January 12, 2007
Autos
Delphi Corp. Chairman and CEO Robert S. 'Steve' Miller defended the company's decision yesterday to reject a more lucrative offer and stick with a plan to let five private investors pay as much as $3.4 billion to take a controlling stake in the bankrupt auto supplier, the Detroit News reported yesterday. The prospect that the investors could earn more than $500 million in the deal is worth the price, because the plan 'enables us to find a way out of chapter 11,' Miller told U.S. Bankruptcy Judge Robert Drain during a hearing.
In related news, the president of the Canadian Auto Workers union said that Delphi Corp.'s exit from bankruptcy is “absolutely critical' to its members, Bloomberg News reported yesterday. Hargrove said that while the union has very few members who work at
GM Bankruptcy Risk at 22-Month Low, Credit Swaps Show
Credit-default swap prices show that the risk of General Motors Corp. filing for bankruptcy is the lowest since March 2005, before the world's biggest automaker lost its investment-grade ratings, Bloomberg News reported yesterday. Credit-default swaps based on $10 million of GM bonds fell to $377,900 today, according to CMA Datavision in
In related news, GM expects that its cash flow will remain negative this year even though it has taken out billions of dollars in fixed costs and is hitting the peak of its product cycle, the Wall Street Journal reported today. GM Chief Financial Officer Frederick 'Fritz' Henderson said the company's cash flow would be improved compared with 2006, but he acknowledged the company would again burn cash for another year, in part because of increased capital spending. The forecast of negative cash flow means the big auto maker will continue to face serious financial pressures for at least an additional 12 months as it works to turn around its unprofitable North American auto operations. GM faces declining market share and intensifying competition, as well as high costs.Read more . (Registration required.)
Court Approves Global Power's DIP, Plan Extension
Bankrupt energy-industry manufacturer Global Power Equipment Group Inc. has received court approval to extend its exclusive right to file a reorganization plan, with the new deadline set for April 26, Bankruptcy Law360 reported yesterday. The company was originally supposed to have its plan lined up by the end of January. In addition to the extension, Judge Brendan L. Shannon granted a motion allowing Global Power to fully tap an $85 million financing package from Morgan Stanley Senior Funding Inc., which was lined up in November. Access to the full debtor-in-possession loan, approved Tuesday in the Delaware Bankruptcy Court, will allow the company to refinance $38.5 million in pre-petition secured debt arranged by Bank of America NA and others. Read more . (Registration required.)
Malpractice Suit Ruled Not 'Core' to Chapter 11 of VWE Group
Bankruptcy Judge Colleen McMahon last week withdrew a malpractice suit from the bankruptcy proceeding of VWE Group, a Yonkers, N.Y.-based distributor of corporate greeting cards and human resources forms, on the grounds that the malpractice claims were not 'core' to the chapter 11 proceeding, the New York Law Journal reported today.VWE’s creditors' committee claims that lawyers advised the company, which filed for chapter 11 in 2004, to undertake a series of transactions in 2002 and 2003 that deprived the bankruptcy estate of $4.2 million. John R. Sachs of Epstein, Becker & Green, who represents the Hall Dickler defendants, said the case could allow a federal court to consider the question of whether lawyers can be held liable for advising on transactions that worsen a bankruptcy situation. The Delaware Chancery Court last year ruled there was no cause of action for 'deepening insolvency.' Read more.
Judge Affirms Ruling in Calpine Payment Dispute
A district judge has upheld a bankruptcy judge’s decision to allow Calpine Corp. to make a repayment on the principal of first-lien debt without paying a premium, Bankruptcy Law360 reported yesterday. Judge Shira A. Scheindlin of the U.S. District Court for the Southern District of New York affirmed the bankruptcy judge’s decision on Tuesday, and rejected the appeals of the Law Debenture Trust Co. of New York. The energy company issued the first-lien notes in the amount of $785 million back in September 2004. The premium amount had added up to about $95.5 million as of June 2006. The indenture trustee, holding the 9.625 percent first-priority senior-secured notes issued by Calpine, objected to two orders by Judge Burton R. Lifland of the U.S. Bankruptcy Court for the Southern District of New York. The trustee argued that the bankruptcy court erred in granting Calpine’s repayment motion without first discerning whether such repayment was permitted under the first-lien indenture without payment of any premium. Read more . (Registration required.)
Anvil Knitwear Scores Confirmation of Exit Plan
New York-based apparel maker Anvil Knitwear Inc. has won court confirmation of its reorganization plan, setting the company on course to emerge from bankruptcy protection after filing three months ago, Bankruptcy Law360 reported yesterday. Judge Allan L. Gropper of the U.S. Bankruptcy Court for the Southern District of New York approved Anvil’s plan on Wednesday, which outlines cutting about $200 million in debt and preferred stock by issuing new equity and warrants. Although the reorganization plan raised objections from two creditors, Indemnity Insurance Co. of
Commentary: Merger Speculation Lifts Airline Industry
The usual morose talk about the airline industry has been drowned out as US Airways has proposed a $10.5 billion takeover for Delta Air Lines and speculation of other merger possibilities is currently swirling, according to a commentary in today's New York Times . Gone for the moment are dreary laments about sky-high fuel costs, about fractious labor relations that can bring airlines to a virtual halt, and about the inevitable economic downturn that could very well plunge one or more of the thinly capitalized domestic carriers back into bankruptcy. US Airways CEO W. Douglas Parker, more than any other industry player, sparked this turnaround in sentiment with what appears to be a startlingly successful merger of the old US Airways, a carrier that was in bankruptcy twice since 2001, and his America West Airlines, a much smaller company that itself badly needed a cash infusion.He raised $866 million from outside investors, and brought the airlines together in time to catch an updraft in ticket pricing that has restored the industry to rare profitability. Read more .
State Farm Told to
A federal jury ordered State Farm insurance yesterday to pay a $2.5 million penalty for refusing to cover damages to a Mississippi couple’s house that was destroyed in Hurricane Katrina, throwing into question settlement talks intended to resolve hundreds of lawsuits filed after the 2005 storm, the New York Times reported today. Lawyers for the homeowners, Norman and Genevieve Broussard, had argued that the house was knocked off its foundation and torn apart by high winds, which is covered as a fundamental part of home insurance coverage, and that a wall of water driving in from the Gulf of Mexico had scattered the debris. Yesterday’s decision was the first by a jury in a sprawling dispute that sprang up after thousands of homes were damaged or destroyed by Hurricane Katrina and the insurers were accused of narrowly interpreting coverage and vastly underpaying claims. More than 2,000 lawsuits have been filed. Read more .
International
British Interest Rate Increased
The Bank of England surprised investors on Thursday and raised interest rates by a quarter of a percentage point, to 5.25 percent, to head off rising inflation amid a boom in the housing market and strong economic growth, the New York Times reported today. Meanwhile, the European Central Bank, meeting in
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Cosi Inc.'s stock price surged 12% after the
Energy Transfer Partners LP, a
Ford Motor Co. and General Motors Corp. are asking their workers' union for more concessions as the two troubled automakers continue trying to reduce costs. The car companies didn't provide details of what further concessions they might seek from workers, but any changes would be on top of large healthcare-related and other cost concessions that the firms have already won from the United Auto Workers union.
Gap Inc., in another move aimed at reviving sales, announced that two of its top merchandising and design executives will leave the brands they work for, the firm's adult business and Old Navy. Few other details were revealed, but the departures seem to indicate that the
Genaera Corp., a Plymouth Meeting,
Kraftmaid Cabinetry Inc., a unit of Masco Corp. of