NORWALK, Conn.--December 14, 1995--href="chap11.caldor.html">The Caldor
Corporation (NYSE:CLD) reported today a net loss of $32.6
million,
or $1.92 per share, for the third quarter ended October 28, 1995,
compared to net earnings of $1.1 million, or $0.06 per share, for
the third quarter of 1994. The loss before reorganization items and
income taxes was $49.0 million, compared to earnings of $1.7 million
in 1994. Sales were $591 million, a decrease of 5.4% from third
quarter 1994 sales of $625 million. Comparable store sales declined
11.4% during the quarter.
The net loss, for the 39 weeks ended October 28, 1995, was $43.7
million, or $2.58 per share, compared to net earnings of $5.3
million, or $0.31 per share in the same period last year. Before an
extraordinary charge for the early retirement of debt, the Company's
loss for the 39 week period was $38.5 million, or $2.28 per share.
The loss before reorganization items, income taxes and extraordinary
loss was $58.5 million, compared to earnings of $8.6 million for the
first three quarters of 1994. Sales during the nine month period
were $1.826 billion, an increase of 0.9% over sales of $1.811
billion in the same period last year. Comparable store sales
decreased 6.0% during the first three quarters of the year.
On September 18, 1995, The Caldor Corporation and certain of its
subsidiaries filed for protection under Chapter 11 of the United
States Bankruptcy Code in order to stabilize the confidence of their
vendors and factors, and to avoid jeopardizing the important fourth
quarter selling season. On October 17, 1995, the Company obtained
final approval for its $250 million Debtor-in-Possession financing
facility, along with the use of its cash collateral.
The Company's performance in the third quarter was adversely
impacted by a decrease in sales, which was primarily attributable to
merchandise disruption and a difficult retail environment. The
decline in gross margin as a percentage of sales was mainly
attributable to increased promotional activity, disruption of vendor
support due to the Chapter 11 filing and an increased shrinkage
reserve. The increase in SG&A expenses as a percentage of sales was
mainly attributable to a decrease in same store sales, the
incurrence of bankruptcy related expenses, and an increase in costs
attendant to operating new stores in urban markets.
At the end of the third quarter, the Company had approximately
$231 million of availability on its DIP financing facility, in
addition to approximately $96 million in usable cash, for total
available resources of about $327 million. As well, the Company had
no direct borrowings under its DIP facility, other than for letters
of credit, and was receiving shipments from virtually all of its
factored and non-factored vendors. Nevertheless, changes in vendor
terms and allowances caused by the filing may continue to affect
margins, and the Company continues to face a difficult retail
environment.
The Caldor Corporation is the fourth largest discount department
store chain in the U.S. with sales of $2.8 billion during the last
12 months, and operates 166 stores in ten East Coast states,
compared to 164 a year earlier. With a consumer franchise in high-
density urban/suburban markets, Caldor offers a diverse merchandise
selection, including both softline and hardline products.
The Caldor Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
13 weeks ended 39 weeks ended
Oct. 28, Oct. 29, Oct. 28, Oct. 29,
1995 1994 1995 1994
Net sales $591,386 $625,043 $1,826,466
$1,810,606
Cost of goods sold 450,289 447,333 1,347,685
1,303,187
SG&A expenses 178,734 161,322 505,898
466,990
Preopening expense 942 1,509 942
1,872
Facilities relocation expense 3,786
3,786
Interest expense, net 10,404 9,356 30,454
26,210
(Loss) earnings before
reorganization items,
income taxes and
extraordinary loss (48,983) 1,737 (58,513)
8,561
Reorganization items:
Bankruptcy expenses 1,984 1,984
Professional Fees 2,653 2,653
(Loss) earnings before
income taxes and
extraordinary loss (53,620) 1,737 (63,150)
8,561
Income tax (benefit)
provision (21,020) 669 (24,651)
3,297
(Loss) earnings before
extraordinary loss (32,600) 1,068 (38,499)
5,264
Extraordinary loss (5,164)
Net (loss) earnings ($32,600) $1,068 ($43,663)
$5,264
Per Share Amounts:
(Loss) earnings before
extraordinary loss ($1.92) $0.06 ($2.28)
$0.31
Net (loss) earnings ($1.92) $0.06 ($2.58)
$0.31
Weighted average common and
common equivalent shares
outstanding 16,964,074 16,766,400 16,913,820
16,754,267
Notes to Consolidated Statements of Operations:
(1) In connection with the petition for relief under Chapter 11
of the United States Bankruptcy Code on September
18, 1995, and The Caldor Corporation's reorganization
proceedings, the Company incurred professional fees
(principally legal, accounting, and financial advisory) in
the amount of $2,653 and other bankruptcy expenses
(principally the accelerated write-off of certain
pre-petition financing costs) in the amount of $1,984
during both the 13 and 39 weeks ended October 28,
1995.
