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July 8, 2009
Claimants in GM Tort
Cases Are Denied
Bankruptcy Judge
face='Times
New
Roman' size='3'>Robert Gerber ruled yesterday
that an appeal of General Motors’ sale of most of its assets by
asbestos claimants and car accident victims should not go directly to
the U.S. Court of Appeals in New York, Bloomberg News reported
yesterday. The tort claimants were seeking to have their appeal bypass
the standard step of being heard in Federal District Court. Unless the
district court overrules, GM’s emergence from bankruptcy under a
Treasury plan will be completed on Thursday. The tort claimants in the
case argued that the Treasury was using bankruptcy to buy only
GM’s most valuable assets and would improperly leave behind huge
liabilities, such as their claims. The reorganized GM should take
responsibility for claims that predate the sale, they said. GM’s
unsecured creditors’ committee and the Treasury Department both
opposed the request.
href='http://www.nytimes.com/2009/07/08/business/08auto.html?ref=business&pagewanted=print'>Read
more.
In related news, General Motors Corp. yesterday asked
Bankruptcy Judge
face='Times New Roman' size='3'>Robert Gerber
size='3'>to cancel contracts with 38 dealers, a move that would
eliminate the last holdouts in the company's push to shutter as many as
2,400 U.S. outlets by 2010, the Wall Street
Journal reported today. The automaker said
that the closings will eventually save $2.4 billion a year in dealer
subsidies, advertising support, incentive payments and other expenses.
GM sought to reduce by one-third its network of 6,000 auto dealers,
arguing that the network included too many unprofitable stores that
dragged on the company's bottom line. GM extended wind-down offers to
more than 1,000 dealers it had marked to close, which would allow the
stores to remain open until October 2010, but bar them from ordering
more vehicles. GM said 98 percent of those dealers accepted the
offers.
href='http://online.wsj.com/article/SB124698341358006563.html#'>Read
more. (Subscription required.)
Commentary: The Problems
with a Financial Products Safety Panel
While the roots of the current economic crisis led the
Obama administration to propose creating a consumer financial product
safety commission to protect homeowners from dangerous loans, such a
commission would make it harder and more expensive for consumers to find
the loans they need, according to a commentary in today’s
Wall Street
Journal by Prof.
face='Times New Roman' size='3'>Todd Zywicki
size='3'>of the George Mason University School of Law. No-money down,
interest-only mortgages taken out by speculators in states with
default-friendly laws have fueled the foreclosure crisis and have come
to be seen as a major threat to the American financial system. However,
virtually every credit product is valuable to some consumers.
Low-documentation loans are a boon for homeowners with a lot of equity
who want to refinance their mortgages (even as they are a dangerous
thing to offer speculators), according to Zywicki. The idea of a
financial product safety commission comes from Prof.
face='Times New Roman'>
size='3'>Elizabeth Warren of Harvard Law and
the chairwoman of Congress's oversight panel for the Troubled Asset
Relief Program. She says that such a commission is necessary because
consumers cannot buy a toaster that has a one-in-five chance of
exploding, but they can get a subprime mortgage that has a one-in-five
chance of ending in foreclosure. Zywicki contends that treating all
consumers as hapless victims rather than recognizing that many consumers
rationally respond to incentives is a recipe for unintended
consequences. Instead of a new consumer financial products safety
commission, Zywicki thinks that the government should revise the
disclosures it mandates for mortgages, its tax and other incentives that
encourage overinvestment in housing, and the incentives for homeowners
to walk away from their homes.
href='http://online.wsj.com/article/SB124701284222009065.html#printMode'>Click
here to read the full commentary.
Treasury Works on
“Plan C” to Fend Off Lingering Economic
Threats
As the financial system tries to right itself after
its near-collapse last fall, the Treasury Department has assembled a
team to examine what could yet bring it down and has identified several
trouble spots that could threaten the still-fragile lending industry,
the Washington
Post reported today. Informally known as Plan
C, the internal project is focused on vexing problems such as the
distressed commercial real estate markets, the high rate of
delinquencies among homeowners, and the struggles of community and
regional banks, according to government sources. Part of the mission is
assessing which firms are the most vulnerable and trying to decipher
what assets these companies hold and whether they pose a danger to the
wider financial system. Plan C is a small-scale, relatively informal
approach to a problem the administration hopes to address in the long
term by empowering the Federal Reserve to oversee systemic risk.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/07/AR2009070702631_pf.html'>Read
more.
