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April 23, 2010

Senate Panel Turns Its Attention to Credit
Rating Agencies

The Senate Homeland Security and Governmental Affairs Permanent
Subcommittee on Investigations will resume its series of hearings on the

financial crisis today with prominent credit ratings agencies under the
microscope, CongressDaily reported. Testifying will be officials
from ratings giants Standard & Poor's and Moody's, with Moody's
Chairman Raymond McDaniel and former S&P President Kathleen Corbet
taking the stand. In a briefing yesterday, Subcommittee Chairman Carl
Levin (D-Mich.) said that he considered a summer 2007 mass downgrade of
hundreds of mortgage-backed securities products to be a trigger that
'shocked the markets,' which led to 2008's crash, when banks could no
longer sell off their devalued products. According to a memo to
subcommittee members from Levin and Subcommittee ranking member Tom
Coburn (R-Okla.), former Moody's and S&P employees told subcommittee

investigators that 'gaining market share and revenues and pleasing
investment bankers bringing business to the firm, impacted the quality
of ratings.' The subcommittee's 18-month investigation into the causes
of the crisis found that Moody's and S&P used outdated models for
rating traditional, fixed-rate mortgages that were inadequate for rating

subprime, interest-only and adjustable-rate mortgages.
title='Click here'

href='http://hsgac.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=5f127126-608a-4802-ba77-d1bdffdfbe9b'>Click

here for information on today's hearing.

Simon Objects to GPP Reorganization
Plan

Simon Property Group Inc. has objected to bankrupt mall owner General

Growth Properties Inc.'s request for bidding procedures approval, the
Deal Pipeline reported today. According to an objection filed
yesterday, Simon said that its competing offer is superior to the
stalking horse proposal that GGP is seeking approval of. GGP has secured

a $6.55 billion proposal from Brookfield Asset Management Inc.,
Fairholme Capital Management LLC and Pershing Square Capital Management
LP to fund its exit from chapter 11. GGP's proposal is centered on a
$2.625 billion investment from Brookfield, which would get 26 percent of

GGP's reorganized equity in return. In addition, Fairholme would invest
roughly $2.79 billion and Pershing would invest about $1.14 billion,
with those firms getting 28 percent and 11 percent of GGP's reorganized
stock, respectively, in exchange. Current GGP shareholders would retain
34 percent of shares. The investments, along with $1.5 billion in new or

reinstated debt, would allow GGP to pay all of its creditors in full,
court papers show. 'There is no justification for General Growth to go
forward with a deal that massively transfers value, in the form of
seven-year warrants worth nearly $900 million, from the company's
shareholders to the Brookfield Group.' the objection said. According to
the objection, GGP has valued the warrants at $519 million, however
Simon believes that the warrants realistic value is about $895 million.

href='http://pipeline.thedeal.com/tdd/ViewArticle.dl?id=10005418465'>Read

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GAO: Debt-settlement Firms Misled
Consumers

A government investigation into the burgeoning debt-settlement
industry has found that many firms misled consumers by claiming to be
affiliated with federal stimulus programs and exaggerating their ability

to reduce consumers' loans, the Washington
Post reported today. The report by the Government
Accountability Office, presented yesterday at a Senate Commerce
Committee hearing, included audio recordings of salesmen describing
their companies as 'government approved' and linking settlements to the
federal bailout of troubled banks. Another sales recording stated that
all customers eliminated their debt in three years, while others
encouraged customers to stop paying their creditors -- a practice that
violates the industry's own standards. The number of debt-settlement
companies has ballooned to more than 1,000 during the past five years.
However, consumer advocacy groups have attacked the industry for
charging hefty upfront fees before calls to creditors are made. In
addition, they have accused debt-settlement firms of misleading
consumers in sales pitches and instructing them not to pay
bills. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2010/04/22/AR2010042205523_pf.html'>Read

more.

href='http://commerce.senate.gov/public/index.cfm?p=Hearings&ContentRecord_id=22394394-2a19-4fcb-b5bf-a8e61b280a16&ContentType_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&Group_id=b06c39af-e033-4cba-9221-de668ca1978a'>Click

here to read the prepared witness testimony, which also
includes a link to a transcript of GAO undercover phone calls to debt
settlement companies as part of its investigation.

