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October
16, 2007
Credit
Markets
name='1'>Fed Chairman Concerned
that Housing Woes Will Slow Growth
Federal Reserve Chairman Ben
Bernanke warned
yesterday that a deepening housing slump probably will be a 'significant
drag' on economic
growth into next year and it will take time for Wall Street to fully
recover from a painful
credit crisis, the Associated Press reported yesterday. Bernanke once
again pledged to 'act
as needed' to help financial markets function smoothly and to keep the
economy and inflation
on an even keel. 'Conditions in financial markets have shown some
improvement since the
worst of the storm in mid-August, but a full recovery of market
functioning is likely to
take time, and we may well see some setbacks,' Bernanke said. The
ultimate implications of
the credit crunch on the broader economy, however, remain 'uncertain,'
the Fed chief
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/10/15/AR2007101501281.html'>
Read more.
name='2'>Treasury Chief Aims to
Steady Credit Markets
In a sign that Bush
administration officials
are more concerned about the underlying problems in the credit markets
than previously
stated, Treasury Secretary Henry M. Paulson Jr. and other top Treasury
officials are pushing
Wall Street firms and the mortgage industry to come up with solutions,
the
face='Times New Roman' size='3'>New York Times
size='3'>reported yesterday.
The plan announced yesterday involves no money from taxpayers, and it
was negotiated
primarily between the banks themselves. However, it highlighted
Paulson’s growing
effort to marry two competing goals of the Bush administration: to
stabilize the battered
markets for mortgages and housing, but to avoid a government bailout
that might encourage
investors to take even bigger risks in the future — what
economists call “moral
hazard.” Paulson is scheduled to deliver a speech on
size='3'>homeownership, mortgage markets, and the
w:st='on'>
size='3'>U.S.
size='3'>economy today at 11
href='http://www.nytimes.com/2007/10/16/business/16rescue.html?_r=1&oref=slogin&ref=
business&pagewanted=print'>Read more.
name='3'>Commentary: Banks
Efforts to Restore Liquidity to Commercial Paper Market Raises
Questions
The good news about
Monday's announcement
that a consortium of big banks is going to try to restore liquidity to
the asset-backed
commercial paper market with a $100 billion fund is that the effort
seems to involve only
private capital, but the conduit-to-be raises more questions than it
answers, according to a
commentary in today’s
size='3'>Wall Street Journal. Banks such as
Citibank have
substantial off-balance-sheet exposure to the asset-backed commercial
paper market, and the
regulators are pressuring them to write down the assets in their
structured investment
vehicles. The announced vehicle, dubbed the Master-Liquidity Enhancement
Conduit (MLEC),
will only buy highly-rated paper to ensure investor confidence. The
trouble with this theory
is that investor confidence has been shaken because people no longer
feel they can trust the
ratings. This in turn has resulted from the fact that much of the
now-dubious debt was rated
not on the value of the collateral, but on the strength of the bank
(such as Citibank) that
issued it. This is a structural problem with the asset-backed commercial
paper market. While
Paulson has called for greater transparency in part to address the
issue, MLEC is not going
to fix it by itself. it is possible that MLEC will try to operate in the
old, discredited
paradigm of assembling and rating these securities.
href='http://online.wsj.com/article_print/SB119249030722159950.html'>Read
more.
(Registration required.)
Mortgage
Lending
name='4'>Frank Warns of Further
Regulations for Lenders
Representative Barney
Frank (D-Mass.) at a
field hearing in
face='Times New
Roman' size='3'>Roxbury,
face='Times New Roman'
size='3'>Mass.,
yesterday suggested that subprime mortgage lenders will face tougher
federal regulatory
scrutiny unless they do more to work with their delinquent borrowers and
help them avoid
foreclosure, the Boston
Globe
reported today. 'If these companies can't do a better job
with service, their
argument against regulation will be weaker,' Frank said. He also said
that he will summon
lenders to a meeting he has scheduled for next week to discuss how they
can help reduce
rising foreclosure rates. Yesterday’s hearing included testimony
from local leaders
Governor Deval L. Patrick, Attorney General Martha Coakley, and Boston
Mayor Thomas M.
