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April 10, 2007
Mortgages
name='1'>Defaults Rise in Next Level of Mortgages
The latest sign of
possible further deterioration in the credit market came yesterday as
American Home Mortgage, a lender based in Melville, N.Y., said that it
would earn less and pay out a smaller dividend because it was being
asked to buy back and write down the value of Alt-A loans,
the New York
Times reported today. The announcement
followed a disclosure last week by M&T Bank, a regional bank based
in
size='3'>Buffalo, that it
would write down Alt-A loans and no longer sell them because bids for
the mortgages came in lower than it had expected.
size='3'>Since the subprime mortgage market began deteriorating late
last year, investors and analysts have kept a close watch on Alt-A
loans, worrying that problems in higher-grade loans would prove to be a
greater threat to the housing market and the economy. Such loans made up
about 10 percent of all mortgages outstanding at the end of 2006 and
about 18 percent of home loans written last year, according to
Moody’s Economy.com. Together, subprime and Alt-A loans account
for about 21 percent of loans outstanding and 39 percent of mortgages
made in 2006.
href='http://www.nytimes.com/2007/04/10/business/10lend.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
name='2'>Congressman Targets Mortgage “Trigger List”
Marketing
Citing personal privacy
concerns, House Financial Services Chairman Barney Frank (D-Mass.) said
he intends to curtail the ability of credit bureaus to sell lists of
prospective home-buyers who are shopping for a mortgage,
face='Times New Roman' size='3'>CongressDaily
size='3'>reported yesterday. Frank has expressed concern over products
such as Experian Group's Prospect Trigger unveiled in late 2004. When a
loan officer or mortgage broker performs a credit check for a
prospective home-buyer, it searches the online databases of the three
national credit bureaus -- Equifax, Experian and TransUnion. However,
the bureaus have used such inquiries as a new marketing product,
assembling the information to sell as 'trigger lists' to other competing
lenders hours after the initial inquiry. Those lenders are then able to
make their loan proposals to the home-buyer, typically through an
overnight package delivered to their doorstep. But the National
Association of Mortgage Brokers and the Massachusetts Bankers
Association have criticized the products, arguing that the prescreened
offers of credit are probably too vague or misleading to fall under the
definition of 'firm offers of credit' permissible under the Fair Credit
Reporting Act. They argue that mortgage offers cannot be considered
'firm' without additional information such as income verification and
property appraisals.
name='3'>U.S.
face='Times New Roman' size='3'>Trustee Objects to New Century
Motion
U.S. Trustee
Kelly Beaudin
Stapleton on Monday objected to New Century
Financial Corp.’s attempt to pay a company $1 million in exchange
for bid protection at the real estate investor’s chapter 11
auction, Bankruptcy
Law360 reported yesterday. Stapleton said that
in New Century’s case, the motion did not make anysuggestion of
how Greenwich Capital might perform a research function. Additionally,
she said that as an affiliate of the Royal Bank of
size='3'>Scotland
subprime mortgage-backed securities underwriter in the United
States, Greenwich Capital does have incentive to bid in
the auction. Stapleton also objected to the $1 million that New Century
proposed to pay as a breakup fee. She alleged that the sum is
misleading, since Greenwich Capital is seeking reimbursement for its
acquisition-related costs as part of the debtor-in-possession
loan.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=22243'>Read
more. (Registration required.)
In related news, UBS Real
Estate Securities Inc. filed a complaint against bankrupt subprime
lender New Century Financial Corp. on Thursday, claiming that it is
missing $3.8 million in mortgage loan payments from the bankrupt
lender, Bankruptcy
Law360 reported yesterday. UBS was one of New
Century’s many financial backers that declared the lender in
default following news of its financial distress in February and early
March. The claims
arise from a master repurchase agreement between UBS and New Century.
The deal, which is common in the mortgage lending industry, involves the
sale and repurchase of mortgage loan agreements. UBS agreed to purchase
loans from New Century and New Century agreed to repurchase them later,
according to court documents. Under the terms of their agreement, New
Century was to collect payments on the loans from the borrowers and
deposit all funds into an account for UBS.
href='http://bankruptcy.law360.com/secure/ViewArticle.aspx?Id=22146'>Read
more. (Registration required.)
name='4'>Commentary: Losing Homes and Neighborhoods to
Foreclosure
Congress and state
governments have to assess the extent of irresponsible and predatory
lending in the subprime market, and determine whom to hold accountable
as nearly one million families could lose their homes to foreclosure,
according to an editorial in today’s New York Times. The nonprofit
Center for Responsible Lending analyzed 15.1 million subprime loans from
1998 through 2006 and found that only about 1.4 million were for
first-time home buyers. Most were for refinancing. To date, more than
500,000 of those subprime borrowers have lost their homes to
foreclosures. An additional 1.8 million are likely to follow as the
market deteriorates. A
w:st='on'>
size='3'>Chicago study
found that a foreclosure on one home lowered the price of nearby
single-family homes by 1.44 percent, on average.
