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March 15, 2007
Student Loan CEO Guilty in Fraud Case
The former CEO of a student-loan business in Delaware was convicted on two counts of bankruptcy fraud, the Wall Street Journal reported today. Hours after the three-day trial ended in a federal court in Wilmington, the jury yesterday returned the guilty verdicts against Andrew N. Yao, founder of Student Finance Corp., which imploded in 2002, leaving $500 million in losses. The partner and the company are fighting civil lawsuits by the bankruptcy trustee overseeing Student Finance's liquidation and an insurer of the company's student loans that accuse them of helping hide growing defaults in the business. In the criminal case, Yao was convicted of lying under oath in a deposition related to the bankruptcy case. Under questioning about more than $650,000 in wire transfers, he swore that the payments were for repairs to his two private jets. In fact, the money was paid to Alexandria 'Lexie' Karlsen, Playboy magazine's Miss March 1999. Read more (subscription required).
name='2'>Citation Corp. Files for Bankruptcy Again
Citation Corp. announced it filed a pre-packaged bankruptcy plan this week as part of the company's second effort to restructure its operations and build a stronger financial base, the Birmingham (Ala.) Business Journal reported yesterday. Citation officials said that it will convert $160 million of its $190 million debt to common equity. The remaining $30 million will be paid in 2013. The Birmingham, Ala.-based company said that under the plan it will not seek concessions from its customers and all suppliers will be paid on time. Citation also filed for chapter 11 in September 2004, blaming a sluggish economy, reduction in orders and high prices of steel and other materials. Read more.
name='3'>Judge Approves Trustees in Two Pearlman Bankruptcy Cases
Bankruptcy Judge Arthur B. Briskman agreed today to allow one or more trustees in two involuntary bankruptcy cases filed against Lou Pearlman and his flagship company, the Orlando Sentinel reported yesterday. Judge Briskman's decision comes after three banks and a venture-capital company filed earlier this month to force Pearlman and Trans Continental Airlines into involuntary bankruptcy. Tatonka Capital Corp., Integra Bank, American Bank of St. Paul and First National Bank & Trust Co. of Williston, N.D., said they are collectively owed more than $112 million. Negotiations were under way yesterday to decide who would be acting as trustees in the case. Read more.
Mortgages
name='4'>Government May Punish Subprime Lenders
The government is preparing to punish some subprime mortgage lenders under investigation for discriminatory practices, the Bush administration's housing secretary said yesterday, according to the Associated Press. The U.S. Housing and Urban Development Department also has suggested that the largest mortgage companies, Fannie Mae and Freddie Mac, consider giving strapped homeowners more time to make their payments, Alphonso Jackson said at a House hearing. Lawmakers are concerned that many people could lose their homes as mortgage delinquencies mount and distress grows in the market for subprime mortgages. Also, members of Congress have denounced what they say are abusive practices by some lenders that target the poor, minorities and the elderly. Read more.
name='5'>Commentary: Subprime Crisis Could Torpedo 2007 Economy
With the nation's second-largest sub-prime mortgage loan bank, Irvine-based New Century Financial, on the verge of bankruptcy, this previously predicted mortgage crisis may turn out to be the sidewinder missile that could torpedo an otherwise benign 2007 economic tapestry, the Desert Sun reported today. Warning signs already had begun to manifest themselves last year as the multi-year housing boom was starting to reverse. Although the trend started late in 2005, it accelerated to 1.2 million foreclosure filings in 2006, up 42 percent from the previous year. That's one home mortgage foreclosure for every 92 households. And this may only be the beginning, as the last three months have indicated a speedup in such a destabilizing process. The combination of a rapidly slowing housing market and potentially escalating mortgage payments predict that an increasing number of families will be unable to refinance their mortgages as they did during the housing boom. Worse, many of these families will be unable to pay off their mortgages as housing prices have decelerated in many of the nation's regions. Read more.
Autos
After Profit, GM Faces Rough Road
For General Motors reported yesterday that it earned a profit in the fourth quarter, that cost cuts had progressed faster than planned and that its losses plummeted in 2006, the New York Times reported today. GM lost $2 billion last year, the second consecutive year of multibillion-dollar losses. Excluding one-time items like payments to employees who took buyout packages and costs related to the bankruptcy filing of its former parts division, the Delphi Corporation, G.M. earned $2.2 billion last year. Revenue was a record $207 billion, up from $195 billion in 2005. Another round of G.M. data is expected to be released today, when the company promises to file its annual report with federal regulators. Read more. (Registration required.)
name='7'>Equity Groups Called Chrysler Front-Runners
Magna International Inc., Cerberus Capital Management LLC and a team led by Blackstone Group and Centerbridge Partners LP are front-runners to buy DaimlerChrysler AG's Chrysler unit, Bloomberg News reported today. Magna, a Canadian auto parts manufacturer, and the leveraged-buyout firms have started detailed reviews of the automaker's finances and product plans. DaimlerChrysler executives aim to meet within the next few weeks to pick a favored bidder for the U.S. division, which lost $1.5 billion last year. Dieter Zetsche, CEO of Stuttgart, Germany-based DaimlerChrysler, has put 'all options on the table' for the unit, which is burdened by pension costs and slack demand for trucks and sport-utility vehicles. Analysts have valued Chrysler at $3 billion to $5 billion. Daimler paid $35 billion for the Auburn Hills, Mich.-based company in 1998. 'We're talking about a turnaround situation, and the attraction to a buyer is that it's still a strong brand name and has a lot of opportunity for cost savings,' said Craig Hutson, a senior bond analyst at Gimme Credit Publications Inc. in Chicago. Read more.
