/-- is the ultimate parent company of Ziff Davis Media Inc. Ziff Davis Media is a leading integrated media company serving the technology and videogame markets. The Company is an information services and marketing solutions provider of technology media including publications, websites, conferences, events, eSeminars, eNewsletters, custom publishing, list rentals, research and market intelligence. In the United States, the Company publishes 10 magazines including PC Magazine, Sync, ExtremeTech, DigitalLife, eWEEK, CIO Insight, Baseline, Electronic Gaming Monthly, Computer Gaming World and Official U.S. PlayStation Magazine. The Company exports the power of its brands internationally, with publications in 40 countries and 20 languages. Ziff Davis leverages its content on the Internet with 16 highly-targeted technology and gaming sites including pcmag.com, eweek.com, extremetech.com and 1UP.com. The Company also produces highly-targeted b-to-b events through its Custom Solutions Group and large-scale consumer technology events including DigitalLife. With its main headquarters and PC Magazine Labs based in New York, Ziff Davis Media also has offices and lab facilities in the San Francisco and Boston markets. At June 30, 2005, Ziff Davis Holdings Inc.'s balance sheet showed a $1,004,367,000 stockholders' deficit, compared to a $948,537,000 deficit at Dec. 31, 2004. * Former Austin Mayor Kirk Watson Joins Hughes & Luce as Partner ---------------------------------------------------------------- Hughes & Luce disclosed that former Austin mayor and respected litigator Kirk P. Watson is joining the Austin office as a partner, adding his decades of experience to the solid group of litigation attorneys at the firm. Watson joins Hughes & Luce from the firm he founded, Watson Bishop London Brophy, P.C. "Kirk's experience as a litigator and leader make him an excellent fit for Hughes & Luce," Bob Mow, Hughes & Luce managing partner, said. "His knowledge and skills add to the services we provide our clients, and we are delighted to have him as a part of our team." "Hughes & Luce holds great appeal as a place to serve clients," said Mr. Watson, who was mayor of Austin from 1997 to 2001. "The breadth of know-how at the firm means there are a variety of areas in which I can contribute beyond the courtroom. While I will continue to do trial work, Hughes & Luce offers the opportunity to expand beyond litigation and explore opportunities that can benefit from my years of civic and community service." Mr. Watson, currently chair of the Greater Austin Chamber of Commerce, is joining Hughes & Luce as a litigator and will add to the firm's capabilities in the areas of urban planning and economic development, along with overall business counsel to corporate clients. Mr. Watson's experience matches Hughes & Luce's established history of creating and managing leading-edge land-use projects such as the Alliance Airport in Fort Worth and the Victory/American Airlines Center project in Dallas. "Kirk's knowledge of municipal government and the issues surrounding the tremendous growth Texas is experiencing will greatly enhance our capabilities," Sabrina Streusand, managing partner of the firm's Austin office, said. "We believe there are innumerable areas where Kirk's unique business experience and skills will assist our clients." The Hughes & Luce Austin office was founded in 1979 and today features 20 attorneys and two consultants practicing in the areas of litigation, trusts and estates, real estate, outsourcing, corporate and securities, healthcare, bankruptcy, and government contracting. "The lawyers I've worked with at Watson Bishop London Brophy have been my friends for more than 25 years. They have a very successful trial practice representing parties ranging from Fortune 500 companies to Texas families," Mr. Watson added. "Their success will continue because of their depth of experience, focused attention to client needs, and exceptional talent." The firm's name will change to Bishop London Brophy Dodds. Because these lawyers have such confidence in each other, enjoy their longstanding relationship and to assure client needs are seamlessly met, Mr. Watson and members of Bishop London Brophy Dodds will continue to handle some matters jointly. Mr. Watson's devotion to the business community, has earned numerous endorsements, awards, and recognitions through the years, including: * The International Downtown Association - "Individual Achievement Award" * The Downtown Austin Alliance - "Impact Award" * Texas Chapter of the American Institute of Architects - "Honorary Member of the Texas Society of Architects" * Greater Austin Chamber of Commerce in 2000 - "Austinite of the Year" * Texas Nature Conservancy - Leadership Award * Greater Austin Chamber of Commerce - "Building Bridges Award" * Austin Family magazine - "Favorite Local Hero" While Mr. Watson was Austin mayor, Forbes and Fortune magazines named Austin the country's best city and best place for business and Texas Monthly Biz magazine named him best mayor in Texas for business. Governing Magazine recognized Austin as one of the top two cities in America for the way it was governed. Mr. Watson also has an impressive legal background. He graduated first in his law school class at Baylor University Law School in 1981 and served