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May 22, 2008
Congressional Hearings Examine Housing
Proposals
Two House committees will look at the issues of targeting federal aid to
neighborhoods distressed by the subprime mortgage crisis and the impact
of increasing the conforming loan limit further for homebuyers. The
latter issue will be examined at 10 a.m. ET today by the full committee
in a a hearing titled the “Impact on Homebuyers and Housing Market
of Conforming Loan Limit Increase” in room 2128 of the Rayburn
House Office Building.
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr052208.shtml'>Click
here to view the witness list.
The House Financial Services Subcommittee on Housing and Community
Opportunity, and the Committee on Oversight and Government Reform
Subcommittee on Domestic Policy, will hold a joint hearing titled
“Targeting Federal Aid to Neighborhoods Distressed by the Subprime
Mortgage Crisis” to be held at 2 p.m. ET in room 2154 of the
Rayburn House Office Building.
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr0522083.shtml'>Click
here to view the witness list.
More Questions Are Raised about Moody's
Ratings
Moody's Corp. is investigating whether it assigned top-flight credit
ratings to certain securities because of computer errors, the company
said yesterday, raising new questions about the credibility of its
assessments, the New York Times reported today. Connecticut
Attorney General Richard Blumenthal, who has criticized the practices of
Moody's and other ratings firms, said that he was investigating how
Moody's had dealt with the possible errors in its computer models.
“One of the areas that most concerns us is the potential
favoritism and abusive and illegal practices that involve dealings with
the companies that they rate,” Blumenthal said.
href='http://www.nytimes.com/2008/05/22/business/22moody.html?ref=business&pa…'>Read
more.
House Approves $54 Billion Tax
Package
The House passed a $54 billion tax package yesterday that Democratic
backers said would help relieve dependence on imported oil while easing
the economic strain on parents, homeowners and businesses, the
Associated Press reported. The wide-ranging legislation, which passed
263 to 160, now goes to the Senate and an uncertain future. Most
Republicans opposed the bill because it would require some corporations
with offshore offices to pay more taxes and does not address shielding
taxpayers from the alternative minimum tax. The White House, citing
those factors, threatened a presidential veto. The measure renews dozens
of selective tax breaks that have expired or will expire soon and
provides new tax relief by expanding for a year the refundable child tax
credit available to lower-income families. It also allows, for one year,
a new deduction of property taxes for those who do not itemize, worth up
to $700 for a couple. One of the funding offsets in the measure
would close a loophole allowing hedge fund managers and others working
for offshore corporations to defer tax on their compensation; another
would delay the effective date of a tax break for multinational
corporations operating overseas.
href='http://www.nytimes.com/2008/05/22/washington/22tax.html?ref=business&pa…'>Read
more.
Trucking Company Files for Bankruptcy
/>
U.S. trucking company Jevic Transportation Inc. has filed for bankruptcy
protection due to the tight credit market and high fuel costs, Reuters
reported yesterday. The company, which employed about 1,500 people,
filed for protection from creditors late on Tuesday in U.S. Bankruptcy
Court in Delaware. Jevic's bankruptcy filing estimated assets of $50
million to $100 million, and liabilities of the same.
href='http://www.reuters.com/article/fundsFundsNews/idUSN2141676920080521'>Read
more.
Frontier Airlines Union Members
Approve Wage and Benefit Cuts
Frontier Airlines said yesterday that two of its unions have ratified
agreements allowing temporary wage and benefit concessions that will
help it navigate the chapter 11 process, the Associated Press reported.
Members of the Frontier Airlines Pilots Association, which represents
more than 700 of the airline's pilots, and the Transportation Workers
Union, which represents Frontier's dispatchers, both approved deals that
their union leadership had agreed to with Frontier last week. Frontier
had asked all of its employees to take temporary wage and benefit cuts
in order to help the airline secure debtor-in-possession financing.
Frontier management also agreed earlier this month to wage and benefits
concessions of up to 20 percent.
href='http://news.ino.com/headlines/?newsid=6890817470791'>Read
more.
