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October
3, 2007
Mortgage
Lending
name='1'>Democrats to Introduce
Plan to Stem Foreclosure Tide
House and Senate leaders
will join with the
chairs of the Senate Banking, House Financial Services and Joint
Economic Committees today
to offer a plan to increase funding for foreclosure prevention
and temporarily lift
portfolio caps on Fannie Mae and Freddie Mac, according to a press
release. The leaders,
including Speaker of the House Nancy Pelosi (D-Calif.), Senate Majority
Leader Harry Reid
(D-Nev.), Reps. Barney Frank (D-Mass.) and Carolyn Maloney (D-N.Y.), and
Sens.
size='3'>Chris Dodd (D-Conn.) and
Charles E. Schumer
(D-N.Y.), also plan to call on the Bush Administration to appoint a
special advisor to
oversee and coordinate the federal government’s response to the
subprime
meltdown.
name='2'>Servicers Slow to
Adjust to Rising Tide of Loan Resets
A recent survey by Moody's
Investors Service showed
that only 1 percent of loans to people with poor credit records that
reset in the first
three months of the year were modified, the Associated Press reported
yesterday. With 2
million of those subprime loans scheduled to reset in the next year,
requests for
modifications are certain to increase. Some of the largest servicers are
adapting, but
Moody's said the changes are too slow to prevent a spike in defaults.
Chase Home Finance, a
unit of JPMorgan Chase & Co. and the fourth-largest servicer with
contracts for $722.8
billion worth of loans, said it has bolstered its staff that deals
directly with customers
in recent months. It is also warning homeowners a few months ahead of
when rates are
href='http://www.nytimes.com/aponline/business/AP-Mortgages-Servicer-Obstacles.html?pagewant
ed=print'>Read more.
Panel Questions
Insurance Industry Use of Credit Scores in Rate-Setting
The House Financial
Services Oversight
Subcommittee held a hearing yesterday examining the insurance industry's
use of credit
scores in setting auto policy rates and questioned if their use leads to
more expensive
coverage for minorities,
size='3'>CongressDaily reported today.
Subcommittee Chairman
Melvin Watt (D-N.C.) said during the hearing that he was concerned --
even after a recent
FTC report that found that use of credit scores is an effective
predictor of risk -- that it
also found that there was some proxy effect based on race for three of
four lines of auto
insurance. FTC Commissioner Thomas Rosch defended the report, noting
that it was an
exhaustive survey comprising data from companies that represent 25
percent of the market. He
also noted that the report was cross-checked with information from a
data broker. Advocacy
groups criticized the report because the data was voluntarily given by
insurance agencies
and argued that the FTC should have used a compulsory process to gather
data from the entire
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr091907.shtml'>Click
here to read the written testimony from the
hearing.
name='4'>Commentary: Some
Investors See
size='3'>Opportunity in Credit
Downturn
Investors in distressed
companies are seeing
opportunities as a result of the current credit crunch as many companies
that borrowed
heavily and at low interest rates in recent years now find themselves
with large debts that
may be hard to pay back, the
size='3'>New York
Times reported today. Private equity firms
acquired companies at
increasingly high prices, using cheap debt to finance big leveraged
buyouts. Last month,
Standard & Poor’s, the ratings agency, estimated that
corporations would default
on $35 billion in debt in the next 15 months, compared with only $4.5
billion in the first
nine months of 2007. “In the 16 years that we’ve been
together, we have never
been more excited about the market than we are now,” said Michael
Psaros, a founder
and a managing partner of KPS Capital Partners, whose funds often buy
companies out of
href='http://www.nytimes.com/2007/10/03/business/03equity.html?pagewanted=print'>Read
more.
name='5'>Commission to Examine
Auditing Industry Since Sarbanes-Oxley
A committee formed by
Treasury Secretary
Henry Paulson to address challenges he has found facing the auditing
profession will spend
the next year focusing on audit firm concentration, audit quality and
communications between
auditors and investors, the
size='3'>Wall Street
Journal reported today. The 21-member
committee, which includes a
mix of business, regulatory and academic representatives, is expected to
make
recommendations by summer 2008. The timing of those recommendations
could pose a challenge
for Paulson, however, since they will come just months before the Bush
administration leaves
offices and as the 2008 elections begin to occupy the attention of
Congress. Treasury
officials played down those concerns, saying the recommendations aren't
intended for the
'short term' and can be implemented once Bush and Paulson leave office.
