T R O U B L E D C O M P A N Y R E P O R T E R Tuesday, January 24, 2006, Vol. 10, No. 20 Headlines AAIPHARMA INC: Court Confirms Chapter 11 Plan of Reorganization AES CORP.: Names Victoria Harker as Chief Financial Officer ALLIED HOLDINGS: Lexington Wants a Decision on Georgia Lease ALLIED HOLDINGS: Court OKs Amended Key Employee Retention Program ALLIED HOLDINGS: Court Approves GM Delivery Contract ALLSERVE SYSTEMS: Court Converts Case to Chapter 7 Liquidation AMERICAN MOULDING: Wants Court to Okay Stancil & Co. as Accountant AMERICAN MOUDLING: Wants to Reject 12 Equipment Leases AOL LATIN AMERICA: Non-Debtor Subsidiaries to be Liquidated ATLANTIC GULF: Ch. 7 Trustee Gets Okay to Sell Assets for $430K BEKENTON USA: Court Okays Insurance Premium Financing from AICCO BABCOCK & WILCOX: McDermott Shareholders Vote Resolution to Deal BOYDS COLLECTION: Court Fixes February 14 as Claims Bar Date BUFFETS HOLDINGS: Moody's Affirms Caa1 Sr. Unsecured Notes' Rating CARAUSTAR INDUSTRIES: S&P Affirms Corporate Credit Rating at B+ CAREMORE HOLDINGS: Moody's Rates Proposed $150 Mil. Facility at B2 CAREMORE HOLDINGS: S&P Rates Proposed $150 Million Facilities at B CENTRAL GARDEN: Farnam Purchase Prompts Moody's to Review Ratings CENTRAL GARDEN: Farnam Purchase Prompts S&P's Negative Watch CHESAPEAKE ENERGY: Buys Oil & Natural Gas Properties for $796 Mil. DATICON INC: Files Amended List of 20 Largest Unsecured Creditors DATICON INC: Wants to Hire Neubert Pepe as Bankruptcy Counsel DELTA AIRLINES: Has Until July 11 to File Chapter 11 Plan DELTA AIR: Committee Wants Aviation Specialists as Consultant DELTA AIR: Enters Section 1110(b) Stipulation for 14 Aircraft DMX MUSIC: Has Until February 9 to Remove Civil Actions DONALD GATZKE: Voluntary Chapter 11 Case Summary DPAC TECH: Nov. 30 Balance Sheet Upside-Down by $920,000 DRS TECHS: Fitch Assigns Low-B Ratings to $1.7 Billion Debts ECHOSTAR DBS: S&P Rates $1.5 Billion 7.125% Senior Notes at BB- ELWOOD ENERGY: S&P Affirms $402 Million Sr. Sec. Bonds' B+ Rating EURAMAX INT'L: Moody's Affirms $190 Mil. Term Loan's Junk Rating FLOWERS FOODS: Good Performance Cues Moody's to Review Ba2 Rating FREEDOM 2000-1: Moody's Puts Class F Notes' B2 Rating on Watch GENERAL MARITIME: Completes Tender Offer for 10% Senior Notes GLIMCHER REALTY: Completes $58.3-Mil. Purchase of Tulsa Promenade HAPPY KIDS: Sells Assets to Wear Me for $23 Million HARTCOURT COMPANIES: Earns $104,690 of Net Income in 2nd Quarter ICEWEB INC: Sherb & Co. Raises Going Concern Doubt IGIA INC: Balance Sheet Upside-Down by $17 Million at November 30 IMPERIAL HOME: Wants Court to Okay 14 Avoidance Action Settlements INVESCO CBO: Moody's Puts Class B-2 Notes' Ba3 Rating on Watch J.L. FRENCH: S&P Withdraws CCC+ Corporate Credit Rating L.J. MAKRANCY: Case Summary & 20 Largest Unsecured Creditors MCDERMOTT INT'L: 98.6% of Shareholders Okay Babcock Settlement METROMEDIA FIBER: Wants Another Delay in Entry of Final Decree MORGAN STANLEY: S&P Rates $40 Million Class V Secured Notes at BB MUSICLAND HOLDING: Wants to Conduct Store Closing Sales MUSICLAND HOLDING: Can Continue Using Cash Management System NOBEX CORP: Panel Taps NachmanHaysBrownstein as Financial Advisor NORTHWESTERN CORP: Responds to Inquiries from Harbert Distressed O'SULLIVAN IND: Panel Challenges Bank of NY's Security Interests O'SULLIVAN INDUSTRIES: Panel Wants Retention Objections Overruled OMEGA HEALTHCARE: Moody's Raises Sr. Unsecured Debt Rating to Ba3 OMNOVA SOLUTIONS: Earns $4.1 Million in Fourth Quarter of 2005 REFCO INC: Judge Drain Delays Auction of Forex Unit's Assets RESORTS INT'L: Poor Performance Cues S&P to Junk Credit Rating RUFUS INC: All Ballots Must be Submitted by January 25 SAINT VINCENTS: Hui Ji Yan Can Proceed With State Court Action SANITARY & IMPROVEMENT: U.S. Trustee Amends Committee Membership SAXON ASSET: Moody's Junks Ratings on Two Certificate Classes SCHLOTZSKY'S INC: Wooleys Want Ch. 11 Cases Converted to Chapter 7 SIRICOMM INC: BKD LLP Raises Going Concern Doubt SPORTS CLUB: Completes $80 Million Asset Sale to Millennium Ent. STRESSGEN BIOTECH: Receives Final Proceeds from Sale of Bioreagent SUNCOM WIRELESS: Moody's Reviews Junk Ratings & May Downgrade TECHALT INC: Restates Results for Year Ended December 31, 2004 THOMAS EQUIPMENT: Restates Fiscal Year 2005 Financial Results TIDEL TECHNOLOGIES: Hein & Associates Raises Going Concern Doubt TRANSTECHNOLOGY CORP: Dec. 25 Balance Sheet Upside-Down by $5 Mil. TRM CORP: S&P Holds B+ Corporate Credit & Debt Ratings on Watch TRUMP ENT: Scott Butera Resigns as EVP & Chief Strategic Officer TRUMP HOTELS: Court Lifts Stay to Let Koch & Faicco Pursue Claims TRUMP HOTELS: Court Lifts Stay to Let Vuong Pursue $606,492 Claim UAL CORP: Judge Wedoff Confirms Amended Reorganization Plan VENTURE HOLDINGS: Section 341 Meeting Slated for February 16 VILLAS AT HACIENDA: Court Confirms WPD's Reorganization Plan WHITE BIRCH: S&P Lowers Second-Lien Term Loan's Rating to CCC+ WHITEHALL JEWELLERS: Newcastle Able to Close $1.50 Per Share Offer WHITEHALL JEWELLERS: Lenders Impose Limitations on Borrowings XERIUM TECHS: Moody's Affirms B1 Ratings With Negative Outlook * Large Companies with Insolvent Balance Sheets ********* AAIPHARMA INC: Court Confirms Chapter 11 Plan of Reorganization --------------------------------------------------------------- The U.S. Bankruptcy Court for the District of Delaware confirmed the First Amended Plan of Reorganization of aaiPharma Inc. The Company expects that the Plan, which received the overwhelming support of the Company's creditors that voted on the Plan, will become effective by early February 2006. Under the terms of the reorganization plan, approximately 100% of the equity of the Company will be distributed to its current bondholders, including amongst others JPMorgan Securities, Inc., which will result in the Company being a private Company. Holders of unsecured claims will be entitled to receive their pro rata share of a cash distribution from a $4 million pool. Current holders of the Company's common stock will receive no distribution and all shares of AAIPharma's existing common stock will be cancelled. The Company has also obtained commitments to refinance the Company's existing DIP financing and to provide for the Company's working capital needs. The effectiveness of the Plan is subject to the satisfaction of a number of conditions, including the consummation of the financing. Although no assurances can be given that the conditions to obtaining the financing will be satisfied, the Company believes that the financing will be consummated by early February 2006. "We are very pleased that the Court has confirmed our plan of reorganization," Dr. Ludo J. Reynders, President & CEO of AAIPharma, stated. "Upon consummation of the plan, AAIPharma will emerge as a healthy company with restored financial strength to meet the needs of our customers and to provide a stable work environment for our employees. We look forward to the many new opportunities available to the Company following completion of our reorganization." Headquartered in Wilmington, North Carolina, aaiPharma Inc. -- http://aaipharma.com/-- provides product development services to the pharmaceutical industry and sells pharmaceutical products that primarily target pain management. AAI operates two divisions: AAI Development Services and Pharmaceuticals Division. The Company and eight of its debtor-affiliates filed for chapter 11 protection on May 10, 2005 (Bankr. D. Del. Case No. 05-11341). Karen McKinley, Esq., and Mark D. Collins, Esq., at Richards, Layton & Finger, P.A.; Jenn Hanson, Esq., and Gary L. Kaplan, Esq., at Fried, Frank, Harris, Shriver & Jacobson LLP; and the firm of Robinson, Bradshaw & Hinson, P.A., represent the Debtors in their restructuring efforts. When the Debtors filed for bankruptcy, they reported consolidated assets amounting to $323,323,000 and consolidated debts totaling $446,693,000. AES CORP.: Names Victoria Harker as Chief Financial Officer ----------------------------------------------------------- The AES Corporation reported that effective Jan. 23, 2006, Victoria Harker will become its Chief Financial Officer and an Executive Vice President. Ms. Harker joins AES from MCI where she served as Senior Vice President and Treasurer. Ms. Harker served as Chief Financial Officer of the $15 billion MCI Group, a publicly traded unit of WorldCom Inc., from 1998 to 2000, and oversaw a variety of finance, information technology and operations responsibilities during her fifteen-year tenure at MCI. "Victoria brings a solid set of financial management skills that will enable her to lead our finance organization as we continue to focus on improving our businesses and begin to build our development pipeline," said Paul Hanrahan, AES President and Chief Executive Officer. "Victoria's impressive and diverse experience will make her a valued member of our leadership team." AES Corporation -- http://www.aes.com/-- is a leading global power company, with 2004 revenues of $9.5 billion. AES operates in 27 countries, generating 44,000 megawatts of electricity through 124 power facilities and delivers electricity through 15 distribution companies. AES Corp.'s 30,000 people are committed to operational excellence and meeting the world's growing power needs. * * * As reported in the Troubled Company Reporter on Jan. 11, 2006, Moody's affirmed the ratings of The AES Corporation, including its Ba3 Corporate Family Rating and the B1 rating on its senior unsecured debt. The rating outlook remains stable. As reported in the Troubled Company Reporter on June 23, 2005, Fitch Ratings has upgraded and removed the ratings of AES Corporation from Rating Watch Positive, where it was initially placed on Jan. 18, 2005, pending review of the company's year-end financial results. Fitch said the Rating Outlook is Stable. ALLIED HOLDINGS: Lexington Wants a Decision on Georgia Lease ------------------------------------------------------------ LEPERQ Corporate Income Fund L.P. is the lessor of the Debtors' headquarters facility located in Decatur, Georgia. Lexington leases the Facility to Allied Holdings, Inc., and its debtor- affiliates for a 10-year term, expiring in December 2007. The Debtors pay over $135,000 monthly rent for the Facility, which is valued at over $14,600,000. While the Debtors has continued to pay required monthly rent, they are in breach of their duty to replace the roof of the building, Daniel P. Sinaiko, Esq., at Morris, Manning & Martin, L.L.P., in Atlanta, Georgia, tells Judge Drake of the U.S. Bankruptcy Court for the Northern District of Georgia. As a result of the deteriorating condition of the roof and Lexington's inability to lease vacant portions of the premises, Lexington's interest in its property is not adequately protected and Lexington is forced to bear the economic risks of further delay, Mr. Sinaiko contends. "The Debtors' right to use and occupy the Georgia Premises is conditioned on the replacement of the roof of the Facility." A delay in the decision to assume or reject the Lease could allow the Debtors to use the Georgia Premises and not pay for the Roof if they decide to reject the Lease, Mr. Sinaiko points out. Mr. Sinaiko emphasizes that as long as the Lease remains in limbo and the Debtors retain the right to pass on potential new tenants, Lexington cannot protect itself against the potential injury it will suffer in the event of a rejection. Accordingly, Lexington asks the Court to: (a) compel the Debtors to assume or reject the Georgia Lease on or before February 28, 2006; (b) compel the Debtors to perform their leasehold obligation to replace the roof of the Facility; (c) modify the automatic stay to allow it to exercise all rights which it may have under applicable state law to terminate the Lease; and (d) grant it adequate protection for its interest in the Premises in the event the Court declines to modify the automatic stay. The nature of the interests at stake, the balance of hurt to the litigants, the good to be achieved and the safeguards afforded to the litigants all weigh in favor of fixing of a prompt deadline for assumption or rejection, Mr. Sinaiko argues. Mr. Sinaiko avers that the Debtors failed to perform its obligation to repair the Roof within 60 days of the Petition Date. "The Debtors should not be permitted to continue in possession of the Georgia Premises while failing to perform its obligations under the Lease." 