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May 8, 2009
Municipalities
Falling
Revenue May Push More Municipalities into Bankruptcy
Experts say that an expanding
load of pension liabilities and a severe drop in revenue has the
potential to spur more cities, counties, school districts and other
public entities to take advantage of a rarely used ability to seek
bankruptcy protection, Dow Jones’
size='3'>Daily Bankruptcy Review reported
yesterday. Fewer than 500 municipalities have sought protection under
chapter 9 of the U.S. Bankruptcy Code since the chapter's enactment in
1934, according to the U.S. federal court system's Web site. Tax
revenue, the lifeblood of municipalities, has dried up as a result of
the recession, according to Sajan George, a managing director at
restructuring firm Alvarez &Marsal. 'With the real-estate crisis in
the country, property values have dropped,' which in turn reduced
property taxes, George said. 'Consumer spending is down, so you have
lower sales taxes.' Even before the financial markets' collapse, there
was concern that municipalities were biting off more than they could
chew when it came to the pension obligations they were racking up, said
bankruptcy attorney Bruce
Bennett, who represented Orange County,
Calif., in its 1994 chapter 9 filing.
JPMorgan
Chase Faces SEC Action over Securities Sales for Struggling Alabama
County
JPMorgan Chase & Company said
yesterday that the Securities and Exchange Commission (SEC) had approved
the filing of an enforcement action against it for securities law
violations over bond and swap sales for Jefferson County, Ala.,
Bloomberg News reported today. Jefferson County is facing bankruptcy on
$3 billion in sewer debt after interest rates surged when the credit
ratings of insurers backing the bonds were cut after their losses on
unrelated mortgage securities.The county is negotiating with creditors
including JPMorgan to restructure the debt payments. JPMorgan of New
York said that the allegations involve deals made in 2002 and
2003.
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=aRVxedq2.x4U&refer=home'>Read
more.
Senate Nears
Deal on Credit Card Legislation
Senate negotiators are nearing a
compromise on legislation that would place new restrictions on credit
card fees and interest rate policies that have been labeled abusive by
consumer groups,
size='3'>CongressDaily reported yesterday.
Senate Banking ranking member Richard Shelby (R-Ala.) said yesterday
that he is very close to agreement with Senate Banking Chairman
Christopher Dodd (D-Conn.) on legislation that Dodd had moved out of
committee. The measure would prohibit issuers from raising rates on
existing balances retroactively, require a 45-day notice of any rate
increase and ban billing on balances for days not included in the last
billing cycle as a result of a grace period. Lobbyists have cited two
major sticking points in the Dodd bill: language that would repeal
Federal Reserve language allowing retroactive rate increases for
payments made 30 days late and a requirement that gift cards be valid
for five years. Neither provision is included in credit card legislation
that the House passed last week, 357-90, and was supported by the Obama
administration.
FHA Seeks
$800 Million to Cover Losses for Senior Mortgage Program
Because of falling home values,
the Federal Housing Administration plans to ask Congress for nearly $800
million in taxpayer money to buttress a mortgage program for seniors,
the Washington Post
reported today.The requested money would cover projected
losses on reverse mortgages, which enable seniors to take out equity in
their homes. FHA said that its flagship home-buying program remains
solid, according to Housing and Urban Development Secretary Shaun
Donovan, but that the administration was requesting the subsidy instead
of increasing charges to seniors.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/05/07/AR2009050704253_pf.html'>Read
more. (Subscription required.)
Hedge Fund
Industry Agrees to Registration, But Not Further Regulation at House
Hearing
Representatives of the hedge fund
industry told the House Financial Services Capital Markets Subcommittee
yesterday that operators of the now-unregulated funds are willing to
register with the SEC, although they do not believe further federal
regulation is necessary,
size='3'>CongressDaily reported
today.Subcommittee members said the increasing number of pension funds,
endowments and other organizations that handle money from average
Americans now investing in hedge funds create what Rep. Michael Capuano
(D-Mass.) called 'societal interests' in the industry, which Congress
must address by insisting on greater transparency of its actions. Even
industry representatives don't know how many hedge funds are operating
in the United States, although estimates are as high as 8,000 to 10,000
-- or how much money those funds control, though it is generally
believed to be just over $1 trillion.
