February 232009

 

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size='3'>Bankruptcy Funding Solicited for Car
Makers

Outside advisers to the U.S. Treasury have started
lining up the largest bankruptcy loan ever, talking with banks and other

lenders about at least $40 billion in financing for General Motors Corp.

and Chrysler LLC in the event that the two automakers file, the

size='3'>Wall Street Journal reported today.
Administration officials said that they are trying to find a way to
restructure the two companies without resorting to bankruptcy
proceedings. They stressed that the latest efforts were 'due diligence'
on the part of the government advisers, and that bankruptcy financing
may not be necessary. However, senior Obama administration officials
said that the administration believes that the option of chapter 11
filings by the two automakers needs to be seriously considered. The
initial discussions call for private banks to provide a
debtor-in-possession with the government guaranteeing or backstopping
the loan. In this scenario, some of the financing would be used to pay
back the $17.4 billion the government lent GM and Chrysler late last
year. 

href='http://online.wsj.com/article/SB123535613910745405.html?mod=testMod'>Read

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Commentary: The Benefits
of GM Bankruptcy

As General Motors looks for greater government funding

to sustain operations, people are taking a closer look at letting GM
file to reorganize under chapter 11, according to a commentary in
today’s

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size='3'>Wall Street Journal. Harvard Law
Prof. Mark Roe said that there are more factors protecting GM in chapter

11 than if the company does not file for bankruptcy. Roe said that new
inventory supplies to GM would go to the top of the queue in getting
repaid and that bankruptcy judges would ensure this process. This would,

according to Roe, would avert the concern that auto suppliers would also

be forced to file due to a GM bankruptcy. Roe also said that while a
chapter 11 for GM could be a long process, the current process of
bailing GM through handouts could take longer. Read the 
href='http://online.wsj.com/article/SB123536227939346053.html'>full
commentary. (Subscription required.)

Make sure to go to ABI’s Bankruptcy Town Hall Web site to read
expert opinion about whether the U.S. automakers should file for
bankruptcy or if the federal government should provide further financial

assistance to the struggling companies. 
href='http://townhall.abiworld.org/'>Click
here to go to the Bankruptcy Town Hall site and feel
free to weigh in with your comments or vote in several quick polls.

Commentary: Cerberus
Should Foot Chrysler’s Bill

If Chrysler is really on track for a turnaround and
all it needs is some financing to get over a bad patch in sales and debt

markets, a

size='3'>New York Times editorial today
suggests that Cerberus Capital Management, which owns 80 percent of the
company, should provide the financing rather than the U.S. government.
When General Motors and Chrysler asked Washington for more money last
week they took very different approaches. In exchange for an extra $17
billion from taxpayers — on top of the $13 billion it had gotten
since December — GM said that it would reduce costs by shuttering
plants, cutting brands and slashing 47,000 jobs, about a fifth of its
remaining workforce. For its $5.3 billion — on top of the $4.3
billion it has received since December — Chrysler offered little
more than an assurance that it has already cut costs and accomplished
most of what it had to do to become a valuable, viable company. It
offered to trim production by 100,000 units — leaving it with
capacity to make almost one million vehicles more than it will sell this

year — on the questionable assumption that demand, and its market
share, will bounce back next year. Read the 

href='http://www.nytimes.com/2009/02/23/opinion/23mon1.html?ref=opinion&pagewanted=print'>full

editorial.

Study: Corporate
Bankruptcies Increase Sharply over Past Couple of Years

BankruptcyData.com reported that the number of
corporate bankruptcies filed in 2009 is more than twice the number of
bankruptcies compared with the same period last year,
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size='3'>Bankruptcy Law360 reported on Friday.

The research firm reported Friday that there had been a total of 33
chapter 7 and 11 corportate filings so far this year, compared with 14
of those types of bankruptcy filings last year and 11 in 2007. The data
also shows a sharp rise in the size of companies filing for bankruptcy
protection this year. The combined prepetition assets of the 33
companies that have filed for bankruptcy so far are $65.7
billion, compared with the $9 billion racked up over a
comparable time period last year and $691 million in 2007. 
href='http://bankruptcy.law360.com/articles/88235'>Read more.
(Subscription required.)

Analysis: Amid Financial
Storm, Companies Still Able to Emerge from Bankruptcy

Companies trying to avoid liquidation can look with
hope on the successful emergence of Interstate Bakeries Corp. and
Wellman Inc. from bankruptcy after they sharply focused their business
operations and reduced costs, the

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size='3'>Wall Street Journal reported on
Saturday. While investors were willing to pile into virtually any
restructuring in previous years, they are much more critical now,
leaving the likes of Circuit City Stores Inc. and ethanol giant VeraSun
Energy Corp. to liquidate. 'I think in this era you need to shrink down
to just your very best businesses,' said Jonathan
Henes, a Kirkland & Ellis attorney who
oversaw the Wellman case. 'You need to just focus on your core strength
and make the painful, hard decisions.' Interstate and Wellman are far
leaner than when they first sought court protection from creditors. Read

the 
href='http://online.wsj.com/article/SB123534869756744619.html'>full
article. (Subscription required.)

Newspapers

Philadelphia Newspapers
Seek Bankruptcy Protection

The owners of the

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size='3'>Philadelphia Inquirer and
the

size='3'>Philadelphia Daily News filed for
bankruptcy yesterday after talks aimed at restructuring their heavy debt

load broke down, the

face='Times New Roman' size='3'>New York Times
size='3'>reported today. The papers will continue to operate and will
remain under local control, said Brian Tierney, publisher of
the

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size='3'>PhiladelphiaInquirer and the leader
of a group of local investors who bought the papers in 2006. The filing
by  Philadelphia

Newspapers, a subsidiary of Philadelphia Media Holdings, would seek
concessions from the consortium of banks that hold its debt, not from
the papers’ labor unions, according to Tierney. The company has
been negotiating for the better part of a year with the banks, led by
Citizens Bank. It had not been in compliance with its debt covenants
since mid-2008, and it suspended payment on the debt last fall. 

href='http://www.nytimes.com/2009/02/23/business/media/23philly.html?ref=business&pagewanted=print'>Read

more.