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. 15; Bankruptcy Creditors' Service, Inc., 215/945-7000) ALLIED HOLDINGS: Court OKs Amended Key Employee Retention Program ----------------------------------------------------------------- The Hon. W. Homer Drake of the U.S. Bankruptcy Court for the Northern District of Georgia approved Allied Holdings, Inc., and its debtor-affiliates' Key Employee Retention Program in its entirety. The Debtors amended their KERP to incorporate conditions set by the Bankruptcy Court. Pursuant to the Amended KERP, the Debtors, the Official Committee of Unsecured Creditors and the U.S. Trustee have conferred and agreed on the percentages of the installment payments of retention bonuses to the Tier 1b ad Tier 2 Employees. A full-text copy of the Amended KERP is available at no charge at http://bankrupt.com/misc/allied_AmendedKERP.pdf A full-text copy of the corrected version of the KERP Order is available for free at: http://bankrupt.com/misc/alliedCorrectedKERPOrder.pdf 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. 15; Bankruptcy Creditors' Service, Inc., 215/945-7000) ALLIED HOLDINGS: Court Approves GM Delivery Contract ---------------------------------------------------- The U.S. Bankruptcy Court for the Northern District of Georgia approved the vehicle delivery agreement between Allied Holdings, Inc.'s subsidiary, Allied Automotive Group, Inc., and General Motors Corporation. As reported in the Troubled Company Reporter on Dec. 14, 2005, the agreement with General Motors will extend Allied Automotive's current contract through Dec. 31, 2008. Pursuant to the terms of the renewed agreement, Allied Automotive has retained all of the vehicle delivery business it currently services for General Motors in North America. The contract renewal includes increases in the rates paid by General Motors to Allied Automotive for vehicle delivery services during calendar years 2006 and in 2007. In addition, the current fuel surcharge program and payment terms for services provided by Allied Automotive will remain in place during the term of the renewed agreement. 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. 15; Bankruptcy Creditors' Service, Inc., 215/945-7000) ALLSERVE SYSTEMS: Court Converts Case to Chapter 7 Liquidation -------------------------------------------------------------- The Honorable Rosemary Gambardella of the U.S. Bankruptcy Court for the District of New Jersey converted the chapter 11 case of Allserve Systems Corp. into a chapter 7 liquidation proceeding. Bunce Atkinson, Esq., the Debtor's chapter 11 Trustee, asserted that the chapter 11 case should be converted due to: * the Company's inability to operate at a profit; * fraudulent transfers and preferences; * diversion of funds and assets to the Debtor's subsidiary in India; and * the Company's inability to reorganize. Mr. Atkinson says that he decided to close the business and secure the premises because it was not feasible to continue to operate the business and because he feared that physical assets and financial records would be destroyed or removed. Mr. Atkinson adds that the Debtor is administratively insolvent. Chapter 7 Trustee Kelly Beaudin Stapleton, the U.S. Trustee for Region 3 named Charles A. Stanziale, Jr., Esq., at McElroy, Deutsch, Mulvaney & Carpenter, as chapter 7 Trustee for Allserve Systems Corp. Headquartered in North Brunswick, New Jersey, Allserve Systems Corp. is an outsourcing company for the IT industry. The Debtor filed for chapter 11 protection on November 18, 2005 (Bankr. D. N.J. Case No. 05-60401). Barry W. Frost, Esq., at Teich Groh represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it estimated assets between 10 million to $50 million and debts between $50 million to $100 million. AMERICAN MOULDING: Wants Court to Okay Stancil & Co. as Accountant ------------------------------------------------------------------ American Moulding and Millwork Company asks the U.S. Bankruptcy Court for the Eastern District of California for permission to employ Stancil & Company as its accountants. Stancil & Company will: (a) analyze the impact of the sale of the real property located in Stockton, California and (b) prepare and file the Debtor's 2005 tax returns. Kenneth P. Martin, a partner at Stancil & Co., tells the Court that he bills $175 per hour for his services. Mr. Martin discloses that the Firm's other professionals bill: Designation Hourly Rate ----------- ----------- Partner $175 Manager $110 Staff $75 Mr. Martin assures the Court that the Firm is a "disinterested person" as that term is defined in Section 101(14) of the Bankruptcy Code. The Firm can be reached at: Stancil & Company, 4909 Windy Hill Drive Raleigh, North Carolina 27609 Headquartered in Sanford, North Carolina, American Moulding and Millwork Company -- http://www.amfurniture.com/-- is a supplier of real wood furniture and cabinetry. The Company filed for chapter 11 protection on Oct. 6, 2005 (Bankr. E.D. Calif. Case No. 05-34431). Thomas A. Willoughby, Esq., at Felderstein Fitzgerald Willoughby & Pascuzzi LLP represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed $17,663,776 in assets and $18,481,093 in debts. AMERICAN MOULDING: Wants to Reject 12 Equipment Leases ------------------------------------------------------ American Moulding and Millwork Company asks the U.S. Bankruptcy Court for the Eastern District of California for authority to reject a dozen forklift leases. The Debtor tells the Court that it no longer needs the forklifts subject to the equipment leases. The Debtor wants to reject these leases: Make/Model/ Lessor Lease No. Serial No. Location ------ --------- ----------- -------- G.E. Capital/ 90132299828 Daewoo Sanford, NC Mellon GC20E CV-01422 G.E. Capital 90132734958 Daewoo Sanford, NC G30E CX-03490 G.E. Capital 90132299827 Daewoo Goldston, NC GC20E CV-01424 G.E. Capital/ 90132299828 Daewoo Goldston, NC Mellon GC20E CV-01431 G.E. Capital 90132353922 Daewoo Goldston, NC GC20E CV-01530 G.E. Capital 90132663804 Daewoo Goldston, NC GC20E CV-01529 G.E. Capital 90132755341 Daewoo Goldston, NC GC20E CV-01104 G.E. Capital 90132755374 Daewoo Goldston, NC GC20E CV-01429 G.E. Capital 90133577294 Daewoo Goldston, NC GC20E FQ-00461 G.E. Capital 90133577290 Daewoo Goldston, NC GC20E FQ-00459 G.E. Capital 90133577328 Daewoo Goldston, NC GC20E FQ-00458 G.E. Capital Clarklift Goldston, NC WP45 WP45-0238- 8206 Headquartered in Sanford, North Carolina, American Moulding and Millwork Company -- http://www.amfurniture.com/-- is a supplier of real wood furniture and cabinetry. The Company filed for chapter 11 protection on Oct. 6, 2005 (Bankr. E.D. Calif. Case No. 05-34431). Thomas A. Willoughby, Esq., at Felderstein Fitzgerald Willoughby & Pascuzzi LLP represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed $17,663,776 in assets and $18,481,093 in debts. AOL LATIN AMERICA: Non-Debtor Subsidiaries to be Liquidated ----------------------------------------------------------- America Online Latin America, Inc., entered into a letter agreement with AOL S. de R.L. de C.V. aka AOL Mexico, AOL Brazil Ltda., America Online, Inc., Time Warner, Inc., Aspen Investments LLC and Atlantis Investments LLC on Jan. 17, 2006. The letter agreement was entered into in connection with the joint filing by AOLA and its wholly owned subsidiaries, AOL Puerto Rico Management Services, Inc., America Online Caribbean Basin, Inc., and AOL Latin America Management LLC, of a proposed joint plan of reorganization and liquidation and related disclosure statement in their jointly administered chapter 11 bankruptcy cases. The letter agreement provides for the payment of certain wind-down costs by AOL Mexico and AOL Brazil to America Online. The letter agreement stated: The purpose of this letter agreement is to confirm AOL's understandings and agreements relating to the payment of certain post-petition costs and expenses associated with the wind-down of America Online Latin America, Inc., and its subsidiaries. As previously reported in the Troubled Company Reporter, AOLA and certain of its subsidiaries are debtors in a jointly administered chapter 11 case pending in the United States Bankruptcy Court for the District of Delaware. On or about January 17, 2006, the debtors intend to file a joint plan of reorganization and liquidation, which will provide for the implementation of the wind-down. Pursuant to the wind-down, certain of AOLA's non- debtor subsidiaries, including AOL S. de R.L. de C.V. and AOL Brasil Ltda. will be liquidated and/or dissolved in accordance with applicable local laws. America Online, Inc. is expected to incur actual out-of-pocket costs and expenses in assisting AOLA, AOL Mexico and AOL Brazil in their efforts to terminate service, discontinue customers, and shut down operations in connection with the wind-down of AOL Mexico and AOL Brazil, as set forth in an estimate delivered by AOL to AOLA. The parties have agreed that AOL will be reimbursed for the wind-down costs in a manner consistent with the following terms and conditions. Specifically: - All payments made by AOL Mexico or AOL Brazil to AOL will be made free and clear of, and without deduction or withholding for or on account of, any taxes, levies, imposts, duties, charges, fees, deductions or withholdings, except Taxes AOL is required to pay; - AOL Mexico and AOL Brazil shall indemnify AOL, within 10 days after written demand, for the full amount of any Non- Excluded Taxes paid by or with respect to AOL on or with respect to any payment by or on account of any obligation of AOL, and AOL promises to cooperate with AOL Mexico and AOL Brazil to contest any non-excluded taxes; - If AOL receives a refund on any tax paid by AOL Mexico or AOL Brazil, AOL will rebate that amount to AOLA; - AOL Mexico agrees, and AOLA agrees to cause AOL Mexico, to reimburse AOL in an amount up to $300,000 for wind-down costs incurred by AOL in connection with the shut-down of AOL Mexico. AOL will be reimbursed for any AOL Mexico Wind- Down Costs -- up to the $300,000 cap -- as and when services resulting in AOL Mexico Wind-Down Costs are performed and billed to AOL Mexico. AOL and AOLA agree to cooperate to produce a separate agreement between AOL and AOL Mexico and all other documentation reasonably required to ensure optimal externalization of funds in