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January 20, 2010
Obama Pressing for
Protections Against Lenders
President Obama yesterday stepped into the middle of a
fierce lobbying battle by reinforcing his support for the proposed
Consumer Financial Protection Agency to protect consumers against
lending abuses that contributed to the financial crisis, the New York
Times reported today. The financial industry and Congressional
Republicans have singled out the administration
lang='EN'>’s proposed consumer agency in
particular, hoping to greatly weaken if not kill it. Obama personally
weighed in yesterday in a one-on-one meeting at the White House with
Senate Banking Chairman Christopher J. Dodd (D-Conn.) amid reports last
week suggested that Dodd might drop the consumer agency from the
emerging Senate bill in order to attract support from Republicans and
some centrist Democrats on his committee. Some Democrats in Congress and
the administration describe a possible fallback position that would give
enhanced consumer protection powers to existing federal regulators,
perhaps to the Treasury.
href='http://www.nytimes.com/2010/01/20/us/politics/20regulate.html?ref=business&pagewanted=print'>Read
more.
Tronox Receives Final Clearance for
Replacement DIP
Tronox Inc. has been cleared to
use all of a $425 million replacement debtor-in-possession loan that
serves as the linchpin for the chemical manufacturer's reorganization
plan, the Deal Pipeline reported
yesterday. Bankruptcy Judge Allan Gropper on Friday approved
Tronox's new DIP, which comes from a group of lenders led by Goldman
Sachs Lending Partners LLC, filings show. Tronox's new DIP will fund the
Oklahoma City company's operations through the effective date of the
reorganization plan it unveiled in December after pulling itself off the
auction block. The DIP is paying off Tronox's old DIP
lang='EN'>— a $125 million loan from
prepetition lenders led by Credit Suisse Securities (USA) LLC and J.P.
Morgan Chase Bank NA —
lang='RU'>as well as Tronox's other outstanding secured debt. According
to court papers, the new DIP financing consists of two term loans, one
for $335 million and another for $90 million. Tronox will use the loans
to repay $212.8 million in outstanding prepetition senior debt and the
$10 million outstanding on its original DIP, leaving the company with
about $202 million to use for other purposes.
href='http://pipeline.thedeal.com/tdd/ViewArticle.dl?id=10005378373'>Read
more. (Subscription required.)
AIG Deal Looking to Sell Life
Insurance Unit to MetLife
AIG has in recent weeks been in final negotiations to sell a big
international life-insurance unit to rival MetLife Inc., for $14 billion
to $15 billion, the Wall Street Journal reported today. A deal
would return $9 billion already earmarked for the Federal Reserve Bank
of New York, which largely directed the historic and controversial AIG
bailout in September 2008. The rest would go to AIG, which could also
use it to reduce its debts to the government, which has an 80 percent
controlling stake in the insurer. Administration officials said that a
MetLife purchase of the American Life Insurance Co. unit, coupled with a
separate public offering of another unit known as American International
Assurance Ltd., could eventually produce up to $45 billion for
taxpayers.
href='http://online.wsj.com/article/SB10001424052748704561004575013100811515356.html?mod=WSJ_hps_LEFTWhatsNews'>Read
more. (Subscription required.)
In related news, Federal Reserve Board Chairman Ben S. Bernanke asked
federal auditors yesterday to review the central bank
lang='EN'>’s role in the much criticized
rescue of the American International Group in 2008, the New York
Times reported today. In a request apparently intended to calm the
Fed’s critics,
Bernanke said that the Federal Reserve had already provided volumes of
information on the bailout, including weekly updates, monthly reports to
Congress and other documents. The Fed
lang='EN'>’s handling of the AIG rescue has
come under increased scrutiny in recent months. In November, the special
inspector general for the Troubled Asset Relief Program concluded that
the Federal Reserve Bank of New York, which had provided $85 billion to
avert the insurer’s
bankruptcy, essentially failed to use its power during intense
negotiations with AIG’
lang='RU'>s trading partners.
href='http://www.nytimes.com/2010/01/20/business/economy/20fed.html?ref=business&pagewanted=print'>Read
more.
FHA to Raise Standards for Mortgage
Insurance
The Federal Housing Administration plans to increase the amount of
up-front cash paid by all new borrowers and to require higher down
payments from those with the poorest credit, the Washington Post
reported today. These policy changes, scheduled to be announced on
Wednesday, are part of the agency's effort to beef up its ailing
finances, which have been eroded by rising defaults in its increasingly
popular flagship mortgage insurance program. The FHA currently backs
about 30 percent of all loans for home purchases and 20 percent of
refinanced loans. Under the new plan, the agency would increase the
up-front insurance premium that borrowers pay at the closing table from
1.75 percent to 2.25 percent of the loan's value starting this spring.
While most FHA borrowers can continue to make down payments of as little
as 3.5 percent when they take out a loan, those with a credit score of
less than 580 will have to make a down payment of at least 10 percent,
possibly starting in the early summer.
href='http://www.washingtonpost.com/wp-dyn/content/article/2010/01/19/AR2010011904281_pf.html'>Read
more.
