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August 6, 2007
name='1'>Rising Fees Charged in Bankruptcy Cases Elicit a
Backlash
A study by scholars at
the law school of the
size='3'>University of
size='3'>California
size='3'>Los Angeles
that fees paid to counsel involved in large corporate bankruptcies
soared 12 percent a year between 1998 and the first half of 2007,
the Wall Street
Journal reported on Saturday. It concluded
that in many recent bankruptcy cases, fees far surpassed the average of
recent years. 'Nobody is controlling the fees,' says
size='3'>Lynn LoPucki, a UCLA law professor who
performed the analysis with colleague Joseph Doherty. Criticism of
rising costs is likely to increase in volume amid the current turmoil in
the credit markets, which makes so-called rescue financing tougher to
obtain. Stephen Lubben, a
professor at
size='3'>Seton
face='Times New Roman' size='3'>Hall
size='3'>University
in
face='Times New Roman' size='3'>Newark
size='3'>,
size='3'>N.J.
bankruptcy fees are rising about as fast as compensation increases to
junior lawyers in big law firms. In other words, fees are keeping pace
with wage inflation. He argues that bankruptcy fees shouldn't be singled
out, because corporate-advisory work is expensive. For instance, he says
fees in the recent sale of Tribune Co. were roughly $100 million, a
transaction that didn't involve bankruptcy.
href='http://online.wsj.com/article/SB118618715424787943.html'>Read
more. (Registration required.)
name='2'>Housing Downturn Bankrupts
w:st='on'>Central
Florida
size='3'>Borrowers
The real estate
speculation and 'creative' financing the housing boom generated are now
driving many investors and homeowners into bankruptcy, especially
in
size='3'>Central Florida
Orlando Sentinel
reported today. Personal bankruptcies in the
size='3'>Orlando
up 80 percent during the first half of 2007 -- the biggest rate increase
in the federal court system's Middle District of Florida.
size='3'>Orlando
bankruptcies also far outstripped the national rate, which was up 43
percent compared with the first six months of 2006.
face='Times New Roman'>
face='Times New Roman' size='3'>Orlando
bankruptcy lawyer
size='3'>Richard Heller is seeing a lot of
people lately who thought they had placed a sure bet during the recent
housing boom. What's happening in Central Florida is happening in
California
country where speculation flourished during the real estate boom,
said
size='3'>ABI
Director
size='3'>Sam Gerdano. About
$1 trillion worth of mortgage debt is expected to adjust upward to a
higher interest rate this year -- more than triple the amount that rose
last year, according to First American Loan Performance, a
size='3'>San Francisco
size='3'>research firm.
href='http://www.orlandosentinel.com/business/orl-bankruptcy0607aug06,0,4991198.story?track=rss'>Read
more.
Chairwoman Issues Principles to Guide Credit Card Measure
House Financial Services
Financial Institutions Subcommittee Chairwoman Carolyn Maloney (D-N.Y.)
proposed to eliminate certain credit card practices that consumer groups
have called abusive, to require banks to provide better disclosure in
their card agreements and to provide consumers more rights over their
accounts,
size='3'>CongressDaily reported on Friday.
Maloney released a set of principles that she said will serve as a basis
for writing legislation that should be introduced within the next two
months, though she added that she would like banks to voluntarily adopt
the code. House Financial Services Chairman Barney Frank
(D-Mass.) has indicated he would like to move a bill by October.
Maloney held a summit last Monday with bank lobbyists and consumer
advocates to reach consensus on her proposal. She called on card
companies to ban the practice of changing rates at any time for any
reason and universal default, a practice in which customers are charged
a higher interest rate if they miss a payment on another card or if
their credit score has dropped.
href='http://maloney.house.gov/index.php?option=content&task=view&id=1420&Itemid=61'>Click
here to read Congresswoman Maloney’s press
release.
Mortgages
name='4'>American Home Mortgage Files Chapter 11
American Home Mortgage
Corp. filed for bankruptcy protection today, the latest casualty of a
mortgage industry that has plunged into distress, the Associated Press
reported today. The Melville, N.Y.-based mortgage lender asked a court
in
size='3'>Wilmington,
w:st='on'>
size='3'>Del.