respect of the payment of the AOL Mexico wind-down costs. AOL agrees to take reasonable commercial efforts to minimize the amount of the AOL Mexico wind-down costs and only to charge AOL Mexico for actual out-of-pocket costs and expenses incurred in connection with the shutdown of AOL Mexico; and - AOL Brazil agrees, and AOLA agrees to cause AOL Brazil, to reimburse AOL in an amount up to $1,004,000 for wind-down costs incurred by AOL in connection with the shutdown of AOL Brazil. AOL will be reimbursed for any AOL Brazil wind-down costs -- up to the $1,004,000 cap -- as and when services resulting in AOL Brazil Wind-Down Costs are performed and billed to AOL Brazil. AOL and AOLA agree to cooperate to produce a separate agreement between AOL and AOL Brazil and all other documentation reasonably required to ensure optimal externalization of funds in respect of the payment of the AOL Brazil wind-down costs. AOL agrees to take reasonable commercial efforts to minimize the amount of the AOL Brazil wind-down costs and to only charge AOL Brazil for actual out-of-pocket costs and expenses incurred in connection with the shut-down of AOL Brazil and, to the extent AOL's actual out-of-pocket costs and expenses depend upon negotiations with third parties, to take reasonable commercial efforts to minimize the amount of such costs. America Online offers AOL-branded Internet service in Argentina, Brazil, Mexico and Puerto Rico, as well as localized content and online shopping over its proprietary network. Its subscribers also get access to popular AOL services like instant messaging, online chat, e-mail, and personalized homepages. In addition, it maintains localized Internet portals serving users in about 20 countries. In total, it has more than 460 thousand members. Principal shareholders in it are Cisneros Group, one of Latin America's media firms, Brazil's Banco Itau, and Time Warner, through America Online. Headquartered in Fort Lauderdale, Florida, America Online Latin America, Inc. -- http://www.aola.com/-- offers AOL-branded Internet service in Argentina, Brazil, Mexico, and Puerto Rico, as well as localized content and online shopping over its proprietary network. Principal shareholders in AOLA are Cisneros Group, one of Latin America's largest media firms, Brazil's Banco Itau, and Time Warner, through America Online. The Company and its debtor-affiliates filed for Chapter 11 protection on June 24, 2005 (Bankr. D. Del. Case No. 05-11778). Pauline K. Morgan, Esq., and Edmon L. Morton, Esq., at Young Conaway Stargatt & Taylor, LLP and Douglas P. Bartner, Esq., at Shearman & Sterling LLP represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they listed total assets of $28,500,000 and total debts of $181,774,000. ATLANTIC GULF: Ch. 7 Trustee Gets Okay to Sell Assets for $430K --------------------------------------------------------------- The U.S. Bankruptcy Court for the District of Delaware approved Michael B. Joseph's request to sell Atlantic Gulf Communities Corporation and its debtor-affiliates' 14 tracts of real estate property free and clear of all liens, claims, interests and encumbrances to HT Land Trust, LLC. The Court approved the sale transaction on Jan. 6, 2006. Mr. Joseph is the chapter 7 Trustee overseeing the liquidation of the Debtors' estates. Mr. Joseph and HT Land entered into a Contract for Sale on Dec. 6, 2005, calling for the sale of 14 tracts of real property in various locations in Florida to HT Land for $430,000. In an auction conducted on Jan. 4, 2006, HT Land submitted the highest and best bid for those assets. The Court orders that any statutory lien for 2006 real estate taxes assessed by Brevard County, Florida will remain attached to the 14 tracts of real estate until paid in full, and will not attach to the proceeds of the sale. HT Land will pay all 2006 real estate taxes on the property subject to the proration provisions of the Contract of Sale between Mr. Joseph and HT Land. A full-text copy of the Contract of Sale is available for free at http://ResearchArchives.com/t/s?481 Headquartered in Fort Lauderdale, Florida, Atlantic Gulf Communities Corporation was a developer and operator of luxury residential real estate communities. The Company and its affiliates filed for chapter 11 protection on May 1, 2001 (Bankr. D. Del. Case Nos. 01-01594 through 01-01597). Michael R. Lastowski, Esq., at Duane Morris LLP represents the Debtor. The Bankruptcy Court converted the Debtors' chapter 11 cases to a chapter 7 liquidation proceeding on June 18, 2002. Michael B. Joseph is the chapter 7 Truste for the Debtors' estates. John D. McLaughlin, Jr., Esq., at Young Conaway Stargatt & Taylor, LLP represents the chapter 11 Trustee. When the Debtors filed for chapter 11 protection, they listed $148,546,000 in assets and $170,251,000 in liabilities. BEKENTON USA: Court Okays Insurance Premium Financing from AICCO ---------------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of Florida approved the post-petition premium finance agreement between Bekenton USA, Inc., and AICCO Inc. The Debtor tells the Court that general liability insurance coverage is necessary for the continued and uninterrupted operations of the Debtor's business and to avoid any loss to the estate resulting from potential damage to the Debtor's property. Insurance Coverage & Proposed Financing The Debtor says that prior to its bankruptcy filing, it carried and maintained general liability insurance with an annual premium of $28,875. In accordance with the proposed premium finance contract, the Debtor will make an initial $8,250 installment and pay off the $20,625 balance in nine equal monthly installments of $2,371 -- including $715 in finance charges. The loan accrues interest at 8.25% per annum. The Debtor tells the Court that it has obtained a new standard ISO general Liability Policy through Admiral Insurance. The Debtor discloses that AICCO has agreed to finance the Admiral Insurance Policy pursuant to the premium finance agreement. AICCO's credit extended to the Debtor shall be secured by an assignment of all right, title and interest to the policies of insurance together with any unearned premium, to be issued by Admiral for the General Liability Insurance. The Debtor discloses that if any premium due to AICCO remains unpaid 10 days after a written notice of default was given to the Debtor, AICCO and Admiral will be entitled to seek the immediate cancellation of the policies in force providing for the insurance coverage. A copy of the three-page Premium Finance Agreement is available for free at http://ResearchArchives.com/t/s?488 Headquartered in Miami Beach, Florida, Bekenton USA, Inc., manufactures tobacco products. The Debtor filed for chapter 11 protection on Nov. 4, 2005 (Bankr. S.D. Fla. Case No. 05-60031). Mariaelena Gayo-Guitian, Esq., at Adorno & Yoss, P.A., represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed assets totaling $5,227,073 and debts totaling $15,750,548. BABCOCK & WILCOX: McDermott Shareholders to Vote to Accept Deal --------------------------------------------------------------- A special meeting of McDermott International, Inc.'s shareholders was held in Houston, Texas for the purpose of voting on a resolution approving the proposed settlement of the Chapter 11 proceeding involving The Babcock & Wilcox Company and certain of its affiliates. Of the 56,278,076 votes cast, approximately 98.6% voted in favor of the resolution. The votes in favor of the resolution constitute a majority of all shares of common stock outstanding and entitled to vote as of the record date. "I appreciate our shareholders voting in such strong support of this resolution, particularly outside the normal proxy season," Bruce W. Wilkinson, Chairman and Chief Executive Officer of McDermott, said. "Combined with the confirmation order from the United States District Court, McDermott and B&W continue to get ever closer to officially reuniting. On the effective date of B&W's plan of reorganization, McDermott will again be a leading worldwide energy services company with a strong presence in power generation, marine construction and government operations. The vote supports our expectation that the plan will be effective by Feb. 22, 2006." Once approved, the settlement will settle as many as 300,000 asbestos injury claims ranging $375 million to $955 million in costs for the Company, depending on whether Congress creates a national trust to handle all such cases. Remaining items required for the settlement to become effective include obtaining exit financing for B&W and the completion of certain other conditions by Feb. 22, 2006, the effective date deadline. McDermott expects B&W's exit financing package will be signed on the effective date. Headquartered in New Orleans, Louisiana, McDermott International, Inc. -- http://www.mcdermott.com/-- is a leading worldwide energy services company. The Company's subsidiaries provide engineering, fabrication, installation, procurement, research, manufacturing, environmental systems, project management and facility management services to a variety of customers in the energy and power industries, including the U.S. Department of Energy. Babcock & Wilcox Company, together with its debtor-affiliates, filed for Chapter 11 protection on February 22, 2000, (Bankr. E.D. La. Case No. 00-10992). Jan Marie Hayden, Esq., at Heller, Draper, Hayden, Patrick & Horn, L.L.C., represents the debtors in their restructuring efforts. Since February 2000, B&W has continued to be managed by McDermott; however its results of operations have been deconsolidated from McDermott's financial statements. The Company wrote off its remaining investment in B&W of $224.7 million during the second quarter of 2002. For the year ended Dec. 31, 2004, on a deconsolidated basis, B&W generated operating income of $115.6 million on revenues of $1.37 billion. B&W's net income for the year-ended Dec. 31, 2004, was $99.1 million, including the result of favorable tax valuation allowance adjustment of $26.2 million. Beginning in 2005, McDermott spun off the pension plan assets and liabilities associated with B&W's portion of McDermott Incorporated's pension plan, creating a B&W-sponsored pension plan. As a result of the creation of a B&W-sponsored pension plan, beginning in 2005 expenses associated with this plan are accounted for on B&W's financials. In 2004, McDermott recorded approximately $38 million in pension expense associated with B&W pension on McDermott's income statement. At Aug. 24, 2005, B&W had unrestricted cash & cash equivalents of $352 million. * * * As reported in the Troubled Company Reporter on Dec. 14, 2005, McDermott International, Inc., and certain of its subsidiaries received either increased or new credit ratings from the major rating agencies. Each rating agency indicated its outlook for McDermott and its subsidiaries are stable. This table reflects the current respective ratings from each agency: Standard & Poor's Moody's Ratings Services Investors Service ----------------- ----------------- Previous Current Previous Current (1) -------- ------- -------- ------- McDermott Int'l, Inc. B- B+ - B2 (2) McDermott Incorporated B- B+ B3 - (3) J. Ray McDermott, S.A. CCC+ B+ Caa1 B2 (4) Babcock & Wilcox Co(5) B+ - B1 (4) (1) S&P's corporate credit rating (2) Moody's corporate family rating (3) Moody's withdrew its rating on McDermott