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March 2, 2009
Government Offers AIG $30 Billion in New
Funds
The federal government agreed yesterday to provide an additional $30
billion in taxpayer money to the American International Group and loosen
the terms of its huge loan to the insurer, which reported a $62 billion
quarterly loss, the New York Times reported today. The
intervention would be the fourth time that the United States has had to
step in to help AIG, the giant insurer, avert bankruptcy. The government
already owns nearly 80 percent of the insurer’s holding company as
a result of the earlier interventions, which included a $60 billion
loan, a $40 billion purchase of preferred shares and $50 billion to soak
up the company’s toxic assets. Federal officials, who worked over
the weekend to complete the restructuring, said they thought they had no
choice but to prop up AIG, because its business and trading activities
are so intricately woven through the world’s banking
system.
href='http://www.nytimes.com/2009/03/02/business/02aigweb.html?_r=1&hp=&pagewanted=print'>Read
more.
National Wholesale Liquidators Converts to
Chapter 7
Bankruptcy Judge Mary Walrath approved a bid by NWL Holdings
Inc., the parent company of discount retail chain National Wholesale
Liquidators, to convert its chapter 11 case to liquidation proceedings
under chapter 7, Bankruptcy Law360 reported on Friday. Judge
Walrath’s approval of the conversion bars the debtors from
borrowing or otherwise obtaining credit under a $7 million
debtor-in-possession loan approved in November. NWL and its
subsidiaries, which filed for bankruptcy under chapter 11 on Nov. 10,
sought an order of conversion in a Feb. 12 motion, saying senior lenders
had advised them that they no longer had an interest in financing the
cases in chapter 11 and considered chapter 7 the “preferable and
less expensive course.” The company said that its disappointing
recovery from asset sales to date had made conversion to chapter 7
inevitable.
href='http://bankruptcy.law360.com/articles/89244'>Read
more. (Subscription required.)
Commentary: Administration Walks a
Difficult Line on “Liar Loans”
While President Obama continues to insist that only 'responsible
families' will benefit from his foreclosure prevention program, it will
be difficult to separate honest borrowers from those that fraudulently
obtained mortgage financing, according to an editorial in today’s
Wall Street Journal. Mortgage fraud exploded during the housing
boom and appears to have continued even as home prices fall. In December
the Mortgage Asset Research Institute reported that mortgage fraud
increased 45 percent in the second quarter of 2008, compared to a year
earlier. The Treasury's Financial Crimes Enforcement Network reports a
similar rise for the full year ended in June of last year. Many
borrowers are underwater, owing more on the mortgage than their home is
worth. Declining home prices are of course a big reason. The other big
reason is that many of them traded home equity for cash, in some cases
several times, while taking on larger mortgages. To say that all
troubled borrowers did cash-out refinancings and spent the money on
kitchen remodeling, jet skis and trips to Cancun would be unfair,
according to the editorial. It would be equally unfair to taxpayers not
to recognize how common such deals were during the bubble.
href='http://online.wsj.com/article/SB123595305743805193.html'>Read
more. (Subscription required.)
Autos
GM Bondholders Seek U.S. Backing of
Debt
Major holders of General Motors Corp.'s unsecured debt have requested
a meeting with President Barack Obama's auto-industry task force to
discuss the possibility of federal guarantees for billions of dollars in
new debt GM may issue, the Wall Street Journal reported on
Saturday. As part of its $13.4 billion U.S. loan agreement struck in
December, GM is required to launch a debt-for-equity exchange with the
goal of eliminating about $16 billion of its $27 billion in unsecured
debt. The bondholders and the United Auto Workers union, which is trying
to cut a deal with GM over billions of dollars in health-care
obligations, are at odds over what concessions the auto maker should
demand from the parties. The makeup of the GM bondholder group is
diverse, ranging from college endowment funds to insurance companies to
hedge funds. The bondholders, which formed a committee to negotiate with
GM, also want to discuss GM's viability plan with the task
force.
href='http://online.wsj.com/article/SB123576918551496823.html'>Read
more. (Subscription required.)
