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October 7, 2008
Fed Considers Plan to Buy Companies'
Short-Term Debts
Under a proposal being discussed with the Treasury Department, the
Federal Reserve could buy vast amounts of the unsecured short-term debt
that companies rely on to finance their day-to-day activities, the
New York Times reported today. While the move would put more
taxpayer dollars at risk, it underscores the growing sense of urgency
felt by policy makers in a climate where lending has virtually dried up.
The market for commercial paper, or short-term debt for municipalities
and corporations, has all but shut down in the last week, with many
major corporations unable to borrow for longer than a day at a time as
banks become more fearful of giving out cash. The volume of such debt
totaled about $1.6 trillion as of Oct. 1, down 11 percent from three
weeks earlier.
href='http://www.nytimes.com/2008/10/07/business/07markets.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
FDIC Looks to Implement Increased
Deposit Insurance Limits
FDIC Chairwoman Sheila Bair yesterday pledged to act aggressively to
implement the congressionally approved hike in deposit insurance limits
and shore up the commission's ability to backstop failing banks,
CongressDaily reported yesterday. Bair said the insurance limit
increase from the current $100,000 to $250,000, as laid out in the
federal bailout package passed last week, 'does not solve all the
problems of the industry ... [but] will give a greater degree of
assurance to depositors at a time when public confidence in the safety
of their money is critically important.' As a first step in bulking up
the deposit guarantee, she said the commission today will consider an
increase in bank insurance premiums to bolster the deposit insurance
fund. She said that fund was now '$45 billion strong' and was
underwritten by $1.3 trillion in the equity capital of the banking
industry.
Congressional Panel Critical of CEO
for Lehman's Collapse
Despite Lehman CEO Richard S. Fuld Jr.'s stance that he made the best
decisions he could at the time, members of the House Committee on
Oversight and Government Reform peppered him with hostile questions
about the collapse of the firm and the hundreds of millions he made over
the last eight years, the New York Times reported today.
Members of the committee also criticized Fuld for making what they
described as rosy public statements about the bank's health that did not
reflect a scramble for cash behind the scenes. Fuld said that while he
took full responsibility for the debacle, he believed all his decisions
“were both prudent and appropriate” given the information he
href='http://www.nytimes.com/2008/10/07/business/economy/07lehman.html?ref=business&pagewanted=print'>Read
more.
The House Committee on Oversight and Government Reform will continue
its series of hearings examining the current financial crisis and will
hold a hearing today looking at the regulatory mistakes and financial
excesses that led to government bailout of AIG. The hearing will be held
at 10:00 a.m. ET in Rayburn House Office Building room 2154.
href='http://oversight.house.gov/story.asp?ID=2211'>Click
here for more information.
In related news, the Wall Street Journal reported today that at
least three U.S. attorney offices are probing whether Lehman Brothers
Holdings Inc. misled investors before its bankruptcy filing. Criminal
prosecutors from two New York City boroughs and from New Jersey are look
to see whether Lehman valued its assets at artificially high levels.
Lehman declined to comment, but in congressional testimony yesterday,
Richard Fuld, Lehman's chief executive, said the firm didn't mislead
investors. The U.S. attorney's office for New York's Southern District
has issued subpoenas to individuals that focus on what the firm told
investors and other parties about its valuations for approximately $32.6
billion in commercial-real-estate holdings.
href='http://online.wsj.com/article/SB122333024089209177.html?mod=article-outset-box'>Read
more. (Subscription required.)
Sun Country Airlines Files for
Bankruptcy Protection
Sun Country Airlines filed for chapter 11 protection yesterday,
just days after the founder of its parent company, Petters Group
Worldwide, was charged in a multimillion dollar fraud investigation, the
Associated Press reported yesterday. Sun Country plans to continue
operating on its normal schedule, according to airline Chairman and CEO
Stan Gadek. Last week, Gadek said Sun Country was having cash-flow
problems and could not turn to its parent company for a short-term loan
-- as it normally would during the slow travel period -- because of the
federal investigation. Petters Group founder Tom Petters faces federal
charges of mail fraud, wire fraud, money laundering and obstruction of
justice in what authorities say was a scheme to defraud investors out of
more than $100 million that went on for years. Petters resigned before
his arrest last week. Petters Group became the sole owner of Sun Country
last November, after co-owning the carrier since October 2006.
href='http://biz.yahoo.com/ap/081006/sun_country_bankruptcy.html?.v=2'>Read
more.
Delphi Amends Reorganization
Plan
U.S. auto-parts supplier Delphi Corp., which has been stalled in chapter
11 since its reorganization plan fell apart in April, has revamped its
plan, slashing recoveries for creditors and depending on less debt
financing, the Wall Street Journal reported today.