Inc. following the December 2005 MTN redemption. (4) Moody's senior secured rating (5) The Babcock & Wilcox Company ratings are newly assigned. BOYDS COLLECTION: Court Fixes February 14 as Claims Bar Date ------------------------------------------------------------ The Honorable Duncan W. Keir of the U.S. Bankruptcy Court for the District of Maryland set February 14, 2006, at 5:00 p.m., as the deadline for all creditors owed money on account of claims arising prior to October 16, 2005, against The Boyds Collection, Ltd., and its debtor-affiliates to file proofs of claim. Creditors must file written proofs of claim on or before the February 14 Claims Bar Date and those forms must be sent either: (a) by mail to: The Garden City Group, Inc. Attn: BBC Claims Processing P.O. Box 9000 #6361 Merrick, New York 11566-9000 - or - (b) by messenger or overnight courier to: The Garden City Group, Inc. Attn: BBC Claims Processing 105 Maxess Road Melville, New York 11747 Governmental units must file proofs of claim on or before April 14, 2006, at 5:00 p.m. Headquartered in McSherrystown, Pennsylvania, The Boyds Collection, Ltd. -- http://www.boydsstuff.com/-- designs and manufactures unique, whimsical and "Folksy with Attitude(SM)" gifts and collectibles, known for their high quality and affordable pricing. The Company and its debtor-affiliates filed for chapter 11 protection on Oct. 16, 2005 (Bankr. Md. Lead Case No. 05-43793). Matthew A. Cantor, Esq., at Kirkland & Ellis LLP represents the Debtors in their restructuring efforts. As of June 30, 2005, Boyds reported $66.9 million in total assets and $101.7 million in total debts. BUFFETS HOLDINGS: Moody's Affirms Caa1 Sr. Unsecured Notes' Rating ------------------------------------------------------------------ Moody's Investors Service affirmed Buffets Holdings, Inc.'s B2 corporate family rating and changed the outlook to developing following the company's public announcement that it plans to engage advisors to assist in exploring various strategic alternatives to maximize shareholder value. At the same time, the rating agency affirmed Holdings' senior unsecured rating of Caa1 as well as all ratings at Buffets, Inc., the operating company. The developing outlook incorporates uncertainty as to the timing, nature and potential impact on creditors resulting from any actions taken by the company. However, Moody's added that the revised outlook anticipates a near-to-intermediate term resolution. The rating agency will continue to monitor developments and take further rating action once the outcome is announced. Ratings affirmed with a developing outlook: Buffets Holdings, Inc.: * B2 corporate family rating and Caa1 on the senior unsecured notes maturing in 2010 Ratings affirmed: Buffets, Inc.: * B1 on the senior secured credit facility and B3 on the subordinated notes maturing in 2010 Buffets, Inc., headquartered in Eagan, Minnesota, operates approximately 350 buffet-style restaurants in 33 states and franchises 18 buffet-style restaurants principally under the "Hometown Buffet" and "Old Country Buffet" brand names. CARAUSTAR INDUSTRIES: S&P Affirms Corporate Credit Rating at B+ --------------------------------------------------------------- On Jan. 20, 2006, Standard & Poor's Ratings Services affirmed its ratings, including its 'B+' corporate credit rating, on recycled paperboard producer, Caraustar Industries Inc. The outlook is stable. "The affirmation reflects our expectations that Caraustar's weak financial profile will strengthen to a level more appropriate for the ratings following significant debt reduction," said Standard & Poor's credit analyst Pamela Rice. The company plans to use $150 million of proceeds from the sale of its partnership interest in its Standard Gypsum joint venture with Temple-Inland Inc. (BBB/Stable/A-2), plus cash on hand, bank borrowings, and proceeds from other potential asset sales to retire more than one-half of its long-term debt. Austell, Georgia-based Caraustar also announced plans to exit its coated recycled boxboard mill and specialty contract packaging businesses as part of its strategic transformation plan. The sale of these businesses will reduce the company's product diversity and forward integration as well as eliminate the meaningful cash dividend the company has been receiving from unrated Standard Gypsum LLC ($26.5 million in 2005). However, greater focus on its remaining businesses, where it has several leadership positions; significantly lower interest expense; and improved earnings from the sale of certain businesses (including the company's Hunt Valley corrugated packaging plant that was recently sold) and that were operating at negative EBITDA levels offset the slightly weaker business profile. Total debt was $546 million at Sept. 30, 2005, with trailing-12-month debt to EBITDA, including joint venture dividends, a very aggressive 6.8x. "We expect this credit measure to improve to an acceptable 4x-5x range following these transactions," Ms. Rice said. "The outlook could be revised to negative if market conditions worsen, if the company is unable to realize sufficient benefits from its cost- reduction efforts, or if it is unable to raise selling prices to at least offset rising raw-material costs. Caraustar's business profile could support a slightly higher rating; however, a positive outlook is unlikely unless the company were committed to a less-aggressive capital structure, even incorporating the planned debt reduction." CAREMORE HOLDINGS: Moody's Rates Proposed $150 Mil. Facility at B2 ------------------------------------------------------------------ Moody's Investors Service assigned a B2 debt rating to CareMore Holdings, Inc.'s proposed $150 million senior secured bank credit facility, which consists of: * a $125 million seven year term loan; and * a $25 million six year revolving credit facility. In conjunction with this rating, Moody's also assigned a Ba3 insurance financial strength rating to CareMore's regulated operating subsidiary, California Health Plan. The outlook on the ratings is stable. According to Moody's, JPMorgan Partners, and Crystal Cove Partners, will use the proceeds of the term loan along with an additional cash investment to purchase Care More. In addition, the Managing Partner of Crystal Cove, Alan Hoops will become the CEO of CareMore. Mr. Hoops was co-founder, Chairman, and CEO of PacifiCare. Moody's notes that while CareMore has assumed Medicare healthcare insurance risk through risk-sharing capitation agreements since 1996, it assumed full-risk exposure in these capitation agreements only since 2002. The Company also operates in a health care insurance capacity through its own health plan, which was introduced in 2002. Through its unique Medicare health model, the rating agency said, the company has been successful in managing medical cost trend; however, the administrative expenses have been higher than those for a typical Medicare healthcare provider. Nevertheless, according to Moody's, CareMore has produced solid after tax margins for 2005. Moody's stated that while the company has capital in excess of the tangible net equity requirements of the California Department of Managed Healthcare, the company's NAIC risk based capital model is only 86% of company action level. Moody's notes that while current reimbursement levels and market conditions are favorable in the Medicare Advantage market, there are risks associated with this business. The chief concern is the uncertainty of the future level of reimbursements, as budgetary and political pressures could change the government's perspective towards the Medicare program. In addition, Moody's says that it has concerns with respect to: * the limited geographic area in which CareMore markets its products; * its limited track record; * the change in leadership at the company; and * the sustainability of the model for an extended period of time. Moody's stated that the B2 senior secured rating and Ba3 IFSR reflect the company's dependence on the Medicare product as well as the concerns listed above, however, they also recognize the strong Medicare market that currently exists and the potential for strong returns under CareMore's healthcare model. The ratings also reflect the company's commitment for debt repayment of only 50% of excess cash flow, and the below 100% RBC level. Moody's says the ratings are based on the expectation: * that there are no changes in the methodology used by the Centers for Medicare and Medicaid Services (CMS) in determining the Medicare Advantage reimbursement rates; * that there are no losses or impairments to CareMore's Medicare contract with CMS; * that at least 50% of excess cash flow is used for debt repayment; * that the company issues no additional debt; and * that it maintains a consolidated NAIC RBC of at least 75% of company action level. Moody's also expects that there are no significant changes to the financial covenants contained in the secured bank credit facility and all covenants will be met or exceeded. The rating agency stated that the ratings could move up if: * NAIC RBC grows to 100% of company action level; * debt to EBITDA falls below 2 times; * EBITDA to interest expense exceeds 7 times; and * the company commits to 100% of excess cash flow being used for debt repayment. However, ratings could be move down: * if there is a significant adverse change in Medicare reimbursement levels or a loss or impairment of CareMore's Medicare contract with CMS; * if EBITDA to interest expense falls below 2 times; * if net earnings margins fall below 3%; or * if a significant portion of debt is not retired each year. CareMore is a leading healthcare provider serving approximately 20,000 Medicare beneficiaries in Los Angeles and Orange counties in California. Coverage is provided under two Medicare plans: 1) Blue Shield Value Plan/65 Plus (through an agreement with Blue Shield of California); and 2) California Medicare Advantage (a CareMore product). CareMore's unique "controlled clinical approach", which is focused on the identification and management of frail patients, preventive care programs and prudent cost management, has led to an industry- leading medical loss ratio. The company also provides administrative services for affiliated physicians. These ratings were assigned with a stable outlook: CareMore Holdings, Inc.: * senior secured debt rating of B2 California Health Plan: * insurance financial strength rating of Ba3 CareMore Holdings, Inc. will be headquartered in Downey, California. As of Sept. 30, 2005 California Health Plan reported a Tangible Net Equity of approximately $8.3 million on a statutory basis. For the nine month period ending Sept. 30, 2005 total revenue was $144 million. CAREMORE HOLDINGS: S&P Rates Proposed $150 Million Facilities at B ------------------------------------------------------------------ Standard & Poor's Ratings Services assigned its 'B' counterparty credit rating to CareMore Holdings Inc. (CHI). Standard & Poor's also said that the outlook on CHI is stable. At the same time, Standard & Poor's assigned its 'B' bank loan rating and a recovery rating of '4' to CHI's proposed $125 million senior secured credit facility due in 2013 and $25 million revolving credit facility due in 2012, indicating the expectation for a marginal recovery of principal (25%-50%) in the event of a payment default. The