Commentary: Would a GM Bankruptcy Crash
Its Suppliers?
Considering the two big issues with General Motor’s current
financial distress, chapter 11 protection would provide a viable
solution to restructure GM's roughly $30 billion of bond debt and head
off a potential collapse of the automotive supply chain, according to a
commentary in today’s Wall Street Journal. GM executives
have been saying that in chapter 11 its network of suppliers would
collapse, dragging down the rest of the auto industry with their
company. However, the chapter 11 process has well-established procedures
to deal with this concern, according to the commentary. The bankruptcy
code and the bankruptcy courts put payments for new supplies at the top
of the queue, even ahead of most old lenders. GM may run out of cash to
pay its suppliers -- whether it files for bankruptcy or not. The
commentary argues that GM's supply network is probably more robust with
GM bankrupt, as chapter 11 assures that suppliers get paid out of
whatever cash GM has.
href='http://online.wsj.com/article/SB123595238770705115.html'>Read the
full commentary. (Subscription required.)
Commentary: General Motors’
Financing Discussions Need to Produce Solid Results
The government should probably heed General Motors’ request, if
only to avoid a disorderly liquidation and a stampede of job losses in
an economically vulnerable time, according to an editorial in
yesterday’s New York Times. General Motors said that it had
only about $14 billion in cash on hand, and it is burning it at a rate
of $2 billion a month. However, President Obama’s auto sector task
force should not agree to fork over the extra $16 billion that GM has
requested until the company, its bondholders and its union have reached
solid agreements to slash its liabilities and stanch the hemorrhage of
money, as they promised to do when they first asked for a taxpayer
handout in December.
href='http://www.nytimes.com/2009/03/01/opinion/01sun1.html?scp=9&sq=bankruptcy&st=cse'>Read
more.
CDS Auctions Reach Record High in
February
A wave of corporate bankruptcies triggered by the credit crunch and
deepening global recession has pushed the number of credit-defaults
swaps auctions to record highs, Marketwatch.com reported on Friday.
Banks and institutional investors in February participated in 13
credit-default swap auctions on the defaulted debt of eight companies,
including bankrupt telecom gear maker Nortel Networks Corp., chemical
maker Lyondell Chemical Co. and packaging maker Smurfit-Stone
Containers. That was a monthly record since Markit and partner Creditex
started holding auctions to match buyers and sellers of credit-default
swaps in 2005, said Markit, which supplied the data. The number of
auctions surpassed the October high of seven, when CDS contracts settled
on the September credit events of failed banks Washington
Mutual.
href='http://www.marketwatch.com/news/story/story.aspx?guid=%7BBC3A7974%2D6EA1%2D4A14%2D9B21%2D9076DACF7E4E%7D&siteid=rss&print=true&dist=printMidSection'>Read
more.
Struggling flash memory maker Spansion Inc. and its U.S. subsidiaries
filed for chapter 11 protection yesterday in an effort to restructure
$625 million worth of debt as the company continues to explore a
possible sale or other alternatives, the Associated Press reported
yesterday. The news comes a week after Spansion, one of the world's
largest makers of chips used in digital cameras, cell phones and
high-definition televisions, said it would slash its global work force
by 35 percent, or 3,000 employees. Demand for flash and chip-based
memory is on the decline as sales of electronics which use Spansion's
chips dip amid the weak global economy. Spansion said that it decided to
file for bankruptcy following consultation with a lender group holding
the company's senior secured floating rate notes due in 2013. The
company is in talks with the bondholder group about providing
debtor-in-possession financing for its long-term cash needs.
href='http://www.google.com/hostednews/ap/article/ALeqM5jvolWHiyWn8FgVUj1-R9ma2mV3ugD96LIII00'>Read
more.