Autos
GM,
Leaking Cash, Faces Greater Chances of Bankruptcy
Even after receiving $15.4 billion in
federal loans, General Motors is once again on the brink of financial
collapse, the New York Times reported today.The
automaker’s first-quarter earnings released yesterday showed that
GM was losing more money and sales than it was in late December, when
the government began its bailout. The company is entering the final
stages of producing, by June 1, a restructuring plan that is acceptable
to President Obama and his auto task force. However, its financial
problems continue to deepen as GM is spending more than $113 million a
day than it is taking in from sales of its vehicles around the
world.
href='http://www.nytimes.com/2009/05/08/business/08auto.html?ref=business&pagewanted=print'>Read
more.
Delphi
Sets June Deadline for Resolving GM, Treasury Deal
Delphi Corp. is again pushing
back a deadline for reachinga deal with former parent General Motors
Corp. and the U.S. government over GM’s contribution to
Delphi’s bankruptcy exit, Dow Jones’ Daily Bankruptcy
Review reported today. Jack
Butler, Delphi’s bankruptcy attorney,
said at a court hearing yesterday that talks are continuing, and that
the partieshave agreed to a June 2 deadline. Delphi had been facing a
May 8 deadline for resolving GM’s support and winningbacking from
lenders. The new timetable marks the second time the parties have pushed
back the deadline for finalizing GM’s contributionto
Delphi’s long-running bankruptcy reorganization. The new June 2
deadline for reaching a deal is one day after GM’s deadline for
completing its own restructuring under its loan from the federal
government.
U.S.
Regulators Say that Ailing Banks Need $75 Billion
After subjecting the
nation’s biggest banks to the most public scrutiny in decades,
federal regulators ordered 10 of them yesterday to raise a total of $75
billion in extra capital and gave the rest a clean bill of health,
the New York Times
reported today. The long-awaited results of the financial
“stress tests” set off an immediate scramble by major
institutions for more capital as they must give regulators their plans
for raising the money by June 8 and raise it by November. The stress
tests were aimed at estimating how much each bank would lose if the
economic downturn proved even deeper than currently expected. But
regulators gave the banks a break by letting them bolster their capital
with unusually strong first-quarter profits and also by letting them
predict modest profits even if the economy again turns sour.
href='http://www.nytimes.com/2009/05/08/business/08stress.html?_r=1&ref=business&pagewanted=print'>Read
more.
Analysis:
GMAC, Among the Weakest, Seems in Line for a Bailout
GMAC, the onetime finance arm of
General Motors, looks as if it will need a bailout. the results of bank
stress tests disclosed yesterday showed that GMAC is in dire straits,
according to an analysis by the
size='3'>New York Times. Federal regulators
determined that GMAC, which was converted to a bank nearly four months
ago, must raise a staggering $11.5 billion in capital, the equivalent of
roughly half its current equity. A bailout would be only the latest
instance of extraordinary federal aid for GMAC, whose survival is seen
as crucial to GM and, now, Chrysler. Both carmakers are relying on GMAC
to help buyers and dealers finance their purchases.
href='http://www.nytimes.com/2009/05/08/business/08gmac.html?ref=business&pagewanted=print'>Read
more.
General
Growth’s Action Rattles Malls' Investors
When General Growth Properties
Inc. sought chapter 11 protection last month, it took 166 of its malls
into bankruptcy, a step its biggest debt holders were not expecting,
the Wall Street
Journal reported today.The surprised debt
holders had believed the malls would be insulated from the parent's
bankruptcy because of the way General Growth had structured the
assets.General Growth's action has rattled investors throughout the $700
billion market for securities backed by commercial mortgages, or CMBS.
Investors in other deals had also figured their investment was insulated
from a parent company's bankruptcy. Now they're worried that General
Growth's move will set a precedent that could affect them.
href='http://online.wsj.com/article/SB124163910180492861.html'>Read
more. (Subscription required.)
Crucible
Materials Files for Chapter 11 Protection
Specialty metals company Crucible
Materials Corp. filed for chapter 11 protection on Wednesday as a last
resort to avoid liquidation,
size='3'>Bankruptcy Law360 reported yesterday.