bank loan ratings are based on preliminary documentation. "The ratings are based on CareMore's established niche competitive position and good earnings profile/cash-flow capacity," said Standard & Poor's credit analyst Joseph Marinucci. "Offsetting these positive factors are the company's narrow product scope/geographic concentration and marginal balance-sheet quality." CHI is a downstream holding company formed by CareMore Health Group Inc. to acquire CareMore Medical Enterprises (CareMore), which is a physician practice management company and parent to California Health Plan Inc., a Managed Medicare HMO conducting business in California in Los Angeles and Orange counties. CHI will use the proceeds from the senior secured loan to partially finance its acquisition of CareMore. The remainder will be financed with equity contributed by the lead financial sponsor, JPMorgan Partners (the majority owner of CareMore Health Group Inc.). Standard & Poor's expects CareMore to achieve modest organic enrollment growth over the near term (one year) and moderate growth over the intermediate term (three years). By year-end 2006, Standard & Poor's expects enrollment to grow by 5% to 20,000-22,000 members. If CHI effectively secures its new credit facilities and meets Standard & Poor's earnings expectations for 2006, pretax income would result in an ROR of more than 10%. Debt to EBITDA and interest coverage metrics would remain moderately conservative for the rating category. CareMore has an established niche competitive position. Its market-segment focus has enabled it to develop its brand and grow its market presence despite the existence of larger and more strongly financed competitors. CareMore derives a competitive advantage from its integrated care-management model, which has produced relatively strong earnings and a stable cash-flow stream that S&P expects to be sustained over the intermediate term. CENTRAL GARDEN: Farnam Purchase Prompts Moody's to Review Ratings ----------------------------------------------------------------- Moody's Investors Service placed the ratings of Central Garden & Pet Company on review for possible downgrade following Central's agreement to purchase animal health care product company, Farnam Companies, Inc., for around $291 million. The review is prompted by the meaningful size of the purchase price relative to Central's existing debt levels (around $323 million reported at September 2005), and therefore the potential for the transaction to weaken Central's financial profile. These ratings were placed under review for possible downgrade: * Corporate family rating (formerly senior implied rating), Ba3; * $125 million senior secured revolving credit facility due 2008, Ba2; * $175 million senior secured term loan "B" due 2009, Ba2; and * $150 million senior subordinated notes due 2013, B1. Moody's review will focus on the financing of the proposed acquisition and its impact on the company's credit metrics. As always, Moody's review will include an assessment of the earnings and cash flow potential of the acquired business, including its alignment with existing business units and Central's plans for operational consolidation. In addition, Moody's will evaluate the acquisition in the context of Central's long-term strategic and financial policies, including acceptable purchase price multiples and leverage targets. Importantly, Moody's notes that Central had substantial cushion in its pre-acquisition financial profile (relative to its Ba3 corporate family rating), with leverage around 2.9x (September 2005, including Moody's standard adjustments). As such, Moody's may not consider the leverage increase associated with the acquisition to be sufficient to warrant a downgrade of the corporate family rating. Nonetheless, the review will also assess the implications of the financing on the notching of Central's senior secured and senior subordinated debt, considering their relative positions in the capital structure and coverages. Central Garden & Pet Company, located in Walnut Creek, California, manufactures a broadening array of branded lawn and garden and pet supply products, and operates as a distributor for other manufacturers' products in both of these segments. Central's subsidiaries have leading positions in niche markets, including: in the Garden Products Group: * Pennington (grass seed), * AMDRO (fire ant bait), * Norcal Pottery, and * New England Pottery; and in the Pet Products group: * Four Paws (dog and cat supplies), * Kaytee (birdseed), * All-Glass Aquarium, * Nylabone, and * TFH (pet books and dog chews) names. Net sales for the twelve-month period ended September 2005 were approximately $1.4 billion. CENTRAL GARDEN: Farnam Purchase Prompts S&P's Negative Watch ------------------------------------------------------------ Standard & Poor's Ratings Services placed its ratings on Walnut Creek, California-based lawn and garden and pet products supplier Central Garden & Pet Co., including its 'BB' corporate credit rating, on CreditWatch with negative implications. Negative implications means that the ratings could be affirmed or lowered following the completion of Standard & Poor's review. Total debt outstanding at Sept. 24, 2005, was about $323 million. The CreditWatch listing follows the announcement by Central Garden that it has agreed to acquire the stock of Farnam Companies Inc. for about $287 million, plus $4 million for the purchase of related real property. Farnam, with annual sales of about $160 million, is a manufacturer and marketer of equine and pet health care products. The transaction is expected to be debt financed and is targeted to close by March 2006, subject to regulatory approval. Standard & Poor's estimates Central Garden's existing lease adjusted average total debt to EBITDA of about 3.3x will increase to well over 4x following the proposed acquisition. Standard & Poor's will review Central Garden's near- and longer-term growth objectives, operating outlook, and overall financial policies to resolve the CreditWatch listing. CHESAPEAKE ENERGY: Buys Oil & Natural Gas Properties for $796 Mil. ------------------------------------------------------------------ Chesapeake Energy Corporation (NYSE: CHK) entered into agreements with seven private companies to acquire oil and natural gas assets located in its Barnett Shale, South Texas, Permian Basin, Mid- Continent and East Texas regions for an aggregate purchase price of approximately $796 million in cash. On the acquired properties, Chesapeake has identified 260 proved undeveloped and 480 probable and possible drilling locations. After allocating $339 million of the $796 million purchase price to unproven assets, Chesapeake's acquisition cost for the 264 bcfe of internally estimated proved reserves will be approximately $1.73 per thousand cubic feet of natural gas equivalent. Based on the company's projected development plan, which includes $909 million of anticipated future drilling and development costs, Chesapeake estimates that its all-in cost of acquiring and developing the 660 bcfe of total reserves will be $2.58 per mcfe. Based on the current purchase price, the acquisitions are located 34% in the Barnett Shale, 34% in South Texas, 12% in the Permian Basin, 11% in the Mid-Continent and 9% in East Texas. Chesapeake's Barnett Shale acreage now exceeds 73,000 net acres on which it has drilled 54 wells to date and believes it can drill an additional 750-850 wells. On average, Chesapeake has developed 2.3 bcfe per well with its Barnett Shale wells to date. In the Barnett, Chesapeake currently operates 155 wells and has five rigs drilling new wells. The company intends to increase its Barnett Shale rig count to 10 rigs by mid-2006 and to 12-15 rigs by year-end 2006. Chesapeake has recently closed three of the transactions for approximately $486 million in cash and expects to close the remaining acquisitions by Feb. 28, 2006. The pending acquisitions are subject to customary closing conditions and purchase price adjustments, but are not conditioned on the closing of any of the other transactions. Chesapeake intends to finance the acquisitions initially by using its bank credit facility and ultimately by issuing a balance of senior notes and equity securities during 2006 for any acquisition amounts that exceed the company's cash flow less E&P capital expenditures. Acquires 13 Drilling Rigs from Martex Drilling Through its wholly-owned subsidiary Nomac Drilling Corporation, Chesapeake has also recently agreed to acquire 13 drilling rigs and related assets from Martex Drilling Company, L.L.P., a privately-held drilling contractor with operations in East Texas and North Louisiana, for $150 million. Chesapeake is acquiring the rigs to accelerate its drilling activity in the Barnett Shale, Ark-La-Tex and Fayetteville Shale regions, areas where rigs are in especially short supply. With the ownership of more rigs, Chesapeake believes it can accelerate the conversion of its large inventory of proved undeveloped, probable and possible reserves in these areas into producing wells. Chesapeake currently leases one of the 13 Martex rigs and an E&P affiliate of Martex, Camterra Resources, Inc. is leasing two of the 13 rigs through early 2008. Management Comment "We are pleased to announce these recent acquisitions for several reasons," Aubrey K. McClendon, Chesapeake's Chief Executive Officer, commented. "First, they will add to our large and growing presence in the Barnett Shale, South Texas, Permian Basin, Mid-Continent and East Texas regions, all areas of strategic importance to Chesapeake. Second, these acquisitions have all of the attributes of successful previous Chesapeake transactions -- acquisitions from private companies of low-cost, high-margin natural gas properties that have significant exploitation and exploration potential. We are confident that Chesapeake can deliver significant shareholder value from the acquired properties for years to come." Headquartered in Oklahoma City, Chesapeake Energy Corporation -- http://www.chkenergy.com/-- is the second largest independent producer of natural gas in the U.S. The company's operations are focused on exploratory and developmental drilling and property acquisitions in the Mid-Continent, Permian Basin, South Texas, Texas Gulf Coast, Barnett Shale, Ark-La-Tex and Appalachian Basin regions of the United States. * * * As reported in the Troubled Company Reporter on Nov. 8, 2005, Standard & Poor's Ratings Services assigned its 'BB' rating to oil and gas exploration and production company Chesapeake Energy Corp.'s $500 million senior notes due 2020 and its $600 million 2.75% contingent convertible senior notes due 2035. Standard & Poor's also assigned its 'B' rating to Chesapeake's $500 million 5% cumulative convertible preferred stock issue. Amounts do not include overallotment options. At the same time, Standard & Poor's affirmed its 'BB/B-1' corporate credit rating on the company. The outlook is stable. Pro forma for the recent capital raises, Oklahoma City, Oklahoma-based Chesapeake will have $5.4 billion in debt outstanding. DATICON INC: Files Amended List of 20 Largest Unsecured Creditors ----------------------------------------------------------------- Daticon, Inc., delivered to the U.S. Bankruptcy Court for the District of Connecticut in New Haven an amended list of its 20 largest unsecured