In related news, the House Financial Services Subcommittee on Housing
and Community Opportunity will hold a hearing at 10 a.m. ET today on
H.R. 476, the 'Housing Fairness Act of 2009.'
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/HCOHer_01202010.shtml'>Click
here for more details and a link to the live Webcast of the
hearing.
name='5'>Lyondell Receives Extension to File Reorganization Plan
/>
Bankruptcy Judge Robert Gerber
yesterday gave bankrupt chemicals company Lyondell Chemical Co. more
time to file a reorganization plan and denied a creditors' motion to
expand a probe into some of the company's restructuring methods, Reuters
reported yesterday. Judge Gerber gave Lyondell until April 15 to plan
its reorganization without competing plans from other parties. Later in
the hearing, Judge Gerber denied a motion by the unsecured
creditors’ committee
to expand the duties of a court-appointed examiner to ensure that the
petrochemicals manufacturer is fairly evaluating proposals from
potential suitors such as India's Reliance Industries Ltd. Judge Gerber
said that the duty of the examiner, Georgia State University law
professor Jack F. Williams, had ended after he filed a
report with his findings on specific issues including the company's
debtor-in-possession financing arrangements.
href='http://www.reuters.com/article/idUSN1922687720100119'>Read
more.
name='6'>Objections to Chrysler Disclosure Statement Pour
In
Objections have continued to pile up in the bankruptcy
of Chrysler LLC castoff Old Carco, with the U.S. trustee, the Michigan
environmental authority and plaintiffs with millions in claims on the
line calling the disclosure statement inadequate, Bankruptcy
Law360 reported yesterday. Also objecting were computer system
vendor Electronic Data Systems LLC, which claims it is owed more than
$30 million for prepetition work done for Chrysler, and Kimberly Spears,
lead plaintiff in a putative environmental class action against
Chrysler. Though the bases for the objections varied, several of them
took issue with broad nondebtor releases in the disclosure statement,
which protect the liquidation trust, the liquidation trustee and the
litigation manager from future litigation. The U.S. trustee expressed
concern over the releases, saying that
size='2'>“The [U.S. Court of Appeals for
the] Second Circuit has held that nondebtor releases do not pass muster
merely by virtue of the fact that they appear in the plan.
face='Verdana' size='2'>”
href='http://bankruptcy.law360.com/articles/144011'>Read
more. (Subscription required.)
Visteon Studying Unsecured
Creditors' Proposal
Bankrupt auto parts maker Visteon Corp. said yesterday
that it is studying a reorganization proposal offered by its unsecured
creditors as an alternative to one that would virtually transfer
ownership of the company to its secured creditors, Reuters reported.
Visteon filed reorganization plan earlier this month that proposed
transferring nearly all of the equity to secured lenders. In return for
Visteon's willingness to consider the alternative proposal, the
unsecured creditors agreed to drop a request to investigate the cash
held at the auto parts maker's Korean business and postponed a request
to investigate the company's relationship with its former parent, Ford
Motor Co., according to court documents.
href='http://www.reuters.com/article/idUSN1913831920100119'>Read
more.
W.R. Grace Looks to End
Bankruptcy Financing deal
Specialty chemical company W.R. Grace & Co. wants
to end its financing agreement and enter into another, less-expensive
plan as it gets ready to emerge from bankruptcy, Reuters reported
yesterday. The new financing agreement will be 'more cost-effective' and
take advantage of the company's 'substantial' cash reserves, W.R. Grace
said in court documents submitted on Friday. The current
debtor-in-possession loan, which set to expire on April 1, provides a
financing commitment of as much as $165 million. The new agreement
includes a one-year cash collateralized letter of credit facility of
$100 million. W.R. Grace also said in the documents that it would have
trouble completing its bankruptcy emergence plan by April 1. In October,
the company told Reuters it hoped to emerge from bankruptcy during the
second quarter. Closing arguments to confirm the plan are expected to
wrap up on Jan. 25.
href='http://www.reuters.com/article/idUSN1921013320100119'>Read
more.
SIPC President Defends
Net Equity Approach
Securities Investor Protection Corp. President Stephen
Harbeck defended the company's plan to use the net equity method of
calculating payments to victims of Bernard L. Madoff's Ponzi scheme,
Bankrutpcy Law360 reported yesterday.
size='2'>“We've been saying since day one
that we believe [net equity] is the way to do the greatest good for the
greatest number consistent with the law,
size='2'>” Harbeck said. SIPC filed a brief
Friday in the U.S. Bankruptcy Court for the Southern District of New
York defending net equity, a response to investors who say the company
hatched the method to lower its overall liability to burned Madoff
investors. Several investors have asked the court to disallow the method
in favor of one that would honor the account balances listed on their
fictitious account statements, even if it means some investors would net
more money than they put in. In its brief SIPC argues that the
Securities Investor Protection Act is a bankruptcy as well as a
securities law and, contrary to investor arguments, mandates a zero-sum
pro-rata distribution of any recovered money.
href='http://bankruptcy.law360.com/articles/144074'>Read
more. (Subscription required.)
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