(2) There were no LIFO charges for both the 13 and 39
weeks ended October 28, 1995 and for both the 13
weeks and 39 weeks ended October 29, 1994.
(3) The net loss for the 39 weeks ended October 28, 1995
includes an extraordinary charge for the early
retirement of debt in the amount of $5,164 ($0.30 per
share).
(4) In connection with the relocation of certain
administrative office functions and the relocation of its
Westview store to Catonsville in the Baltimore market,
the Company incurred a pre-tax charge of $3,786
($2,328 or $0.14 per share on an after-tax basis) for
both the 13 weeks and 39 weeks ended October 29,
1994.
The Caldor Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
(Unaudited)
Oct. 28, Oct. 29, Jan. 28,
1995 1994 1995
ASSETS
Current assets:
Cash and cash equivalents $105,171 $8,114
$7,171
Accounts receivable 14,211 11,541
8,226
Merchandise Inventories 709,174 699,338
550,932
Prepaid expenses & other
current assets 13,808 19,314 12,430
Total current assets 842,364 738,307 578,759
Property and equipment:
Land 6,752 2,252
6,752
Buildings, leasehold interests
and improvements 279,021 245,476 279,267
Furniture, fixtures and equipment 296,946 277,025
246,325
Property under capital leases 121,452 116,452
121,452
704,171 641,205 653,796
Less accumulated depreciation
and amortization 149,928 101,506 112,223
Net property and equipment 554,243 539,699 541,573
Debt issuance costs 6,144 4,492
4,531
Other assets 15,157 10,640
10,680
$1,417,908 $1,293,138 $1,135,543
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $144,695 $392,657
$307,642
Accrued expenses 29,894 25,652
24,725
Accrued wages and benefits 18,685 19,328
24,132
Other accrued liabilities 3,041 18,752
25,436
Federal & state income
taxes payable 4,049 24,430 39,204
Current deferred income taxes 4,539 6,290
4,539
Borrowings under revolving credit 222,096 199,492
70,243
Current maturities of long-term debt 19,684
40,618
Total current liabilities 426,999 706,285 536,539
Long-term debt 252,145 269,273
236,699
Deferred income taxes 7,131 3,686
7,131
Other long-term liabilities 12,442 16,522
18,008
Liabilities subject to compromise:
Accounts payable 260,466
Accrued expenses 94,644
Construction loan 18,718
Bond payable 3,385
Obligations under capital leases 47,210
Other 480
Total liabilities subject
to compromise 424,903
Stockholders' equity
Common stock, par value 170 166
167
Additional paid-in capital 205,047 198,758
199,456
Retained earnings 93,880 98,448
137,543
Unearned compensation (4,809)
Total stockholders' equity 294,288 297,372 337,166
$1,417,908 $1,293,138 $1,135,543
PHILADELPHIA, Dec. 14, 1995 -- Arlin M. Adams,
Trustee for
the bankruptcy estate of the href="chap11.newera.html">Foundation for New Era Philanthropy,
announced today that he has reached a settlement with Landis Homes
Retirement Community, located in Lititz, Pennsylvania. If the
settlement is approved by the United States Bankruptcy Court in
Philadelphia, Landis Homes will refund $180,900.00 to the bankruptcy
estate that it had received prior to New Era's demise.
