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August 8, 2008
Consumer Credit Increases Sharply in
June
U.S. consumer credit expanded at the fastest rate in seven months in
June as Americans turned to credit cards and consumer loans to maintain
spending in the face of rising food and energy costs, Reuters reported
yesterday. The Federal Reserve reported that June consumer credit
increased $14.33 billion, or at a 6.7 percent annual rate, to $2.586
trillion. Revolving credit, made up of credit and charge cards,
increased $5.49 billion, or a 6.8 percent rate, to $968.35 billion in
June. Non-revolving credit, which includes closed-end loans for
big-ticket items like cars, boats, college educations and holidays, rose
$8.84 billion, or a 6.6 percent rate, to $1.618 trillion.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/08/07/AR2008080701975_pf.html'>Read
more.
Autos
GM Agrees to Increase Delphi Loan
Amount
General Motors Corp. agreed to advance Delphi Corp. an additional $300
million on top of $650 million already promised as the auto maker's
costs related to helping its former parts unit exit bankruptcy
protection escalate, the Wall Street Journal reported today. In
court papers filed this week, Delphi said that GM may increase its loans
to its top supplier to $950 million through the end of 2008 to reimburse
Delphi for labor-related costs and other liabilities. GM had agreed to
assume these liabilities under a settlement entered into during the
chapter 11 case. The $950 million represents a portion of the amount GM
would have paid Delphi had the supplier emerged from chapter 11. GM will
receive a top priority claim under bankruptcy law for the
advances.
href='http://online.wsj.com/article/SB121813330517421269.html?mod=us_business_whats_news'>Read
more. (Subscription required.)
Dana to cut 3,000 Jobs as Loss
Widens
Dana Holding Corp. said that it will cut 3,000 jobs, or about 9 percent
of its work force, this year as U.S. vehicle production plunges and
steel costs climb, Reuters reported yesterday. The company, which
emerged from bankruptcy six months ago, announced the latest job cuts as
it reported a bigger quarterly net loss and cut its full-year revenue
outlook. Dana's second-quarter net loss widened to $140 million, or
$1.47 per share, from $133 million, or 89 cents per share, a year
earlier. Dana said on Wednesday that it had sued Chrysler LLC in an
attempt to strike a 'market-competitive agreement' and was prepared to
stop supplying the struggling number three automaker next year
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/08/07/AR2008080701575_pf.html'>Read
more.
Two Banks to Buy Back $17 Billion in
Securities
Two major Wall Street firms yesterday offered to buy back more than $17
billion of troubled auction-rate securities to contain the legal fallout
from the credit crisis, the New York Times reported today.
Citigroup will buy back $7.3 billion of the securities and pay $100
million in fines as part of a settlement with state and federal
regulators announced yesterday morning. Merrill Lynch, without entering
into a settlement, offered to buy back $10 billion of similar securities
that it had sold to thousands of individuals. Neither firm agreed to
reimburse institutional investors. The Securities and Exchange
Commission is examining about 20 firms over their sales of auction-rate
securities, and the New York attorney general's office and 12 other
state regulators are conducting at least a dozen similar investigations,
according to people briefed on the situation. Bank of America, the
largest retail bank, said yesterday that it had received subpoenas from
federal and state regulators related to sales of auction-rate
securities.
href='http://www.nytimes.com/2008/08/08/business/08citi.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
Fannie Mae Posts Deep Second Quarter
Loss
Fannie Mae swung to a second-quarter loss as the largest buyer
of home loans booked $5.35 billion in credit-costs from boosting loss
provisions and charge-offs, the Wall Street Journal reported
today. Fannie Mae said today that 2008 will be its peak year for
credit-related expenses and that it plans to cut annual operating costs
10 percent by the end of 2009, increase its guaranty fees and manage its
balance sheet to conserve capital. Such balance-sheet moves include
eliminating higher-risk loans -- namely newly originated Alt-A
acquisitions -- by year-end, boosting efforts to revamp delinquent loans
and opening offices in Florida and California to more closely manage
sales of foreclosed properties. As of June 30, Alt-A mortgage loans
represented 11 percent of Fannie's total mortgage book of business and
50 percent of its second-quarter credit losses.
href='http://online.wsj.com/article/SB121818529773923803.html?mod=hpp_us_whats_news'>Read
more. (Subscription required.)
Friedman's Objects to Whitehall's Motion to Sell
Remaining Assets
Bankrupt jeweler Friedman's Inc. and subsidiary Crescent Jewelers have
challenged parent company Whitehall Jewelers Holdings Inc.'s bid to sell
its remaining assets, Bankruptcy Law360 reported yesterday. In
a motion filed Wednesday in the U.S. Bankruptcy Court for the District
of Delaware, Friedman's and Crescent objected to Whitehall's sale motion
on the grounds that the jeweler had not fulfilled its obligations under
an agreement that transferred several Friedman's store leases to
Whitehall. Judge Christopher Sontchi approved the asset sale agreement
in April and by May approved the transfer of all the leases. In July,
Whitehall asked for and received court permission to sell or otherwise
assign some of its leases. However, Friedman's said that its parent
company should be blocked from the sales because it has not paid the
totality of the cure amounts stemming from the 78 leases.
href='http://bankruptcy.law360.com/articles/65368'>Read more.
(Subscription required.)
