Hermiston Herald : May 22, 2001

Contractor files for bankruptcy

Filing not expected to impact incineration project at depot

By Frank Lockwood - - Staff writer

HERMISTON " Washington Group International has filed for bankruptcy protection, but the reorganization will not affect construction at Umatilla Chemical Weapons Disposal Facility, a company representative says.

The Department of Environmental Quality, however, wrote a May 15 letter expressing concerns and requesting proof that Washington Group will still be able to meet all the incineration project's permit requirements. The bankruptcy involves allegations of fraud stemming from Washington Group's purchase of Raytheon's construction projects about a year ago, a buyout in which Washington Group bought a number of projects that "drained" cash flow. The company presented bankruptcy courts with a plan that would shelter profitable projects under a new company while leaving so-called "bad" contracts in a separate company.

Sale and Allegations
Washington Demilitarization International bought Raytheon's engineering and construction business in July 2000, but in March, Washington Group International sued Raytheon alleging fraud. Power projects taken over from Raytheon were losing more money than Raytheon had represented, Washington alleged. When Washington Group took over contracts for the Umatilla Chemical Weapons Disposal Facility, a permit modification was required. Under the permit modification, Washington Group assumed Raytheon's financial obligations associated with the Umatilla Chemical Weapons Disposal Facility.

Records Subpoenaed
On May 3, Raytheon announced the Securities Exchange Commission had subpoenaed information about the sale to Washington Group. Raytheon Chairman and CEO Daniel Burnham said in the news release that Raytheon was cooperating fully and that he believed Raytheon had complied with all regulations and laws in the matter.

Bankruptcy Plan Announced
On May 14, Washington Group announced it had filed a voluntary Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Reno. The plan will allow certain challenged projects to be set aside in a bankruptcy process, while a new Washington Group company will be allowed to go ahead with projects. For holders of common stock in the old Washington Group, "It is unlikely there will be any recovery," the release said, although the reorganization plan, if accepted by the judge, will fund a legal trust so that Washington may continue its litigation with Raytheon.

Most of the Washington Group's domestic subsidiaries are included in the filing. Westinghouse Government Services and related entities are excluded, as are partially owned limited liability companies and joint ventures, and foreign subsidiaries and affiliates. However, both a Hanford project and the Umatilla Chemical Weapons Disposal Facility are included in the filing, Protocol Officer Jack Herrmann told The Hermiston Herald by telephone Wednesday.--Reasons for Washington's Filing--Washington Group filed for bankruptcy in order to find relief from certain "bad contracts" with Raytheon, Herrmann said.

Washington Group claims Raytheon Company failed to comply with terms of the April 2000 stock purchase agreement, causing the Washington to face a "severe, near-term liquidity crisis." As a consequence, Washington Group filed suit against Raytheon Company alleging fraud, and seeking either "rescission" of the affected contracts, or unspecified damages for breach of contract. The company has asked the court,s authorization to pay certain pre-petition, unsecured claims that relate to ongoing businesses. Under the plan, Washington Group "should experience no interruption in the flow of goods and services," the release said.

About Washington Group
Washington Group is organized around five market-oriented operating units: Government, Industrial/Process, Infrastructure & Mining, Power, and Petroleum & Chemical. Washington Group contemplates continuation of those units.

Washington Group International employs 35,000 workers in 43 states and 35 countries. The company offers science, engineering, construction program management, and development in 14 major markets including energy, environmental, government, heavy-civil, infrastructure and mining, nuclear services, operations and maintenance, petroleum and chemicals, industrial process, pulp and paper, telecommunications, transportation, and water resources.

Stephen Hanks, Washington Groups President said, "The restructuring agreement reached with our banks will permit Washington Group to swiftly and efficiently move beyond the period of uncertainty that has hung over the company since our March 2 announcement of near-term liquidity viability." The company now has sufficient cash to fund operations and is in the process of "returning this company to financial viability," Hanks said. Under the plan, "Management will remain in place, daily operations will continue as usual, our employees will be paid and this business will move forward. We are absolutely focused on on serving our existing clients and continuing to secure new business."

Raytheon's Cash Flow
Raytheon announced May 14 that the bankruptcy filing by Washington Group International will not change Raytheon's cash flow. "What is most important for us is successfully managing to completion the projects they abandon and that we have guaranteed," said Raytheon Senior Vice President and General Counsel Thomas Hyde, and "It doesn't matter whether they abandon the projects before filing bankruptcy or after." As of May 14, Washington Group International had "abandoned" only two power projects of some 50 sites, and Raytheon had hired Duke Fluor Daniel to complete those two projects.

Umatilla Not Affected
Speaking for Washington Group, Herrmann said most of the "bad contracts" were in a number of power projects, and did not involve the construction of the incinerators at Umatilla. "The banks have given us the money to continue to work," he said, and the bankruptcy "won't have any effect on Umatilla." In Hermiston, Protocol Officer Chris Early has worked for both companies, Raytheon and Washington Group's subsidiary, Washington Demilitarization.

Although the project changed hands, Early said in Wednesday's telephone conversation that his heart was still in the same place "I feel like I have worked on (only) one project. We have a plant to build and weapons to get rid of, and that's where we are focused."

DEQ Concerned
The DEQ says it wants evidence, not just assurances. In a May 15 letter to Army officials and Washington Demilitarization Company, DEQ Administrator Wayne Thomas reiterated concerns expressed on March 6, saying, "The department is again expressing the concern of the ability of the permittees to fulfill the required financial obligations." DEQ has told Washington Demilitarization Company to restate and verify that the financial and insurance guarantees approved on December 15, 2000 are valid and remain in effect following the filing for restructuring under Chapter 11.

The DEQ is requiring that Washington Demilitarization Company provide written verification and supporting documentation by May 31.