href='http://www.nytimes.com/2007/04/10/opinion/10tue2.html?pagewanted=print'>Read
more.
name='5'>Judge Warns
w:st='on'>San
Diego
in Bankruptcy Case
A federal bankruptcy
judge on Monday ordered three lawyers and two priests from the local
Catholic diocese to explain why they should not be held in contempt for
allegedly moving to transfer money as well as other actions that were
prohibited while the diocese's bankruptcy case is pending, the
Los Angeles Times
reported today. Judge
Louise DeCarl Adler ordered the
lawyers and priests to appear in U.S. Bankruptcy Court on Wednesday to
explain their actions. Among the material misrepresentations, Judge
Adler wrote, is a letter by Msgr. Michael Gallagher, pastor of Our Lady
of Grace Catholic Church in El Cajon, saying the court ruled that
contributions to the Annual Catholic Appeal, supporting Catholic schools
and social services, are not part of the bankruptcy proceeding and
cannot be used to pay judgments to the people accusing priests of
misconduct. Bishop Robert H. Brom asserted in a letter to parishioners
months before the bankruptcy action was filed that individual
contributions from parishioners would not be used in any court
settlement.
href='http://www.latimes.com/features/religion/la-me-bishop10apr10,1,7695556.story?track=rss'>Read
more.
Airlines
name='6'>Creditor Filings an Obstacle for Delta
Delta Air Lines
executives remain confident the carrier will emerge from bankruptcy
later this month, though more than a dozen creditors filed objections to
its restructuring plan by yesterday’s deadline, the
Atlanta
Journal-Constitution reported yesterday. Among
them was the Georgia Department of Revenue, which complained in a court
filing Monday that Delta's plan leaves it uncertain when the carrier
will satisfy claims related to $62.9 million in unpaid withholding,
corporate, sales and other taxes. Monday also was the deadline for
creditors to vote on Delta's plan, which calls for the carrier to emerge
from chapter 11 on April 30. Delta doesn't expect to release results of
the voting for another 10 days or so. An April 25 hearing is scheduled
in Delta's
face='Times New Roman' size='3'>New York
bankruptcy court, where Delta will ask its judge to
confirm the plan.
href='http://www.ajc.com/services/content/business/delta/stories/2007/04/10/0410bizdelta.html?cxtype=rss&cxsvc=7&cxcat=6'>Read
more.
name='7'>Mesaba Airlines’ Bankruptcy Exit
Approved
Bankruptcy Judge
Gregory Kishel
size='3'>approved Mesaba Airlines' reorganization plan on Monday,
clearing the regional carrier to exit bankruptcy during the last week of
April, the Minneapolis Star Tribune reported yesterday. The
Eagan, Minn.-based carrier filed for chapter 11 in October 2005, a month
after Northwest Airlines entered bankruptcy. Northwest was Mesaba's sole
customer, and the big carrier had skipped payments to Mesaba and later
cut Mesaba's fleet in half. Mesaba now flies 50 planes on Northwest
regional routes. Its fleet will grow by three dozen 76-seat jets by the
end of 2008.
href='http://www.startribune.com/535/story/1110211.html'>Read
more.
name='8'>Allied’s Disclosure Statement Approved
Overcoming a series of
objections from shareholders and a U.S. Trustee, Allied Holdings
Inc. on Friday won court
approval for its chapter 11 plan disclosure statement,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Both the ad hoc equity-holders committee
and U.S. Trustee William Neary had urged Bankruptcy Judge
C. Ray Mullins
size='3'>not to approve the statement, arguing that it did not contain
“meaningful, accurate and complete information,” according
to court documents. The shareholders said that the disclosure statement
failed to provide information as to what the financial, operational and
business implications would be to the reorganized company should Allied
sell its Canadian operations, and did not provide adequate background
and detail of the history of labor negotiations with the International
Brotherhood of Teamsters, which represents the majority of Allied's
5,500 workers. Neary and the shareholders also said that they wanted to
know more about the relationship between
w:st='on'>
size='3'>Yucaipa
company that holds about half of Allied’s unsecured claims, and
the union. Under the terms of the new disclosure statement,
Allied’s unsecured creditors, who hold $196.9 million in claims,
will be repaid with the reorganized company’s stock. Secured
creditors will also receive full reimbursement, while the
company’s shareholders will recover nothing under the
plan.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=22195'>Read
more. (Registration required.)
name='9'>Closure Looms over Distressed
w:st='on'>
size='3'>Maryland
face='Times New Roman'
size='3'>Hospital
size='3'>System
face='Times New Roman' size='3'>Prince George
size='3'>County
(
size='3'>Md.) hospital
executives plan to meet within days to weigh the closure of the system,
which treats 180,000 people every year, after the collapse of
negotiations between state and local officials to approve a massive
funding plan intended to keep the county hospitals alive,
the Washington
Post reported today. In the absence of a deal,
the president and chief executive of Dimensions Healthcare System, which
runs the hospitals, said that the hospitals' board of directors will be
forced to choose between bankruptcy and closure, an option health
officials have warned would be a catastrophe to health care across the
region as patients flood crowded emergency rooms at other facilities.