as editor-in-chief of the Baylor Law Review. He clerked for the U.S. Court of Appeals for the Fifth Circuit. Mr. Watson was elected President of the Texas Young Lawyers Association and he served on the State Bar of Texas Executive Committee from 1989 to 1992. In 1994, he was named the Outstanding Young Lawyer of Texas. He was named Young Baylor Lawyer of the Year in 1996 and has been selected by his peers to be listed in the publication Best Lawyers in America since 1997. He has enjoyed a broad law practice in which he has represented families, doctors, business interests, and major Texas universities. He is certified in civil trial law by the Texas Board of Legal Specialization. In 1991, Mr. Watson served as chair of the Texas Air Control Board. For his state agency work, Mr. Watson received the Sierra Club, Lone Star Chapter, Special Service Award in 1994, and the American Lung Association of Texas Advocacy Award in 1993. He was vice-chair of the committee that oversaw the consolidation of the Texas Air Control Board with the Texas Water Commission creating the Texas Natural Resources Conservation Commission (now the Texas Commission on Environmental Quality). Mr. Watson is a highly recognized speaker on a range of legal topics and has been a featured speaker at numerous public policy programs throughout the country, including addressing the John F. Kennedy School of Government at Harvard University. He has also been a key speaker at international economic development programs in Canada, Spain, Brazil, and Japan. In the early 1990s, Mr. Watson overcame cancer. He served on the original board of directors for the Lance Armstrong Foundation and is a former member of the board of directors for the American Cancer Society's local chapter. The father of a juvenile diabetic, he is active with the Juvenile Diabetes Research Foundation. He has been involved on several boards, including KLRU, Ballet Austin, Community Partnership for the Homeless, and Leadership Austin. * BOOK REVIEW: Landmarks in Medicine - Laity Lectures of the New York Academy of Medicine ------------------------------------------------------------ Author: James Alexander Miller Publisher: Beard Books Softcover: 360 pages List Price: $34.95 Order your personal copy at http://amazon.com/exec/obidos/ASIN/1587980770/internetbankrupt As the subtitle points out, the seven lectures reproduced in this collection are meant especially for general readers with an interest in medicine, including its history and the cultural context it works within. James Miller, president of the New York Academy of Medicine which sponsored the lectures, states in his brief "Introduction" that this leading medical organization "has long recognized as an obligation the interpretation of the progress of medical knowledge to the public." The lectures collected here succeed admirably in fulfilling this obligation. The authors are all doctors, most specialists in different areas of medicine. Lewis Gregory Cole, whose lecture is "X-ray Within the Memory of Man," is a consulting roentgenologist at New York's Fifth Avenue Hospital. Harrison Stanford Martland is a professor of forensic medicine at New York University College of Medicine. Many readers will undoubtedly find his lecture titled "Dr. Watson and Mr. Sherlock Holmes" the most engrossing one. Other doctor- authors are more involved in academic areas of medicine and teaching. Reginald Burbank is the chairman of the Section of Historical and Cultural Medicine at the New York Academy of Medicine. He lectured on "Medicine and the Progress of Civilization." Raymond Pearl, whose selection is "The Search for Longevity," is a professor of biology at Johns Hopkins University. The authors' high professional standing and involvement in specialized areas do not get in the way of their aim to speak to a general audience. They are all skilled writers and effective communicators. As the titles of some of the lectures noted in the previous paragraph indicate, the seven selections of "Landmarks in Medicine" focus on the human-interest side of medicine rather than the scientific or technological. Even the two with titles which seem to suggest concern with technical aspects of medicine show when read to take up the human-interest nature of these topics. "The Meaning of Medical Research", by Dr. Alfred E. Cohn of the Rockefeller Institute for Medical Research, is not so much about methods, techniques, and equipment of medical research, but is mostly about the interinvolvement of medical research, the perennial concern of individuals with keeping and recovering good health, and social concerns and pressures of the day. "The meaning of medical research must regard these various social and personal aspects," Cohn writes. In this essay, the doctor does answer the questions of what is studied in medical research and how it is studied. And he answers the related question of who does the research. But his discussion of these questions leads to the final and most significant question "for what reason does the study take place?" His answer is "to understand the mechanisms at play and to be concerned with their alleviation and cure." By "mechanisms," Cohn means the natural -- i.e., biological -- causes of disease and illness. The lay person may take it for granted that medical research is always