Delphi's plan now calls for a 38.8 percent recovery for unsecured
creditors, down from a full recovery under the original plan. The
distribution will come from new common stock in Delphi and participation
in a rights offering. Delphi expects to finance its plan with $3.75
billion in debt and equity, down from $6.45 billion in the original
plan. The company plans a $1 billion rights offering and hopes to obtain
$2.75 billion in first- and second-lien debt.
href='http://online.wsj.com/article/SB122332147157508619.html#printMode'>Read
more. (Subscription required.)
Alabama County Moves Closer to
Bankruptcy Filing
The Environmental Services Committee of Jefferson County, Ala., voted
yesterday in favor of filing for chapter 9 bankruptcy, the
Birmingham Business Journal reported. The committee approved a
resolution that instructs lawyers to prepare paperwork needed to file
bankruptcy in the shadow of the county's $3.2 billion in sewer debt. The
resolution will be presented before the Jefferson County Commission on
Oct. 14. Jefferson County officials have been at an impasse since
February about whether to file for bankruptcy or work out a deal with
Wall Street creditors behind the county's sewer debt.
href='http://www.bizjournals.com/birmingham/stories/2008/10/06/daily4.html?t=printable'>Read
more.
Mrs. Fields Receives Approval for
Reorganization Plan
Nearly a month after entering chapter 11, Mrs. Fields Famous Brands has
received approval for its prepackaged reorganization plan,
Bankruptcy Law360 reported yesterday. The plan allows for the
conversion of old notes into a combination of cash, new notes and 87.5
percent of the equity of Mrs. Fields Original Cookies (MFOC) as well as
the conversion of the MFOC note into a combination of cash, 12.5 percent
of the equity of MFOC outstanding at the plan's effective date, and a
warrant to purchase additional equity of reorganized MFOC, according to
court documents. Mrs. Fields filed the prepackaged plan of
reorganization on Aug. 24, the same day the company and several of its
subsidiaries filed voluntary chapter 11 petitions, listing liabilities
in the $100 million to $500 million range and assets in the $500,000 to
$1 million range.
href='http://bankruptcy.law360.com/articles/71615'>Read
more. (Subscription required.)
Mattress Company Files for Chapter
11
The privately held parent of the Sleep Innovations foam mattress and
pillow company filed for chapter 11 on Friday, citing higher prices for
foam-making components and the housing slowdown as primary reasons for
its financial struggles, Bankruptcy Law360 reported yesterday.
West Long Branch, N.J.-based Comfort Co. Inc. filed a petition in the
U.S. Bankruptcy Court for the District of Delaware listing
assets and liabilities estimated at $100 million to $500 million each.
The company's top unsecured creditors include The Dow Chemical Co.,
which is owed about $3.6 million in trade debt, according to a list of
the 20 largest unsecured creditors submitted by Comfort Co. to the
bankruptcy court.
href='http://bankruptcy.law360.com/articles/71613'>Read
more. (Subscription required.)
IRS Lets Firms Tap Cash Overseas
The Internal Revenue Service significantly relaxed the rules
governing how U.S. corporations can repatriate cash held overseas, the
Wall Street Journal reported today. The ruling, issued late
Friday, allows companies to bring back money for months at a time
without incurring the 35 percent corporate income tax they normally
would owe. The move could help some U.S. companies that are finding it
more expensive to borrow short-term funds, by making it easier and
cheaper for them to borrow money from their foreign
subsidiaries.
href='http://online.wsj.com/article/SB122333518536309433.html'>Read
more. (Subscription required.)
International
EU Finance Ministers Debate
Response to Crisis
European Union finance ministers today agreed to raise the minimum level
of guarantees for individual bank deposits to €100,000 from
€20,000, the Wall Street Journal reported. However,
finance ministers, who gathered in Luxembourg for an emergency meeting
in an attempt at a coordinated response to the global financial crisis,
have decided against setting up an EU-wide fund to bail out troubled
banks. Nations struggled individually even as the ministers met. Iceland
nationalized its second-largest bank, fixed the exchange rate of the
country's currency and said it was negotiating a €4 billion ($5.4
billion) loan from Russia to fight a financial meltdown. British banks'
share prices plunged in early trading as investors worried that the
government wasn't doing enough to boost banks' balance sheets in the
crisis. Shares at Royal Bank of Scotland Group PLC, which had its credit
rating downgraded by Standard & Poor's yesterday, plummeted by 39
percent in the first two hours of trading on the London Stock Exchange
before recovering.
href='http://online.wsj.com/article/SB122338024159511165.html'>Read
more. (Subscription required.)