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August 2, 2007
Two
Bear Stearns’ Hedge Funds File for Bankruptcy
Two Bear Stearns hedge funds
filed for bankruptcy protection yesterday, nearly two weeks after
the company told investors one was essentially worthless and the other
had lost more than 90 percent of its value, the Associated Press
reported yesterday. Investors in the two Bear hedge funds also took
action by filing a lawsuit against the company for allegedly misleading
them about the extent of the investment bank's exposure to risky
mortgage-backed securities. The two bankrupt funds, the Bear Stearns
High-Grade Structured Credit Strategies Master Fund Ltd. and the Bear
Stearns High-Grad Structured Credit Strategies Enhanced Leverage Master
Fund Ltd., bet heavily on subprime loans. When those loans began to
default with increasing frequency, the funds' creditors asked for their
collateral, leaving the funds short on cash. As the fate of those two
funds moves into court, Bear Stearns said it moved late Tuesday to
prevent investors from pulling money out of a third hedge fund, which
had $850 million invested in highly rated mortgage-backed securities.
The company told investors the Asset-Backed Securities fund was not near
collapse, but that it froze redemptions to prevent from being forced to
sell assets to a market with little appetite for mortgage-related
securities.
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/08/01/AR2007080100752_pf.html'>Read
more.
Total Fitness Files for Chapter 11
Bally Total Fitness
Holding Corp, one of the largest
w:st='on'>
size='3'>U.S.
size='3'>health club operators, has filed for bankruptcy protection
after struggling in recent years with membership declines and too much
debt, Reuters reported yesterday. The Chicago-based company and more
than 40 affiliates filed for chapter 11 protection from creditors on
Tuesday with the U.S. Bankruptcy Court in
w:st='on'>
size='3'>Manhattan
listed $396.8 million of assets and $761.3 million of debts as of
December 31, court papers show. The company said the reorganization
process will not affect memberships or operations at its more than 375
health clubs and that it intends to keep paying employees and vendors.
Bally said that its pre-packaged reorganization plan would reduce debt
by $150 million and provide $90 million of capital through a rights
offering backed by affiliates of Anschutz Investment Co., Goldman Sachs
Group Inc and Tennenbaum Capital Partners LLC.
href='http://news.yahoo.com/s/nm/20070801/bs_nm/ballytotalfitness_bankruptcy_dc_1'>Read
more.
name='3'>Judge Signs Off on
w:st='on'>
size='3'>Kara
face='Times New Roman' size='3'>Homes
Disclosure Statement
Bankruptcy Judge
Michael Kaplan
size='3'>approved the disclosure statement of bankrupt Kara Homes Inc.
and set a Sept. 12 hearing date to consider confirmation of the
company's reorganization plan,
size='3'>Bankruptcy Law360 reported yesterday.
At least seven objections were filed in the days approaching the hearing
over the disclosure statement, including a Kara employee, a
size='3'>New Jersey
size='3'>township and a utility. The objectors were all Kara creditors
who claimed that the proposed disclosure statement and plan did not
provide adequate information and were therefore unconfirmable. Each
party claims that Kara owes it certain payments, and asserts that the
proposed plan does not explain how and when it will be repaid.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=31306'>Read
more. (Registration required.)
name='4'>Non-Subprime Lender Could Face Bankruptcy
Recent payment failures
and company statements may indicate that American Home Mortgage
Investment Corp. may soon become the first of the non-subprime lenders
to file for bankruptcy,
size='3'>Bankruptcy Law360 reported yesterday.
The company cited liquidity issues triggered by the “unprecedented
disruption” in the secondary mortgage industry.
That disruption, American Home
said, had led to suspension of loan purchases by banks and limited
access to credit for the company. It had also led to margin calls by its
lenders, some of which the company said it couldn't pay. As the company
staggers under the weight of its mounting debt, other non-subprime
lenders are indicating that they are in trouble, too. This week, both
Indymac Bancorp Inc. and MGIC Investment Corp. have reported enormous
losses, with Indymac's net income falling by 57 percent.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=31300'>Read
more. (Registration required.)
name='5'>Werner's Trustee Objects to Conversion
Motion
U.S. Trustee
Kelly Beaudin Stapleton asked a judge to deny the
unsecured creditors' committee’s motion to convert Werner Holding
Co. Inc.'s bankruptcy case to a chapter 7 liquidation,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Stapleton argued that an agreement reached
to quell the committee's objection to an asset sale that closed in June
could usurp a chapter 7 trustee's authority. Stapleton's objection
accused the unsecured creditors' committee of trying to influence her
selection of an interim chapter 7 trustee by indicating that it would
support the the appointment of Charles Stanziale, the debtors'
“sole director,” as Chapter 7 trustee. Stapleton called this
suggestion “wholly improper.” A hearing on the conversion
motion had been slated for Wednesday, but was adjourned to Aug. 23,
court papers said.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=31265'>Read
more. (Registration required.)