State and local officials had spent the final hours of the last day of
the
size='3'>legislative session locked in negotiations to save the system.
Aides to Gov. Martin O'Malley (D) said in the early evening that they
had reached an agreement on a $320 million package to stabilize the
system. Prince George's County Council Chairman Camille Exum (D-Seat
Pleasant) released a statement that the deal was 'flawed' and told a
Senate committee that she could not sign off on the proposal.
In the absence of council approval, lawmakers said a deal was not
possible.
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/04/09/AR2007040901252_pf.html'>Read
more.
w:st='on'>
name='10'>Florida
face='Times



New
Roman' size='3'>Home Builder Files for Bankruptcy
A
w:st='on'>
size='3'>Florida
millions of loans issued through Coast Bank of
w:st='on'>
size='3'>Florida
has filed for bankruptcy, the
size='3'>Bradenton Herald reported today.
Construction Compliance Inc. listed $8.9 million in assets and
liabilities of $10.9 million in its chapter 11 petition filed last week.
The failed St. Petersburg, Fla.-based company was unable to complete
hundreds of homes, mostly in
face='Times New Roman' size='3'>Charlotte
size='3'>and
face='Times New Roman' size='3'>Sarasota
counties, that were financed through Bradenton-based
Coast Bank. The builder's financial problems caused Coast's stock to
plummet, the bank to record its biggest annual loss ever and bank
officials to explore their strategic options, including a possible
sale.
href='http://www.bradenton.com/mld/bradenton/news/breaking_news/17051149.htm'>Read
more.
name='11'>Student Lender Had Early Plans to Woo
Officials
The founders of Student
Loan Xpress had an explicit plan for corralling a bigger share of the
lucrative student loan business: “market to the financial aid
offices of schools,” the New York Times reported today.
That was how Robert deRose, Michael H. Shaut and Fabrizio Balestri set
out, according to a 2002 regulatory filing by the company, a strategy to
use university financial aid offices as the gateway to coveted
placements on the lists of lenders recommended to students. Five years
later the company says it is the eighth-largest player in student
lending — and it found many ways to court university financial aid
directors. It put them on a company advisory board, paid at least two as
consultants and sold stock in the venture to others, investigators and
university officials say. Yesterday aides to Attorney General Andrew M.
Cuomo of
size='3'>New York
details, saying financial aid officers at
w:st='on'>
size='3'>Johns
face='Times New Roman' size='3'>Hopkins
size='3'>University
size='3'>Baltimore
size='3'>Capella
face='Times New Roman'
size='3'>University
an online for-profit institution, had served as paid consultants to the
lending company.
href='http://www.nytimes.com/2007/04/10/education/10loan.html?ref=business&pagewanted=print'>Read
more.
name='12'>Commentary: How GM Operates Its High-Performance
Pension Machine
General Motors may be
having a hard time turning around its auto business and getting its
financial statements straight, but it has excelled in turning around the
financial outlook of its pensions in only a few years, according to
a Washington
Post commentary today. In fact, GM's funds
have done so well that the company has switched about $20 billion in
pension assets to lower-risk bonds from higher-risk stocks. GM shows
just how volatile pensions can be. In a mere four years, its
size='3'>U.S.
size='3'>funds have swung $35 billion, going from $17.8 billion
underfunded (according to generally accepted accounting principles) in
2002 to $17.1 billion overfunded last year. To lock in those hard-earned
gains, GM has switched investment targets in its $101 billion pension
portfolio to just 29 percent stocks and 52 percent bonds from 49 and 32,
respectively. (The other 19 percent is in real estate and 'alternative
investments' such as hedge funds.) 'It's all about maintaining the
funded status of your pension funds,' GM's chief financial officer Fritz
Henderson said. 'We want to take pension risk off the table.'
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/04/09/AR2007040901262.html'>Read
more.
name='13'>Commentary: More Private Equity Firms Looking to Their
Investors for Funds
Private equity firms
increasingly are expecting their so-called limited partners to provide
greater funding as co-investors, separate from their original fund
investments, freeing the private-equity firms from relying on each other
in 'club deals' to get larger acquisitions done, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The increasing reliance on fund investors comes
several months after the Justice Department began an inquiry into
whether the team bids of private equity firms are improper. There are a
lot of advantages of the turn toward these new, nonclub arrangements.