11 bankruptcy protection from its lenders. Last week, American Home
Mortgage said many of its lenders wanted their money back, and said it
was unable to deliver as much as $800 million for mortgage loans
promised to home buyers. The company's three biggest creditors are
Deutsche Bank AG, Wilmington Trust Co. and JPMorgan Chase &
Co.
href='http://biz.yahoo.com/ap/070806/american_home_bankruptcy.html?.v=1'>Read
more.
name='5'>Securitization May Exacerbate Mortgage
Problems
As the housing market
weakens and interest rates on adjustable mortgages rise, more and more
borrowers are falling behind, the
size='3'>New York Times reported today. Almost
14 percent of subprime borrowers were delinquent in the first quarter of
2007. Investors, fearful that these problems will hurt the overall
economy, have retreated from the stock and bond markets, creating major
sell-offs. Securitization, the very innovation that made mortgages so
easily available, is creating an obstacle for troubled borrowers as they
try to restructure their loans. They are often thwarted by strict
protections put in place for investors who bought the mortgage pools.
This impasse could exacerbate the housing slump, pushing more homeowners
into foreclosure. “Securitization led to this explosion of bad
loans, and now it is harder to unwind and modify them even where it is
in the best interests of both the borrower and the investors,”
said Kurt Eggert, an associate professor at the Chapman University
School of Law in Orange, Calif. “The thing that caused the problem
is making it harder to solve the problem.”
href='http://www.nytimes.com/2007/08/06/business/06home.html?ref=business&pagewanted=print'>Read
more.
w:st='on'>
name='6'>U.S.
face='Times New Roman' size='3'> Trustees Receive
Reappointments
size='3'>R. Michael Bolen,
face='Times New Roman' size='3'>Habbo G. Fokkena
size='3'>, Nancy J.
Gargula,
size='3'>W. Clarkson McDow, Jr.
and William T.
Neary have been reappointed by the Attorney
General as U.S. Trustees, according to a release Friday by the
Executive Office of the U.S. Trustee. Bolen was reappointed for
size='3'>Louisiana and
size='3'>Mississippi
size='3'>(Region 5), where he was first appointed as U.S. Trustee in
June 2002. Fokkena was reappointed for
face='Times New Roman' size='3'>Iowa
size='3'>,
size='3'>Minnesota
w:st='on'>South
Dakota
w:st='on'>
size='3'>North Dakota
size='3'>(Region 12), where he was first appointed as U.S. Trustee May
2002. Gargula was reappointed for
face='Times New Roman' size='3'>Indiana
size='3'>and central and southern
w:st='on'>
size='3'>Illinois (Region
10), where she was first appointed as U.S. Trustee in June 2002. McDow,
Jr., was reappointed for
size='3'>South Carolina,
size='3'>Virginia
w:st='on'>West
Virginia
w:st='on'>
size='3'>Maryland
size='3'>District of Columbia
size='3'>(Region 4), where he was first appointed as U.S. Trustee in
June 1994, and was reappointed in June 1999. Neary was reappointed for
northern and eastern
w:st='on'>
size='3'>Texas
where he has served as the U.S. Trustee since 1986.
name='7'>Calpine Approved to Sell Interest in
w:st='on'>
size='3'>Acadia
size='3'>Power
Judge
face='Times New Roman' size='3'>Burton R. Lifland
size='3'>gave bankrupt Calpine Corp. approval to sell half of its
interest in Acadia Power Partners LLC for about $189 million,
Bankruptcy Law360
reported yesterday. Calpine said that the $189 million
sale to King Street Capital Management LLC on Wednesday was about $44
million more than what was offered by the stalking horse bid. The sale
price also includes the payment of $85 million in priority distributions
Calpine owed Acadia Power Holdings LLC as part of a limited liability
company agreement of Acadia Power Partners. Calpine expects to close the
transaction, pending certain regulatory approvals, in the third quarter
of 2007.
href='http://bankruptcy.law360.com/secure/ViewArticle.aspx?Id=31605'>Read
more.