The commission will
take a broad look at the auditing industry since Sarbanes-Oxley, the
sweeping corporate
governance law that tightened restrictions on public accountants and
changed the dynamic
between accounting firms and the companies they audit.
href='http://online.wsj.com/article/SB119137186036047133.html?mod=us_business_whats_news'>Re
ad more. (Registration required.)
Lifts Damage Cap in
Mining Company Lease Dispute
The U.S. Ninth Circuit
Court of Appeals
effectively overturned a prior Bankruptcy Appellate Panel’s ruling
in the bankruptcy
case of mining company El Toro Materials Co. Inc. that found that any
damages claims brought
by
Toro’s landlord should be
capped,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported
yesterday. The dispute began when
face='Times New Roman'
size='3'>El Toro sought to apply a cap
on damages
resulting from the termination of a lease of property owned by a church.
The mining company
was trying to limit its liability for allegedly leaving one million tons
of wet clay, mining
equipment and other materials on
w:st='on'>
face='Times New Roman' size='3'>Saddleback
w:st='on'>
size='3'>Community
size='3'>Church
size='3'>’s property after the
church rejected its lease. Saddleback filed an adversary proceeding
against
Toro
size='3'>, claiming $23 million in damages for the alleged expense of
cleaning up the mess.
The bankruptcy court found that Saddleback’s recovery should not
be limited by
§502(b)(6), a section of BAPCPA that was intended to permit capped
damages for lost
rental income. However, on cross-appeal, BAP reversed the bankruptcy
court’s decision
and held that Saddleback’s recovery against
w:st='on'>
face='Times New
&a
mp;#13; 

&a
mp;#13;


Roman'
size='3'>El Toro should be capped
under the section of the
Bankruptcy Code, prompting Saddleback to appeal that decision.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=36399'>Read
more. (Registration required.)
name='7'>Fabrikant's Lending Banks
Hit with $118 Million Suit
M. Fabrikant & Sons
Inc.'s unsecured
creditors’ committee wants a number of banks to void the millions
in loans they gave
the troubled diamond purveyer, claiming the banks knew that its
controlling family was
funneling the funds elsewhere
size='3'>, Bankruptcy
Law360 reported yesterday. The lawsuit said
that the company's
incurrence of the debts was fraudulent as it allowed creditors to avoid
the secured loans
and force the banks to return to the bankrupt company's estate the money
owed, including the
$80 million in collateral that secured the loans and the $38 million of
Fabrikant's money
that the Fortgangs allegedly used to pay back their other companies'
separate debts to the
same banks. Banks named in the adversary suit include JP Morgan Chase
Bank NA, ABN Amro Bank
NV, Bank of America NA, HSBC Bank USA NA, Bank Leumi USA, Israel
Discount Bank of
York, Antwerpse
Diamantbank NV and Sovereign
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=36516'>Read
more.
(Registration required.)
Emerges from
Bankruptcy
Bally Total Fitness
Holding emerged from
bankruptcy as a private company after only two months in chapter 11
protection,
Bankruptcy Law360 reported yesterday. Bankruptcy Judge
Burton R. Lifland signed
off on an order
approving Bally's disclosure statement and confirming the company's
first amended
prepackaged plan of reorganization in mid-September. Judge Lifland's
decision that Bally had
met the statutory requirements necessary to confirm its plan cleared the
path for Bally to
move ahead with restructuring arrangements funded by Harbinger Capital
Partners Master Fund
I Ltd. and Harbinger Capital Partners Special Situations Fund LP.
Harbinger plans to pay
about $233.6 million in exchange for 100 percent equity in the
reorganized Bally, according
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=36403'>Read
more. (Registration required.)
name='9'>Sallie Mae Rejects
Reduced Offer
A private-equity group tried to
revive takeover
talks with Sallie Mae yesterday by proposing a cheaper purchase price,
but the student
lending giant rejected the $21 billion offer, the Washington
Post reported today.
The revised deal is about $4.2 billion less than what the two sides had
agreed to in April.
The buyers' group, however, said that it would be willing to make up the
difference if
Sallie Mae exceeded certain profit projections over the next five years.
The buyout group
told Sallie Mae that it would keep the offer on the table until Oct. 9.
The suitors are led
by private-equity firm J.C. Flowers and include Bank of America and J.P.