"This agreement is a major settlement in our Voluntary Refund
Program and an important step toward recovering the assets
improperly distributed to New Era beneficiaries," Adams said.
Adams was elected Trustee by New Era creditors last summer to
build a consensus for resolving how the creditors might be equitably
reimbursed for losses. He said that several million dollars have
been refunded voluntarily by a number of creditors. "However," said
Adams, "the pace of voluntary refunds has been much slower than
anticipated."
Under the Voluntary Refund Program, non-profit corporations may
return to the bankruptcy estate amounts equal to payments received
from New Era, rather than be subjected to litigation brought by the
Trustee. However, Adams said, if the program does not generate
significant additional refunds in the next month or so, he will have
no choice as Trustee but to file lawsuits against non-profit
organizations, such as educational institutions that still hold
multi-million-dollar payments received from John Bennett that belong
to other charities.
Under bankruptcy law, Adams may collect from non-profit
corporations substantial funds which they had received from New Era.
These funds may include amounts equal to their original investments
plus returns on those payments as well as outright grants. In an
effort to treat the non-profit corporations fairly, the Trustee is
requesting that the recipients refund the extra money they received
and not their original payments to New Era. However, if the Trustee
must collect the improper payments by New Era by instituting suit
for fraudulent payment, the Trustee will seek the fullest recovery
permitted by law.
The Trustee thus far has been successful in persuading a number
of non-profit corporations to voluntarily make refunds. The Trustee
said that he is pursuing a number of well-known colleges and
universities, as well as other secular and non-secular institutions,
that were recipients of substantial funds during the operation of
New Era's highly improper scheme.
/CONTACT: The Hon. Arlin M. Adams, Trustee of the Foundation for
New Era Philanthropy, 215-751-2072, or Kenneth E. Aaron, 215-665-
3921,
or Mark Miner, 215-665-1072, both of Buchanan Ingersoll/
SHERMAN OAKS, Calif., Dec. 14, 1995 -- href="chap11.hf.html">House of Fabrics,
Inc. (NYSE: HF) reported continued improvements in sales and
gross
margins today, as well as a substantial decrease in the net loss
reported for the period ended October 31, 1995.
House of Fabrics reported that for the three months ended
October 31, 1995, sales increased by 1.9 percent to $92.3 million,
as compared with sales of $90.6 million during the comparable period
the previous year. According to the company, a 12.4 percent
increase in store-for-store sales resulted from the improvements in
the company's merchandising and store operation activity in the
current quarter.
For the nine-month period ended October 31, 1995, the company
reported sales of $238 million, as contrasted with sales of $315.4
million in the same period the prior year. The reduction in nine-
month sales is largely attributed to the reduction in sales from
closing over 250 stores.
At the same time, the company said that gross profit as a
percentage of sales increased. For the three months ended October
31, 1995, the company reported that gross profit increased to 43.1
percent from 24.6 percent for the prior-year period. For the nine
months ended October 31, 1995, gross profit as a percentage of sales
increased to 45.2 percent from 38.1 percent for the prior-year
period. The prior- year results had been impacted by a $19 million
charge in October 1994 to markdown and liquidate inventories that no
longer fit the company's merchandising model.
"Operationally, the company is performing at a much-improved
level," said Gary L. Larkins, House of Fabrics' president and chief
executive officer. "We expect to continue to see positive results
from activities related to our expense reduction programs and the
continued elimination of marginal or unprofitable stores.
"We continue to closely monitor and assess operations to
maximize performance on a store-by-store basis. We believe this is
the best way to compete successfully and position the company for
long-term growth," Mr. Larkins stated.
House of Fabrics reported a net loss for the third quarter of
fiscal 1996 of $5.5 million, or $0.40 per share, contrasted with a
net loss of $73.2 million, or $5.34 per share, for the same period
in fiscal 1995. Per share earnings for the quarter are based on
13,697,107 weighted average shares outstanding, which is the same
number of weighted average shares outstanding in the comparable
period a year earlier.
