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May 15, 2009
Encourage Banks to Allow Short Sales
Banks could get government incentive payments for
allowing borrowers to sell their home at a loss rather than go through
foreclosure, under new guidelines issued yesterday for the Obama
administration's $75 billion housing plan, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported today. The program, known as Making Home Affordable,
focuses on paying lenders to modify distressed borrowers' loans to
affordable levels. However, under this expansion of the program, lenders
can also receive incentive payments even if the homeowner's loan is not
modified. In those cases, the lender could get up to $1,000 for allowing
a short sale. If the short sale fails, the borrower can turn over their
house keys in a process known as 'deed in lieu of foreclosure,'
transferring ownership to the lender without a foreclosure. At the end
of the process, the homeowner could be eligible for $1,500 for
relocation expenses.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/05/14/AR2009051402133.html'>Read
more.
Obama Continues to Push for
Credit Card Industry Reform; Senate to Vote Tuesday
President Barack Obama renewed his call yesterday for
legislation imposing new restrictions on credit card fees and
interest-rate changes to be finished up by Congress and ready for him to
sign into law before Memorial Day, the
face='Times






New
Roman'
size='3'>Wall Street Journal reported today.
The Senate is poised to vote for final passage on Tuesday on credit card
legislation that would restrict card companies' ability to raise
interest rates and impose late fees. The House passed a bill last month
that contained fewer restrictions than the Senate version being
sponsored by Senate Banking Committee Chair Christopher Dodd (D-Conn.).
Obama put his weight behind some of the toughest language possible:
Restrictions on rate increases and late fees, simpler language on
credit-card rules in mandatory disclosure documents, limits on the
availability of credit cards for college students and stronger
monitoring and penalties for abusers.
href='http://online.wsj.com/article/SB124231209142519649.html#mod=testMod'>Read
more. (Subscription required.)
Commentary: Derivative
Trades Should Be Fully Transparent
While President Obama’s new proposal to regulate
derivatives would go a long way toward reining in the complex products
and reckless practices that have been a big factor in the financial
crisis, the proposal stops shy of creating a fully transparent market,
according to a New York Times editorial today. As the financial
bubble burst mid-decade, many of these derivatives didn’t work as
they created or amplified risk rather than reducing it. As in the case
of the American International Group, the failure of one party to various
derivatives contracts threatened to topple the entire system. Worse
still, the debacle caught regulators flat-footed — and taxpayers
have been paying for bailouts ever since. The tab for AIG alone, so far,
is some $180 billion, and there are trillions of dollars more for which
taxpayers are on the hook. Derivatives are not entirely to blame for the
downturn, but they are implicated in much of it, according to the
editorial.
href='http://www.nytimes.com/2009/05/15/opinion/15fri1.html?ref=opinion&pagewanted=print'>Read
more.
1031 Tax Group Trustee Hits
Citibank with $150 Million Suit
The chapter 11 trustee for the 1031 Tax Group LLC has
filed an adversary complaint against Citibank NA seeking the return of
at least $150 million allegedly misappropriated by the commercial real
estate exchange facilitator’s founder, Edward H. Okun, with the
bank’s assistance,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Those funds were used by Okun and his
associates to purchase homes and other luxuries, including yachts and
high-end automobiles, according to trustee Gerard H. McHale Jr. Okun was
convicted in March on 23 counts of fraud brought by the U.S. Securities
and Exchange Commission in 2008. According to McHale, Citibank was aware
of the fraud at the 1031 Tax Group as early as September 2005 and no
later than September 2006, yet continued to facilitate Okun's illegal
taking of money from escrow accounts.
href='http://bankruptcy.law360.com/articles/101532'>Read more.
(Subscription required.)
Autos
GM Nears Crucial Deal
with UAW
General Motors Corp., under the direction of the U.S.