Top
Private Education Lender Cuts Jobs
EduCap, a nonprofit
company that pioneered the $17 billion-a-year private student loan
industry, laid off scores of workers yesterday and is considering
shutting its loan business as federal officials investigate whether it
has abused its tax-exempt status, according to current and former
employees, the
size='3'>Washington Post reported today. The
layoffs came less than two weeks after lawmakers opened investigations
into the nonprofit firm, which has been a financial boon for its
chairman and her family. The company says it has helped students pay for
college, but critics say its nonprofit status has not resulted in better
loans for students. The layoffs were part of a flurry of developments
yesterday in the unfolding investigation of the $85 billion-a-year
student loan industry. The Senate Banking Committee approved legislation
aimed at regulating the fast-growing private loan business, an
alternative to federally backed loans.
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/08/01/AR2007080102602_pf.html'>Read
more.
name='7'>Northwest, Pilots Reach Deal Aimed at Reducing
Cancellations
Northwest Airlines Corp. and
its pilots struck a deal yesterday that would ease pilots' workloads in
an effort to stop the end-of-the-month cancellations that have plagued
the airline, the Associated Press reported today. Northwest was forced
to cancel hundreds of flights at the ends of June and July because it
couldn't find enough pilots. The airline had said that more pilots than
usual weren't showing up for work; while pilots said that they were
overworked under a new, tougher schedule implemented under bankruptcy.
The tentative agreement would pay pilots time-and-a-half for flying
hours over 80 in a month. Their old cap of 80 hours per month was raised
to 90 hours under concessions the airline won in bankruptcy court. The
company also said it would pay union workers a bonus of up to 15 percent
of their pay -- up to $1,000 -- if they have perfect attendance between
Aug. 4 and Sept. 3.
href='http://online.wsj.com/article/SB118602684138685857.html?mod=hpp_us_whats_news'>Read
more.
name='8'>Foreign
size='3'>Automakers
w:st='on'>
size='3'>Pass
w:st='on'>
size='3'>Detroit
Sales
Sales reports showed
that
size='3'>Detroit auto
companies’ grip on the American automobile market ended in July,
when dismal auto sales gave foreign nameplates the lead for the first
time ever, the New York
Times reported today. The traditional American
brands owned by General Motors, the Ford Motor Company and the Chrysler
Group held 48.1 percent of the market in July, according
to Autodata Corp. Foreign auto companies held 51.9 percent of the
market, up from their previous high of 49.8 percent in June. A year
ago,
size='3'>Detroit
held 52 percent of the American market, according to Autodata. Foreign
automakers have led
w:st='on'>
size='3'>Detroit
of cars since November 2000. But
w:st='on'>
size='3'>Detroit
wide lead in sales of light trucks, like pickups, sport utility vehicles
and minivans, kept the American companies ahead in the overall
market.
href='http://www.nytimes.com/2007/08/02/business/02auto.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
International
Ex-Leader Awaits Sentencing, Hollinger Files for
Bankruptcy
Hollinger Inc., the
Canadian company that Conrad M. Black used to control his newspaper
empire, filed for bankruptcy yesterday and said it would explore options
for the Sun-Times Media Group while facing payments on debt and
shareholder suits, Bloomberg News reported yesterday. Hollinger, with a
majority voting interest in Sun-Times, named six directors to the
Sun-Times board to gain a majority and filed for bankruptcy protection
in
size='3'>Canada
the
face='Times New Roman' size='3'>United
States
owns about 70 percent of the voting shares and 20 percent of the equity
in Sun-Times, publisher of the Chicago Sun-Times and community
newspapers in the region. Sun-Times, based in
w:st='on'>
size='3'>Chicago
Hollinger and Black to recover $542 million it says Black and the
holding company looted. A federal court jury in
w:st='on'>
size='3'>Chicago
Black on July 13 on three counts of mail fraud and one count of
obstruction of justice. He is free on $21 million bail and awaiting
sentencing on Nov. 30.
href='http://www.nytimes.com/2007/08/02/business/02black.html?pagewanted=print'>Read
more.