For the nine months ending October 31, 1995, the company
reported a net loss of $24.5 million, or $1.79 per share, contrasted
with a net loss of $86.3 million, or $6.30 per share, for the same
period in fiscal 1995. Per share earnings for the quarter are based
on 13,697,107 weighted average shares outstanding, which is the same
number of weighted average shares outstanding in the comparable
period a year earlier.
The company said that reorganization costs, primarily from
professional fees associates with its Chapter 11 restructuring,
amounted to $2.1 million for the quarter and $7.5 million for the
nine-month period ended October 31, 1995.
House of Fabrics operates 361 continuing company-owned House of
Fabrics, Sofro Fabrics, Fabricland and Fabric King retail fabric and
craft stores in 34 states and employs approximately 8,600 people.
The company and its subsidiaries filed to restructure under Chapter
11 on November 2, 1994.
Consolidated Statements of Operations
(Unaudited)
House of Fabrics, Inc. and Subsidiaries
(Debtors-in Possession)
For the Three Months Ended October 31, 1995 1994
Sales $92,307,000 $90,575,000
Expenses:
Cost of Sales 52,482,000 68,322,000
Selling, General and Administrative 39,973,000 44,480,000
Interest 3,263,000 4,029,000
Restructuring Charge 49,600,000
Total Expenses $95,718,000 $166,431,000
Loss Before Income Taxes (Benefit)
and Reorganization Costs (3,411,000) (75,856,000)
Reorganization Costs 2,054,000 ---
Loss Before Income Taxes (Benefit) (5,465,000) (75,856,000)
Income Taxes (Benefit) 50,000 (2,655,000)
Net Loss $(5,515,000) $(73,201,000)
Loss Per Share $(0.40) $(5.34)
Weighted Average Number
of Shares Outstanding 13,697,107 13,697,107
SACRAMENTO, Calif.--Dec. 14, 1995--American
Recreation Centers Inc. (NASDAQ: AMRC) announced today that it has
discontinued any further efforts to finalize the purchase of Team
Players Billiards from Sinecure Financial Corp.
ARC took this action pending the outcome of a recently filed
Chapter 11 proceeding by Team Players of
Nevada, a subsidiary of
Sinecure, which owns five of Team Players' seven facilities.
In early November, ARC had announced its intent to acquire the
assets of Team Players, which consists of seven sports bar/billiards
clubs in California and New Mexico.
Robert A. Crist, president and chief executive officer of ARC,
expressed disappointment that unforeseen circumstances prompted Team
Players of Nevada to seek Chapter 11 bankruptcy protection from
creditors for the assets of its five Team Players clubs.
"We were moving ahead with our due diligence and had anticipated
a January 1, 1996 closing when Sinecure informed us of TPN's need to
seek protection under Chapter 11," Crist said. "This action created
an unanticipated delay in our ability to acquire the assets of the
business, pending the settlement of outstanding claims by the
courts. We were not prepared to be a part of this process."
Crist reiterated ARC's interest in eventually acquiring the
billiards/sports bar chain once Team Players' current difficulties
are resolved.
"The underlying business is still very interesting and we
believe Team Players could make an excellent fit with our existing
bowling business," Crist said. "Assuming the reorganization takes
place as planned, we would be interested in rethinking our position
at that time."
ARC is the largest public company in the United States whose
principal business is bowling. ARC operates 40 bowling centers with
1,592 lanes in six states.
CONTACT: American Recreation Centers Inc.,
Robert A. Crist or Karen B. Wagner, 916/852-8005
NEW YORK--Dec. 14, 1995--Managed High Yield
Fund Inc. (NYSE: PHT) is a closed-end management investment company
seeking high current income through investments primarily in U.S.
and foreign debt securities. The Fund does not utilize leverage.
CURRENT INVESTMENT STRATEGY
o On November 22, 1995, the Fund's investment in notes issued by
Grand Palais Casinos Inc. were adversely affected by the Chapter 11
filing of Harrah's Jazz, a New
Orleans casino project, one-third of
the equity in which was owned by Grand Palais and secured the notes.