principally concerned with finding cures for medical problems. But as Cohn goes into in part of his lecture, competition for government grants or professional or public notoriety, the lure of novel experimentation, or research mainly to justify a university or government agency can, and often do, distract medical researchers and their associates from what Cohn specifies should be the constant purpose of medical research. Such purpose gives medicine meaning to humankind. The second lecture with a title sounding as if it might be about a technical feature of medicine, "X-ray Within the Memory of Man," is a historical perspective on the beginnings of the use of x-ray in medicine. Its author Lewis Cole was a pioneer in the development of x-rays in the late 1800s and early 1900s. He mostly talks about the development of x-ray within his memory. In doing so, he also covers the work of other pioneers, notably William Konrad Roentgen and Thomas Edison. Roentgen was a "pure scientist" who discovered x-rays almost by accident and at first resented the application of his discovery to practical uses such as medical diagnosis. Edison, the prodigious inventor who was interested only in the practical application of scientific discoveries, and his co-worker Clarence Dally enthusiastically investigated the practical possibilities of the discoveries in the new field of radiation. Dally became so committed to his work in this field that he shortly developed an illness and died. At the time, no on knew about the dangers of prolonged exposure to x- rays. But sensing some connection between his co-worker's untimely death and his work with x-rays, Edison stopped his own investigations. Cole himself became involved in work with x-rays during his internship at Roosevelt Hospital in New York City in 1898 and 1899. His contribution to this important field was in the area of interpretation of what were at the time primitive x-rays and diagnosis of ailments such as tuberculosis and kidney stones. Cole writes in such a way that the reader feels she or he is right with him in the steps he makes in improving the use of x-rays. He adds drama and human interest to the origins of this important medical technology. The lecture "Dr. Watson and Mr. Sherlock Holmes" uses the popular mystery stories of Arthur Conan Doyle to explore the role of medicine in solving crimes, particularly murder. In some cases, medical tests are required to figure out if a crime was even committed. This lecture in particular demonstrates the fundamental role played by medicine in nearly all major areas of society throughout history. The seven collected lectures have broad appeal. All of them are informative and educational in an engaging way. Each is on an always interesting topic taken up by a professional in the field of medicine obviously skilled in communicating to the general reader. The authors seem almost mind readers in picking out the most fascinating aspects of their subjects which will appeal to the lay readers who are their intended audience. While meant mainly for lay persons, the lectures will appeal as well to doctors, nurses, and other professionals in the field of medicine for putting their work in a broader social context and bringing more clearly to mind the interests, as well as the stake, of the public in medicine. ********* Monday's edition of the TCR delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR editor holds some position in the issuers' public debt and equity securities about which we report. Each Tuesday edition of the TCR contains a list of companies with insolvent balance sheets whose shares trade higher than $3 per share in public markets. At first glance, this list may look like the definitive compilation of stocks that are ideal to sell short. Don't be fooled. Assets, for example, reported at historical cost net of depreciation may understate the true value of a firm's assets. A company may establish reserves on its balance sheet for liabilities that may never materialize. The prices at which equity securities trade in public market are determined by more than a balance sheet solvency test. A list of Meetings, Conferences and Seminars appears in each Wednesday's edition of the TCR. Submissions about insolvency- related conferences are encouraged. Send announcements to conferences@bankrupt.com. Each Friday's edition of the TCR includes a review about a book of interest to troubled company professionals. All titles are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/books/to order any title today. Monthly Operating Reports are summarized in every Saturday edition of the TCR. For copies of court documents filed in the District of Delaware, please contact Vito at Parcels, Inc., at 302-658-9911. For bankruptcy documents filed in cases pending outside the District of Delaware, contact Ken Troubh at Nationwide Research & Consulting at 207/791-2852. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter is a daily newsletter co-published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Frederick, Maryland USA. Yvonne L. Metzler, Emi Rose S.R. Parcon, Rizande B. Delos Santos, Jazel P. Laureno, Cherry Soriano-Baaclo, Marjorie Sabijon, Terence Patrick F. Casquejo, 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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