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March 12, 2009
Impact of Chapter 11 Change
on Retailers Debated by House Panel
Legal experts debated before a House Judiciary
subcommittee yesterday whether BAPCPA tends to force large retailers
such as Circuit City out of business because they have less time to
reorganize their debts, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported today. Bankruptcy lawyers and experts, including ABI
Resident Scholar
face='Times New Roman' size='3'>Jack Williams,
testified before the Judiciary Subcommittee on Commercial and
Administrative Law with some saying that the shorter 210-day window to
restructure operations is sufficient, while others argued that troubled
companies need the year or more provided before the change was
made. In
supporting a repeal of the BAPCPA provision, bankruptcy lawyer
size='3'>Harvey R. Miller told subcommittee
members that companies 'need time to get back to financial vibrance.'
However, Prof.
face='Times New Roman' size='3'>Todd J. Zywicki
size='3'>of the George Mason University School of Law, gave the example
of how Montgomery Ward hurt business in the malls where it operated when
it was in bankruptcy protection several years ago. The malls, he said,
were only able to thrive again once the retailer closed and other anchor
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/03/11/AR2009031104102.html'>Click
here to read the full story.
href='http://judiciary.house.gov/hearings/hear_090311_1.html'>Click
here to read the prepared witness testimony.
Freddie Mac's 2008 Loss
Exceeds $50 Billion
Freddie Mac reported yesterday that it lost $50.1
billion last year, almost half of it in the final three months of 2008,
and would need an additional $30.8 billion in taxpayer assistance to
stay solvent, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported today. The federal government, which seized Freddie
Mac and its counterpart, Fannie Mae, last fall, has agreed to cover $200
billion in losses at each firm. Freddie Mac has already received $13.8
billion. Fannie Mae has asked for nearly $15 billion. The investments
are slated to continue until the companies start to turn a
profit.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/03/11/AR2009031101068_pf.html'>Read
more.
Casino Chain Seeks Prepack
Chapter 11 to Manage Debt
Herbst Gaming Inc. has announced its intent to file
for chapter 11 despite posting relatively healthy profits for its chain
of casinos,
size='3'>Bankruptcy Law360 reported yesterday.
The company said that it expects to expedite the proceedings through a
prepackaged chapter 11 plan that has already been approved by bank
lenders holding approximately 68 percent of the company's $1 billion
debt. Herbst's proposed plan terminates $330 million worth of debt under
the company's 8.125 percent senior subordinated notes and 7 percent
senior subordinated notes and cancels holders' existing equity in the
company, according to a company statement. The company said that it will
also restructure debts of an estimated $847 million, plus accrued and
unpaid interest, under its senior credit facility obligations,
exchanging current obligations for debt and equity stakes in its casino
operations.
href='http://bankruptcy.law360.com/articles/91079'>Read
more. (Subscription required.)
Corporate Accountability
New York AG Scrutinizes
Timing of Merrill Lynch’s Bonuses
New York Attorney General Andrew Cuomo continues to
turn up the heat on Bank of America Corp., which acquired Merrill Lynch
in January and is being investigated over $3.62 billion in bonuses paid
by Merrill even as it was piling up a net loss of $15.84 billion in the
fourth quarter, the
face='Times New Roman' size='3'>Wall Street Journa
size='3'>l reported today.. In a Nov. 24 letter, a lawyer for Merrill
Lynch assured the head of a House committee that 'incentive compensation
decisions for 2008 have not yet been made,' saying directors would do
that at the end of the year. However, the firm's compensation committee
actually voted two weeks earlier to pay bonuses to Merrill employees in
December, according to testimony from a Merrill director filed by New
York Attorney General Andrew Cuomo. Bank of America has refused to hand
over the names of Merrill employees who got bonuses, claiming that might
hurt the bank's ability to retain talent. Cuomo cited those details as
reasons why a New York state-court judge should force the bank to
disclose the information he wants.
href='http://online.wsj.com/article/SB123680466806900029.html#mod=testMod'>Read
more. (Subscription required.)
Is Focus of Attack by Prosecutors
Across the country, attorneys general have already
begun indicting dozens of loan processors, mortgage brokers and bank
officers as a surge in prosecutions for financial fraud is expected, the
New York Times reported today. Last week alone, there were
guilty pleas in Minnesota, Delaware, North Carolina and Connecticut and
sentences in Florida and Vermont — all stemming from home loan
scams. The Obama administration’s proposed budget contains hints
that it will add to this weight of litigation, including money for more
FBI agents to investigate mortgage fraud and white-collar crime, and a
13 percent raise for the Securities and Exchange Commission.
href='http://www.nytimes.com/2009/03/12/business/12crime.html?_r=1&ref=business&pagewanted=print'>Read
more.
Autos
Judge Rejects Delphi
Retirees' Benefits Appeal
Bankruptcy Judge
face='Times New Roman' size='3'>Robert Drain
size='3'>yesterday rejected an appeal by a group of Delphi Corp.
salaried retirees to overturn the auto supplier's request to stop paying
for their health care and insurance benefits, according to the
Associated Press. Judge Drain on Feb. 24 had tentatively approved
Delphi's request to stop paying for its salaried retirees' health and
life insurance. Drain ruled after a hearing yesterday that Troy,
Mich.-based Delphi reserved the right to cancel the benefits. Delphi,
which has operated under chapter 11 bankruptcy protection since
2005.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/03/11/AR2009031104524_pf.html'>Read
more.