The Fund's investment in the notes is now valued at zero. The
impact of this action reduced the Fund's NAV by 2.8% ($0.40). As a
result, this situation will not result in any further decline. The
Fund is continuing to consider what options, if any, may be
available to the Fund in connection with the bankruptcy filing by
Harrah's Jazz.
o The Fund's strategy continues to focus on increasing the
overall credit quality of the portfolio. The Fund attempts to
maintain the portfolio's BB exposure between 25-30% of the
portfolio. In addition, between 30-35% of the portfolio remains in
smaller, better quality securities. These smaller, growth-oriented
companies offer the potential for price appreciation as well as the
possibility of credit upgrades.
o We have been in the process of evaluating the Fund's monthly
dividend for 1996. At this point, it seems likely that there will
be a reduction in the Fund's current monthly dividend of $0.1160 per
share. This reduction could be up to $0.01 per month, with the goal
of maintaining a steady dividend stream for clients during 1996. We
will keep you informed of changes in the dividend.
o Positive Supply/Demand Characteristics in High Yield Market.
During 1995, there have been record inflows into high yield mutual
funds. New issue supply has been low this year. With fewer bonds
entering the market, demand is generally exceeding supply, pushing
up the prices of existing bonds.
o Economic Environment Positive for High Yield Bonds. We believe
the slow growth, low interest rate environment will continue
throughout 1995, which should be beneficial to high yield, high risk
securities.
PORTFOLIO STATISTICS
(as a % of Net Assets on 11/30/95)
Quality
BB 32.8% Weighted Average Maturity 7.4 Years
B 46.4 Weighted Average Price $77.350
CCC 3.5
Non Rated 9.8
Equity/Preferred 1.6
Cash 5.9
Top Five Sectors Top Five Holdings
Food/Beverage 10.5% Comcast 3.8
Energy 10.0 Universal Outdoor 2.8
Communications 9.4 Empire Gas 2.7
Media 9.4 Viacom 2.6
Consumer Manufacturing 9.2 Specialty Equipment 2.6
INDIANAPOLIS, Dec. 14, 1995 -- A federal bankruptcy
court
judge in Indianapolis has approved Fox Promotions as liquidator for
the 126-unit Sycamore Stores
chain, which filed for Chapter 11
protection December 8.
Fox Promotions, headquartered in Cranford, N.J., was initially
retained by Sycamore Stores to liquidate inventory at 22 locations,
with the expectation that the remaining 104 would continue
operating. With the retailer's subsequent decision to file for
bankruptcy, Fox required court approval to coordinate the chainwide
liquidation. The approval was granted December 12.
Sycamore Stores serves markets throughout Indiana, Illinois,
Ohio, Kentucky and Michigan, presenting moderate priced women's
apparel in strip centers and regional malls. The company,
headquartered in Indianapolis, has been in business since 1969.
President and CEO Erik Risman says Sycamore chose Fox Promotions
over other liquidators offering guaranteed returns of 30 to 35 cents
on the dollar because the company believes Fox's team approach will
generate a better return for its creditors.
"The traditional liquidators offer a guaranteed return, but it
is generally in the best interests of secured creditors, and does
not always protect unsecured creditors. We feel that the
methodology Fox uses is more appropriate to protect all the
creditors, both secured and unsecured," Risman explains.
Fred Marech, president of Fox Promotions, says the safe but
small guarantees offered by other liquidators are no longer the most
appropriate choice for many retail companies confronting tough
choices about liquidation.
"A liquidator's guarantee may bring some small comfort to
retailers trying to determine their worst case scenario, but with an
increase in the number of Chapter 11 filings, the amount of those
guarantees is shrinking," says Marech.
"We believe that by using our experience as merchants and
marketers in a coordinated selling effort with the retail client
that we deliver consistently better returns than others who offer
small, up front guarantees," he adds.
"Through Fox Promotions," says Risman, "we hope to distribute
additional profits to our creditors that might normally have gone to
a traditional liquidator."
/CONTACT: Fred Marech of Fox Promotions, 908-272-0155; or Bill
Parness of Parness & Associates, 908-290-0121, PR agency for Fox
Promotions/
DALLAS, Dec. 14, 1995 -- Search
Capital Group, Inc. (OTC:
SRCG) today announced it has filed a Joint Plan of Reorganization
with the United States Bankruptcy Court for eight of Search's
subsidiaries. The announcement was made by George C. Evans, Search
chairman and chief executive officer.