The use of investors as partners adds to the clout of private-equity
firms, because they can do bigger deals without having to share either
governance or glory with rival funds. The practice also reduces the
private-equity firms' risk, since they use less of their own capital.
Many funds have limits on how large a check they can write -- typically
not more than 15 percent of the total value of an investment fund can go
href='http://online.wsj.com/article/SB117616550220964559.html?mod=us_business_whats_news'>Read
more. (Registration required.)
name='14'>Mirant Exploring
w:st='on'>
size='3'>Sale
Company
Independent power
producer Mirant Corp. said on Monday that it was exploring strategic
options, including selling itself, Reuters reported yesterday. Mirant,
which last year dropped an unsolicited bid to buy rival NRG Energy Inc.,
said that it did not expect the options to include acquiring another
company. Mirant emerged from bankruptcy protection early last year and
has been considered a leading takeover candidate in the power sector.
Mirant, which has 24
face='Times New Roman' size='3'>U.S.
size='3'>plants including natural gas, oil, coal and hydro, said one
option it would consider was returning excess cash to shareholders from
the sale of its businesses in the
w:st='on'>
size='3'>Philippines
Caribbean and six natural gas-fired plants in the
w:st='on'>
size='3'>United States
size='3'>. Mirant is in the process of selling its
size='3'>Philippines
$3.4 billion, and the six
w:st='on'>
size='3'>U.S.
size='3'>plants for $1.4 billion. It expects the two transactions to
close in the second quarter.
href='http://www.nytimes.com/reuters/business/business-mirant-sale.html?pagewanted=print'>Read
more.
TROUBLED
COMPANIES IN THE NEWS
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face='Times New Roman'
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w:st='on'>
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size='3'>Advanced Micro Devices Inc., the
big
size='3'>, Ca. semiconductor firm, will reduce its capital spending for
this year amid revenue declines. Advanced Micro now says that first
quarter revenue will be about $1.2 billion, short of Wall Street
estimates of more than $1.5 billion. The firm itself earlier said
it wouldn’t meet its earlier stated target revenue of as much as
$1.7 billion. Advanced Micro has been hurt by sagging prices and
declines in unit sales, partly because of competition with rival chip
manufacturer Intel Corp.
size='3'>American Home Mortgage Investment Corp.
size='3'>sharply reduced its financial forecasts for the first quarter
and the year. While American Home specializes in the prime and
near-prime home-loan lending markets, there are fears that the sagging
subprime mortgage market could spread to other lending
sectors.
size='3'>Dominion Homes Inc., a
size='3'>Dublin
homebuilder, said that the number of homes it sold in the first quarter
sank 54% from the year-earlier period, with a total value of $43.5
million, compared to $89.3 million a year ago.
size='3'>Ford Motor Co., while slashing its
payroll, closing plants and selling assets, says it doesn’t want
to sell its Jaguar unit. While the Jaguar luxury brand hasn’t been
making money for the
w:st='on'>
size='3'>Dearborn
carmaker, Ford reportedly has a plan to turn it into a moneymaker. As
part its overall restructuring in North American, Ford has in the past
said it wants to shutter some sixteen plants by 2016 and cut as many as
30,000 jobs, and the company has recently stated that it has no
intentions of expanding cutback plans.
size='3'>HealthSouth Corp., the big
size='3'>Birmingham
Al.-based firm, is suggesting that it may want to sell its headquarters
and instead lease space. Such a move, according to the firm’s CEO,
Jay Grinney, could save it some $5 million a year, which would go toward
reducing its debt of $3.3 billion. The company could also make $100
million by selling its diagnostic division. Last month, HealthSouth
agreed to sell its surgery centers to ASC Acquisition LLC for about $945
million.
size='3'>Tripos Inc., a
w:st='on'>
Louis
w:st='on'>
size='3'>Mo.
discovery chemicals and other products for researchers, hopes to close
on a $4.7 million sale of its headquarters on 4/11. Tripos,
closing its operations a month ago, is currently in the process of
liquidating itself.
TXU Corp.’s Mike McCall, the firm’s wholesale
chairman, warned that the company may opt to close some of its power
plants if it is unable to reach an agreement with
w:st='on'>
regarding certain fines. The company had been charged with manipulating
the wholesale power market and last month
w:st='on'>
proposed a $210 million fine be levied against TXU. TXU’s warnings
have apparently annoyed its potential buyers, Kohlberg Kravis Roberts
& Co. and Texas Pacific Partner. The two buyout firms complained
that TXU should have discussed the matter with them before making
statements about possible plant closures. Earlier, KKR and Texas
Pacific agreed to acquire TXU for about $32 billion.
href='http://www.nytimes.com/reuters/business/business-mirant-sale.html?pagewanted=print'>