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February 5, 2010
Hedge Funds, Bankruptcy
Judges Spar over Disclosure
Hedge funds will defend their coveted secrecy against
bankruptcy judges who want more information about their economic
interests before granting them an active role in chapter 11
reorganizations, Reuters reported yesterday. The two sides will make
their case today before a regularly scheduled federal rule-making panel
that will try to bring consistency to an increasingly unsettled issue
that has divided normally like-minded judges. The Committee on Rules of
Practice and Procedure of the Judicial Conference of the United States,
which includes bankruptcy judges and legal professionals, has proposed
expanding the amount of disclosure required by parties in a bankruptcy.
Proponents of added disclosure want more information about all positions
of a group, particularly when financial instruments such as credit
default swaps muddy the issue of the group's economic interests. Hedge
funds are particularly protective of prices paid for a claim. Such
information could reveal their investment strategy and might give others
an upper hand in a reorganization if they know what return a hedge fund
is making on its claim.
href='http://www.reuters.com/article/idUSN0414910020100204'>Read
more.
Trident to Field
Reorganization, Sale Offers
Bankruptcy Judge Mary F. Walrath is set on Feb.
18 to consider entry of natural gas exploration company Trident
Resources Corp. into a commitment letter for a $200 million rights
offering backstopped by the company's junior lenders, the Deal
Pipeline reported today. The proposal, which would hand out 60
percent of new Trident shares to the lenders, is part of a
reorganization plan outlined in a term sheet. Walrath on Feb. 18 will
also weigh procedures for solicitation of rival plan proposals,
going-concern sales or asset sales. The backstop parties hold 90 percent
of a $410 million secured loan led by Credit Suisse Group's Toronto
branch and 95 percent of a C$147.3 million ($139.2 million) unsecured
loan led by Wells Fargo Bank NA, court papers said.
href='http://pipeline.thedeal.com/tdd/ViewArticle.dl?id=10005386086'>Read
more. (Subscription required.)
NYU's Altman Predicted 2010
Defaults as High as 6.7 Percent
Edward Altman, a finance professor at New York
University's Leonard L. Stern School of Business, said that the U.S.
corporate default rate this year will fall to half of what it was in
2009 if the recession is over, Reuters reported yesterday. Altman said
that the 2010 corporate default rate could be at about 4.3 percent if
there is no recession, or around 6.7 percent if the recession continues.
The corporate default rate in 2009 was 10.7 percent, Altman said. The
U.S. economy recovered sharply as the debt markets opened up around last
March, generating huge returns for hedge funds, he said, but added that
he remained worried the markets are creating 'a new bubble.'
href='http://www.reuters.com/article/idUSN0315892320100204'>Read
more.
Bank of America, Executives
Face Civil Charges by New York Attorney General
face='Times New Roman' size='2'>
New York Attorney General Andrew Cuomo today filed civil securities
fraud charges against former Bank of America CEO Kenneth Lewis and
former CFO Joseph Price, alleging that they decided not to disclose
mounting losses at Merrill Lynch & Co. before getting shareholder
approval to acquire the Wall Street firm, the
size='2'>Wall Street Journal reported. Shareholders
approved the purchase on Dec. 5, 2008, not knowing that Merrill had
accumulated more than $16 billion in 'actual losses' for the fourth
quarter of 2008, according to the attorney general. The bank did not say
anything about the mounting losses until the U.S. in January 2009
provided the bank with an additional $20 billion to absorb Merrill.
Separately, BofA and the Securities and Exchange Commission reached a
$150 million settlement on allegations of misleading investors during
the Merrill deal. The settlement requires a judge's approval.
href='http://online.wsj.com/article/SB10001424052748704041504575045210064928990.html?mod=WSJ_business_IndustryNews_DLW'>Read
more. (Subscription required.)