Study: Settling Civil Lawsuits Better
for Plantiffs than Going to Trial
An upcoming study of civil lawsuits found that most of the plaintiffs
who decided to pass up a settlement offer and went to trial ended up
getting less money than if they had taken that offer, the New York
Times reported today. Defendants made the decision to go to trial
in 24 percent of cases, according to the study, and plaintiffs were
wrong in 61 percent of cases. In just 15 percent of cases, both sides
were right to go to trial - meaning that the defendant paid less than
the plaintiff had wanted but the plaintiff got more than the defendant
had offered. The vast majority of cases do settle - from 80 - 92 percent
by some estimates, according to Randall L. Kiser, a co-author of the
study and principal analyst at DecisionSet. The study was based on a
study of 2,054 cases that went to trial from 2002 to 2005.
href='http://www.nytimes.com/2008/08/08/business/08law.html?ref=business&pagewanted=print'>Read
more.
Judge Approves $250 Million DIP Loan
for Boscov's
Boscov's Inc., the family-owned department store chain that filed for
chapter 11 on Monday, has secured approval of a $250 million
debtor-in-possession (DIP) loan provided by prepetition lender Bank of
America NA, Bankruptcy Law360 reported yesterday. Bankruptcy
Judge Kevin Gross approved the retailer's request to
tap into $250 million DIP financing it says it needs in order to stay
afloat as it develops a reorganization plan to maximize recoveries for
its stakeholders. The DIP financing will be used solely for working
capital and general corporate purposes, the order said. A hearing
regarding final approval of the DIP financing has been scheduled for
Aug. 28. Read
more. (Subscription required.)
Ampex's Reorganization Plan
Approved
Digital photography company Ampex Corp. is poised to exit chapter 11
protection after Bankruptcy Judge Arthur J. Gonzalez approved the
company's modified third amended reorganization plan, Bankruptcy Law360
reported yesterday. The company said that it expects to emerge from
bankruptcy within a few months of the plan's approval, with a greatly
deleveraged capital structure that will give it access to new funding.
The funds will be used partly for general working capital purposes and
to repay a portion of its outstanding senior notes, according to the
company. Read
more. (Subscription required.)
Former Refco President Receives
10-Year Prison Sentence for Fraud Charges
Former Refco Group Ltd. President Tone Grant was sentenced to 10 years
in prison for defrauding investors of $2.4 billion in an eight-year
accounting scheme, Bloomberg News reported yesterday. U.S. District
Judge Naomi Buchwald in Manhattan dismissed a claim by Grant that he was
a minor participant in a fraud masterminded by former Refco CEO Phillip
Bennett, who was sentenced last month to 16 years behind bars. Once the
biggest independent U.S. futures trader, New York- based Refco collapsed
in 2005 two months after raising $670 million in an initial public
offering. Refco Inc., as it was known after the IPO, filed the
15th-largest bankruptcy in U.S. history after disclosing that a
Bennett-owned firm owed Refco hundreds of millions of dollars.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=aNvEQ9Wva.90'>Read
more.
Former National Century Financial
Executives Receive Prison Sentences
Two more defendants were sentenced to prison yesterday in National
Century Financial Enterprises' $1.9 billion corporate fraud case, the
Associated Press reported today. Judge Algenon L. Marbley of Federal
District Court sentenced Roger S. Faulkenberry, a former executive vice
president who raised money from investors at National Century to 10
years in prison. James E. Dierker, the company's former vice president
for client development, was sentenced to five years. Four former
executives with National Century were convicted in March of defrauding
investors over several years.
href='http://www.nytimes.com/2008/08/08/business/08sentence.html?sq=bankruptcy&st=cse&scp=10&pagewanted=print'>Read
more.
Moody's Mulls Ratings Downgrade for
American Express
Moody's Investors Service is considering downgrading its ratings on
American Express Co. and its travel services segment over concerns about
asset quality and lending exposure, especially in U.S. markets that have
seen sharp declines in home prices, the Wall Street Journal
reported today. The agency said that American Express' long-term A1
rating -- four levels below triple-A -- would likely face a one-notch
downgrade if such a move were made. As other reasons for the review,
Moody's also cited economic weakness in the United States, heavy
consumer debt burdens and home price erosion that have dampened the
spending growth of American Express cardmembers. About $89 billion in
debt securities and deposits would be affected by a downgrade.
href='http://online.wsj.com/article/SB121813757621621453.html?mod=us_business_whats_news'>Read
more. (Subscription required.)
International
Bulgarian Steel Firm Declared
Insolvent
A Bulgarian court declared the country's biggest steel company by
output, Kremikovtzi AD, insolvent Wednesday, opening a new chapter in a
battle for control of the plant, the Wall Street Journal
reported yesterday. Ukrainian billionaire Kostyantin Zhevago and
Luxembourg-based steel titan ArcelorMittal SA are competing to take over
the plant's operations after insolvency proceedings are completed. The
plant is majority-owned by Indian steel entrepreneur Pramod Mittal,
younger brother of Lakshmi Mittal, who controls ArcelorMittal.
International bondholders have expressed concern at the insolvency
proceedings' lack of transparency. Concerns about official corruption
and the weak rule of law in Bulgaria led the European Union to take the
rare step last month of suspending around €500 million, or $773
million, of aid to the country, which joined the EU in January
2007.
href='http://online.wsj.com/article_print/SB121805637666318085.html'>Read
more. (Subscription required.)