Banks Facing Uphill Fight on Volcker Rule
in the Senate

Senate Banking Chairman Christopher Dodd (D-Conn.) said yesterday
that he doesn't expect to change a provision in his regulatory reform
bill that would ban big banks from proprietary trading for their own
benefit rather than for their customers - presenting a major obstacle
for Wall Street banks in their quest to water down the language,
CongressDaily reported today. Dodd said his language is at a
'pretty good place' on outlining terms of the 'Volcker rule' as proposed

by the White House and named after former Federal Reserve Chairman Paul
Volcker. It also would ban large banks from owning a private-equity
group or hedge fund, and from buying another firm where the combined
assets would exceed a 10-percent market share for liabilities. Large
banks are against the Volcker rule but face a problem given that
Republicans have not made scaling back the language a top priority,
focusing more on changes to a proposed Bureau of Consumer Financial
Protection, language mandating exchange trading of most derivatives and
elimination of a $50 billion resolution fund for at-risk firms.

Underwriters to Pay $49.5 Million to Settle

Refco Shareholder Suit

A group of underwriters have agreed to pay $49.5 million to settle a
consolidated shareholder lawsuit over the collapse of defunct
commodities broker Refco Inc. into bankruptcy in 2005, Dow Jones
Daily Bankruptcy Review reported today. In a court filing on
Tuesday, lawyers for the lead plaintiffs asked U.S. District Judge Jed
S. Rakoff to grant preliminary approval to the partial settlement, which

covers 12 underwriter defendants. The settlement would be in the form of

a cash payment of $49.5 million. The settling underwriters include units

of Credit Suisse Group, Bank of America Corp., Deutsche Bank AG, Goldman

Sachs Group and J.P. Morgan Chase & Co. Refco sought bankruptcy
protection in 2005, shortly after the company announced it had
discovered $430 million in debt owed to a private entity controlled by
Refco CEO Phillip R. Bennett. The company collapsed into bankruptcy less

than two months after its initial public offering in 2005.

Mid-Market Companies Still Face Difficulty
Finding Loans

The buoyant high-yield bond market shouldn't be taken as a sure sign
that corporate lending is healthy, according to financial advisers and
lenders, Dow Jones Daily Bankruptcy Review reported today.
Investors are being selective of credit quality and some channels of
institutional money, such as the collateralized loan obligations market,

are still inactive, they added, speaking on the issue on middle-market
companies. 'There's a huge amount of debt coming due in 2012,'
 said Richard Moskwa, a managing director at BDO Consulting
Corporate Advisors, and beyond that the level of debt is mounting
because companies and lenders have negotiated 'amends and extends' to
their maturities, he said. High-yield bonds and loan maturities were
expected to spike in 2013 but the peak has been pushed to 2014 because
of the extensions, experts said. According to data from J.P. Morgan and
S&P's Leverage Commentary & Data, a total $323 billion in bonds
and loans was due in 2013 as of the end of 2008, but by the end of 2009,

that amount had been negotiated down to $247 billion. In 2014, a total
$379 billion will come due, compared with $289 billion that had been
projected as of the end of 2008.

Owner of Las Vegas Strip Property Files for

Bankruptcy

FX Real Estate and Entertainment Inc. on Wednesday said that a unit
that owns 17.71 acres on the southern part of the Las Vegas Strip has
filed for bankruptcy protection after defaulting on a $475 million
mortgage loan, Reuters reported yesterday. The chapter 11 filing by FX
Luxury Las Vegas I LLC came one week after its New York-based parent
said in a U.S. Securities and Exchange Commission filing that it faced
'severe financial distress and may not be able to continue as a going
concern.' According to Wednesday's filing, FX Luxury Las Vegas has
$139.6 million of assets and $492.6 million of liabilities. The company
said the property is worth $137.7 million, barely half of the $268.1
million of secured claims on it. The case is In re FX Luxury Las
Vegas I LLC, U.S. Bankruptcy Court, District of Nevada, No.
10-17015.
href='http://www.reuters.com/article/idUSN217511120100421'>Read
more.

SunCal Seeks Court Approval to Sue Lehman
in California

SunCal Cos., which has been fighting with former business partner
Lehman Brothers Holdings Inc. over the fate of more than a dozen West
Coast real-estate projects, is asking Lehman's bankruptcy judge to stop
the investment bank from turning its chapter 11 shield into a 'sword'
against the California developer, Dow Jones Daily Bankruptcy
Review reported today. SunCal is seeking approval from Bankruptcy
Judge James Peck to sue a unit of the investment bank
in a separate bankruptcy case involving the real-estate projects in
California. Lehman says the Bankruptcy Code's automatic stay shields it
from that lawsuit. SunCal claims Lehman has been using 'its automatic
stay as a sword to thwart' its plan to bring the disputed real-estate
projects out of bankruptcy protection in California. The two companies
have been battling for 18 months in bankruptcy courts in New York and
California over the fate of more than a dozen real-estate ventures.
Lehman sunk more than $2.3 billion into multiple SunCal projects during
the California real-estate boom. SunCal has filed a chapter 11 plan,
funded in part by the sale of some of its projects to investment firm
D.E. Shaw, in the California bankruptcy case that would pay all
creditors in full, except for Lehman.

