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August 10, 2009
Commentary: Cramdown
Proposal Should Advance if Current Anti-foreclosure Efforts
Fail
While the Obama administration’s
anti-foreclosure effort extends lenders up to $75 billion in incentives
to modify troubled mortgages, it has not been enough to persuade the
mortgage industry to do what is needed to help Americans stay in their
homes and keep the economy from falling into deeper trouble, according
to a
size='3'>New York Times editorial today. The
administration still maintains that the incentives will overcome the
industry’s manifest reluctance and that they now expect 500,000
modifications by November. According to Moody’s Economy.com, it
would take at least one million successful modifications over the next
six to 12 months to avoid the worst effects of mass foreclosures,
including severe damage to families and communities and — as
foreclosures drive prices down — a continuing loss of home equity
nationwide. Unfortunately, there is also no telling at this point how
many of the loans that are modified under the Obama plan will stay
current, and how many will redefault. What is known is that with
unemployment rising, even lowered monthly payments may prove too
onerous. If the Obama plan does not produce enough successful
modifications, Congress must give homeowners an alternative route to
relief. The best way to do that, according to the editorial, is by
changing the law to allow bankruptcy judges to modify bad
mortgages.
href='http://www.nytimes.com/2009/08/10/opinion/10mon1.html?ref=opinion&pagewanted=print'>Read
more.
NHL Asks Court to Toss Out
Balsillie's Coyotes Bid
The NHL has asked a bankruptcy judge to throw out
Canadian billionaire Jim Balsillie's bid to buy the Phoenix Coyotes
based on the league's overwhelming rejection of him as a potential
owner, the Associated Press reported on Saturday.The owners say their
opinion is based on Balsillie's behavior in earlier attempts to purchase
the Pittsburgh Penguins and Nashville Predators.The board, made up of a
representative from each NHL team, voted 26-0 against Balsillie's
application with three abstaining and one representative absent.Two days
after the board's vote, Balsillie filed a document in the bankruptcy
court contending NHL commissioner Gary Bettman and 'a number of owners
have a personal grudge' against him. Bankruptcy Judge
face='Times New Roman'>Redfield
T. Baum ruled last week that the Sept. 10
auction of the team could include bids to relocate the franchise and
specifically mentioned Balsillie's $212.5 million offer, which is
contingent on moving the Coyotes franchise to Hamilton, Ontario.
href='http://www.google.com/hostednews/ap/article/ALeqM5g4wOZpbbkMgtgb4XZWf_LigEiqMgD99UU7PG0'>Read
more.
JPMorgan Asks Bankruptcy
Judge for WaMuNoteholder Claims Lists
JPMorgan Chase & Co. asked Bankruptcy Judge
size='3'>Mary Walrath to order noteholders of
Washington Mutual Inc. to provide detailed lists of their claims,
Bloomberg News reported on Saturday. So far, the 23-member Washington
Mutual Noteholders Group, with $3.3 billion in outstanding debt
securities, has failed to provide a list of claims, claimed New
York-based JPMorgan. Seattle-based Washington Mutual sought bankruptcy
court protection from creditors in September, listing debt of more than
$8 billion. Its banking units were seized by regulators and sold to
JPMorgan for $1.9 billion.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=aY_885H1VgN4'>Read
more.
Effort to Rein In Executive
Pay Hits New Hurdle
Wall Street banks have become so eager to lure and
keep top dealmakers and traders that they are reviving the practice of
offering ironclad, multimillion-dollar payouts, the
face='Times New Roman'>New York
Times reported today. The resurrection of the
guaranteed bonus is sure to become a hot-button issue for the Obama
administration’s pay czar, Kenneth Feinberg, who is preparing this
week to review how compensation should be structured at seven companies
that received two or more federal bailouts. The companies must each
submit 2009 compensation plans for their top 25 earners by Thursday, and
Feinberg has 60 days to rule on them. He has the authority to single out
any of those employees and adjust their pay packages. In the next phase,
he is to review the packages of the next 75 highest earners in each
company. For them, he can set pay formulas to be applied
broadly.
href='http://www.nytimes.com/2009/08/10/business/10pay.html?_r=1&ref=business&pagewanted=print'>Read
more.
Analysis: Private
Equity’s Lost Gamble on Chrysler
Steve Feinberg, the co-founder of Cerberus Capital
Management, took a gamble to purchase Chrysler almost exactly two years
ago, promising to revive the company, but the automaker filed for
bankruptcy protection at the end of April, the
face='Times New Roman' size='3'>New York Times
size='3'>reported yesterday. Feinberg’s education at the hands of
Chrysler, the government and economic reality is emblematic of the
limits private equity players have encountered as they’ve sought
to reap outsize returns while also contending that they had the smarts
and managerial prowess to repair companies of any size. When Cerberus
began poking around Detroit, some at the firm said they thought that the
American automobile industry was going to be the biggest turnaround
story in history. In sessions with potential investors in the last few
years, the Cerberus team came across as passionate, skilled and
incredibly confident that they could succeed where others had failed.
John W. Snow, a former Treasury secretary in the Bush administration and
Cerberus’s chairman, also heralded Cerberus as Chrysler’s
savior, likening the firm’s investment to the government rescue of
Chrysler in 1979. Cerberus and its co-investors ultimately invested $7.4
billion in Chrysler, a sum now worth an estimated $1.4 billion.
href='http://www.nytimes.com/2009/08/09/business/09cerb.html?em=&pagewanted=print'>Read
more.
Vacancies Suppress Southern
California Recovery
While real estate is depressed across the U.S.,
Southern California's economy is more reliant on new home construction
than many other places, and its economic pain is exacerbated by the
continued housing downturn, the
face='Times 

