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August 15, 2007
Subprime
Mortgages
id='1'>Subprime Problems Spread into Commercial
Loans
Turmoil in the subprime
mortgage market spread again yesterday — this time to a type of
short-term security held by money market mutual funds, the
New York Times
size='3'>reported today. Standard & Poor’s, the ratings
agency, warned yesterday that it might downgrade several issuers of
commercial paper. In these cases, S&P said, the commercial paper was
backed by residential mortgages. The amount of commercial paper in
the
face='Times New Roman' size='3'>United
States
to $2.2 trillion, according to Lehman Brothers, with about $1.2 trillion
backed by residential mortgages, credit card receivables, car loans and
other bonds. The major buyers include pension funds, insurance
companies, hedge funds and short-term money market funds. Investors have
flocked to money market funds as they try to avoid volatile stocks and
the seized-up bond market. Last week, more than $36 billion moved into
money market funds, the largest shift since December 2005. In all, some
$2.6 trillion is in money market funds, according to AMG Data
Services.
href='http://www.nytimes.com/2007/08/15/business/15fund.html?ref=business&pagewanted=print'>Read
more.
id='2'>Commentary: How Rating Firms Helped Fueled the Subprime
Crisis
Standard & Poor's
decision in 2000 that 'piggyback' mortgage loans, where borrowers
simultaneously take out a second loan for the down payment, were no more
likely to default than a standard mortgage were part of the decisions
that helped fuel the subprime lending boom, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. While its pronouncement went unnoticed outside
the mortgage world, piggybacks soon were part of a movement that
transformed
w:st='on'>
size='3'>America
size='3'>'s home-loan industry: a boom in 'subprime' mortgages taken out
by buyers with weak credit. Six years later, S&P reversed its view
of loans with piggybacks. It said they actually were far more likely to
default. By then, however, they and other new types of loans were key
parts of a massive $1.1 trillion subprime-mortgage market. While it was
lenders that made the lenient loans, home buyers who sought out easy
mortgages, and Wall Street underwriters that turned them into
securities, credit-rating firms also played a role in the
subprime-mortgage boom that is now troubling financial markets. S&P,
Moody's Investors Service and Fitch Ratings gave top ratings to many
securities built on the questionable loans, making the securities seem
as safe as a Treasury bond.
href='http://online.wsj.com/article/SB118714461352698015.html?mod=hpp_us_whats_news'>Read
more. (Registration required.)
id='3'>JPMorgan Threatens HomeBanc with
Foreclosure
JPMorgan Chase Bank NA, a
secured creditor of bankrupt mortgage lender HomeBanc
face='Times New Roman'>Corp., has asked the court for
assurance that its claim of more than $67 million will be repaid,
Bankruptcy Law360
reported yesterday. JPMorgan sought adequate protection
of its assets or, in the alternative, relief from the automatic stay to
pursue a foreclosure of the amount owed. The bank wants to stop HomeBanc
from dipping into cash collateral in order to run its business
post-petition. According to the motion, JPMorgan entered into a loan
agreement with HomeBanc in November 2006, under which the bank gave the
lender $75 million in return for certain collateral. JPMorgan said that
about $67 million of the principal amount of the loan, plus interest,
expenses and fees, remains to be repaid by HomeBanc.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=32490'>Read
more. (Registration required.)
id='4'>Home-Loan Woes Hit Commercial REITs
The
w:st='on'>
size='3'>U.S.
size='3'>residential-mortgage market's woes keep popping up in
unexpected places, even real-estate investment trusts that specialize in
commercial lending, the
size='3'>Wall Street Journal reported today.
While REITs that trade in residential mortgages have taken the main hit
during the credit crunch, exposed as they are to some riskier home-loan
types, those focused on commercial mortgages are feeling pinched in part
because some have more exposure to residential loans than first
presumed. Recent disclosures include one by RAIT Financial Trust, a
commercially focused REIT, which calculated its exposure to American
Home Mortgage Investment Corp., a troubled home-mortgage lender, at $95
million. That amount, if written off, is 7 percent of RAIT's book value
per share, according to some analysts. Analysts and investors say they
fear there could be more of such revelations coming. UBS REIT analyst
Omotayo Okusanya says most commercial-mortgage REITs suffer from poor
disclosure and don't, for instance, break out their loans by industry or
highlight their top 10 borrowers.
href='http://online.wsj.com/article/SB118713012594597763.html?mod=hpp_us_whats_news'>Read
more. (Registration required.)
