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January 13, 2010
Muzak's Reorganization Plan
Confirmed
Elevator music
maker Muzak Holdings LLC is set to exit bankruptcy by the end of the
month after its chapter 11 reorganization plan was confirmed by
Bankruptcy Judge Kevin
Carey yesterday, the Deal Pipeline reported. The
Fort Mill, S.C.-based company will fund its chapter 11 plan with $108.75
million in exit financing from GE Capital Corp., Silver Point Finance
LLC and MFC Global Investment Management. Judge Carey approved the exit
loan in a Dec. 21 order. The exit facility consists of a $10 million
revolver, a $30 million first-lien term loan and a $68.75 million
second-lien term loan. Under the terms of a second modified version of
the plan, filed Oct. 26, secured term loan lenders led by J.P. Morgan
Chase NA, owed about $95.8 million, will be paid in full in cash with
proceeds from the exit financing.
href='http://pipeline.thedeal.com/tdd/ViewArticle.dl?id=10005376251'>Read
more. (Subscription required.)
New SEC Suit Alleges BofA Hid
'Extraordinary Losses' at Merrill
The Securities and Exchange Commission filed a new
lawsuit yesterday against Bank of America Corp., claiming the bank
failed to disclose billions of dollars in rising losses at Merrill Lynch
& Co. Inc. before shareholders voted on a merger in December 2008,
Corporate Counsel Magazine reported today. The new suit
will be heard by U.S. District Court Judge Jed Rakoff, who is also
handling an earlier SEC suit accusing the bank of misleading
shareholders about billions of dollars in Merrill bonuses. On Monday,
Judge Rakoff denied a motion by the Securities and Exchange Commission
to add a new charge to its earlier complaint against Bank of America.
However, Judge Rakoff told the SEC it could bring the charge as a
separate case, if it wants. The new charge accuses the bank of failing
to disclose the 'extraordinary losses' at Merrill Lynch, before the
shareholders voted on Dec. 5, 2008, to approve the merger between the
two financial giants.
href='http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=1202437898645'>Read
more.
U.S. Probing 15 FHA Lenders on Failed
Home Loans
Federal housing officials launched a probe yesterday targeting
15 lenders approved to do business with the Federal Housing
Administration that have unusually high default rates among their
FHA-backed loans, the Washington Post reported today. Agents and
auditors served subpoenas to the lenders demanding documents related to
the failed loans to determine whether there was any wrongdoing, said
Kenneth Donohue, inspector general of the Department of Housing and
Urban Development, which includes the FHA. Each firm raised suspicion
because its default rate was at least twice the average of peers in
their area. Together, they originated about 100,000 FHA-backed loans in
the two-year period ended Nov. 30 and the FHA paid claims on roughly
12,000 of them, according to a federal database. The agency does not
make loans; it insures the lenders against default. The largest
contributor to the volume of bad loans was the Memphis-based bank First
Tennessee, which sold its mortgage division to MetLife in 2008 and has
since focused its mortgage lending in Tennessee. The bank said in a
statement Tuesday that just a few bad loans in the smaller pool of loans
originated since then could have hurt its performance.
href='http://www.washingtonpost.com/wp-dyn/content/article/2010/01/12/AR2010011203526_pf.html'>Read
more.
Wall Street Pay Continues to Draw
Government Ire
Wall Street pay continues to draw government ire as the Obama
administration wants to tax it, the Federal Reserve wants to tweak it
and the Federal Deposit Insurance Corp. wants to shape it, the New
York Times reported today. Federal officials are waging pointed, if
calculated, assaults on the billions of dollars in bonuses that banks
are preparing to mete out —
lang='RU'>and, in many cases, hoping to turn the politics of pay to
their advantage. The volley of proposals, particularly word this week
that President Obama is considering a tax on big banks to recoup
billions of dollars in federal aid, has blindsided many banks. Industry
experts, and even some government officials, say that some of the plans
being floated are at odds with one another or with policy goals like
encouraging banks to make more loans. The latest salvo came from Sheila
C. Bair, the head of the FDIC, which is moving to impose increased fees
on banks with pay practices that the agency considers risky. The FDIC,
which safeguards bank deposits, is not seeking to cap pay.
href='http://www.nytimes.com/2010/01/13/business/13bank.html?ref=business&pagewanted=print'>Read
more.