Treasury, is near a deal that would cut its hourly labor costs by more
than $1 billion a year and reduce its $20 billion pledge to the United
Auto Workers (UAW) to cover health care obligations, the
face='Times New Roman'>Wall
Street Journal reported today. The Detroit
automaker expects to halve its remaining cash outlays for retiree health
costs to about $10 billion, and supplement that contribution with a 39
percent equity stake in the reorganized GM. The proposed deal, which is
still being negotiated, would have to be approved by the UAW's 60,000
members at GM, who are expected to face steep cuts in pay and benefits,
as well as 20,000 additional layoffs.
href='http://online.wsj.com/article/SB124234322059721429.html#mod=testMod'>Read
more. (Subscription required.)
GM Says Chrysler-like
Deal Would Be Best Bankruptcy Option
General Motors Corp. said yesterday that if it files
for bankruptcy it would most likely pursue a quick sale of its best
assets to a new operating company similar to the process now reshaping
Chrysler LLC, Reuters reported yesterday. The disclosure, which came in
a filing for U.S. securities regulators, marked the first time that GM
said that it would most likely pursue the same legal strategy that
Chrysler is using under federal oversight to slash its debt and
dealerships. GM has said that those options could include a sale of its
profitable assets in a 363 sale. GM faces a June 1 deadline to
restructure its bond debt and reach a sweeping new deal with its major
union.
href='http://www.reuters.com/article/bankruptcyNews/idUSN1434561820090514'>Read
more.
Chrysler Plans to Shut 1
in 4 of Its U.S. Dealers
Nearly 800 dealers selling various Chrysler brands
were given notice yesterday that they would be cut off next month,
the
size='3'>New York Times reported today.
Chrysler, which filed for bankruptcy this month, said that the 789
stores to be closed by June 9, about a quarter of its 3,200 total,
account for just 14 percent of its annual sales. GM, which appears to be
weeks away from following Chrysler into bankruptcy court, has said that
it would eliminate 2,600 of its American dealers, or 40 percent, by next
year. The process is expected to begin Friday, with the company
notifying about 1,100 dealers that their franchise agreements with GM
will not be renewed when they expire in October 2010. The National
Automobile Dealers Association has estimated that all the dealership
closings, including ones already announced by GM and Chrysler, represent
187,000 jobs, more than the number of people who work for the two car
companies in the United States.
href='http://www.nytimes.com/2009/05/15/business/15dealers.html?ref=business&pagewanted=print'>Read
more.
Fund Manager Plans $1
Billion Fund to Invest in Bankruptcy Loans
Eaton Vance Corp., the largest manager of funds
designed to minimize taxes, is raising $1 billion to buy high yielding
bankruptcy loans as the recession pushes a rising number of companies to
default, Bloomberg News reported today. Scott Page, who manages about
$14 billion of loan funds at Boston-based Eaton Vance, said yesterday
that the firm plans to start with $100 million to $200 million of
“sub-funds” before expanding to $1 billion of investments in
so-called debtor-in-possession, or DIP, loans. Eaton Vance, which has
$121.9 billion under management, joins firms including Aladdin Capital
Holdings LLC, which oversees $15 billion, and General Electric Co. that
are raising cash to invest in DIP loans.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=aD3ZIDQp5sp4&refer=us'>Read
more.
General Growth Receives
Approval to Tap $400 Million in Financing
Bankruptcy Court Judge
face='Times






New
Roman'
size='3'>Allan Gropper on Wednesday approved a
$400 million emergency-financing package and sided with mall owner
General Growth Properties Inc. in its bid to draw cash flow from many of
its malls, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The proposal had drawn considerable opposition
from investors in commercial-mortgage-backed securities, or CMBS, who
argued that the malls are held by separate, special-purpose entities and
thus should retain all cash generated by the properties. Judge Gropper
refuted an argument made in an amicus brief by the Commercial Mortgage
Securities Association and the Mortgage Bankers Association that
allowing General Growth access to the malls' cash flows would be harmful
to investors' confidence in the $700 billion CMBS market.
href='http://online.wsj.com/article/SB124226335971717841.html'>Read
more. (Subscription required.)
Station Casinos Delays
Bankruptcy Proceedings
Station Casinos Inc. said yesterday that it will
likely avoid filing for bankruptcy protection by Friday's deadline, as
lenders are expected to grant the debt-strapped casino company another
extension, the
size='3'>Wall Street Journal reported today.