In related news, Lehman Brothers Holdings Inc. has requested a U.S.
bankruptcy court to approve a $99 million settlement with Millennium
Management LLC, to sort out disputes relating to certain swap
transactions and a partnership agreement, Reuters reported yesterday.
Lehman's unit, Lehman Brothers Special Financing Inc. (LBSF), became a
limited partner in Millennium USA LP on April 28, 2008, as per the
filing. On December 30, 2008, LBSF had submitted a written request to
Millennium to withdraw from the partnership. Lehman's unit also sought
to pull back its capital worth $95 million from the partnership venture,

court documents show. Millennium had recognized LBSF's withdrawal as a
Limited Partner in the venture but did not return the $95 million to
Lehman citing settlement of certain swap transactions, according to the
court papers. Millennium had asked LBSF to pay about $16 million to set
off certain swap transactions. However, Lehman contested the claim and
filed a case against Millennium in January 2010, court papers show. In
its latest filing, Lehman said Millennium had agreed to settle the case
by paying $99 million.
href='http://www.reuters.com/article/idUSSGE63L05720100422'>Read
more.

Boyd Objects to Station Casinos Bankruptcy
Plan

Casino operator Boyd Gaming Corp. is objecting to a proposed
bankruptcy plan by rival Station Casinos Inc., saying that it devalues
certain properties that would be sold under a court auction, the
Associated Press reported yesterday. Boyd said in a Wednesday filing
that Station's current plan would call for most of its properties to be
sold without player databases and other operating tools essential for
casinos. Boyd has publicly declared interest in buying out its main
rival in the locals casino market in Las Vegas, but its offers have been

rejected. A bankruptcy judge has set a May 4 hearing to discuss
Station's proposal.

href='http://www.washingtonpost.com/wp-dyn/content/article/2010/04/22/AR2010042205078_pf.html'>Read

more.

US Air Backs Off of Talks with
United

US Airways Group Inc. dropped out of merger talks with United
Airlines, clearing the way for United to focus on talks with Continental

Airlines Inc. over a possible combination, the Wall Street
Journal reported today. US Airways said yesterday that its board,
'after an extensive review and careful consideration,' decided to end
merger talks with United that had gone on for 'the past several months.'

US Airways chief Doug Parker wouldn't elaborate in an interview, but
said he is confident his carrier's stand-alone plan 'works.' United now
could lose leverage in trying to convince Continental that a combination

is a good idea. Although a deal between United and Continental would
join complementary route networks and build the world's largest airline
by traffic, Continental's interest was driven at least in part by the
competitive threat that United would link up with another carrier.
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href='http://online.wsj.com/article/SB100014240527487038764045751999827003440…'>Read

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Analysis: Filing Favors J.P. Morgan's
WaMu Bid over Citi's

Citigroup Inc.'s unsuccessful bid for the teetering banking
operations of Washington Mutual Inc. proposed that the U.S. government
absorb a majority of the thrift's loan losses and limited Citigroup's
financial exposure to $10 billion, according to a document released by
regulators, the Wall Street Journal reported today. Terms of the
offer by the New York bank previously were kept secret by the Federal
Deposit Insurance Corp., which sold the failed banking units to JPMorgan

Chase & Co. for $1.88 billion in September 2008, but was disclosed
following a Freedom of Information Act request by the Wall Street
Journal. The document appears to weaken claims by Washington
Mutual's now-bankrupt parent company that the FDIC bent over backward to

give J.P. Morgan a sweetheart deal on Washington Mutual. Citigroup
offered no upfront cash as part of its bid and didn't want to assume
Washington Mutual's uninsured deposits. Citigroup also wanted the FDIC
to cover 80 percent of 'first losses' on the thrift's loans, including
mortgages battered by declining real-estate values. Losses by the New
York bank on the remaining 20 percent would have been capped at $10
billion, the document shows, with the FDIC stuck with any additional
loan losses. By comparison, J.P. Morgan sought and received no
loss-sharing agreement from the FDIC. It also took control of all
deposits held by Washington Mutual, whose collapse was the largest bank
failure in U.S. history.

href='http://online.wsj.com/article/SB10001424052748704830404575200413908733450.html?mod=WSJ_business_whatsNews'>Read

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