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February 19,
2009
Housing
Administration’s
Housing Bailout Plan Could Total $275 Billion
President Barack Obama’s housing bailout plan,
which could cost as much as $275 billion, will enable as many as five
million homeowners who have little equity in their homes to refinance
loans through government-controlled mortgage giants Fannie Mae and
Freddie Mac, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The administration set aside $200 billion in
new backing for the pair, which will play a central role in the rescue.
In addition, the government plans to spend $75 billion to encourage
lenders to modify loan terms for people at risk of foreclosure or
already in foreclosure proceedings. Lenders and the government would
jointly lower monthly payments to 31 percent of homeowners' income. To
encourage servicers, the plan includes incentives such as $1,000-a-year
'pay for success' fees if a borrower stays current on the loan.
href='http://online.wsj.com/article/SB123496582087411241.html'>Read
more. (Subscription required.)
Analysis: Pressure to
Rework Mortgages Will Ripple Through Industry
The foreclosure-prevention plan announced by President
Barack Obama yesterday comes with the carrot-and-stick approach of
providing incentives for lenders to ease mortgage payments for
struggling borrowers while also allowing bankruptcy judges to cram down
mortgage balances for chapter 13 debtors, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. Lenders have long fought against cram downs,
which they fear judges will use aggressively to shrink loans for
troubled homeowners. The Obama administration said yesterday that it
favored applying cramdown provisions only to loans that fall within the
size limits that apply to loans that can be purchased by
government-backed mortgage investors Fannie Mae and Freddie Mac. Those
limits are $417,000 in most parts of the country but can run as high as
$729,750. Along with loans owned or guaranteed by Fannie and Freddie,
that would include many other loans within those limits that are held by
banks and investors.
href='http://online.wsj.com/article/SB123500438418718061.html'>Read
more. (Registration required.)
Some Americans,
Underwater but Ineligible, Are Angry over Housing
Plan
President Barack Obama's new foreclosure-prevention
plan is already sparking outrage from some Americans who won't qualify
for federal aid -- and from those who resent having to foot the bill for
those who do, the Wall Street Journal reported today. While
real-estate professionals applauded the refinance provisions, which the
White House says could help four million to five million homeowners,
lots of borrowers wouldn't be eligible. For example, the refinance
provision is limited to borrowers whose mortgages are owned or
securitized by Fannie Mae or Freddie Mac, the government-backed mortgage
companies. Some borrowers in hard-hit markets say they also are
excluded, because the foreclosure-mitigation plan allows borrowers with
little or no equity to refinance a first mortgage for up to 105 percent
of the property's current market value. For some affluent borrowers
heavily underwater in markets like California, that isn't
enough.
href='http://online.wsj.com/article/SB123500329338917907-email.html'>Read
more. (Registration required.)
Autos
Fails to Tackle Key Challenges
A group representing General Motors Corp. bondholders
fears that the automaker's latest restructuring plan fails to address
all the challenges facing the company and doesn't cut costs enough in
light of the deteriorating economy, the
face='Times








New


Roman'
size='3'>Wall Street Journal reported today.
The group is at the center of negotiations to reduce GM's $27 billion in
unsecured debt through a debt-for-equity swap, a key piece of the auto
maker's plan to escape bankruptcy. GM, which has received $13.4 billion
in federal loans so far, on Tuesday submitted a revised survival plan
and asked for an additional $16.6 billion, citing a deepening global
sales slump. If GM fails to cut a deal with bondholders and get the debt
exchange started by March 31, the earlier funding would be at risk under
href='http://online.wsj.com/article/SB123500467245718075.html?mod=testMod'>Read
more. (Registration required.)
Chrysler and GM Claim
Bankruptcy Financing Could Prove More Costly
General Motors and Chrysler have threatened that if
they do not receive additional federal aid, then their bankruptcy
financing request would likely top $125 billion, the
face='Times New Roman'>New York
Times reported today. GM alone has said that
it needs $100 billion to finance its bankruptcy, with Chrysler saying it
would need up to $25 billion. Several bankruptcy experts doubted that GM
would need to draw upon anywhere near that amount to get court
protection from creditors. Some experts, including Prof. Edward I.
Altman of the Stern School of Business at New York University, have
advocated pushing GM and Chrysler into bankruptcy with the government
providing the DIP financing to ensure that taxpayers are repaid
first.
href='http://www.nytimes.com/2009/02/19/business/19dip.html?ref=business&pagewanted=print'>Read
more.
Commentary: Only
Bankruptcy Can Force Detroit to Change
Bankruptcy increasingly looks like the least painful
choice for the reorganization of GM and Chrysler, according to a
size='3'>Wall Street Journal editorial today.
The two companies' 'downside' scenarios from late last year have become
this year's reality, with auto sales running at an annual pace of 9.8
million for the entire industry in January. GM insists that its plan
will allow it to be profitable on an 'adjusted' cash-flow basis 'at
industry sales rates of 12.5-13.0 million units.' This assumes GM can
maintain its market share when sales eventually pick back up, even
though it has been bleeding share for the better part of three decades.
While every automaker has suffered from the 40 percent or so decline in
sales, GM and Chrysler have been among the worst affected, with
Chrysler's unit sales falling 55 percent year-over-year in January and
GM's dropping by 49 percent. At the same time, GM's funding needs are
growing even faster than its market share is shrinking. Its latest plan
foresees a total of $30 billion in government loans before it reaches
its projected break-even point -- this for a company that, by its own
reckoning, has a 'net present value' in the range of $5 billion to $14
billion and market capitalization of only $1.25 billion. That $30
billion request doesn't include the possibility of pension-fund
contributions over the next few years.
href='http://online.wsj.com/article/SB123500825144618641.html'>Read
more. (Registration required.)
BearingPoint Files for
Chapter 11
BearingPoint Inc., a technology and management
consulting services company that was once the consulting arm of KPMG
LLP, filed for chapter 11 protection yesterday,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. BearingPoint said that its restructuring
process should go quickly because it filed a prepackaged plan with the
support of its senior secured lenders. The pre-arranged plan calls for a
$500 million senior secured credit facility to be replaced with a new
secured, senior credit facility. The new credit facility includes a term
loan of $272 million plus accrued interest and a synthetic letter of
credit facility of up to $130 million. The plan also calls for new
preferred stock to be issued and for unsecured debt to be exchanged for
different classes of common stock. The case is
face='Times New Roman'>In re
BearingPoint Inc., et al. in the U.S.
Bankruptcy Court for the Southern District of New York.
href='http://bankruptcy.law360.com/articles/87767'>Read
more. (Subscription required.)
Propex Looks to Sell Assets
to DIP Lender for $61 Million
A week after winning access to $65 million in
debtor-in-possession financing, Propex Inc. has asked a bankruptcy court
to approve the sale of the majority of its assets and related bidding
procedures that would pave the way for an affiliate of DIP lender
Wayzata Investment Partners LLC to buy the construction materials
manufacturer for more than $61 million,
face='Times