Autos
name='8'>Delphi Reaches Labor Deal with
w:st='on'>
size='3'>Union
Delphi Corp. cleared
another hurdle in its efforts to emerge from bankruptcy proceedings when
the Communications Workers union ended a strike threat and tentatively
agreed to a four-year contract, the Associated Press reported today. The
union represents about 2,000
face='Times New Roman' size='3'>Delphi
size='3'>employees. The company recently secured concessions from the
United Auto Workers, its largest union and representative for about
16,000
size='3'>Delphi
labor costs. The Delphi-UAW deal slashes wages for longtime workers from
$27 per hour to a range of $14 to $18.50 an hour. The IUE-CWA has
workers at three plants that Delphi plans to keep -- including Warren,
Ohio, and Brookhaven and Clinton, Miss. -- as well as at three the
company plans to sell or close, including Kettering and Moraine, Ohio,
and Gadsden, Ala. Delphi leaders say they hope to emerge from bankruptcy
href='http://www.nytimes.com/aponline/business/AP-Delphi-Bankruptcy.html?pagewanted=print'>Read
more.
name='9'>Former Home Depot CEO Picked to Run
Chrysler
Cerberus Capital
Management LP named former Home Depot Inc. CEO Robert Nardelli to lead
its newly acquired Chrysler unit, marking a shift in management strategy
for
size='3'>Detroit
size='3'>automakers, the
size='3'>Wall Street Journal reported today.
Nardelli, who left Home Depot earlier this year under fire for his pay
package and the company's strategic struggles, will become chairman and
CEO of Chrysler, making him the second outsider recently named to lead
one of
size='3'>Detroit's
struggling Big Three auto makers. He follows former top Boeing Co.
executive Alan Mulally, who was recruited last fall to take over Ford
Motor Co. The arrival of two CEOs who aren't part of or beholden to the
U.S. auto industry's culture and traditions is as potent a symbol of the
change buffeting the U.S. auto sector as the news last week that the Big
Three's combined share of the U.S. market fell below 50 percent for the
first time. Both will play key roles in what are expected to be tough
negotiations over a new national labor agreement with the United Auto
Workers union, in which the auto makers want big concessions to narrow a
$30-an-hour labor-cost gap with the
w:st='on'>
size='3'>U.S.
size='3'>operations of Japanese auto power Toyota Motor Corp.
href='http://online.wsj.com/article/SB118636224931188685.html?mod=hpp_us_whats_news'>Read
more. (Registration required.)
name='10'>Realtors Take Aim at Private Equity Tax Hike
Proposal
The National Association
of Realtors (NAR) will be lobbying against a proposed tax hike on the
private equity industry,
size='3'>The Hill reported on
Friday. NAR's involvement is a boon to the private equity industry
as it fights off the tax hike, proposed in June by House Ways and Means
Committee Chairman Charles Rangel (D-N.Y.) and Rep. Sandy Levin
(D-Mich.). The Rangel-Levin bill would raise taxes on the “carried
interest” used to compensate investment managers from capital
gains rates of 15 percent to ordinary income rates as high as 35
percent. Many perceive the legislation as a threat only to Wall Street
high-rollers, but the bill would raise taxes on managers of any
investment partnership holding securities, commodities or real estate as
an asset. Nearly all the commercial real estate in the United
States, valued at more than $1 trillion, is owned by
partnerships, and carried interest is a common feature of those
partnerships, according to NAR.
href='http://thehill.com/business--lobby/realtors-take-aim-at-private-equity-tax-hike-plan-2007-08-03.html'>Read
more.
TROUBLED COMPANIES IN THE
NEWS
The business news articles below are taken from the U.S. Business
Journal’s Daily Summary of Troubled & Fast Growing U.S.
Companies which is published by Bastien Financial Publications.
discount off of our regular subscription rate of $500 when subscribing
to the complete Daily Summary.
To subscribe email steve@creditnews.com
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href='mailto:steve@creditnews.com'>
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800-407-9044—use
Code 37
APA Enterprises
Inc., Blaine, Mn., will close its optronics unit and
take related charges of more than $430,000. The unit being shut down
makes telecom and communications components.
