American Bankruptcy Institute Update

September 15, 2005

In This Issue

Highlights

NWA, Delta Bankruptcy Analysis

Little Turnaround Room in Bankruptcy Hangar - Commentary

In most industries it works this way: The successful thrive, and the sick don't survive. But in the airline business, it isn't so simple, says the Chicago Tribune. The sick take refuge in bankruptcy court, sometimes more than once, surviving in a smaller, usually weaker form to fly again.

That's the potential scenario underlying Wednesday's extraordinary coincidence in which Delta Air Lines and Northwest Airlines filed for chapter 11 protection, becoming the third and fourth major carriers to file for bankruptcy, even as the overall economy shows signs of strength. Read the full story.

A New York Times article today described the U.S. government as “an unsecured creditor” of Northwest Airlines. Read the article.

Bankruptcy Filing Launches Delta Fight with Workers

Now that Delta Air Lines has filed for chapter 11 bankruptcy protection, the carrier will have a legal fight on its hands from employees and retirees seeking to protect their benefits, legal experts said. Delta, the third-largest U.S. airline, filed late yesterday for reorganization under chapter 11 of the federal Bankruptcy Code, No. 1-05-bk-17923, Law.com reported today. Click here for details on Delta’s planned restructuring.

Delta has been in talks with GE Commercial Finance to provide the airline with $2 billion in debtor-in-possession financing, which would allow the airline to continue operating after a bankruptcy filing. Industry analysts said that they expect Delta to pledge virtually all of its remaining unencumbered assets, such as aircraft, as collateral for the loan.

Delta also could cut or even abandon its pension plan and health care benefits for retirees and employees. Such a move likely would lead to a legal fight from employee groups.

While holders of common stock are likely to see their investments become worthless, rank-and-file Delta employees and retirees are also vulnerable to losses, said Dean Booth, an attorney with Schreeder, Wheeler & Flint who represents retired Delta pilots. Read the full story.

Pension Bills Take On Urgency with Airlines' New Filings

The bankruptcy filings of two more major airline carriers yesterday has lawmakers fearing the impact on the nation's pension insurer and calling for action on legislation overhauling the nation's pension laws, Congress Daily reported today. Delta Air Lines and Northwest Airlines have not announced whether they would transfer their combined billions of dollars of pension liabilities to the Pension Benefit Guaranty Corp. (PBCG), the government's already struggling pension insurer. If the companies make such a move, that might plunge the agency further into debt.

The bankruptcy announcements come as Congress turns its attention to legislation aimed at preventing companies from terminating their pension plans and turning over their plans to the financially troubled PBGC. The three leading pension proposals in Congress -- one in the House and two in the Senate -- tighten rules for all companies that sponsor traditional defined benefit pension plans.

The two Senate proposals, which must be combined before going to the Senate floor for a vote, include additional help for airlines. The Senate Finance Committee's version would give airlines 14 years to pay off their pension liabilities. The Senate Health, Education, Labor and Pensions Committee's bill also would give airlines 14 years to stretch out their pension payments, and it included a special provision for Delta, allowing the company to temporarily freeze its pension plans. The House bill included no airline-specific help, and Boehner has resisted such provisions. "I'm sensitive to their problems," he said on Wednesday of the troubled airlines. "But this is about comprehensive pension reform." Temporary pension legislation adopted in 2003 setting the rate that companies must use to calculate their pension payments expires at the end of the year.

 

Asbestos Fund Bars 9 Doctors

One of the oldest and largest trusts set up to compensate victims of asbestos exposure has barred payments to claimants who rely on reports by nine doctors and three X-ray screening companies, the News York Times reported today. The named doctors are responsible for tens of thousands of claims submitted to the trust, which has paid out $3.3 billion to resolve 655,096 claims since it was created in 1988. The move by the Manville Personal Injury Settlement Trust is a response to growing concern that some of the claims it receives are not valid and may even be fraudulent.

Lawyers for Claims Resolution Management Corporation, a wholly owned subsidiary of the Manville Trust, also said that the company had received a subpoena from federal prosecutors in Manhattan who are looking into asbestos claims. The subpoena is an indication that the government's investigation is widening. The trust's decision could affect current bankruptcy proceedings of companies coping with asbestos claims and, potentially, legislation mired in Congress that would set up a massive compensation fund for victims, lawyers said. Read the full story.

Views From The Bench - Last Day To Avoid $50 Late Registration Fee Is Friday!

Join ABI and The Georgetown University Law Center CLE for Bankruptcy 2005: Views from the Bench, and earn up to 6.0 CLE/7.0 CPE credits, including 1.0 hour of ethics.
The program features the views of 18 U.S. Bankruptcy Judges from across the country. Timely topics—all updated with the latest legislative revisions—include:

• First-day Issues: Changes in procedures under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).
• Section 363: New Developments Including Precision Industries Inc. v. Qualitech—Sales Free and Clear of Leases and Other Valuable Rights?
• Mass Tort Problems: Including Prepacks, Legislation, Future Claims and Combustion Engineering.
• Separate Topical Break-out Lunches with the Judges: A unique opportunity for attendees to follow up on the morning’s topics in small groups with the judges and speakers.
• Pension and Employee Issues: Reconciling the Interests of Unions/Employees, the PBGC and the Estate: §1113 and Terminating Underfunded Pension Plans.
• Legal Ethics: Examination of Issues Involving Representation of the Creditors’ Committee, Conflicts and Solicitation for Appointment.
• BAPCPA: How Will the Act Affect Business Bankruptcies, including Reclamation, Preferences, Exclusivity, Property of the Estate, Plan Modification and Discharge of Debtors Under Chapter 11?

Register before Sept. 16 to avoid $50 late fee!

Best of Northeast Bankruptcy Conference 2005 is Sept. 28!

Don’t miss the Best of ABI: The Northeast Bankruptcy Conference at 11:00 a.m. EDT!

Beyond the simple admonition to get as big a retainer as possible, does it matter from whom the retainer comes and whether the asset used to pay the retainer was pledged? How might you wrestle a retainer from a secured creditor? What’s happening with carve-outs and how much should they be? How to say no to a client and whistle blowing. The obligations and limits of zealous advocacy. Candor with tribunal and possible conflicts with duties of loyalty and confidentiality to client.

These issues and more will be addressed by a panel of renowned speakers:

Charles F. Dougherty, partner at Foley & Lardner LLP in Boston, where his work includes corporate restructurings, debt and equity investments, mergers and acquisitions, refinancings and workouts.

John G. Loughnane, partner at Gadsby Hannah LLP in Boston, where he is a member of the business reorganization and bankruptcy group.

Hon. Joel B. Rosenthal, U.S. Bankruptcy Judge for the District of Massachusetts in Worcester, Mass.

Paul R. Salvage, partner at Bacon & Wilson PC in Springfield, Mass., where he focuses on creditors’ rights, loan documentation and commercial transactions.

Click here for more information or to register

The “Best of ABI” series brings the highest-rated sessions from each ABI conference right to your office. We provide a special Web interface for this program, allowing participants to interact online with presenters through Q&As, file-sharing and dynamic polling. ABI offers the latest distance learning technology in order to provide you with this innovative learning experience. CLE/CPE credit will be available in certain states.

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