Commentary: Government
Fiscal Stability Necessary to Reverse Declining Housing
Market
While four months have passed since the Obama
administration rolled out its policies to help homeowners battle a
declining housing market, concerns over government spending may be
hampering the programs, according to an editorial in the
face='Times New Roman' size='3'>Washington Post
size='3'>today. One of its initiatives, the Home Affordable Refinance
Program (HARP), was designed to help non-delinquent borrowers refinance
mortgages held by Fannie Mae or Freddie Mac, even if they owed more than
80 percent of the value of their homes, up to a maximum of 105 percent.
The administration believed that 4 million to 5 million families might
benefit. According to the Mortgage Bankers Association, only 13,000 HARP
refinancings had taken place as of June. At this rate, there is little
prospect the program will achieve its aims as of June 2010, when it is
scheduled to expire. The problem with the program is that the
administration developed its proposal at a time when long-term interest
rates were relatively low, in part due to Federal Reserve policies --
and in part due to a flight to U.S. government bonds by risk-averse
investors. More recently, long-term interest rates have increased as
generalized investor panic has given way to a more specific worry: that
the huge U.S. budget deficit is unsustainable and may set off high
inflation. The Obama administration needs to offer the country a
credible plan for overall fiscal stability in order to achieve stability
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/07/AR2009070702452_pf.html'>Click
here to read the full editorial.
Proposal to End Loan Program
Several moderate House Democrats pushed back against
President Obama's proposal to end a major federal student lending
program, saying that Congress should look at alternatives,
face='Times New Roman' size='3'>CongressDaily
size='3'>reported today. Obama's FY10 budget would end the Federal
Family Education Loan program -- shifting all federally backed student
loans into the government-funded Direct Loan Program -- and use the
savings to make funding for Pell Grants mandatory. The changes 'will
present risks of job losses and end the reliable administration of
student loans at the more than 4,000 schools that are not enrolled in
the [Direct Lending] program,' according to a letter to the
administration signed by 31 Democrats. The congressional letter could
bolster an alternative proposed this week by a coalition of student
lenders, including a number of nonprofit, state-based guaranty agencies.
The plan is based on a proposal that Sallie Mae circulated earlier this
year that would preserve an originating and servicing role for private
lenders but use capital from the federal government to make student
loans.
PBGC Balks at Nutritional
Sourcing Liquidation Plan
The Pension Benefit Guaranty Corp. has objected to
Nutritional Sourcing Corp.’s latest liquidation plan and
disclosure statement, claiming that the debtor has failed to justify
proposed releases of liability in connection with unfunded employee
pension plans,
size='3'>Bankruptcy Law360 reported
yesterday. The pension plan for Pueblo currently carries unfunded
benefit liabilities of $18 million, the PBGC said. The first amended
plan of liquidation and disclosure statement, filed in June, does not
provide adequate information justifying the need for overly broad
releases, exculpation and discharge provisions, the agency said on
Monday. The PBGC opposes the proposed liquidation unless Nutritional
Sourcing includes language explicitly holding the debtor and its
affiliates liable for the Pueblo retirement plan, according to the
objection. The hearing for the liquidation plan, which envisions
recovering roughly $230 million for creditors, is set for July
13. Read
more. (Subscription required.)
Reorganization Plan Cleared
for Publisher Journal Register
Bankruptcy Judge
face='Times
New
Roman' size='3'>Allan Gropper cleared the way
for newspaper publisher Journal Register Co. to emerge from chapter 11
protection, the Associated Press reported yesterday. The plan had won
the backing of the vast majority of creditors, despite objections from
some parties, including state officials in Pennsylvania and Connecticut.
The company has drawn criticism for its plans to pay executive bonuses
following its emergence from bankruptcy. Some creditors also questioned
a provision that would arrange a $6.6 million payment from secured
lenders to key suppliers, including ink and newsprint providers. Journal
Register publishes the New Haven (Conn.)