id='5'>Credit Crisis Hits Small Lenders
The mortgage credit
crunch is tightening its grip on thousands of small to midsize lenders
and brokers, allowing giant lenders to grab a bigger share of the
market, the Wall Street
Journal reported today. Shares of Santa Fe,
N.M.-based Thornburg Mortgage Inc., a specialist in large prime home
loans, dropped 47 percent yesterday as the company said that it will
delay its second-quarter dividend payment and has been getting margin
calls from creditors, requiring the lender to make payments to make up
for the declining value of mortgages used as collateral for those
borrowings. Many small mortgage banks that specialize in loans that are
out of favor with investors -- anything other than those that can be
sold to government-sponsored investors Fannie Mae and Freddie Mac -- are
'desperate,' said Doug Duncan, chief economist at the Mortgage Bankers
Association, a trade group. He added that the credit crunch will cause a
larger rise in defaults than previously expected. Borrowers will find it
harder to refinance to avoid rising payments on adjustable-rate
mortgages, and the difficulty of lining up loans will hurt house
prices.
href='http://online.wsj.com/article/SB118713766031197962.html?mod=hpp_us_whats_news'>Read
more. (Registration required.)
Rowe
Furniture Chain Submits Chapter 11 Plan
Bankrupt furniture store
chain The Rowe Companies filed its reorganization plan that will allow
its creditors to recover an amount “at least equal” to what
would be available for their respective claims if the company were to
liquidate, Bankruptcy
Law360 reported yesterday. Rowe added that
while its plan does not provide for the distribution to equity-holders
of any property, it believes that holders of equity interests would not
receive any distribution of property in a chapter 7 liquidation.
Substantially all of Rowe's assets have already been sold, according to
the disclosure statement. Under the terms of the plan, Rowe wants to
transfer 100 percent of its stock to another company, American
Communications. In May, American agreed to pay $120,000 and fund an
additional $60,000 of professional fees in connection with the
plan.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=32481'>Read
more. (Registration required.)
id='7'>Solutia's Noteholders Object to Disclosure
Statement
Solutia Inc.'s
noteholders’ committee asked Bankruptcy Judge
face='Times New Roman' size='3'>Prudence Carter Beatty
size='3'>to reject Solutia's disclosure statement, saying it doesn't
contain “adequate information” and the committee's concerns
have been ignored,
size='3'>Bankruptcy Law360 reported
yesterday. The
noteholders are also seeking a hearing as soon as possible to consider
the disclosure statement's approval. On Aug. 1, Judge Carter said she
could not approve Solutia Inc.'s disclosure statement without first
viewing its settlement with former parent Monsanto Co., which, along
with a retiree settlement, is supposed to propel the company out of
bankruptcy. The court charged Solutia with resolving outstanding
objections to the disclosure statement in a consensual manner before
submitting a revised version for the court's approval, the noteholders'
motion said.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=32437'>Read
more. (Registration required.)
International
id='8'>Yukos' Foreign Assets Auctioned
A little-known company
reportedly linked to state-controlled oil giant Rosneft won the auction
today for a company that owns the foreign assets of the bankrupt Yukos
oil group, the Associated Press reported today. The complicated case is
the latest twist in the state-driven carve-up of Yukos, whose main
production and refining units have been sold at bankruptcy auctions
against billions of dollars in disputed back tax bills. At today's
auction in Moscow, OOO Promneftstroi -- which the Interfax agency said
is linked to Rosneft -- bought Yukos' Dutch-registered holding company
Yukos Finance BV for 7.84 billion rubles ($306 million), according to
the Russian Federal Property Fund. The sale was less than 250 million
rubles ($10 million) above the starting price.
w:st='on'>
size='3'>Yukos Finance BV
size='3'>controls a 49 percent stake in
w:st='on'>
size='3'>Slovakia
monopoly and over $1.5 billion (1.1 billion euros) in cash raised from
the sale of Yukos' large stake in Lithuanian refiner Mazeikiu Nafta
to
face='Times New Roman'
size='3'>Poland
href='http://www.boston.com/news/world/europe/articles/2007/08/15/company_buys_yukos_foreign_assets/'>Read
more.