For Bankers, Saying
'Sorry'
lang='RU'>Has Its Perils
As America recovers from the worst financial crisis since the
Depression and some of the nation
lang='EN'>’s chief executives are offering
an apology, it is unclear just how much responsibility they are willing
to shoulder, the New York Times reported today. The art of the
nuanced regret —
lang='RU'>admitting mistakes without accepting blame
lang='EN'>— will be on display Wednesday at
a hearing of the new Financial Crisis Inquiry Commission in Washington,
where Lloyd C. Blankfein of Goldman Sachs, Jamie Dimon of JPMorgan
Chase, John J. Mack of Morgan Stanley and Brian T. Moynihan of Bank of
America are to testify about their roles in the financial crisis.
Moynihan, who recently took over Bank of America after Kenneth D. Lewis
steered it into a troubled merger with Merrill Lynch, plans to say that
the banking industry caused a lot of damage and acknowledge that
mistakes made by financial companies can affect Main Street.
href='http://www.nytimes.com/2010/01/13/business/13blame.html?ref=business&pagewanted=print'>Read
more.
Judge Approves Reader
lang='EN'>’s
Digest Sale of Interactive Education Unit
Bankruptcy Judge Robert Drain approved the Reader
lang='EN'>’s Digest Association
Inc.’ s sale of its
CompassLearning interactive education unit to Marlin Equity II LP for
$31.8 million, Bloomberg News reported yesterday. Marlin won the unit,
which makes digital curriculum materials for schools and libraries, over
four other bidders at a Jan. 7 auction in which it agreed to pay 57
percent more than its initial offer in November. Judge Drain also
scheduled a hearing for Jan. 15 to consider confirming the
publishing company’s
reorganization plan for exiting bankruptcy. The case is In re
Reader’s Digest
Association Inc., 09-23529, U.S. Bankruptcy Court, Southern
District of New York (White Plains).
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=aenrQqX5RYXo'>Read
more.
Stop FDIC from Freezing $38 Million
The Colonial Bancgroup Inc., holding company for the failed Colonial
Bank, has asked a bankruptcy court to stop the Federal Deposit Insurance
Corp.’s (FDIC) efforts to
seize millions Bancgroup transferred to external accounts before its
bank tanked, Bankruptcy Law360 reported yesterday. Colonial
Bancgroup filed a motion on Monday in the U.S. District Court for the
Middle District of Alabama, asking the court to deny an October request
from the FDIC to use the holding company's deposits, valued at about
$38.4 million, as setoff against the more than $1 billion the FDIC will
need to cover losses owing to bank failure. Colonial Bancgroup's money
is currently frozen by FDIC order in accounts at Branch Banking and
Trust Co., which acquired much of Colonial Bank after regulators ordered
it shuttered, but before it filed for bankruptcy, according to
Colonial's motion for summary judgment. The sale was brokered by an FDIC
receiver, Colonial said.
href='http://bankruptcy.law360.com/articles/142919'>Read
more. (Subscription required.)
RH Donnelley Receives Court Approval to Exit
Bankruptcy
Bankruptcy Judge Kevin Gross approved Yellowpages publisher
R.H. Donnelley Corp.’s
reorganization plan yesterday, clearing the way for it to exit
bankruptcy, Reuters reported yesterday. The company will emerge having
shed about $6.4 billion in debt and $500 million in annual interest
payments. Bondholders exchanged their $6.0 billion in unsecured debts
for all of the company's equity and $300 million in new notes. The Cary,
N.C.-based company will emerge from bankruptcy later this month with
$125 million of cash and $3.4 billion in debt. The case is In re R.H.