Journal Register Seeks
Bankruptcy

The Journal Register Company, publisher of

size='3'>The New Haven (Conn.) Register and
other newspapers, filed for chapter 11 protection on Saturday, the
Assoicated Press reported yesterday. In its chapter 11 filing, the
publisher proposed canceling its stock and becoming a concern controlled

by its lenders. It reported $596 million in assets as of Nov. 30 and
$692 million in debt, including unpaid interest. Revenue has fallen more

than 20 percent since 2006, the company said in the filing. The Journal
Register owns 20 daily and 159 other newspapers, serving parts of
Philadelphia, Michigan, Connecticut, Cleveland and New York. The company

has nearly 3,500 employees.

href='http://www.nytimes.com/2009/02/23/business/media/23register.html?ref=business'>Read

more.

Analysis: Finessing
“Moral Hazard” Is Tough in Housing Plan

The Obama administration is trying to ensure
that its $275 billion housing-relief program will help only
genuinely needy homeowners, but some critics say that it will also aid
those who don't need -- or deserve -- the help, the
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size='3'>Wall Street Journal reported on
Saturday. Critics balk at the idea of providing help to borrowers who
used their houses as cash machines, or who bought much costlier homes
than they could afford. In its effort to help homeowners who behaved
responsibly but wound up in trouble, the Obama plan will likely help
some who didn't, which some say encourages more risky behavior. The
guidelines for loan modifications, part of the overall housing-relief
program, are scheduled to be released early next month. Administration
officials stress that they are carefully designing them to make sure
borrowers can't game the system. The announcement of the
administration's program is already producing a flurry of calls to
mortgage companies. A Wells Fargo spokeswoman said that interest in
refinancing had contributed to a 20 percent increase in call volume at
its retail-mortgage call center Thursday. 
href='http://online.wsj.com/article/SB123517426207837283.html'>Read
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Banking

Citigroup Plan Shifts
Greater Stake to U.S. Government

Citigroup Inc. is in talks with federal officials that

could result in the U.S. government substantially expanding its
ownership of the struggling bank, the

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size='3'>Wall Street Journal reported today.
While the discussions are still ongoing, the government could wind up
holding as much as 40 percent of Citigroup's common stock, though bank
executives hope the stake will be closer to 25 percent. While Citigroup
proposed the plan to regulators, the Obama administration hasn't
indicated if it supports the plan. The talks reflect a growing fear that

Citigroup and other big U.S. banks could be overwhelmed by losses amid
the recession and housing crisis. Last week, Citigroup's share price
fell below $2 to an 18-year low. Bank executives increasingly believe
that the government needs to take a larger ownership stake in the
institution to stop the slide. 

href='http://online.wsj.com/article/SB123535148618845005.html?mod=testMod'>Read

more. (Subscription required.)

Analysis: U.S.
Government Will Judge Banks’ Stability

The Obama administration will begin taking a hard look

at the financial condition of the country’s 20 biggest banks this
week to judge whether they could hold up even if the downturn worsens
further than policymakers already expect, the

face='Times New Roman' size='3'>New York Times
size='3'>reported today. These reviews of the banks’ books, known
as “stress tests,” are heightening a dilemma for Obama aides

about how candid they should be about the health of banks like Citigroup

and Bank of America. The tests are expected to take several weeks. Bank
shares were pummeled last week, partly because of rumors that the
government might nationalize some of the banks. Officials consider many
of the top 20 banks “too big to fail.” 

href='http://www.nytimes.com/2009/02/23/business/23bank.html?ref=business'>Read

more.

Ritz Camera Files for
Chapter 11

Ritz Camera Centers Inc., the specialty camera and
imaging chain, filed for chapter 11 protection today, hurt by the
recession and consumers' shift to digital photography, Reuters reported.

The Beltsville, Md.-based company said that it has between $100 million
and $500 million of both assets and liabilities. Ritz operates under
such names as Ritz Camera, Wolf Camera, Kits Cameras, Inkley's and The
Camera Shops, and also operates the 130-store Boater's World Marine
Centers chain. It said it had nearly $1 billion of revenue in the year
ended Nov. 30, 2008. Ritz said that it will seek court permission to
obtain $85 million of financing to keep operating while it
restructures. 

href='http://www.reuters.com/article/marketsNews/idUSN2332434320090223'>Read

more.

SEC Chief Pursues Tougher
Enforcement

Less than a month after becoming the head of the
Securities and Exchange Commission, Mary L. Schapiro is moving swiftly
to reverse major decisions by her predecessor and to strengthen an
enforcement program that missed several major frauds that cost investors

billions of dollars, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. Schapiro and her aides have begun consulting
officials at intelligence and law enforcement agencies about the
technology they use to sort through mounds of information. Hoping to
help the commission sift through hundreds of thousands of tips it
receives annually from informants. Last year, the agency received more
than 700,000 such tips. In one of her first decisions, Schapiro reversed

a policy of her predecessor, Christopher Cox, that had required
enforcement lawyers to obtain the consent of commissioners before moving

to resolve major cases.

href='http://www.nytimes.com/2009/02/23/business/23schapiro.html?ref=business&pagewanted=print'>Read

more.

href='http://www.nytimes.com/2009/02/23/business/23schapiro.html?ref=business&pagewanted=print'>

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