New


Roman'
size='3'>Bankruptcy Law360 reported yesterday.
In two motions filed Tuesday in the U.S. Bankruptcy Court for the
Eastern District of Tennessee, Propex sought to set up a process that
would guarantee the company at least $61.5 million from Wayzata
subsidiaries Xerxes Operating Company LLC and Xerxes Foreign Holdings
Corp. Under the proposed bidding procedures, any overbid would have to
exceed the Xerxes purchase price by almost $3.35 million.
href='http://bankruptcy.law360.com/articles/87835'>Read more.
(Subscription required.)
Feeling the effects of the downturn in the automobile
and housing markets, Foamex International Inc. sought chapter 11
protection nearly two years after the polyurethane and foam manufacturer
exited bankruptcy,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday.Foamex is carrying nearly $404 million in
secured debt, comprised of $325 million in prepetition first-lien term
loans, $47 million in second-lien term loans, roughly $26 million in
prepetition letters of credit and $6 million in industrial revenue
bonds.The debtors also owe trade vendors some $41 million as of
Wednesday, the filing says. The greatest unsecured claim is Dow
Chemical’s $18 million in trade debt, followed by a $2.9 million
obligation to Milliken & Co. and $1.3 million owed to Bayer Corp.The
case is
size='3'>Foamex International Inc., case
number 09-10560, in the U.S. Bankruptcy Court for the District of
Delaware.
href='http://bankruptcy.law360.com/articles/87882'>Read
more. (Subscription required.)
Circuit City Receives
Approval to Complete Its Liquidation
Bankruptcy Judge
face='Times








New


Roman'
size='3'>Kevin R. Huennekens on Tuesday
approved an amendment to Circuit City Stores Inc.’s $900 million
debtor-in-possession facility, allowing the failed retailer to complete
its liquidation without defaulting under the prior agreement with Bank
of America NA,
face='Times New







Roman'
size='3'>Bankruptcy Law360 reported yesterday.
Judge Huennekens signed off on the amended credit agreement, providing
for a wind-down budget and the termination of the DIP facility by April
30 or sooner, depending when the liquidation sales are completed. The
amendment also enables Circuit City to borrow up to $265 million between
Feb. 16 and Feb. 27, 2009. As of Feb. 28, Circuit City will no longer be
allowed access to cash collateral, the order says.
href='http://bankruptcy.law360.com/articles/87768'>Read
more. (Subscription required.)
Fed Chief Defends Steps
Taken to Contain Crisis
The Federal Reserve Chairman Ben S. Bernanke vowed
yesterday to do whatever it took to pull the economy out of its downward
spiral, even as he acknowledged that the most recent indicators were
“dismal,” the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. Bernanke focused on the Fed’s expansion
of lending activities since last fall. Using its power to create
additional money at will, the central bank has more than doubled its
“balance sheet” of holdings to about $2 trillion from $900
billion since last September. Bernanke also warned that the unemployment
rate, which reached 7.6 percent last month, would climb to 8 percent.
The “central tendency” of forecasts by the presidents of the
Federal Reserve’s district banks and of governors on the Federal
Reserve Board showed that they expected unemployment to reach 8.5 to 8.8
percent in 2009. Last October, policymakers expected unemployment to top
href='http://www.nytimes.com/2009/02/19/business/economy/19fed.html?_r=1&ref=business&pagewanted=print'>Read
more.
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