UAW Deal with Ford Cuts
Hourly Rate to $55
Ford Motor said yeserday that its new agreement with
the United Automobile Workers union would save at least $500 million a
year and, within several years, bring its labor costs into line with
what foreign competitors pay their workers in the United States,
the
size='3'>New York Times reported today. The
company said that the figure would continue to decline as more workers
took buyouts and as the new-vehicle market recovered, allowing increased
production. Ford’s labor costs now amount to a little more than
$60 an hour, including health care for retirees. Labor costs for the
so-called transplant automakers, including Toyota and Honda, have been
about $49 an hour in the United States and are rising, Ford
estimates.
href='http://www.nytimes.com/2009/03/12/business/12auto.html?ref=business&pagewanted=print'>Read
more.
More Flexibility on Mark-to-Market Accounting Rules
Senate Banking Chairman Christopher Dodd (D-Conn.)
said yesterday that he is open to giving federal regulators additional
flexibility to modify an accounting rule that many claim has contributed
to the financial crisis by forcing firms to write down toxic mortgage
assets to historic lows, CongressDaily reported yesterday. Critics
complain that under existing mark-to-market rules, banks are forced to
value assets at current low values, taking billions of dollars in
losses, even though in the long term these assets could recover. Dodd
spoke favorably about the idea of lifting the rules at certain times of
crisis. However, he cautioned lawmakers to be careful if they weigh in,
because authority over accounting standards lies with the Financial
Accounting Standards Board. 'I have been vehemently opposed to Congress
getting into the business of accounting standards,' Dodd
said.
In related news, the House Financial Services
Subcommittee on Capital Markets, Insurance, and Government Sponsored
Enterprises will hold a hearing today entitled 'Mark-to-Market
Accounting: Practices and Implications.'
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr031209.shtml'>Click
here to view the witness list and to view a live Webcast of the
hearing scheduled for 10 a.m. ET.
House Committee Demands
Transparency on TARP Reporting
House members in both parties blistered Treasury's
financial bailout overseer yesterday for what they claimed is the
department's leniency in not demanding stricter accountability from
banks that have received billions in federal dollars to rescue them from
bankruptcy,
size='3'>CongressDaily reported. In a hearing
of the House Oversight and Government Reform Domestic Policy
Subcommittee, Neel Kashkari, head of Treasury's Office of Financial
Stability, was criticized by lawmakers by what they perceive as the
coddling of corporations whose reckless behavior triggered the swoon of
the housing and financial markets. 'Our constituents are demanding to
know how [Congress and the banks] are spending all this money, and we
can't give them an answer,' said Rep. Dan. Burton (R-Ind.). Treasury is
providing monthly reports on which of the larger banks are receiving
federal assistance and how much they are receiving. However, there is no
breakdown of how the banks are using the money to provide credit to
small businesses and consumers. The GAO and the Special Inspector
General of the Troubled Asset Relief Program told the subcommittee that
Treasury and some regulatory agencies are posting a lot of information
about the rescue effort online and reporting to Congress. They also
urged Congress to make sure that more details are disclosed about how
the money is being used.
SEC Calls for More Funds
to Avert Cuts in Operations
Securities and Exchange Commission Chairman Mary
Schapiro warned yesterday that the agency will 'make significant cuts in
its current operations' this year unless Congress authorizes it to spend
more money, the Washington Post reported today. Responding to
concerns that the agency failed to detect the alleged Bernard L. Madoff
fraud, Schapiro said that the SEC is working to improve collection of
tips and complaints and detect wrongdoing early on. 'I do not believe it
would be wise for the SEC to retrench during such perilous times in our
markets,' she told a House appropriations subcommittee. She expressed
support for giving financial firms more leeway in valuing some
distressed assets. She also said that the SEC is planning to consider
new regulations for hedge funds and credit-rating companies as well as a
proposal to curb short selling.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/03/11/AR2009031101715_pf.html'>Read
more.
Star
TribuneSeeks to Abandon Union's
Contract
The
face='Times New Roman' size='3'>Star Tribune
size='3'>of Minneapolis is seeking bankruptcy court approval to void one
of its labor contracts, the Associated Press reported yesterday. The
newspaper's lawyers told a judge in New York on yesterday that it needs
$3.5 million in concessions from its pressmen union as part of $20
million in total cuts from 10 unions. The cancellation of the contract
would affect 116 union employees. The company has not said whether it
would take similar action against unions representing another 600
workers combined.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/03/11/AR2009031102764_pf.html'>Read
more.
Former Football Star Must
Appear at Bankruptcy Hearing, Pay for Travel
Bankruptcy Judge
face='Times New Roman' size='3'>Frank J. Santoro
size='3'>ruled yesterday that former NFL star Michael Vick must appear
at a bankruptcy hearing next month but should pay his own way from the
Kansas prison where he is serving time for his role in a dogfighting
conspiracy, according to the Associated Press. Judge Santoro rejected
the government's suggestions that he either postpone Vick's April 2
bankruptcy confirmation hearing or allow the suspended player to testify
by video hookup from the federal penitentiary at Leavenworth, Kan. The
U.S. attorney's office in Alexandria, Va., objected to a proposed court
order compelling federal marshals to pick up the former Atlanta Falcons
quarterback and bring him to Virginia. They cited the logistical
burdens, security risks and costs of the temporary transfer.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/03/11/AR2009031100744_pf.html'>Read
more.
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