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.
size='3'>ABI
50% discount off of our regular subscription rate of $500 when
subscribing to the complete Daily Summary.
To subscribe email
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800-407-9044—use
face='Times New Roman' size='3'>ABI
face='Times New Roman' size='3'>Code 37
size='3'>Alcatel-Lucent
size='3'>’s stock price sank more than 12.5% on news of the
telecom-gear manufacturer’s most recent quarterly loss, and the
fact that the firm decided not to issue a profit outlook for the rest of
the year. Alcatel-Lucent, struggling since last year’s
merger of France’s Alcatel and Lucent Technologies in the U.S.,
has faced increased competition and merger-related expenses, but CEO
Patricia Russo insists that 2007 is a “transition year” for
the firm because of heavy investment and merger integration issues.
Further, Ms. Russo says that her company is still on track to yield more
than $800 million in pretax savings by the end of the year as it
continues trimming its payroll. In its second quarter,
Alcatel-Lucent lost $797 million, dragged down by charges of $838
million for restructuring and asset impairment. Revenue surged
51%–to $5.8 billion, because the numbers reflect the results of
both Alcatel and Lucent since their merger last November.
American Home Mortgage
Investment
size='3'>’s stock price plummeted 90% on liquidity worries when
trading resumed. The day earlier, trading of the Melville, N.Y.
firm’s stock was halted by the New York Stock Exchange before the
opening bell after the firm said that it would suspend dividends and
that it was also under margin-call pressure from its banks.
American Home is not a subprime lender but instead focuses on
so-called Alt-A loans for prime and near-prime customers.
Atlantis Plastics
Inc., an
w:st='on'>
size='3'>Atlanta,
w:st='on'>
size='3'>Ga.
size='3'>maker of polyethylene stretch and molded plastic products,
warned that it’s in default of certain covenants under its secured
credit facility. The firm is working with its lenders to get a
waiver of the default.
General Motors
Corp., while reporting better-than-anticipated
results in the second quarter, gave little reason to be overly
optimistic about its turnaround prospects in
w:st='on'>North
America
size='3'>Detroit
automaker’s strong profit in the quarter could make it tougher to
negotiate pay and healthcare concessions with its unions. Further,
while GM reported an $891 million profit in the second quarter,
including $520 million in special items, the firm still lost $39 million
in North America, although that’s an improvement over a nearly $4
billion loss, including charges, in the year-earlier second quarter.
Overall revenue was down 13%–to $46.8 billion. Among
GM’s biggest challenges is its cost structure. For example,
take GM’s profit of $65 per car that it sells in
w:st='on'>North
America
size='3'>, compared to an estimated $1,200 per car that Toyota Motor
Corp. and Honda Motor Co. make.
IndyMac Bancorp
Inc. of
face='Times New Roman' size='3'>Pasadena
size='3'>, Ca., one of the biggest independent home lenders in
the
face='Times New Roman'
size='3'>U.S.
face='Times New Roman'>, reported its second quarter net
income plunged 57%, as a result of a more than quadrupling of bad loans
during the period. IndyMac, which has set aside $17 million to
cover its loan losses, said that nonperforming assets soared more than
fourfold in the quarter.
MediaNews
Group, a Denver, Co.-based newspaper chain,
said that it will trim newsroom jobs at some of its papers in
California
size='3'>as part of a consolidation.
Northwest Airlines
Corp., which emerged from bankruptcy
protection at the end of May, reported second quarter earnings of $273
million on revenue of $3.2 billion. Including reorganization-related
items, profit in the period totaled more than $2.1 billion. Expenses
were down 6%. Meanwhile, the
w:st='on'>
size='3'>Eagan
continues trying to address its scheduling problems, which has resulted
in flight cancellations because of pilot absenteeism, bad weather and
overall congestion at the nation’s airports. Northwest said
that flight cancellations in June reduced its second quarter revenue by
$25 million. Trying to tackle the problem, Northwest has said it will
hire between 250 and 350 new pilots.
href='http://search.news.yahoo.com/search/news?p=bankruptcy&n=20&c=news'>