Judge Denies Amicus Brief in $1
Billion Enron Litigation
The judge presiding over lawsuits brought by creditors of defunct Enron
Corp. against investment banks has denied a bid by a securities industry
group to file a brief in support of the defendants' motions to toss the
cases, Bankruptcy Law360 reported yesterday. Judge
Arthur Gonzalez of the U.S. Bankruptcy
Court for the Southern District of New York rejected a request by
the Securities Industry and Financial Markets Association to submit a
friend-of-the-court brief, saying the filing offered no new or helpful
advice. The group sought permission to weigh in on motions for summary
judgment in two separate suits by the Enron Creditors Recovery Group
against a host of financial services firms, including JP Morgan
Securities Inc., Goldman Sachs & Co. and Mass Mutual Life Insurance
Co., to recover $1 billion it paid to redeem commercial paper
securities.
href='http://bankruptcy.law360.com/secure/printview.aspx?id=56902'>Read
more. (Registration required.)
Wells Fargo Agrees to Drop $466 Million Claim in
Student Finance Corp. Case
Wells Fargo Bank NA has agreed to drop a claim estimated at $466 million
against bankrupt Student Finance Corp. after the chapter 7 trustee
successfully made the case that the certificate and noteholders had been
already been paid in full, Bankruptcy Law360 reported
yesterday. Bankruptcy Judge Kevin J. Carey signed off on an agreed order
regarding chapter 7 Trustee Charles Stanziale's objection to Wells
Fargo's claim. The order says that Wells Fargo will withdraw its claim
against SFC's estate and that any recovery insurer Royal Indemnity Co.
gets from a counterclaim pending against Wells Fargo in an appeals court
will be offset by any distribution Royal receives from the estate. Wells
Fargo asserted more than $465 million in contingent claims in April 2003
to make sure that those holding certificates and notes in SFC-related
trusts got paid. Wells Fargo was the trustee or indenture trustee for
eight securitization transactions in which SFC pooled student loans and
transferred them for considerations to entities that created trusts.
Royal was also a party to the transactions, issuing eight credit risk
insurance policies related to the loans in the trusts.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=56908'>Read
more. (Registration required.)
Airlines
American, Cutting Back, Plans $15
Bag Fee
American Airlines said yesterday that it would soon start charging
passengers $15 to check their first bag each way, or $30 round-trip, if
they are flying on a discounted fare, the New York Times
reported today. The airline's new policy - to take effect June 15 -
comes only two weeks after many major carriers, including American,
began charging $25 each way for checking a second bag. American Airlines
executives said they had little choice but to impose such fees, given
that the price of jet fuel is up more than 80 percent from a year ago.
“Our company and industry simply cannot afford to sit by hoping
for industry and market conditions to improve,” said American's
CEO, Gerard J. Arpey.
href='http://www.nytimes.com/2008/05/22/business/22air.html?_r=1&oref=slogin&…'>Read
more.
Delta and Mexicana Object to Eos Airlines'
Auction Plan
Eos Airlines Inc.'s proposal to auction off its assets has come under
fire from several other airlines, including Delta Air Lines Inc. and
Compañía Mexicana de Aviación SA, the Wall Street
Journal reported today. Eos last week asked the U.S. Bankruptcy
Court in White Plains, N.Y., for permission to put its
all-business-class airline on the auction block, though it hasn't yet
lined up a lead bidder. Mexicana, owed $2.4 million by Eos, accused the
airline of using the auction 'to buy time in the faint hope of a
last-minute rescue.' In court papers, Mexicana said it objects to
'having its airplanes held hostage to a lost cause' while Eos 'hopes for
a miracle.' Mexicana leased Eos three aircraft in 2007 and said Eos had
defaulted on the terms of that agreement. Delta, which has entered into
business agreements with Eos over the past several years, said some of
the assets Eos wants to put up on the auction block aren't its
own.
href='http://online.wsj.com/article/SB121141867685012829.html'>Read
more. (Registration required.)