creditors. The Debtor added Carl Keil to the list, and dropped Aircomm Communications from the list. The Debtor's 20 Largest Unsecured Creditors are: Entity Nature of Claim Claim Amount ------ --------------- ------------ Relational Funding Corporation Equipment Lease $1,218,111 3701 Algonquin Road, Suite 600 Rolling Meadows, IL 60008-3120 Hilltop Investment, LLC Office Lease $398,156 209 West Town Street Norwich, CT 06360 Hogan & Hartson LLP Legal Services $229,223 555 Thirteenth Street NW Washington, DC 20004-1109 EOP Operating Limited Partners Los Angeles $149,418 550 South Hope Street Office Lease Suite 2200 Los Angeles, CA 90071 Cendant Mobility Relocation $92,026 Services RM Holdings, LLC Office Lease $90,440 Carl Keil $60,000 Citicorp Vendor Finance, Inc. Equipment Lease $57,328 DeLage Landen Equipment Lease $55,000 Norwich Public Utilities Utility $48,724 The Oliver Group Tape Restoration $32,531 Services Marsh USA Inc. Insurance Brokerage $19,746 Services Bearing Point Valuation $18,900 Services Passumpsic Management LLC Professional $12,500 Services Staples Business Advantage Office Supplies $10,554 Corporate Express Production and $10,260 Operating Supplies Scan-Optics, LLC Office Equipment $9,935 Maintenance Federal Express Freight provider $7,595 Minogue Birnbaum LLP Legal Services $5,505 Consumers Interstate $4,555 Headquartered in Norwich, Connecticut, Daticon, Inc. -- http://www.daticon.com/-- works with law firms, corporations and government agencies to capture, review and manage the volumes of electronic data and paper documents generated by complex litigation, merger and acquisition transactions, and investigations. The Debtor filed for chapter 11 protection on Jan. 17, 2006 (Bankr. D. Conn. Case No. 06-30034). Douglas S. Skalka, Esq., at Neubert, Pepe & Monteith, PC, represents the Debtor in its restructuring efforts. When the Debtor filed for protection from its creditors, it listed $9,089,033 in assets and $18,997,028 in debts as of Dec. 31, 2005. DATICON INC: Wants to Hire Neubert Pepe as Bankruptcy Counsel ------------------------------------------------------------- Daticon, Inc., asks the Honorable Lorraine Murphy Weil of the U.S. Bankruptcy Court for the District of Connecticut in New Haven for permission to employ Neubert, Pepe & Monteith, PC, as its bankruptcy counsel. Neubert Pepe will: (a) advise the Debtor of its rights, powers and duties as debtor-in-possession continuing to operate and manage the business and property; (b) advise and assist the Debtor concerning the negotiation and documentation of financing agreements, debt restructuring and related transactions; (c) review the nature and validity of any liens asserted against the property of the Debtor and advise the Debtor concerning the enforceability of those liens; (d) advise the Debtor concerning the actions that might be taken to collect and recover property for the benefit of the Debtor's estate; (e) prepare, on the Debtor's behalf, necessary and appropriate applications, motions, pleadings, draft orders, notices, schedules and other documents and review all financial and other reports to be filed in the Debtor's case; (f) advise and prepare the Debtor's responses concerning applications, motions, pleadings, notices and other papers filed and served in the Debtor's case; (g) counsel the Debtor in connection with the formulation, negotiation and prosecution of a plan of reorganization and related documents; and (h) perform all other legal services for and on behalf of the Debtor, which may be necessary or appropriate in the administration of the Debtor's bankruptcy case. Douglas S. Skalka, Esq., a principal at Neubert, Pepe & Monteith, PC, disclosed that the Firm will be paid its customary hourly rates. Papers filed with the Court did not specify those rates. Mr. Skalka assures the Court that Neubert, Pepe & Monteith, PC, is disinterested as that term is defined in Section 101(14) of the U.S. Bankruptcy Code. With offices in New Haven and Southport, Connecticut, Neubert, Pepe & Monteith, PC -- http://www.npmlaw.com/-- has substantial expertise in the areas of civil litigation and appeals, labor and employment law, corporate law, bankruptcy, administrative law, banking, real estate, health care, and managed care. The Firm can be contacted at: Neubert, Pepe & Monteith, PC 195 Church Street New Haven, CT 06510 Tel: (203) 821-2000 Fax: (203) 821-2009 Headquartered in Norwich, Connecticut, Daticon, Inc. -- http://www.daticon.com/-- works with law firms, corporations and government agencies to capture, review and manage the volumes of electronic data and paper documents generated by complex litigation, merger and acquisition transactions, and investigations. The Debtor filed for chapter 11 protection on Jan. 17, 2006 (Bankr. D. Conn. Case No. 06-30034). When the Debtor filed for protection from its creditors, it listed $9,089,033 in assets and $18,997,028 in debts as of Dec. 31, 2005. DELTA AIRLINES: Has Until July 11 to File Chapter 11 Plan --------------------------------------------------------- The U.S. Bankruptcy Court for the Southern District of New York extended until July 11, 2006, the period within which Delta Air Lines Inc. and its debtor-affiliates have the exclusive right to file a chapter 11 plan. The Court also extended the Debtors' period to solicit acceptances of that plan until Sept. 9, 2006. As reported in the Troubled Company Reporter on Jan. 3, 2006, the Debtors want to avoid the necessity of formulating a Reorganization Plan prematurely and to ensure that their Reorganization Plan best addresses the interests of their estates, employees, and creditors. Since the Petition Date, the Debtors have worked diligently to stabilize their businesses and reassure customers, suppliers and employees. Among other things, the Debtors: (a) have obtained Court approval for postpetition credit facilities totaling $2,200,000,000 that are expected to provide sufficient liquidity to enable them to operate while in Chapter 11; (b) have been seeking to enter into a new agreement with a credit card processor; (c) have been seeking to complete the sale of a major operating subsidiary; (d) have started the process of analyzing hundreds of leases and executory contracts, including aircraft and equipment leases, to identify those that are beneficial to their estates and to reject those that are not; (d) have been working with the Section 1114 committee appointed by the Court to effect certain changes to health benefits; and (e) have been addressing a multitude of creditor, supplier and customer inquiries from around the world; Marshall S. Huebner, Esq., at Davis Polk & Wardwell, in New York, relates that the Debtors have also devoted significant attention to evaluate their numerous aircraft and equipment leases and rationalizing their fleet. The Debtors have unilaterally agreed to perform their obligations under Section 1110 of the Bankruptcy Code with respect to a number of their aircraft and have also negotiated numerous stipulations with aircraft lessors regarding Section 1110-related matters. In addition, the Debtors have spent extensive time and resources negotiating and finalizing an interim agreement with the pilots' union regarding modifications to their collective bargaining agreement. The Debtors have a pending request under Section 1113 to reject the CBA after negotiations were initially unsuccessful. The Debtors have devoted substantial resources to preparing for and litigating that request. Although the Debtors' developing business plan is a work in progress and will continue to evolve, the Debtors have been engaged with the Official Committee of Unsecured Creditors on their progress and have made multiple formal and informal presentations to the Creditors Committee or its advisors about it. Mr. Huebner says that the Creditors Committee and its advisors have been given access to the Debtors' financial advisors and financial officers, and to voluminous information, in order to help the Creditors Committee evaluate the Debtors businesses and plans. The Debtors' goal is to develop and propose a Reorganization Plan that will receive support from their various constituencies. Additional work and progress is necessary on many fronts in connection with the eventual development of a Reorganization Plan. Mr. Huebner explains that continued progress, among other things, on the Section 1110 process and the Section 1113 process, including securing a comprehensive permanent agreement with the pilots' union, make it premature at this time for the Debtors to submit a Reorganization Plan. Specifically, an extension of the Debtors' Exclusive Periods is required to enable the Debtors to: (i) continue to refine their business model to deliver both a more efficient cost-structure and future revenue growth so that the Debtors can compete effectively within the global commercial passenger aviation industry; (ii) further implement specific restructuring initiatives, like the rationalization of their route structure and aircraft fleet and a reduction in their employee-related costs; (iii) begin to explore possible sources of exit financing to provide adequate liquidity upon emergence from Chapter 11; and (iv) develop a Reorganization Plan reflecting the desired initiatives set forth and the many others that are underway. Mr. Huebner assures the Court that the request is not intended as a negotiation tactic or a means of maintaining leverage over any group of creditors whose interests may be harmed by an extension. Headquartered in Atlanta, Georgia, Delta Air Lines -- http://www.delta.com/-- is the world's second-largest airline in terms of passengers carried and the leading U.S. carrier across the Atlantic, offering daily flights to 502 destinations in 88 countries on Delta, Song, Delta Shuttle, the Delta Connection carriers and its worldwide partners. The Company and 18 affiliates filed for chapter 11 protection on Sept. 14, 2005 (Bankr. S.D.N.Y. Lead Case No. 05-17923). Marshall S. Huebner, Esq., at Davis Polk & Wardwell, represents the Debtors in their restructuring efforts. As of June 30, 2005, the Company's balance sheet showed $21.5 billion in assets and $28.5 billion in liabilities. (Delta Air Lines Bankruptcy News, Issue No. 18; Bankruptcy Creditors' Service, Inc., 215/945-7000) DELTA AIR: Committee Wants Aviation Specialists as Consultant ------------------------------------------------------------- The Official Committee of Unsecured Creditors appointed in Delta Air Lines Inc. and its debtor-affiliates chapter 11 cases, seeks the U.S. Bankruptcy Court for the Southern District of New York's consent to retain Aviation Specialists Group, Inc., as its aircraft valuation consultant, effective as of Dec. 19, 2005. Jordan S. Weltman, chairperson of the Creditors Committee, asserts that ASG is qualified to assist the Committee with respect to critical valuation and other issues involving the 89 aircraft that are subject to the Restructuring Term Sheet entered into by the Debtors and an ad hoc committee of holders of aircraft indebtness, and other matters affecting the Debtors' aircraft. According to Mr. Weltman, ASG has valued billions of dollars worth of jetliners, regional aircraft, corporate airplanes, engines and spare parts, and has extensive practical aviation industry experience, including in the areas of finance, operating leasing, asset management, airframe