Evans noted that Search itself is not in bankruptcy but it is a
co-proponent of the subsidiaries' plan of reorganization. The
subsidiaries filed for Chapter 11 bankruptcy protection in August
1995.
Last week, Search announced it had completed a $3 million
interim financing transaction with Dallas-based Hall Financial
Group, Inc.
Evans said negotiations between the creditors' committee
representing the subsidiaries' Noteholders in the bankruptcy have
been intense.
"After three months of negotiations with the Committee, I am
very pleased we have filed a consensual Joint Plan with the Court,"
said Evans. "There was a lot of give and take on both sides, but we
believe we have agreed on a Joint Plan that will be received
favorably by the Noteholders."
Since joining Search as president and CEO in January 1995, Evans
has been charged with restructuring Search and its subsidiaries.
"Final resolution of the subsidiaries' bankruptcy proceedings
will be another significant achievement in Search's restructuring
efforts," said Evans. "Moving forward, we are aggressively pursuing
long-term financing to effect future growth."
According to Evans, Search has made significant progress in its
restructuring during 1995. By May 1995, four Search board members
had been replaced and Evans was elected chairman of the board. In
addition, the company has intensively recruited management with more
than 200 years combined experience in the sub-prime automobile and
consumer finance industry. The new management team has made
important operational improvements and have developed a strategic
business plan to achieve profitability.
Search Capital Group, Inc. is a specialized financial services
company engaging in the purchase, management, and securitization of
used motor vehicle receivables. Search shares (SRCG.OB) are
currently being traded on the OTC Bulletin Board.
/CONTACT: Chris Anderson of Stern, Nathan & Perryman, 214-373-1601/
(SRCG)
CHICAGO, Dec. 14, 1995 -- Duff & Phelps Credit
Rating Co.
(DCR) placed the 'A+' (Single-A-Plus) rating of all Auto Bond
Acceptance transactions on Rating Watch-Down. The Auto Bond
Receivable Trusts consist of subprime auto loan receivables. The
following public transactions have been placed on Rating Watch-Down:
Auto Bond Receivables Trust 1993-G
Auto Bond Receivables Trust 1993-H
Auto Bond Receivables Trust 1993-I
Auto Bond Receivables Trust 1993-J
Auto Bond Receivables Trust 1993-K
Auto Bond Receivables Trust 1994-A
Auto Bond Receivables Trust 1994-B
Auto Bond Receivables Trust 1994-C
Auto Bond Receivables Trust 1994-D
Consequently, all DCR-rated Auto Bond transactions will remain
on Rating Watch-Down until this situation is completely resolved to
DCR's satisfaction. DCR will maintain its position of not rating
any new Auto Bond transactions until these issues are resolved.
Future rating actions will be taken as necessary.
/CONTACT: Andrew Leszczynski, 312-368-3177, or Steven M. Pena,
312-368-3137, both of Duff & Phelps Credit Rating Co./
TAMPA, Fla.--Dec. 14, 1995--Quality Products
Inc. (OTC:QPID) announced Thursday that it is pursuing a liquidating
Chapter 11 Plan for its wholly owned subsidiary, href="chap11.qpi.html">QPI Consumer
Products Corp. in Lakeland, Fla.
Additionally, the resignations of two of its Directors, Bruce
Daigle (effective Oct. 27, 1995) and Micah Eldred (effective Nov. 4,
1995) were announced.
The company also announced that it will seek to convert other
non-performing assets into cash if possible.
Thomas Raabe, the chief executive officer of the company since
March 23, 1995, stated that former management's use of approximately
$5.5 million of the company's cash resources for open market
repurchases of its common stock during 1994, left the company owing
over $7 million to its senior secured creditor and in a severe
liquidity crisis. This debt prevented the company from successfully
implementing a turn-around plan. When new management took over in
March 1995, the $7 million line of credit was due in 60 days. The
company negotiated an extension of the line of credit but on a month
to month basis and subject to increased interest rates and loan
facility fees. Raabe stated that sales of assets and attempts to
obtain a new lender and/or equity capital have not been successful
to date.