Menino, each of whom outlined steps they have taken to reduce the rate
of foreclosures that
have hit minority borrowers hardest.
href='http://www.boston.com/business/personalfinance/articles/2007/10/16/leaders_grapple_for
_answers_as_foreclosures_hit_home?mode=PF'>Read
more.
name='5'>American Home
Tries to Keep
face='Times New Roman'
size='3'>Sale on
Track
Bankrupt mortgage lender
American Home
Mortgage Holdings Inc. and its creditors are trying to keep the sale of
its servicing
platform on schedule, despite moves by GMAC Mortgage LLC and Residential
Funding Co. LLC to
stall the sale hearing until a later date,
size='3'>Bankruptcy Law360 reported yesterday.
The sale of
American Home’s servicing platform has been pushed back a number
of times due to a
slew of objections from parties like GMAC. Earlier this month, GMAC and
a number of other
parties objected to the sale and filed notices requesting depositions of
American Home
officials and their investment banking advisors. Although the mortgage
company has opposed
the scope of the deposition requests, they have made a handful of
witnesses available for
depositions, American Home said.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=37444'>Read
more. (Registration required.)
Autos
name='6'>Dura Asks for Payment
for Departing Exec
Dura Automotive Systems
Inc. has asked a
judge to approve a $125,000 payment to a departing executive to prevent
him from working for
a competitor and divulging confidential company information, the
Associated Press reported
yesterday. In documents filed Friday with the U.S. Bankruptcy Court
in
w:st='on'>
w:st='on'>
size='3'>Del.
size='3'>, Dura outlined a separation agreement it reached with John J.
Knappenberger, its
departing vice president of information technology and administration.
The deal would pay
Knappenberger, a 14-year veteran of the company, for unused vacation
time, subject him to a
multi-pronged 'noncompete consideration,' and waive his current and
future claims against
the company. A hearing on the matter is scheduled for Nov. 1.
href='http://biz.yahoo.com/ap/071015/dura_bankruptcy.html?.v=1'>Read
more.
name='7'>Dana Corp. Rejects
Appaloosa Investment Offer
Bankrupt auto parts maker
Dana Corp. said on
Friday that it has rejected an alternative investment offer submitted by
Appaloosa
Management LP,
size='3'>Bankruptcy Law360 reported yesterday.
Dana Corp also said
in a statement that it had amended the investment agreement it reached
in July with
Centerbridge Capital Partners LP, reaffirming that deal as a centerpiece
to its bid to
emerge from chapter 11. Included in the amendments to the Centerbridge
deal is a commitment
by Centerbridge to fully underwrite the purchase of $500 million of
Series B shares of the
reorganized company, up from $250 million in an earlier agreement.
Centerbridge also agreed
to provide for a cash payment of up to $40 million to certain general
unsecured creditors
who are not eligible to purchase Series B shares. The amended deal with
Centerbridge is
still subject to approval by the Bankruptcy Court for the Southern
District of New York and
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=37560'>Read
more.
(Registration required.)
Ready to Apply Cost
Savings from Labor Agreement
In a sign of the
uncertainty still plaguing
the
face='Times New Roman'
size='3'>U.S.
size='3'>auto industry, General
Motors Corp. outlined billions of dollars in savings from its new labor
agreement but
stopped short of forecasting when it will help the bottom line,
the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported
today. Meanwhile, the United Auto Workers union unveiled details of a
similar agreement with
Chrysler LLC reached last week that gives that auto maker greater wiggle
room with future
product lines. One major difference between the two company’s
agreements is that
Chrysler gave the union few firm guarantees that it will keep most of
its eight
size='3'>U.S.
size='3'>assembly plants open
beyond the four years covered by its contract. GM also outlined plans to
produce specific
vehicles in its
w:st='on'>U.S.
size='3'>plants as
far out as 2013, potentially preserving thousands of UAW jobs beyond the
four-year term of
the contract. While those plans are still dependent on market conditions
and the potential
profitability of the models, GM's willingness to give tentative
commitments to 14 assembly
plants and 25 other facilities gave the union the prospect of job
security to take back to
href='http://online.wsj.com/article/SB119245335636259164.html?mod=hpp_us_whats_news'>Read
more. (Registration required.)
name='9'>Solutia Files Fifth
Amended Reorganization Plan
Still hoping to exit from
chapter 11 by
year's end, Solutia Inc. filed its fifth amended reorganization plan
yesterday,
Bankruptcy Law360
size='3'>reported yesterday. The most recent plan includes $250 million
of new investment in
the reorganized company through a backstopped rights offering to certain
creditors. It will
also reallocate the legacy liabilities that Solutia assumed when it was
spun off.