The extension will allow Station more time to work out a pre-packaged
bankruptcy plan with lenders who are owed $5.7 billion. Station took on
much of that debt to finance a 2007 buyout led by the company's founding
family, the Fertittas, and Los Angeles-based investment firm Colony
Capital LLC. Station is one of many casino companies struggling to pay
down billions in debt as gambling revenues have been in decline for
more than a year. This would be the third extension the company has won
as it attempts to negotiate a prepackaged bankruptcy deal with lenders.
The length of Station's latest extension was unclear as of
yesterday.
href='http://online.wsj.com/article/SB124234840959422063.html'>Read
more. (Subscription required.)
WARN Class Approved for
Mortgage Lenders Settlement
Bankruptcy Judge
face='Times






New
Roman'
size='3'>Peter J. Walsh certified a settlement
class and gave initial approval for a deal to end an adversary
proceeding brought by terminated employees of bankrupt subprime lender
Mortgage Lenders Network USA, Bankruptcy
Law360 reported yesterday. Judge Walsh
certified the class for settlement purposes, reasoning that “it
would be cost-prohibitive for the vast majority of class members to
prosecute their claims in the bankruptcy court and otherwise navigate a
complicated objection process.” The preliminarily approved deal
requires Mortgage Lenders to give $2.7 million to class counsel, who
would deposit the funds in a settlement account. The amount includes
$900,000 to be paid in attorneys' fees.
href='http://bankruptcy.law360.com/articles/101556'>Read
more. (Subscription required.)
Former PBGC Official
Investigated over Contract Deals
The former Bush administration official in charge of
the federal agency that guarantees pensions for 44 million Americans is
under investigation over his contacts with several major Wall Street
firms seeking to obtain lucrative contracts, the
face='Times New Roman'>New York
Times reported today. Charles E. F. Millard,
the former director of the Pension Benefit Guaranty Corp., is also being
investigated on suspicion of soliciting help from one of the winning
firms in his search for a new job once he left office. Agency officials
are now considering canceling contracts that Goldman Sachs, JPMorgan
Chase and BlackRock won late last year — worth up to $100 million
in fees over a decade — to collectively manage $2.5 billion from
the agency’s $49 billion portfolio. The contracts were part of a
broad effort Millard began shortly after he arrived at the agency in
2007 to put more of its portfolio into better-performing stocks and
alternative investments like private equity and real estate. Staff at
the agency became concerned that Millard, a former Wall Street money
manager and economic adviser to Rudolph W. Giuliani when he was mayor of
New York, was showing favoritism to his industry friends.
href='http://www.nytimes.com/2009/05/15/us/politics/15pension.html?_r=1&ref=business&pagewanted=print'>Read
more.
Trustee Sends $30 Million
to Victims of Madoff Fraud
Trustee Irving H. Picard said
yesterday that nearly $30 million has been returned to individual
victims of Bernard L. Madoff’s multibillion-dollar Ponzi scheme,
the
size='3'>New York Times reported today. That
money is part of $61.4 million already approved for payment by the
Securities Investors Protection Corp., the federally chartered agency
that oversees the liquidation of brokerage firms. The total of approved
claims is expected to reach $100 million by Memorial Day, the Picard
said. The 125 claims that have been approved to date for payment add up
to losses of $368 million, according to Picard.
href='http://www.nytimes.com/2009/05/15/business/15madoff.html?ref=business&pagewanted=print'>Read
more.
New York Attorney General Andrew M. Cuomo said that
the Carlyle Group, one of the world's largest private-equity firms, has
agreed to pay $20 million and stop using politically connected
operatives to land business with government pension systems around the
country, the
size='3'>Washington Post reported today. Cuomo
intends the first-of-its-kind settlement to serve as a model for
nationwide restrictions aimed at ending corruption and conflicts of
interest in public pension funds. He said that he hopes that Congress or
the Securities and Exchange Commission ensure that those limits are
applied across the pension investment industry. Carlyle, a D.C.-based
firm with more than $85 billion under management, made millions of
dollars in payments to influential intermediaries in exchange for
investments from the New York state pension fund, according to the
settlement.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/05/14/AR2009051404148_pf.html'>Read
more.
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