February 62007

February 6, 2007

Subprime Lender Files for Bankruptcy

Mortgage Lenders Network USA Inc. filed for chapter 11 protection, the latest in a string of subprime home-loan providers to be hit by slowing home sales and rising delinquencies, the Wall Street Journal reported today. The closely held Middletown, Conn., lender reported 7,000 creditors, assets of more than $100 million and debt of more than $100 million, in its chapter 11 filing in U.S. Bankruptcy Court in Wilmington, Del. Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. are listed among its unsecured creditors.

Airlines

Northwest Attendants Ask Court to Reconsider Pay Cuts

After seeing Northwest Airlines Corp. accumulate over $270 million in profits in 2006, the bankrupt carrier’s flight attendants have asked the bankruptcy court to reconsider the steep pay cuts it approved last year, Bankruptcy Law360 reported yesterday. The Association of Flight Attendants-CWA on Friday resumed heated negotiations with the carrier, submitting a contract proposal that it said would reduce by 20 percent the $195 million in proposed annual cuts Northwest imposed last year. In June 2006, after negotiations fell apart between Northwest and the flight attendants union, the bankruptcy court issued a memorandum authorizing Northwest to reject the collective bargaining agreement and impose terms on its flight attendants based on Northwest’s $195 million savings plan. Northwest had based the pay cut demands on projections that included revenue declines and fuel cost increases, both of which did not occur in 2006. Read more. (Registration required.)

UAL Refinances Bankruptcy Debt Facility

UAL Corp., parent of United Airlines, said that it made a cash payment of $972 million on a $3 billion debt facility and refinanced the remaining $2 billion, the Associated Press reported yesterday. The newly refinanced facility carries lower interest costs, less restrictive covenants and releases about $2.5 billion in collateral, UAL said. The new credit facility consists of a $1.8 billion term loan and a $255 million revolving credit line. UAL emerged from chapter 11 bankruptcy protection last February. Read more.

Autos

Federal-Mogul Looks to Emerge from Bankruptcy by Late Spring

Federal-Mogul Corp., a Southfield, Mich.-based auto supplier of pistons and transmission parts, said that May 8 was set as the final hearing date before it emerges from bankruptcy after half a decade of court protection from creditors, the Detroit Free Press reported today. Judge Judith Fitzgerald also approved new voting procedures for creditors to vote on the reorganization plan before the May 8 confirmation hearing. When Federal-Mogul gets out of bankruptcy, its total value is expected to be $4.4 billion to $4.7 billion. Read more.

Icahn Offers $2.75 Billion for Auto Parts Supplier Lear

Carl Icahn is making a $2.75 billion bet that battered U.S. auto-parts suppliers are poised for a comeback as he offered to buy interior and seat maker Lear Corp. for $36 a share, the Wall Street Journal reported today. Icahn said the beaten-down share prices of auto suppliers like Lear have made them attractive values. Pzena Investment Management LLC, Lear's third-largest shareholder, called on the Southfield, Mich., company's independent directors to oppose the bid, saying Lear has long-term value of $60 a share. A group of private-equity investors is set to invest as much as $3.4 billion into Delphi Corp., which is under bankruptcy court protection. Lear has also entered into joint ventures with financier Wilbur Ross to hand over control of Lear's multibillion-dollar plastics-interiors business, which makes parts such as instrument panels. Read more. (Registration required.)

Trustee Asks for Examiner in Granite Broadcasting Case

The U.S. Trustee in Granite Broadcasting Corp.'s bankruptcy case has asked the judge to appoint an examiner to look into a proposed equity deal with hedge fund Silver Point Finance LLC, Bankruptcy Law360 reported yesterday. U.S. Trustee Diana G. Adams said the examiner should look into possible conflicts of interest and self-dealing involving Silver Point, Chief Executive W. Don Cornell and Granite's board. Moreover,  Adams objected to a “death trap” provision in Granite's reorganization plan, which would give Silver Point control over how much Granite's unsecured creditors are paid. Under the plan, Silver Point will lead Granite’s secured creditors in a debt-for-equity swap and a rights offering for up to 1 million shares of new common stock. If the plan wins approval, senior debtholders are expected to walk away with about 90.9 percent on their claims, according to court papers. Read more. (Registration required.)

U.S.Energy Biogas’ Financing Deal Wins Approval

U.S. Energy Biogas Inc. is expecting a quick exit from bankruptcy after the court overseeing its chapter 11 proceedings approved a new pact with lender Countryside Power Income Fund, Bankruptcy Law360 reported yesterday. Under the agreement, a Canadian subsidiary of Countryside will get a $99 million secured claim, which would be Countryside’s only allowed claim in the case. USEB has also agreed to pay Countryside $3 million, $30 million on or before March 31, and the remainder of the claim on or before maturity at May 31. Read more. (Registration required.)