Donnelley Corp., U.S. Bankruptcy Court, District of Delaware, No
09-11833.
href='http://www.reuters.com/article/idUSN1220389220100112'>Read
more.
AbitibiBowater Unit
Settles EPA Air Claims
Bowater Inc. has settled a Clean Air
Act lawsuit with a district court brought on behalf of the U.S.
Environmental Protection Agency, Bankruptcy Law360 reported
yesterday. The court approved a deal calling for the bankrupt newsprint
producer to better monitor emissions from a Tennessee mill and give the
U.S. a $30,000 bankruptcy court claim. The bankruptcy court approved
Bowater's entry into the consent decree on Aug. 3, and the bankruptcy
court's order became final and non-appealable on Aug. 13. The amount of
the civil penalty assessed against Bowater is $30,000. Additionally, the
government will get a prepetition general unsecured claim against
Bowater in its bankruptcy case. On July 15, AbitibiBowater filed a
motion in the bankruptcy court seeking a modification of the automatic
stay to allow Bowater to consummate the consent decree.
href='http://bankruptcy.law360.com/articles/143040'>Read
more. (Subscription required.)
Smurfit-Stone Workers
Bring ERISA Class Action
Employees have lodged a proposed class action against
the administrators of Smurfit-Stone Container Corp.'s retirement plans,
alleging that they breached their fiduciary duty by continuing to invest
in Smurfit-Stone stock as the company went bankrupt, Bankruptcy
Law360 reported yesterday. The suit said the defendants failed to
act solely in the interests of the plans' participants and beneficiaries
and to “
size='2'>exercise the required skill, prudence and diligence
face='Verdana' size='2'>” in administering
the plans during the proposed class period, which is Jan. 1, 2006,
through Jan. 26, 2009. Specifically, the defendants knew or should have
known that investing in Smurfit-Stone was
size='2'>“unduly risky
face='Verdana' size='2'>” due to internal
mismanagement and an excessive debt load that drove the company to seek
bankruptcy protection, the suit says. Prior to filing its petition, the
company was increasing capital spending while incurring a
face='Verdana' size='2'>“huge
amount”
size='2'>of debt in a merger transaction with its competitor, Calpine
Corrugated. The bankruptcy case is In re Smurfit-Stone Container
Corp., case number 09-10235, in the U.S. Bankruptcy Court for the
District of Delaware.
href='http://bankruptcy.law360.com/articles/142990'>Read
more. (Subscription required.)
Federal Reserve
Chairman Challenged on Rates' Role in Housing Bust
While Federal Reserve Chairman Ben Bernanke says low
interest rates engineered by the Fed in the early 2000s aren't to blame
for the housing boom and bust, two surveys conducted by the Wall
Street Journal this week found that many economists believe low
rates did contribute to the bubble. In a monthly survey of mainly Wall
Street and other business economists, 42 said low interest rates were
partly to blame for the housing boom while 12 sided with Mr. Bernanke
and said they weren't. Academic economists who specialize in monetary
policy were split in a separate survey: 13 said low interest rates
helped cause the housing bubble and 14 said they didn't. The Fed
pushed its benchmark federal funds interest rate -- at which banks lend
to each other overnight -- to 1 percent in 2003 when Alan Greenspan was
Fed chairman and Bernanke was a member of the Fed board. With the
economy weak and deflation a concern, the Fed pushed rates up gradually
beginning in 2004 and Bernanke became chairman in 2006. Bernanke laid
out his defense of Fed policy last week, acknowledging that interest
rates were very low but adding that policy 'does not appear to have been
inappropriate.' Other factors -- notably an explosion of exotic
mortgages and a flood of cash coming into the U.S. from abroad -- were
the crucial drivers of the housing bubble, he said.
href='http://online.wsj.com/article/SB126334299214726955.html?mod=WSJ_hps_LEFTWhatsNews'>Read
more. (Subscription required.)
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