CONTACT: Quality Products Inc., Tampa,
Thomas P. Raabe, 813/248-4842
NEW YORK, Dec. 14, 1995 -- Niagara Mohawk Power's
(NMPC)
$2.6 billion outstanding 'BB' First Mortgage Bonds and Secured
Pollution Control Bonds are affirmed by Fitch. NMPC's $545 million
outstanding preferred stock is affirmed 'B+'. The credit trend is
declining.
At the conclusion of Fitch's annual review of NMPC employing
Fitch's Global Power Guidelines, a 3.70 Fitch Competitive Indicator
(FCI) score was assigned. The FCI, applicable to corporate and
public power utilities, is a number ranging from 1 (least vulnerable
to competition) to 5 (most vulnerable). NMPC's 3.70 FCI positions
the company at the bottom of Fitch's spectrum and compares poorly
with the average FCI of 2.71.
The declining credit trend reflects NMPC's inadequate cash flow
from operations. In 1996, further contraction of profit margin is
expected as revenues are constrained by lackluster sales and price
discounting and expenses continue to be pressured by uneconomic
contracts for purchased power. NMPC is becoming increasingly
reliant on commercial bank credit and currently faces a need to
arrange funding for seasonal working capital needs. Presently, the
company seeks to establish a revolving credit arrangement and may
increase its sales of customer accounts receivable. Fitch
anticipates NMPC will be successful in obtaining bank credit and
expects this action will increase mortgage debt outstanding by up to
$500 million.
Prospectively, NMPC may need bank credit to finance reformation
of contracts with its unregulated generators; (NUGs) and, going
forward, bank debt could play a significant role in the company's
plan to split its business into separate corporate units.
To bolster the company's competitive position and improve cash
flow, management is focused on current efforts to renegotiate many
of its 157 separate power supply contracts with NUGs, and gain
relief from the New York State gross receipts taxes. Recently,
Governor George Pataki supported eliminating the $1 billion
statewide tax, but the outcome of this favorable recommendation is
uncertain given the $4 billion deficit in the state's budget.
NMPC is likely to file two separate petitions with the NYS
Public Service Commission (PSC). The first petition could be filed
by Dec. 31, 1995 and will request the PSC require certain NUGs to
post collateral securing NMPC's power purchase payments. Shortly
thereafter, the company will request the PSC's assistance in
expediting procedures used in condemnation of NUGs via eminent
domain. Additionally, Fitch expects NMPC will file for increased
base rates by February 1996, and may ask for these rate increases to
be effective immediately on an emergency basis. Fitch believes that
the PSC requiring collateral and providing emergency rate relief are
more likely options than NMPC's condemnation strategy.
Fitch notes that while the PSC staff recommendation on
competitive issues favors NUG renegotiation, strict contract
administration and the posting of collateral, Fitch doubts the
ability of the PSC to actually order steps that could improve NMPC's
competitiveness, even though the PSC may feel a responsibility to
assist the company to achieve cost cutting measures. On December 8,
John O'Mara became the new Chairman of the PSC. A change in the
commission chairmanship often results in delay of some matters as a
new leadership structure is put into place. It also remains
uncertain that the PSC can focus on NMPC's situation given potential
distraction stemming from New York State's activity to facilitate a
takeover of the Long Island Lighting Co.
NMPC has proposed disaggregating into a gas and electric
distribution/transmission company and a separate electric generating
company. As part of its "Power Choice" strategy, NMPC considers
much of its $1.0 billion annual NUG expense to be stranded costs in
a competitive industry and seeks extensive NUG concessions in order
to preserve the present value available to bondholders, preferred
and common shareholders. NMPC has expressed its willingness to file
bankruptcy to shed the stranded cost burden should relief from high
taxes and uneconomic contracts be unattainable through concessions
and negotiations.
/CONTACT: John Watt, 212-908-0523, or Ellen Lapson, 212-908-0504,
both of Fitch/