The company currently has assets and liabilities of at least $100
million each, according to the petition.The company requested permission
to obtain a maximum of about $69.4 million in DIP financing.Crucible
largest unsecured creditors include Sentry Insurance Mutual Co., which
is owed about $3.6 million for a contingent, unliquidated workers
compensation-related claim,Tiangong International Co. Ltd., which is
owed about $3.5 million in trade debt and Bank of America Leasing &
Capital, which is owed about $3.3 million loans related to consulting
and software fees. The case is
size='3'>Crucible Materials Corp., case number
09-11582-MFW, in the U.S. Bankruptcy Court for the District of
Delaware.
href='http://bankruptcy.law360.com/print_article/100410'>Read more.
(Subscription required.)
Creditors
Seek to Force WL Homes into Chapter 7
WL Homes LLC's creditors’
committee has asked a federal judge to convert the real estate
developer's bankruptcy case to chapter 7,
size='3'>Bankruptcy Law360 reported
yesterday.In a motion filed yesterday, the committee said that WL Homes'
parent company, Dubai-based Emaar Properties PSJC, planned to provide WL
Homes with a $30.8 million debtor-in-possession financing facility for
the sole purpose of eventually buying its assets free of liabilities,
leaving no recovery for unsecured creditors. The DIP facility does not
provide enough funding to reorganize WL Homes, and the company will not
be able to offer a confirmable chapter 11 plan, the committee
said.
href='http://bankruptcy.law360.com/print_article/100389'>Read
more. (Subscription required.)
Ninth
Circuit Trims Benefits Claims in Trucking Company Chapter
11
A federal appeals court has ruled
that benefits for retirees of bankrupt Consolidated Freightways Corp.
can't be considered in determining priority claims for contributions to
a health insurance plan administered by Aetna Inc.,
face='Cambria' size='3'>Bankruptcy Law360
size='3'>reported yesterday. A three-judge panel of the U.S. Court of
Appeals for the Ninth Circuit addressed the issue of what parties might
be classified as employees under the U.S. Bankruptcy Code, specifically
sections 507(a)(4) and (5), finding that it was clear the sections
applied only to wages and benefits earned within 180 days before the
filing of a bankruptcy petition or cessation of business.While the court
reversed the bankruptcy court’s ruling on the retiree portion of
the calculation, the appeals court did agree with the lower
court’s finding that benefits can potentially be given priority
status even if they exceed a statutorily imposed per-employee wage claim
limit — formerly of $4,650 and now of $10,950.
href='http://bankruptcy.law360.com/print_article/100382'>Read more.
(Subscription required.)
Trustee
Sues Madoff Hedge Fund Investor
The trustee gathering assets for
the victims of Bernard L. Madoff’s fraud has sued a prominent New
York City hedge fund investor, J. Ezra Merkin, to recover almost $500
million withdrawn from Madoff accounts in the last six years, the
New York Times
size='3'>reported today. According to the complaint filed yesterday by
trustee Irving H. Picard, Merkin steered more than $1
billion into Madoff’s hands since 1995 through three large private
hedge funds, Ascot Partners, Ariel Fund and Gabriel Capital. The Ariel
fund is not related to Ariel Investments of Chicago.Since 2002,
Merkin’s funds withdrew at least $494 million from the Madoff
scheme — returns that a financially sophisticated investor like
Merkin “knew or should have known” were fraudulent, the
lawsuit contends.
href='http://www.nytimes.com/2009/05/08/business/08madoff.html?ref=business&pagewanted=print'>Read
more.
N.Y. Federal Reserve Quits Amid Questions
Stephen Friedman resigned as
chairman of the board of the Federal Reserve Bank of New York, amid a
controversy about his dual roles as a director of the regional Fed bank
and a director and shareholder of Goldman Sachs Group Inc., the
Wall Street Journal
size='3'>reported today. Earlier this week, the
face='Cambria' size='3'>Wall Street Journal
size='3'>found that when Goldman converted from an investment bank to a
Fed-regulated bank holding company in September, Friedman's status as a
Goldman director and shareholder was in violation of Fed policy that
bars certain Fed-bank directors from being shareholders, directors or
officers of commercial banks. To allow him to remain as chairman, the
New York Fed sought a waiver. In mid-January, the Fed granted one, until
the end of 2009.While the waiver was under consideration, Friedman in
December bought 37,300 more Goldman shares.
href='http://online.wsj.com/article/SB124173340275898051.html#'>Read
more. (Subscription required.)
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