New Roman'
size='3'>Wall Street Journal reported today.
At its peak four years ago, construction was the fourth-largest employer
in the Inland Empire counties of San Bernardino and Riverside, Calif.,
according to Jack Kyser, chief economist at Los Angeles Economic
Development Corp., a nonprofit research group. The housing industry
contributed more than $24 billion in revenue to the Southern California
economy in 2008, or more than double the U.S. gross revenue from
Hollywood movies, according to the Building Industry Association of
Southern California. The greater Los Angeles area has lost about 90,000
construction jobs, or about 15 percent of the total in the past year,
more than any other metropolitan area, according to the Associated
General Contractors of America. The Inland Empire, east of Los Angeles,
has lost about 60,000 construction jobs since 2006, or 49 percent of its
total, according to John Husing, a consulting economist in Redlands,
Calif.
href='http://online.wsj.com/article/SB124985862195117909.html'>Read
more . (Subscription required.)
Maguire Properties Warns of
Loan Defaults
Maguire Properties Inc., one of the largest
office-building owners in Southern California, is planning to hand over
control of seven buildings with some $1.06 billion in debt to creditors,
the latest sign that rising vacancies and falling rents are causing
stress in the commercial real-estate sector, the
face='Times New Roman'>Wall
Street Journal reported today. Maguire, which
borrowed heavily a few years ago to make disastrous top-of-the-market
investments, mostly in Orange County, notified the buildings' mortgage
holders on Friday that it expected 'imminent default' on the loans. The
buildings are all worth less then their mortgages and aren't generating
enough cash to pay debt service and finance leasing expenses.
href='http://online.wsj.com/article/SB124986079948018087.html'>Read
more. (Subscription required.)
Bankrupt Airline, Teamsters
Settle Contract Dispute
Frontier Airlines has settled a dispute with the
International Brotherhood of Teamsters over the rejection of a
collective bargaining agreement covering the bankrupt airline's
mechanics and maintenance workers,
face='Times 

New Roman'
size='3'>Bankruptcy Law360 reported on Friday.
The union and the airline issued a joint statement Thursday saying they
had agreed on a contract and settled litigation arising from the U.S.
Bankruptcy Court for the Southern District of New York's decision last
year to allow Frontier to impose wage and benefit reductions on union
members. The parties said the new wage and benefit reductions bring the
union in line with concessions Frontier has obtained from its other
employee groups.
href='http://bankruptcy.law360.com/articles/115500'>Read more.
(Subscription required.)
AIG Turns Profit, Warns of
Volatility
American International Group, the insurance giant
whose near-collapse threatened to bring down the financial system last
year, on Friday reported its first quarterly profit since 2007,
attributing the results to steadier performance in some of its
businesses but warning that pitfalls could lie ahead in its
restructuring, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported on Saturday. The New York-based insurer, which was
bailed out by the government in September, said it earned $1.82 billion
through the three months ending June 30. During the same period last
year, AIG lost $5.36 billion. AIG CEO Edward M. Liddy said that
operating results in the company's insurance businesses continued to be
affected by weak economic conditions and fallout from AIG's meltdown a
year ago, but he added that performance in those units had stabilized
since the first quarter.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/08/07/AR2009080701099_pf.html'>Read
more.
Ethics Panel Dismisses
Complaints over Senators’ Mortgages
The Senate Ethics Committee has ended its
investigations against Senate Banking Chairman Christopher Dodd
(D-Conn.) and Budget Chairman Kent Conrad (D-N.D.) over mortgages they
received from Countrywide Financial, but the panel did not exonerate the
lawmakers,
size='3'>CongressDaily reported on Friday.
Separate letters from the six members of the panel, including Ethics
Chairwoman Barbara Boxer (D-Calif.) and ranking member Johnny Isakson
(R-Ga.), noted: 'While the committee finds no substantial, credible
evidence as required by committee rules that your Countrywide mortgages
violated Senate ethics rules, the committee does believe that you should
have exercised more vigilance in your dealings with Countrywide in order
to avoid the appearance that you were receiving preferential treatment
based on your status as a senator,' the letters say. The committee said
that it reviewed more than 18,000 pages of documents, including material
provided by the senators and by Countrywide on its VIP loan unit and its
Friends of Angelo program, in which both senators said they were
enrolled without their knowledge. The committee accepted the senators'
assertions that they did not know the program gave reduced mortgage
rates.
CIT Group Inc. on Friday suspended preferred-stock
dividends in the latest move by the lender to shore up its finances and
avoid a bankruptcy filing, the
face='Times 

New Roman'
size='3'>Wall Street Journal reported on
Saturday. The suspension of dividend payments on four series of
preferred shares will save the century-old lender about $50 million each
quarter, according to CIT. CIT hopes the move will improve liquidity and
preserve capital while the company restructures. With about $10 billion
of debt maturing though 2010, CIT has been struggling to restructure
terms with its creditors. The company said Friday it has received the
final $1 billion portion of its $3 billion loan put in place in July by
six of CIT's largest bondholders. It has said it will use much of the
cash to support its small-business and middle-market customers.
href='http://online.wsj.com/article/SB124965476942814505.html'>Read
more. (Subscription required.)
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