id='9'>Europe’s Bank Says Financial Turmoil Largely
Over
The European Central Bank
declared yesterday that recent financial market turmoil was largely
over, a sign that the bank would probably proceed with a plan to
increase borrowing costs in early September to curb inflation caused by
a rising economy, the
size='3'>New York Times reported today. The
liquidity problems in the last week, which central banks around the
world smoothed over with large cash infusions, had led many investors to
reassess whether the European Central Bank would tighten credit when it
meets Sept. 6. Data released Tuesday showed that the pace of economic
growth in the 13-nation euro zone slowed in the second quarter to 0.3
percent, about half the rate of the first quarter.
size='3'>France
size='3'>Germany,
the two largest euro members, registered 0.3 percent growth in the same
period, less than economists had forecast, but in line with the central
bank’s prognosis of steady growth that would allow it to raise its
benchmark rate by a quarter-point.
href='http://www.nytimes.com/2007/08/15/business/worldbusiness/15euro.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
id='10'>TROUBLED COMPANIES IN THE NEWS
The business news
articles below are taken from the U.S. Business Journal’s Daily
Summary of Troubled & Fast Growing U.S. Companies which is published
by Bastien Financial Publications.
face='Times New Roman' size='3'>ABI
size='3'>Members receive a 50% discount off of our regular subscription
rate of $500 when subscribing to the complete Daily Summary.
To subscribe email
steve@creditnews.com or call 800-407-9044—use
size='3'>ABI
37
Airspan Networks, the
w:st='on'>Boca Raton, Fl. maker of fixed wireless
access systems that help service providers set up voice and data
communications networks, reported a second quarter net loss of $11.7
million, including a gain of $525,000 related to its restructuring
efforts. Revenue declined 51%–to $22 million.
Central Garden & Pet
Co., the Walnut Creek, Ca. firm which is one of the
largest manufacturers and distributors of lawn and garden and pet
supplies in the nation, reported its second quarter net income declined
50%–to $15.5 million, on an 8% sales decline–to $469
million.
Coeur d’Alene Mines
Corp. of
d’Alene
w:st='on'>Id.
income declined 63%–to $12 million, on a 4% revenue
decline–to $52 million. The earnings decline included a
$507,000 charge from a litigation settlement.
Cosi Inc.,
the
more than 120 cafes in fifteen states, reported a second quarter net
loss of $7.4 million, on a 12% revenue increase–to $36 million.
/>
ExpressJet Holdings
Inc., a Houston, Tx. firm which operates as Continental
Express, reported a second quarter net loss of $26 million, on a 6%
revenue decline–to $395 million.
Hauppauge Digital
Inc., the Hauppauge, N.Y. firm whose WinTV analog and
digital video boards allow viewers to video conference, reported its
third quarter net income declined 52%–to $180,000, on a slight
revenue decline–to $23.5 million.
Hovnanian Enterprises
Inc., the Red Bank, N.J. homebuilder which saw its
number of home closings in its third quarter decline 31% from year
earlier figures, reported that its net contracts for new homes declined
24% during the same period. As a result, the company intends on
taking more than $100 million in land charges.
Mattel
Inc., the El Segundo, Ca. toy maker, has issued a second
large-scale recall of Chinese-made toys including seven million play
sets as well as 1.5 million die cast cars. The second recall is
due to the presence of lead paint and small magnets and could effect the
company’s bottom line.
Meridian Resource
Corp., a
w:st='on'>Houston
exploration and development firm, reported its second quarter net
declined 5%–to $2.7 million, on a 14% revenue decline–to $40
million.
Metretek Technologies
Inc., a Denver, Co. firm which provides gas flow
measurement services, reported a second quarter net loss of $14 million,
on a 34% revenue decline–to $24 million. The results
included a $14.1 million restructuring charge.
New Frontier Media
Inc., a Boulder, Co. firm which operates adult
entertainment television channels, reported its first quarter net income
declined 58%–to $1.5 million, on a 21% revenue decline–to
$13 million.
Qantas Airways
Ltd., which has been in the midst of a U.S. Justice
Dept. investigation related to price-fixing in the air cargo industry,
has set aside $40 million to cover any fines in the scandal. Already,
both British Airways PLC and Korean Air Co. have been fined $300
million.
Qualcomm
Inc., the
Diego
number of legal challenges both here and internationally and which is
preparing to go head to head with rival Broadcom over a patent dispute,
has now seen its general counsel resign as its lead attorney.
Internationally, the company is facing anti-competition complaints in
both Europe and
w:st='on'>Korea
judge, just last week, pointed at Qualcomm’s legal team for
allegedly withholding evidence.