Additionally, it will resolve all the litigation between the settling
parties, including a
potential appeal by the noteholders, the adversary proceeding filed by
the current equity
holders against former parent companies Monsanto Co. and Pharmacia
Corp., and related
objections to the Monsanto and Pharmacia claims, Solutia said. The court
has tentatively
scheduled an Oct. 19 hearing to consider the disclosure statement,
according to the
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=37558'>Read
more. (Registration required.)
name='10'>Movie Gallery Seeks
Bankruptcy Protection Amid Losses
Movie Gallery Inc., the
second-
largest
face='Times New
Roman' size='3'>U.S.
size='3'>video-rental
chain, sought bankruptcy protection from creditors after two years of
losses and increased
competition from Blockbuster Inc. and Netflix Inc., Bloomberg News
reported today. The
company listed assets of $892 million and debt totaling $1.4 billion in
its chapter 11
petition filed this morning in the U.S. Bankruptcy Court in
w:st='on'>
size='3'>Richmond,
w:st='on'>
face='Times New Roman'
size='3'>Virginia.
Movie Gallery said that it has an agreement for Sopris Capital Advisors
LLC to sponsor a
plan calling for converting $325 million in 11 percent senior notes and
$72 million in
second lien debt into new stock. Sopris will backstop a $50 million
rights offering to
eligible noteholders.
size='3'>Movie Gallery has
$150 million in financing for the reorganization provided by Goldman
Sachs Credit Partners
LP. The proposed reorganization would reduce Movie Gallery's debt by
$400 million and
improve cash flow by cutting its interest payments.
href='http://quote.bloomberg.com/apps/news?pid=20601087&sid=aLMH0yeIAano'>Read
more.
name='11'>Jockey's Guild Files
for Bankruptcy
The Jockey's Guild filed
for bankruptcy
protection from creditors on Friday, the
size='3'>Louisville Courier-Journal reported
yesterday. Former
guild president Wayne Gertmenian was listed as the guild's top creditor
as he and his
consulting firm, Matrix Capital, have claims totaling more than $1
million over a contract
dispute, according to the bankruptcy filing. “The guild has
struggled with the high
cost of member health claims,” said Terry Meyocks, newly installed
national manager of
Jockeys’ Guild. “In looking at all of our options, we
decided that this is best
way to deal with this and other issues facing the
Guild.'
International
name='12'>Nomura
Shuts
face='Times New
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size='3'>U.S.
size='3'>Mortgage
Unit
Nomura Holdings Inc. said
that it will close
its mortgage-backed-securities business based in
w:st='on'>
face='Times New Roman' size='3'>New York
size='3'>, marking the
latest fallout from the meltdown of subprime residential mortgages in
the
w:st='on'>
size='3'>United
States,
the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported
today.
size='3'>Nomura,
face='Times New Roman'
size='3'>Japan
size='3'>'s largest investment bank by market capitalization, plans to
take a $621 million
write-down on residential mortgages and a charge of about $85 million
for restructuring the
business. That will swing Nomura to a pretax loss of as much as $511
million in the quarter
ended Sept. 30. A year earlier, Nomura posted a net profit of about $2.1
billion. Combined
with previous
write-offs, Nomura has now taken losses of more than $1.2 billion on
residential mortgages
href='http://online.wsj.com/article/SB119243751907459021.html?mod=hps_asia_whats_news'>Read
more. (Registration required.)
href='http://online.wsj.com/article/SB119243751907459021.html?mod=hps_asia_whats_news'>&
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