Register and dozens of other newspapers. Like
almost all publishers, it has been pummeled by declining advertising
revenue as the traditional newspaper business model comes under assault
from the Internet.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/07/AR2009070703251_pf.html'>Read
more.
HSBC Objects to Bally's
Disclosure Statement
HSBC Bank USA objected to Bally Total Fitness Holding
Corp.'s recently filed disclosure statement and reorganization plan,
arguing that they should not be approved by the bankruptcy court without
the inclusion of more specific information regarding HSBC’s fees
and expenses as indenture trustee,
size='3'>Bankruptcy Law360 reported
yesterday. HSBC serves as the indenture trustee for approximately $231.3
million in senior subordinated notes due in 2013. According to the
objection, HSBC has had discussions with Bally, the company’s
unsecured creditors’ committee and U.S. Bank National Association
— the indenture trustee for other senior secured notes due in 2011
— regarding provisions related to distributions to HSBC and U.S.
Bank. The parties have also discussed the disclosure of the possibility
of a dispute between HSBC and U.S. Bank regarding distributions and the
payment of HSBC's fees and expenses, the objection said. To the extent
that those issues have not yet been resolved, HSBC said that it had
filed the protective objection on Monday to preserve its rights as it
tries to reach a consensus on certain language relating to claims in the
current disclosure statement.
href='http://bankruptcy.law360.com/articles/109931'>Read more.
(Subscription required.)
Utah Bankruptcies Up 62
Percent over First Half of Last Year
Utah bankruptcy filings are up 62 percent this year
compared to the filings at midyear in 2008, the
size='3'>Salt Lake City Deseret News
size='3'>reported today. In the first two quarters of 2009, 6,817
bankruptcies have been filed, compared to the 4,216 filed by June 30,
2008, according to statistics provided yesterday by the U.S. Bankruptcy
Court for the District of Utah. At the end of the first quarter, court
clerk David Sime predicted that as many as 15,000 bankruptcies could be
filed by the end of 2009 if traditional monthly patterns hold true.
Chapter 7 has been the most common type of bankruptcy filed so far this
year in Utah, with 4,403 filings. Chapter 13 filings totaled 2,378 for
the first six months of 2009.
href='http://www.deseretnews.com/article/print/705315466/Utah-bankruptcies-up-62.html'>Read
more.
Jury Decides in Favor of
Former AIG CEO
A federal jury ruled yesterday that Maurice R.
Greenberg, the former CEO of the American International Group, did not
wrongly seize $4.3 billion in company stock, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. The eight-member jury rejected a contention by
AIG that Greenberg had improperly removed the stock from a fund for top
performers’ retirement benefits and concluded that he was
therefore not required to reimburse the company. In a second, advisory
decision, the jury found that Greenberg did not violate a trust when he
removed the stock. The federal judge presiding over the trial, Jed S.
Rakoff, will now write the controlling decision on whether a trust was
violated, taking the jury’s finding into account.
href='http://www.nytimes.com/2009/07/08/business/08aig.html?_r=1&ref=business&pagewanted=print'>Read
more.
Economic Stimulus Package
Slow to Take Hold
Five months after Congress approved a massive package
of spending and tax cuts aimed at reviving an ailing economy, the
jobless rate is still climbing and the White House is scrambling to
reassure an anxious public that President Obama's prescription for
economic recovery is on the right track, the Washington Post reported
today. Senior Democrats on Capitol Hill were contemplating whether
additional government stimulus spending may be needed to pull the nation
out of the recession. Senior administration officials acknowledged that
the effects of the stimulus package have been overshadowed by an
unexpectedly sharp drop-off in employment since the measure passed in
February. However, they reported that only about $100 billion has so far
been spent and that as increasingly large sums flow out of Washington,
the program is on pace to save or create 600,000 jobs over the next 100
days. 'It is clear from the data that there needs to be more fiscal
stimulus in the second half of the year than there was in the first half
of the year,' White House economic adviser Lawrence H. Summers said.
'Fortunately, the stimulus program designed by the president and passed
by Congress provides exactly that.'
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/07/AR2009070703182_pf.html'>Read
more.
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