and engine maintenance and market analysis. ASG will: (a) review the Debtors' operating lease rental levels; (b) review the Debtors' maintenance reserves; (c) review lease return conditions; (d) provide testimony in Court on behalf of the Committee, if necessary and appropriate, with respect to market terms and competitive issues involved in connection with the transaction contemplated in the Restructuring Term Sheet and other matters in connection with the Debtors' chapter 11 cases; and (e) provide other services as may be appropriate. ASG will be paid at $250 per hour for consulting services rendered by its principals. ASG will also seek reimbursement of out-of- pocket expenses incurred in connection with its retention by the Creditors Committee. The Creditors Committee proposes that the Debtors indemnify ASG from and against losses, claims, damages or liabilities in connection with ASG's retention. Fred J. Klein, president of ASG, will head the team that will provide consulting services to the Committee. Mr. Klein discloses that, from time to time, ASG has provided services, and likely will continue to provide services, to certain creditors and equity holders of the Debtors in matters unrelated to their Chapter 11 cases. Mr. Klein also reports that ASG has performed aircraft appraisals and inspections and audits of aircraft maintenance records concerning various aircraft owned and operated by Delta Air Lines, Inc. Mr. Klein anticipates that ASG will be required by its longstanding clients to continue performing services with regard to Delta Aircraft while the Firm is employed by the Creditors Committee. However, he assures the Court that ASG will establish an "ethical wall" between him and his partner, Stuart Rubin, who will be responsible for matters involving the Delta Aircraft. In addition, ASG will not, while employed by the Creditors Committee, perform any services for its other clients concerning aircraft that are subject of (i) the Restructuring Term Sheet, or (ii) any other matters concerning which ASG is performing consulting services for the Committee. Mr. Klein assures the Court that ASG is a "disinterested person" as defined in Section 101(14) of the Bankruptcy Code. Headquartered in Atlanta, Georgia, Delta Air Lines -- http://www.delta.com/-- is the world's second-largest airline in terms of passengers carried and the leading U.S. carrier across the Atlantic, offering daily flights to 502 destinations in 88 countries on Delta, Song, Delta Shuttle, the Delta Connection carriers and its worldwide partners. The Company and 18 affiliates filed for chapter 11 protection on Sept. 14, 2005 (Bankr. S.D.N.Y. Lead Case No. 05-17923). Marshall S. Huebner, Esq., at Davis Polk & Wardwell, represents the Debtors in their restructuring efforts. As of June 30, 2005, the Company's balance sheet showed $21.5 billion in assets and $28.5 billion in liabilities. (Delta Air Lines Bankruptcy News, Issue No. 18; Bankruptcy Creditors' Service, Inc., 215/945-7000) DELTA AIR: Enters Section 1110(b) Stipulation for 14 Aircraft ------------------------------------------------------------- Delta Air Lines Inc. and its debtor-affiliates entered into a stipulation under Section 1110(b) of the Bankruptcy Code with various parties who maintain interests in 14 Boeing 737 Aircraft bearing U.S. Registration Nos. N301DL, N302DL, N303DL, N304DL, N305DL, N306DL, N308DL, N309DL, N314DA, N326DL, N329DL, N330DL, N305WA, and N306WA. The Aircraft Parties are Castle Harbour-1 Limited Liability Company, GE Commercial Aviation Services, LLC, General Electric Capital Corporation, and SGE (New York) Associates. The Aircraft are entitled to protections under Section 1110. However, the automatic stay under Section 362 vaporizes on the 60th day after the Petition Date, unless a debtor commits to full contractual performance and cures on any defaults pursuant to a Section 1110(a) Election. Pursuant to Section 1110(b), however, the Debtors may enter into stipulations with aircraft lessors and financiers extending the time to perform the Section 1110 obligations. The Debtors and the Aircraft Parties agree to extend the 60-day period on undisclosed terms and conditions. Headquartered in Atlanta, Georgia, Delta Air Lines -- http://www.delta.com/-- is the world's second-largest airline in terms of passengers carried and the leading U.S. carrier across the Atlantic, offering daily flights to 502 destinations in 88 countries on Delta, Song, Delta Shuttle, the Delta Connection carriers and its worldwide partners. The Company and 18 affiliates filed for chapter 11 protection on Sept. 14, 2005 (Bankr. S.D.N.Y. Lead Case No. 05-17923). Marshall S. Huebner, Esq., at Davis Polk & Wardwell, represents the Debtors in their restructuring efforts. As of June 30, 2005, the Company's balance sheet showed $21.5 billion in assets and $28.5 billion in liabilities. (Delta Air Lines Bankruptcy News, Issue No. 18; Bankruptcy Creditors' Service, Inc., 215/945-7000) DMX MUSIC: Has Until February 9 to Remove Civil Actions ------------------------------------------------------- The U.S. Bankruptcy Court for the District of Delaware gave DMX Music, Inc. and its debtor-affiliates, until Feb. 9, 2006, to remove actions and related proceedings pursuant to 28 U.S.C. Sec. 1452 of and Rule 9027 of the Federal Rules of Bankruptcy Procedure. The Debtors tell the Court that they been focusing all their efforts on obtaining Court approval for the sale of substantially all of their assets and the formulation of an appropriate plan of liquidation. The Debtors relate that they haven't had an opportunity to thoroughly review pre-petition actions that needs to be removed from other jurisdictions. The Debtors say that the extension would afford them opportunity to make fully informed decisions regarding the removal of each pre-petition action and assure them that they do not forfeit valuable rights under Section 1452 of the Bankruptcy Code. Headquartered in Los Angeles, California, Maxide Acquisition, Inc., dba DMX MUSIC, Inc. -- http://www.dmxmusic.com/-- is majority-owned by Liberty Digital, a subsidiary of Liberty Media Corporation, with operations in more than 100 countries. DMX MUSIC distributes its music and visual services worldwide to more than 11 million homes, 180,000 businesses, and 30 airlines with a worldwide daily listening audience of more than 100 million people. The Company and its debtor-affiliates filed for chapter 11 protection on Feb. 14, 2005 (Bankr. D. Del. Case No. 05-10431). The case is jointly administered with Maxide Acquisition, Inc. (Bankr. D. Del. Case No. 05-10429). Curtis A. Hehn, Esq., and Laura Davis Jones, Esq., at Pachulski, Stang, Ziehl, Young, Jones & Weintraub P.C., represent the Debtors in their restructuring efforts. When the Debtors filed for protection from their creditors, they estimated more than $100 million in assets and debts. DONALD GATZKE: Voluntary Chapter 11 Case Summary ------------------------------------------------ Debtor: Donald A. Gatzke Trustee for Donald A. Gatzke Trust 243 Lake Blaine Drive Kalispell, Montana 59901-7629 Bankruptcy Case No.: 06-60020 Type of Business: The Debtor is a trustee for the Donald A. Gatzke Trust. Chapter 11 Petition Date: January 20, 2006 Court: District of Montana (Butte) Debtor's Counsel: Gregory A. Luinstra, Esq. Alexander, Baucus, Paul & Young, PLLC P.O. Box 3169 Great Falls, Montana 59403 Tel: (406) 761-4800 Total Assets: $7,875,235 Total Debts: $2,737,258 The Debtor does not have unsecured creditors who are not insiders. DPAC TECH: Nov. 30 Balance Sheet Upside-Down by $920,000 -------------------------------------------------------- DPAC Technologies Corp. (OTCBB:DPAC) reported results for its fiscal year 2006 third quarter ended Nov. 30, 2005. For the third fiscal quarter, net sales from continuing operations were $378,000 compared to net sales of $334,000 for the third quarter of the previous year. DPAC's net loss from continuing operations totaled $504,000. The net loss from continuing operations for the prior year's third quarter was $1.4 million. For the nine months ended Nov. 30, 2005, net sales from continuing operations were $1.2 million as compared to $957,000 for the same period in the prior fiscal year. DPAC's net loss from continuing operations for the current-year period totaled $3.2 million. The net loss from continuing operations for the prior year's nine-month period was $5 million, and included $573,000 of restructuring charges. During the current year's nine-month period, DPAC expensed $595,000 of acquisition costs incurred in regard to the QuaTech acquisition transaction. Balance Sheet Summary At Nov. 30, 2005, DPAC had total assets of $1.2 million, including cash and cash equivalents of $501,000 and no assets related to discontinued operations. This compares to total assets of $4.1 million at Feb. 28, 2005, which included $2.7 million in cash and cash equivalents and $164,000 of assets related to discontinued operations. Working capital at November 30, 2005 was a deficit of $386,000 compared to working capital of $1.5 million at February 28, 2005. As of Nov. 30, 2005, DPAC Technologies Corp.'s balance sheet showed a stockholders' deficit of $920,000, compared to a $1,439,000 positive equity in Feb. 28, 2005. DPAC Technologies Corp., fka Dense-Pac Microsystems, Inc. -- http://www.dpactech.com/-- provides wireless connectivity products for industrial, transportation, medical and other commercial applications. The Airborne(TM) wireless Local Area Network Node Module was introduced in September 2003 after an initial year of research and development. The product is designed to enable OEM equipment designers to incorporate 802.11 wireless LAN connectivity into their device, instrument or equipment through the inclusion of the Company's Wireless LAN Node Module in their system design. The Company also sells Airborne(TM) Direct plug-and-play wireless products that add 802.11 wireless connectivity to legacy instruments and equipment that have a pre-existing serial or Ethernet data port. * * * Going Concern Doubt Moss Adams, LLP, expressed substantial doubt about DPAC Technologies' ability to continue as a going concern after it audited the Company's financial statements for the fiscal year ended Feb. 28, 2005. The auditing firm points to the Company's continuing losses from operations and negative operating cash flow. The Company's former independent auditor, Deloitte & Touche, LLP, had issued a clean and unqualified opinion after auditing the Company's financial statements for the fiscal years ended June 30, 2004 and 2003. DRS TECHS: Fitch Assigns Low-B Ratings to $1.7 Billion Debts ------------------------------------------------------------ Fitch Ratings has initiated these ratings for DRS Technologies, Inc.: * Issuer Default Rating 'B+'; * proposed senior secured credit facility 'BB+'/Recovery Rating '1'; * proposed senior notes 'BB/RR2'; and * proposed and existing senior subordinated notes 'B-/RR6'. Rating Outlook Stable. These actions assume that the Engineered Support Systems, Inc. (EASI) acquisition and associated debt issuances close under the announced terms. Approximately $1.7 billion of existing and proposed debt is covered by these actions. On Sept. 22, 2005, DRS announced its plans to acquire EASI for $2.1 billion utilizing a combination of new debt, DRS shares and cash on hand. Pricing