Citadel Broadcasting Files Reorganization
Plan
Radio broadcaster Citadel Broadcasting Corp. filed its reorganization
plan and disclosure statement looking to wipe out $1.4 billion of the
company's debt, Reuters reported yesterday. In a court filing late on
Wednesday, the company said it will have a total debt of $762.5 million
once the plan is confirmed by the court. Citadel, the third-largest U.S.
radio broadcaster, filed for bankruptcy protection in December under a
prenegotiated deal with more than 60 percent of its senior lenders. The
company expects to have about $72.2 million in cash on hand by April 30,
which will fund payments pursuant to the plan. Under the plan, senior
lenders will receive a share of the new term loan and 90 percent of new
common stock in reorganized Citadel. Existing shares will be wiped
out.
href='http://www.reuters.com/article/idUSSGE6130H120100204'>Read
more.
Bankruptcy by Middle of Year
After nine months of cost-cutting under the protection of U.S. and
Canadian courts, AbitibiBowater Inc. has stacked up the cash and is
ramping up to exit bankruptcy by the middle of the year, Dow Jones
Daily Bankruptcy Review reported today. The newsprint producer
plans to file its chapter 11 plan in the U.S. and scheme of arrangement
in Canada 'before the end of the first quarter,' the company said
yesterday. As it enters the final stretch, AbitibiBowater is in talks
with unions about contracts and pension liabilities, while it negotiates
with creditors over the shape its restructuring will take. The company's
unsecured creditors' committee on Wednesday staked a claim on a series
of AbitibiBowater affiliates that pledged guarantees on a $400 million
term loan.
Groups Seek to Free Up
Pension Funds
Businesses, nonprofits and unions facing unexpected
higher pension contributions due to the market downturn called on
lawmakers yesterday to act swiftly to let them free up needed
cash for payroll and investments, a move being considered as part of a
Senate jobs package, CongressDaily reported yesterday. Rep. Earl
Pomeroy (D-N.D.) the lead sponsor on the House side, joined advocates on
a conference call to argue that the measure is 'directly related to
jobs' because it would allow companies and nonprofits the use of $66
billion over the next few years they would ordinarily have had to sock
away in pension plans. The proposal could raise as much as $7 billion by
letting companies delay their required pension contributions for two
years, although details of the Senate bill were still under
wraps.
Million Exit Financing Deal
Bankrupt packaging company Smurfit-Stone Container
Corp. has asked a judge to allow it to enter into a $650 million
revolving credit facility deal as part of an exit financing package
designed to serve the company’
lang='RU'>s cash needs as it emerges from chapter 11 protection, the
Bankruptcy Law360 reported yesterday. A commitment for the deal
also calls for Smurfit to provide certain indemnities and expense
reimbursements to the financing companies, the motion says. Certain
parties also would receive a commitment fee and an arrangement fee under
the deal, according to the motion. The revolving credit facility and a
$1.2 billion term loan facility approved by the judge last month are
crucial components in the packaging company
lang='EN'>’s reorganization
proposal.
href='http://bankruptcy.law360.com/articles/147657'>Read more.
(Subscription required.)
Government-owned GMAC Loses $5 Billion in
Fourth Quarter
Home and auto lender GMAC Financial Services said yesterday that it
lost $5 billion in the last three months of 2009, as losses from its
mortgage operations kept the company in the red for another quarter, the
Associated Press reported today. GMAC, which is owned by the federal
government, is still working to sell its troubled home lending business,
ResCap. Mortgage operations overall lost more than $4 billion during the
quarter, and GMAC's $3.3 billion charge related to its efforts to sell
the unit. GMAC's automotive operations proved to be a bright spot. The
unit has been profitable recently and made $369 million during the
quarter. GMAC's fourth-quarter loss compares with a profit of $7.5
billion in the same quarter last year. Read more.
Chemtura Obtains Enhanced Debt
Facility
Bankrupt U.S. chemicals maker Chemtura Corp. said yesterday it has
filed a motion with a U.S. bankruptcy court seeking approval for a new
credit facility with an enhanced limit, Reuters reported yesterday.
Chemtura submitted its motion with the U.S. Bankruptcy Court for the
Southern District of New York, saying that the new $450 million
debtor-in-possession credit facility will lower financing costs. The new
DIP facility, which refinances Chemtura's existing $400 million DIP
facility, permits capital expenditures necessary to execute business
plans, the company said.
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