Financially Troubled Mall Owner Receives Rival Buyout Offer

The nation's largest mall owner and a hedge fund yesterday offered to buy the financially troubled Mills Corp. for $1.6 billion, exceeding the $1.35 billion offered by a Canadian company in January, the Washington Post reported today. The latest offer for Mills of Chevy Chase, Md., which owns about 40 malls nationwide, was made by Simon Property Group and the hedge fund Farallon Capital Management. Simon is the country's largest real estate investment trust, by market value, and Farallon is Mills's largest shareholder. Brookfield Asset Management, a Canadian investment company and owner of the World Financial Center in New York, made the earlier offer, which Mills accepted. Simon, which presented its offer in a letter yesterday, would pay $24 per share and assume Mills's debt. Brookfield would pay $21 per share. Mills closed yesterday at $25.87, up $3.72 on the New York Stock Exchange. Read more.

Merrill, Credit Suisse Ask Court to End Enron Suit

Lawyers for Merrill Lynch and Co. Inc. and Credit Suisse Group told a U.S. appeals court that a $40 billion lawsuit alleging the banks helped hide financial misdeeds that led to Enron's collapse should not proceed as a class-action complaint, Reuters reported yesterday. If the three-judge panel from the Fifth Circuit Court of Appeals overturns the class certification ruling from U.S. District Judge Melinda Harmon in Houston, it would be a major blow to the investors' case, which is set for trial in April. The banks argue that Judge Harmon has wrongly allowed investors to allege Merrill Lynch and Credit Suisse were primary participants in the fraud. However, Merrill Lynch has said in court papers that there is no evidence to prove the investment bank was a 'substantial or significant factor' in the losses that caused Enron's collapse. Read more.

SEC Is Looking at Stock Trading

The Securities and Exchange Commission has begun a broad examination into whether Wall Street bank employees are leaking information about big trades to favored clients, like hedge funds, in an effort to curry favor with those clients, the New York Times reported today. The inquiry is aimed at determining how pervasive insider trading, or the illegal use of market-moving nonpublic information, may be on Wall Street. Trading ahead of client orders, or front-running, has long been an issue on Wall Street. Large mutual fund companies have often complained in the past that Wall Street brokerage firms were front-running their trades, using information about the funds’ plans to buy or sell to make a risk-free bet on a stock’s direction. Read more.

International

Germany Business Bankruptcies Fall

The German Federal Statistics Office said that the number of German companies filing for bankruptcy in November fell even as the number of private households seeking similar protection increased, the Associated Press reported today. The number of corporate filings reached 2,326 companies in November, continuing the almost two-year downward trend in corporate insolvencies in Germany and bringing the year-to-date tally to 28,046. That's down 17 percent compared with the January-November 2005 period. Read more.

TROUBLED COMPANIES IN THE NEWS

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American Axle & Manufacturing Holdings Inc.'s stock price rose nearly 7%, despite both fourth quarter and fiscal losses, as the Detroit, Mi. manufacturer of driveline systems and forged products predicted that it will return to profitability this year.  The company reported a fourth quarter net loss of $189 million, on an 8% decline in sales--to $781 million. For the year, it lost more than $222 million on a 6% sales decline--to $3.2 billion.

Brookfield Homes Corp., a Del Mar, Calif. homebuilder, reported its fourth quarter net income sank 55%--to $58.8 million. Revenue declined 40%--to $336 million. For the year, its net income fell 32%--to $148 million, on a 28% revenue decline--to $888 million.

Cagle's Inc., an Atlanta, Ga. poultry company, reported a third quarter net loss of nearly $3.2 million on a 5% revenue decline--to $56.4 million.

General Motors Corp., Detroit, Mich., said that it may have 'overcorrected' in its attempt to reduce discounts in January and that that may have led to weaker sales than it had expected during the month. GM recently said that automotive sales sank 17% during January.

Mills Corp., the troubled Chevy Chase, Md.-based real-estate developer, received a competing buyout bid valued at more than $1.5 billion from a group including Simon Property Group Inc. of Indianapolis, In. and Farallon Capital Management of San Francisco, Ca.  The Simon-Farallon proposal is aimed at nudging out an earlier $1.35 billion agreement for Mills to be acquired by Brookfield Asset Management of Toronto, Ontario. 

SigmaTel Inc., an Austin, Texas maker of integrated circuits, reported a fourth quarter net loss of $98.7 million on a 54% drop in revenue--to $37.5 million. For the year, it lost $109 million on a 51% decline in revenue--to $159 million. The quarter included charges of $81.8 million, while the year also included $81.8 million in charges and a $45.7 million asset-disposition gain.

Technicolor Inc., a Camarillo, Calif. maker of DVDs, slashed its payroll by 1,000 positions, including job cuts at its facilities in Camarillo, Memphis, Tn. and Pinckneyville, Il. The firm will centralize operations at a lower-cost facility in Mexico as it seeks to reduce costs.