NRG Bids $11 Billion for Rival
Calpine
Power company NRG Energy Inc. has made an unsolicited bid to buy
competitor Calpine Corp. for nearly $11 billion in stock, Reuters
reported yesterday. Calpine, which emerged from bankruptcy earlier this
year, said that it was reviewing the bid to determine if it was in the
best interests of its shareholders. It said in a statement that it had
received the unsolicited proposal from NRG on May 14. Under the terms of
that proposal, Calpine shareholders would receive 0.534 shares of NRG
stock for every Calpine share. That would value Calpine shares at around
$22.70 a share, giving shareholders a premium of about 6.7 percent based
on the shares' Wednesday closing prices.
href='http://www.nytimes.com/2008/05/23/business/23calpine.html?ref=business&…'>Read
more.
Florida Pension Fund Is Suing A.I.G.
In another blow to embattled American International Group
(A.I.G.), a Florida pension fund accused the insurance giant and a
number of its top executives yesterday of understating the company's
exposure to the subprime mortgage crisis in order to inflate its stock
price artificially, the New York Times reported today. The
Jacksonville Police and Fire Pension Fund leveled the charge in a
lawsuit filed in federal district court in Lower Manhattan, the first
class action suit against A.I.G. since the company disclosed a
staggering first-quarter loss of $7.8 billion. That loss, caused by
complex financial instruments known as credit default swaps, shocked
many investors because A.I.G. had assured them that any losses on such
credit insurance would be limited, the suit said.
href='http://www.nytimes.com/2008/05/22/business/22insure.html?ref=business&p…'>Read
more.
Risks Rise for Equity Firms with Automotive
Holdings
After investing billions of dollars into the automotive sector,
private-equity firms are facing increasing risks that their investments
won't pan out, the Wall Street Journal reported today. Rising
interest rates, a depressed U.S. auto market and fewer 'exit'
opportunities are raising the chances that some deals will simply flop,
automotive consulting firm AlixPartners LLP concluded in a study it is
releasing Thursday. In the first quarter, 16 automotive companies filed
for bankruptcy protection -- and eight were owned by private equity. In
the first quarter of 2007, just six entered bankruptcy, and only two
were in the hands of private equity, according to AlixPartners. The
study, conducted during the past several months by about 40 consultants
in 10 offices around the world, looked at the financial health of 45
auto makers, 273 suppliers and 22 heavy-truck manufacturers.
AlixPartners found that private-equity firms invested $18.6 billion in
80 automotive deals in 2007, up from $8 billion in 66 deals in
2006.
href='http://online.wsj.com/article_print/SB121142726780213367.html'>Read
more. (Registration required.)
Sallie Mae to Continue Student
Lending
href='http://online.wsj.com/article_print/SB121139801567811543.html'>
href='http://online.wsj.com/article_print/SB121139801567811543.html'>
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SLM Corp. (Sallie Mae) said that it will continue to make federally
guaranteed student loans, ending fears that the nation's largest student
lender might join the recent exodus from a market that has been rocked
by the credit crisis, the Wall Street Journal reported today.
The announcement by Sallie Mae comes a day after the Bush administration
said it will use U.S. Treasury funds to buy loans from lenders and
invest in special loan-backed trusts. Sallie Mae CEO Albert Lord said
that the financial terms outlined in the plan are sufficient to allow
the company to continue making federally guaranteed loans throughout the
2008-2009 school year.
href='http://online.wsj.com/article_print/SB121139801567811543.html'>Read
more. (Registration required.)
Boy Band Mogul Pearlman Sentenced to 25
Years
Boy band mogul Lou Pearlman, who launched Backstreet Boys and 'N Sync,
was sentenced to 25 years in prison on Wednesday for swindling investors
and major U.S. banks out of more than $300 million, Reuters reported
yesterday. However, U.S. District Judge G. Kendall Sharp gave Pearlman
the chance to cut his prison time by offering a one-month reprieve for
every $1 million in cash he helps a bankruptcy trustee recover for his
victims. Pearlman admitted in his plea agreement to enticing individuals
and banks to invest millions of dollars in two companies that
existed only on paper -- Transcontinental Airlines Travel Services Inc.
and Transcontinental Airlines Inc.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/05/21/AR20080…'>Read
more.