Creditors' Trustee Sues First Magnus Execs
for $1 Billion
The former executives of the now-defunct First Magnus Financial Corp.
have been hit with a $1 billion lawsuit by the trustee representing the
mortgage company's creditors that accuses it of wasting the money it
should have been stockpiling in the event of a crisis, Bankruptcy
Law360 reported on Friday. On Thursday, Larry Lattig, the litigation
trustee for the First Magnus Litigation Trust, filed suit in the U.S.
Bankruptcy Court for the District of Arizona, taking aim in particular
at the former directors and officers of Tucson, Ariz.-based First Magnus
and their new mortgage venture, Stonewater Mortgage Corp. Lattig
contends that the group stripped First Magnus of more than $300 million,
leaving thousands of employees and other creditors high and dry and
unable to recover any of their losses. The company bundled and sold
mortgages to the commercial banks and warehouse lenders but did not keep
cash reserves on hand as required, according to the complaint.
href='http://bankruptcy.law360.com/articles/89275'>Read
more. (Subscription required.)
TPG in Bankruptcy Financing Clash
Private equity firm TPG is stirring controversy on Wall Street by
offering to provide bankruptcy financing for a company that it owns, a
strategy that could put it in the position of being paid before some
other creditors, the Financial Times reported today. If
successful, TPG might be able to recover some of its investment in
Aleris, a maker of aluminum products that it acquired in 2006. However,
the proposal is raising questions because of the implications it could
have for buy-out firms in other deals that are going bust. Aleris, which
is based in Beachwood, Ohio, filed for chapter 11 bankruptcy protection
last month. Distressed-debt investors led by Oaktree Capital and Apollo
offered to provide Aleris with $500 million in debtor-in-possession
(DIP) financing. TPG responded by asking the judge in the bankruptcy
case to allow it to join the group offering the DIP facility. The other
DIP lenders are opposing TPG’s participation in the financing
round and the judge is expected to rule on TPG’s request this
month.
href='http://www.ft.com/cms/s/0/eda32a92-06a3-11de-ab0f-000077b07658.html?dbk&nclick_check=1'>Read
more.
Regulators See Big Funding Boost
President Barack Obama's budget outline last week spends more on the
agencies that enforce environmental and workplace-safety rules, more for
food and drug regulators and more on consumer protection, the Wall
Street Journal reported today. The budget plan's figures are
accompanied by policy statements backing various moves to put industry
under closer government monitoring. One of the funding highlights: a
plan to establish automatic workplace retirement accounts in a country
where roughly half of workers lack employer-based retirement plans. The
mandate would require employers that don't offer a retirement plan to
enroll their employees in a direct-deposit Individual Retirement Account
that is compatible with existing direct-deposit payroll systems. The
Obama administration says experts estimate this will increase the
savings participation rate for low- and middle-income workers to about
80 percent from 15 percent.
href='http://online.wsj.com/article/SB123594558753804401.html'>Read
more. (Subscription required.)
Private Debt Collection Firms Find
Supporters In Senate
A battle over the IRS' use of private debt-collection firms might be
looming next week as the Senate takes up the $410 billion FY09 omnibus
spending bill, which would cut off funds for the program,
CongressDaily reported on Friday. There is bipartisan support
for the program in the Senate, including from Agriculture Chairman Tom
Harkin (D-Iowa) and Democratic Conference Vice Chairman Charles Schumer
(D-N.Y.). The IRS said this month that it would conduct an independent
review, which is due out as early as next week, but the senators wrote
that more time was necessary to study the issue. The timing of the
report as well as the omnibus provision could impact next week's pending
contract renewal for two private collection firms, CBE Group Inc. and
Pioneer Credit Recovery Inc. CBE is based in Iowa. The U.S. Chamber of
Commerce and a coalition of private collection firms also oppose the
provision and are urging that it be stripped from the omnibus. The
program, in place since 2006, has come in for scathing criticism from
the National Treasury Employees Union and the IRS' National Taxpayer
Advocate. House Democrats have repeatedly tried to kill it.
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