for the transaction is approximately 12.4 times fiscal 2005 EBITDA. The transaction, which remains subject to shareholder approval of both companies, is expected to close by the end of January. The ratings reflect: * continued high levels of defense spending; * good pro forma free cash flow generation; * DRS' proven ability to increase margins at acquired companies; * expected growth in homeland security spending; and * healthy pro forma EBITDA margins. The ratings also consider DRS' diversification within the defense and homeland security arena, and the alignment between DRS' products and services and expected Department's of Defense (DoD) and Homeland Security needs, all of which will be aided by the EASI acquisition. Fitch's concerns center on: * DRS' ability to integrate EASI; * the company's future acquisition plans; * limited financial flexibility due to high debt levels; * potential changes within the DoD budget; * the price being paid for EASI; and * Securities and Exchange Commission investigations of EASI. Fitch's ratings and Stable Outlook incorporate expectations for deployment of free cash flow toward debt reduction in the next 12 months. In addition, the Outlook is based on the favorable effect of DoD supplemental budgets offset by near-term concerns about uncertainty in the DoD budget related to overall spending pressures due to the federal budget deficit, the Quadrennial Defense Review (QDR), and 'transformation.' The recovery ratings and notching in the debt structure reflect Fitch's recovery expectations under a scenario in which distressed enterprise value is allocated to the various debt classes. The recovery ratings for the senior secured credit facility ('RR1', reflecting expected 100% recovery) and the senior unsecured notes ('RR2', reflecting expected recovery of 70%-90%) benefit from substantial cushions of subordinated debt and equity as well as covenants that preclude the issuance of significant amounts of debt without sizable increases in EBITDA. The senior subordinated debt ratings ('RR6') reflect the expectation of poor recovery prospects in a distressed case. Potential DoD budgetary constraints going forward remain a concern for the defense sector, as do potential funding shifts within the DoD budget. Current indications are that the QDR will be less disruptive than anticipated, reducing Fitch's concerns. As such, Fitch believes that large program cancellations would be a surprise, but program restructurings such as reductions or deferrals are likely. Fitch expects that DRS could benefit from new program delays as they would lead to more upgrade and modernization business for existing platforms. DRS' diverse contract base also mitigates the risk of program delays or funding shifts. The loss of revenues resulting from an end to the conflicts in Iraq and Afghanistan is also a concern, but the impact would probably result in slower organic growth rather than overall revenue declines. In the longer term, U.S. budget pressures could strengthen the trend in U.S. government outsourcing, providing defense service providers such as EASI an opportunity to enter new markets. In acquiring EASI, DRS will be increasing its standalone projected fiscal 2007 revenues of $1.7 billion by nearly three-quarters to $2.9 billion, making it by far DRS' largest acquisition. Mitigating the risks related to the acquisition are DRS' successes in managing prior acquisitions and the lack of product overlap between the two companies. Given DRS' acquisitive nature, Fitch is concerned about the company's acquisition appetite going forward, but management has indicated it plans to digest EASI and improve credit ratios prior to making significant acquisitions. Pricing for the EASI transaction is high, but it is in line with recent acquisitions in the defense sector. In addition, the acquisition complements DRS' existing portfolio, which should allow DRS to provide turn-key solutions to customers. The SEC investigations of EASI revolve around potential insider trading by a former director and officer in one instance. The other investigation is related to whether or not a stop-work order was a material enough event to warrant disclosure at the time it occurred. Fitch does not expect the outcome of the investigations to have a material impact on DRS. Pro forma leverage utilizing Fitch's global definition of debt-to- operating EBITDA was 5.4x for the LTM ended Sept. 30, 2005, substantially higher than actual results of 3.7x. Pro forma interest coverage, using Fitch's global definition of operating EBITDA-to-interest, was 2.9x for the same period, significantly lower than the actual results of 4.1x. Going forward, Fitch expects these ratios to improve as DRS utilizes free cash to reduce debt. ECHOSTAR DBS: S&P Rates $1.5 Billion 7.125% Senior Notes at BB- --------------------------------------------------------------- Standard & Poor's Ratings Services assigned its 'BB-' rating to EchoStar DBS Corp.'s $1.5 billion 7.125% senior notes due 2016. This offering represents an upsizing of the previously announced $1 billion senior notes, which we rated on Jan. 19, 2006. EchoStar DBS is a subsidiary of EchoStar Communications Corp., a Littleton, Colorado-based satellite DTH TV provider. Proceeds will be used to call the $442 million 9.125% senior notes due 2009 and for general corporate purposes. The 'BB-'corporate credit rating on EchoStar and its subsidiaries was affirmed. The transaction will boost EchoStar's cash balance by about $1 billion and increase gross debt to EBITDA leverage to about 3.8x, from 3.3x, for the 12 months ended Sept. 30, 2005, still within an acceptable limit for the ratings. ELWOOD ENERGY: S&P Affirms $402 Million Sr. Sec. Bonds' B+ Rating ----------------------------------------------------------------- Standard & Poor's Ratings Services affirmed its 'B+' rating on Elwood Energy LLC's $402 million 8.159% ($335 million outstanding) senior secured bonds due 2026. At the same time, the outlook was revised to stable from negative, reflecting an improvement in the near-term prospects of Aquila Inc. (B-/Watch Pos/B-3), a major power offtaker whose ratings were placed on CreditWatch with positive implications on Sept. 22, 2005. Elwood is a 1,409 MW peaking power plant that sells into the Mid- American Interconnected Network (MAIN), and is fully contracted through 2012 and partially through 2017. The ratings on Elwood reflect Aquila's: * credit risk; * exposure to partial merchant risk from 2013; * full merchant risk after 2017; and * power contracts that are above market due to the MAIN's excess generating capacity, which could depress power prices for years to come. Offsetting these risks are: * revenues from a highly creditworthy offtaker, Exelon Generation Co. LLC (BBB+/Watch Neg/A-2), representing 52% of cash flows through 2012; * $37.7 million of collateral posted by Aquila that covers 12 months of capacity payments; and * a good operations track record, with availabilities that have averaged above 99% since operations began. "A downgrade could occur if Aquila's credit deteriorates, and an upgrade is unlikely until prospects for merchant peak generators in the MAIN improve," said Standard & Poor's credit analyst Chinelo Chidozie. Nevertheless, Elwood's ratings remain notched above those of Aquila because of stable cash flows from its purchase-power agreement with Exelon Corp. and a solid liquidity position. EURAMAX INT'L: Moody's Affirms $190 Mil. Term Loan's Junk Rating ---------------------------------------------------------------- Moody's Investors Service affirmed the long term debt ratings of Euramax International, Inc. The ratings outlook is stable. Ratings affirmed include: Euramax International, Inc. and co-issuer Euramax International Holdings B.V.: * B2 - Guaranteed first lien senior secured tranche B term loan, $332 million due 2012 * Caa1 - Guaranteed second lien senior secured term loan, $190 million due 2012 Euramax Netherlands B.V., Euramax Holdings Limited (UK), Euramax Europe B.V.: * B2 - Guaranteed first lien senior secured tranche B term loan, $118 million due 2012 Euramax International, Inc., co-issuer Euramax International Holdings B.V., Euramax Holdings Limited (UK), Euramax Europe B.V., Euramax Netherlands B.V.: * B2 - Guaranteed first lien senior secured revolving credit facility, $80 million due 2011 Euramax International, Inc.: * B2 - Corporate Family Rating Euramax's B2 corporate family rating incorporates: * its leading market position in a number of niche markets, including: -- roof drainage products and -- fabricated aluminum, steel, fiberglass, and vinyl products for construction and recreation vehicles; and * its ability to consistently generate free cash flow despite high financial leverage. Moody's believes that operating margins will remain relatively stable despite the strain from raw material inflation, increased labor costs, and competitive pressures. The ratings also capture Euramax's: * high degree of financial leverage; * vulnerability to cyclical end-use markets and raw material price volatility; and * significant customer concentration risks with retail home centers. The stable outlook reflects Moody's belief that despite prospects for continued weakness should home repair and remodeling activity wane as interest rates increase and the potential negative impact that higher fuel costs could have on RV sales, Euramax will continue to generate free cash flow in FY2006. However, given recent weak operating performance, Moody's believes the company could have limited capacity to increase borrowings under its senior secured revolver due to potentially narrow compliance with restrictive financial covenants during the 1st and 2nd quarters of 2006 given seasonal working capital needs. Factoring in next year's expected level of EBITDA, free cash flow and debt amortization requirements, the stable outlook is predicated on Euramax maintaining EBITDA margins of approximately 10%, debt-to- EBITDA under 6.0x (or approximately 6.5x including the holding company PIK note) and free cash flow-to-debt of at least 4%. The rating affirmation reflects Moody's belief that despite the unlikely near-term prospect the company will be able to refinance its outstanding holding company PIK notes and 2nd lien debt with $315 million in operating company subordinated debt as was planned back in September 2005 when Moody's downgraded the company's ratings. The company's equity sponsors have clearly demonstrated their intention to place the additional financial leverage on the operating company given the 1st lien credit agreement amendment permitting the issuance of subordinated debt remains in place. In addition, while the 2nd lien credit agreement does not permit the issuance of subordinated debt and would have to be refinanced with the proceeds of any such capital markets transaction, Moody's believes that the company's credit metrics will not improve as anticipated when the initial ratings were assigned in June 2005 due to: * weak sales in: -- roof drainage products in home retail centers, -- fabricated aluminum and steel roofing, and -- siding to rural contractors; and * depressed margins resulting from higher raw material and operating costs and a competitive pricing environment. At this time, Moody's does not see any upward rating pressure. However, the ratings could come under additional pressure if th