Morgan Chase. While
they could pay a $900 million breakup fee, they have indicated that the
circumstances
surrounding the sale have been affected by the turmoil in the credit
markets and a move by
the government to cut subsidies to student lenders. Those factors are
significant enough,
they contend, to trigger a 'material adverse effect' clause that allows
them to cancel the
deal without paying the breakup fee.
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/10/02/AR2007100201974_pf.htm
l'>Read more.
name='10'>Ford September Sales
Drop of 18.2 Percent
Sales at Ford fell 18.2
percent in September
and analysts said that the carmaker’s immediate future does
not look much
brighter, the New York
Times
reported today. Its biggest new product, the Edge, is
already on sale, and
its most critical redesign, the F-series pickup, is still a year away
from arriving at
dealerships. The chief sales analyst at Ford, George Pipas, said
September sales fell short
of targets in the company’s overhaul plan, known as “the way
forward.”
Ford’s sales have been down every month this year, largely because
of planned cutbacks
in deliveries to rental car companies. However, sales at dealerships
have also fallen off
and analysts are raising questions about whether the carmaker needs to
speed up its
href='http://www.nytimes.com/2007/10/03/business/03auto.html?_r=1&oref=slogin&ref=bu
siness&pagewanted=print'>Read more.
name='11'>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
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
title='mailto:steve@creditnews.com'
href='mailto:steve@creditnews.com'>
color='#0000ff'
size='3'><mailto:steve@creditnews.com>
size='3'>or
call 800-407-9044—use
face='Times New Roman'
size='3'>ABI Code
37
size='3'>Citigroup
Inc., the
w:st='on'>
face='Times New Roman' size='3'>Manhattan
size='3'>,
size='3'>N.Y.banking giant, said
that it will write
down about $1.4 billion of highly leveraged loans in its third quarter,
which will
contribute to a 60% decline in profits for the quarter. Citibank also
faces a loss of $1.3
billion on the value of certain subprime-backed securities and $600
million in fixed-income
credit trading. Also, consumer-credit costs increased $2.6 billion in
the quarter.
Dean Foods
Co.
face='Times New Roman'>, Dallas, Tx., will trim its
workforce by between 600
and 700 jobs as part of an effort to reduce costs. The firm also
reduced
earnings-per-share expectations for both the third quarter and full
year, partly because of
high costs for dairy products. The job cuts, hopefully through voluntary
reductions, will
result in as yet unspecified charges in its third quarter.
Fountain Powerboat
Industries
Inc., a
w:st='on'>
face='Times New Roman' size='3'>Washington
size='3'>,
size='3'>N.C.sport and fishing
boat manufacturer,
reported a fiscal net loss of $5 million on a 13% revenue
decline–to $68.8 million.
/>
Palm
Inc.,
size='3'>Sunnyvale
size='3'>,
Ca., reported a first quarter net loss of $840,000, while sales edged up
1%–to $361
million. Palm, which had earlier warned of a possible loss for the
period because of
increased competition for its Treo smartphone, also warned of a loss for
the second quarter
on sales of between $370 million and $380 million.
Schweitzer-Maudit
International
Inc., an Alpharetta, Ga.-based maker of
specialty papers, is
closing four paper machines and trimming its payroll by 300 jobs as part
of a restructuring
of its tobacco-paper capacity. The job cuts, to be spread
throughout the
size='3'>U.S.,
w:st='on'>
size='3'>France
size='3'>and
w:st='on'>
size='3'>Brazil
face='Times New
Roman'>, will save the firm up to $11 million a year and
result in pretax
charges of at least $27 million.
SMF Energy
Corp.
size='3'>,
face='Times New Roman'
size='3'>Fort Lauderdale
face='Times New
&a
mp;#13; &#13;&#13;&#10;&a
mp;#13;&amp;#10;&amp;#13;&amp;#13;&amp;#10;Roman'>
size='3'>, Fl., reported a fourth quarter net loss of $1.6 million,
about half its loss in
the year-earlier period. Revenue for the recent quarter fell
18%–to $57.5 million. For
the year, SMF saw its losses swell to $6.6 million, up from a $4.9
million loss in 2006.
Fiscal revenue declined to just under $230 million, down from $249
million a year ago.
SMF provides petroleum transport, distribution and emergency-response
services.
Sport-Haley
Inc.,
a Denver, Co. maker of golf sportswear, reported a fourth quarter net
loss of $470,000, on a
40% revenue decline–to $4.8 million. For the year, the firm
reported a net loss
of $1.3 million, on a 10% revenue decline–to $18.9
million.