Atmel
Corp., a
Jose
reported second quarter net income of $700,000, down from net income of
$8.3 million in the year-earlier period. The results include a
gain of $2.6 million due to restructuring. Revenue declined 6%–to
$404 million. The results included extra charges of $15 million and
tax-related issues.
Carrier Access
Corp., a Boulder, Co. firm which provides digital access
equipment for high-speed data service providers, reported a second
quarter net loss of $12.2 million, on a 69% revenue decline–to
$7.6 million.
Cray Inc.,
the
manufacturer, reported a second quarter net loss of $6.4 million, a
slight improvement over its $7.2 million loss for the same quarter in
2006. Revenue declined from $38 million, one year earlier, to
nearly $27 million for its current period. The company also
lowered its 2007 revenue estimates–now to $190 million.
eHealth
Inc., a
w:st='on'>Mountain View
health insurance, reported its second quarter net income declined
51%–to $1.6 million, on a 33% revenue decline–to $14.2
million.
Entegris
Inc., the Chaska, Mn. maker of products used in the
semiconductor manufacturing process, reported its second quarter
earnings declined 19%–to $14.8 million on a revenue decline from
$179 million, one year earlier, to $154 million for its current quarter.
The earnings and revenue decline were, in part, a result of slower
sales in its microelectronics operations.
Furniture Brands
International Inc., the
Louis
manufactures such brands as
w:st='on'>Thomasville
Broyhill, reported its second quarter net income declined 65%–to
$5.8 million on sales of $535 million. Sales for the year-earlier
quarter had reached $601 million. The results included $800,000 in
restructuring and asset impairment charges.
Industrial Distribution
Group Inc., the
w:st='on'>Atlanta
w:st='on'>Ga.
repair and production products to industrial and commercial
manufacturers, saw its second quarter net income decline from $1.5
million, one year earlier, to $52,000 during its current quarter.
Sales also declined slightly–to $133 million. The
company also announced a cost reduction program under which it hopes to
save $6 million annually.
Lake Shore Asset
Management Ltd., the
w:st='on'>Chicago
w:st='on'>Il
Circuit Court of Appeals rule that the company’s assets no longer
need to be frozen. The decision affected more than $230 million
worth of the customer assets.
Overstock.com
Inc., a
Lake City
online retailer, reported a second quarter net loss of $13.8 million,
including restructuring charges of $6.2 million. Revenue declined
6.4%–to $149 million.
Take-Two Interactive
Inc.’s decision to delay the release of the latest
installment of its popular Grand Theft Auto videogame series will delay
upcoming sales but could also have an effect on the videogame industry
more generally. With the new version of Grand Theft Auto taking
longer to complete than anticipated, Take-Two its putting off the
planned October release until the second quarter of next year. As a
result, the company, based in
w:st='on'>Manhattan
w:st='on'>N.Y.
the fourth quarter and year, and investors pummeled its stock, sending
its shares down 19%. But the effects will ripple beyond Take-Two’s
quarterly results, as the delayed game, Grand Theft Auto IV, had been
expected to push demand for Sony Corp.’s Play Station 3 and
Microsoft’s Xbox 360, sales of which have already disappointed
analysts. But for Take-Two, the delay is only the latest in a series of
problems that include legal and regulatory issues and the takeover of
the company by an investor group. Now Take-Two is looking at fourth
quarter sales of no more than $300 million, down from earlier
projections of as high as $550 million.
Unilever,
the London-based international manufacturer of packaged consumer goods
which is attempting to sell its North American laundry operations,
announced plans to reduce its payroll by 20,000 jobs, by 2012. The
workforce reduction will include either closing or reorganizing sixty of
its factories worldwide. The company also reported its second
quarter earnings increased 16%, a better result than analysts had
anticipated.
Weyerhaeuser
Co., the
w:st='on'>Federal Way
firm, reported its second quarter net income plunged 89%–to $32
million. Sales fell 11%–to $4.3 billion. The results included
restructuring, closure and impairment charges of $33 million.