name='8'>Entergy Inches Towards June Exit
Entergy New Orleans has its eye on a June exit from bankruptcy after securing approval from a crucial committee regarding its hurricane-related costs, according to one of the energy giant's top officials, Bankruptcy360 reported yesterday. On Tuesday, Tracie Boutte, the unit's vice president for regulatory affairs, revealed that Entergy New Orleans had received the green light from the New Orleans City Council Utility Committee in relation to its Hurricane Katrina expenses. The council approval marked one of the last endorsements Entergy New Orleans needed to receive $200 million in community grant money and hopefully emerge from chapter 11. Read more (registration required).
International
name='9'>Agrobanka Bankruptcy on Hold
The supervisory board of Agrobanka Praha interrupted discussions on March 8, filing a petition for bankruptcy, Czech Business Weekly reported today. Before the meeting, Agrobanka minority shareholders' association head and supervisory board member Jiri Kellner said that the bank was clearly insolvent and had no other options. He added that bankruptcy assets could include the Czech branch of GE Money Bank. But sources at GE disputed this as legally unfounded. Agrobanka, established in March 1990, went under in autumn 1996. GE Money Bank emerged from the healthy part of the bank acquired by GE Capital.
TROUBLED COMPANIES IN THE NEWS
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Accredited Home Lenders Holding Co.'s stock price tumbled 65% after the lender warned that it may have to reduce its payroll and raise money. The subprime lender is caught between high rates of borrowers' delinquencies and shrinking access to capital.
Alloy Inc., a Manhattan, N.Y.-based teen marketing and retail company, reported a fourth quarter net loss of $660,000. Revenue declined 5%Ðto $40.9 million. For the year, it lost $7.2 million on flat revenue of $196 million. The quarter and year included charges of nearly $2.1 million and $18 million respectively related to debt conversion.
Ameren Corp. had its credit rating lowered by both Standard & Poor's and Moody's Investors Service, as a result of worries that the state of Illinois may impose a freeze on or even a cutback in electricity rates. Recently, Ameren said that if its credit rating took a hit it might have to resort to layoffs and impose cutbacks. Only days ago, Ameren pulled the plug on a $20 million consumer rebate that it had promised.
Chrysler Group, a U.S. unit of DaimlerChrysler AG of Germany, has attracted a number of suitors. Apparently Cerberus Capital Management LLC and another entity led by Blackstone Group and Centerbridge Partners are among the leaders interested in making a bid for Chrysler Group. Other private-equity firms that might bid are Apollo Management LP and Carlyle Group. Among manufacturers that are considering offers to buy all or part of Chrysler Group are Magna International Inc., an Ontario-based manufacturer of auto parts, and the U.S.'s General Motors Corp. Chrysler Group, losing nearly $1.5 billion last year and anticipating losses will continue through this year, recently said it would cut its payroll by 13,000 jobs in a restructuring effort.
Harold's Stores Inc., a Dallas, Tx. owner and operator of women's and men's apparel stores, reported a fourth quarter net loss of $3.1 million, down from a $4 million loss in the year-earlier fourth quarter. Sales were up 9%Ðto $22.6 million, although same-store sales slipped 0.3% at its full-line retailer stores and down more than 9% at its outlet stores. For the year, Harold's lost $11.2 million, nearly twice its $6 million loss of the previous year, while total sales for the year fell 2%Ðto $86.3 million.
Meridian Resource Corp., a Houston, Tx. exploration and development company, reported its fourth quarter net income fell 80%--to $2.8 million. Revenue declined 37%Ðto $40.9 million. For the year, it lost $73.9 million, including a net impairment charge of $87.7 million. Revenue slipped 2% in the yearÐto $191 million.
New Century Financial Inc., an Irvine, Ca. subprime mortgage lender, is undergoing a preliminary investigation by the Securities and Exchange Commission. At the same time, New Century revealed that it has been subpoenaed by a U.S. Attorney in California regarding questions about securities trading. These are only the latest woes facing New Century, which recently received default notices from lenders and was told that it will be suspended from trading its stock on the New York Stock Exchange. In another development, New Century estimated that its obligation to buy back mortgage loans under a deal with Credit Suisse First Boston totaled $1.4 billion, a half billion dollars more than it earlier estimated.
Semco Energy Inc., a Port Huron, Mi. gas company, reported its fourth quarter net income declined 23%Ðto $7.1 million. Revenue declined 10%Ðto $208 million. For the year, its net fell 15%Ðto $10.4 million, while revenue was up 4%Ðto nearly $641 million. Both the quarter and year included debt-extinguishment charges of nearly $1.1 million.
Shuffle Master's stock price sank more than 8% after the Las Vegas, Nv. manufacturer of card-shuffling equipment said that it delayed filing its annual report because of an accounting error. The company also issued a weak forecast.
Web.com Inc., an Atlanta, Ga. provider of hosting and online services, reported a fourth quarter net loss of $2 million on revenue of $12.5 million. For the year, it lost $13.8 million on revenue of $49.1 million.