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May 13, 2009
name='1'>Credit Suisse Loses Payback Priority on 'Predatory' Loan to
Bankrupt Resort
Bankruptcy Judge
Ralph Kirscher
size='3'>ruled that Credit Suisse Group AG made a
“predatory” loan to the bankrupt Yellowstone Club and
therefore lost its place in a line of creditors for the $309 million the
club owes it, Bloomberg News reported today. Credit Suisse in 2005
arranged a $375 million loan to the Yellowstone Club, a Montana ski
resort whose members include Microsoft Corp. founder Bill Gates, and
sold the loan to investors. It was one of at least eight such loans that
Credit Suisse made to real estate developments, mostly in the western
United States. Like some of the other borrowers, the founders of the
club, Tim and Edra Blixseth, took cash out for personal use, according
to yesterday’s ruling. Vendors and other creditors of the club
sued Credit Suisse this year, saying that the loan shouldn’t have
been made because of the low probability that it would be repaid, and
Judge Kirscher sided with them in his ruling.The case is
face='Times New Roman' size='3'>In re Yellowstone Mountain Club
LLC, 08-61570, U.S. Bankruptcy Court, District
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=a_2D7w94q19Q#'>Read
more.
href='http://www.abiworld.org/e-news/yellowstoneorder.pdf'>Click
here to read the partial and interim order.
Panel to Examine Effectiveness of Counseling Agencies in Preventing
Foreclosures
The House Financial Services
Subcommittee on Housing and Community Opportunity will hold a hearing
today titled “The Role of NeighborWorks and Housing Counseling
Intermediaries in Preventing Foreclosures.” The hearing will take
place at 2 p.m. ET in room 2128 of the Rayburn House Office
Building.
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/hrh051309.shtml'>Click
here to read the prepared witness testimony and watch a live Webcast
of the hearing.
Autos
name='3'>Chrysler Bankruptcy May Take Up to Two
Years
Chrysler LLC’s
bankruptcy might take as long as two years, not the two months President
Barack Obama suggested as a target, Bloomberg News reported
today.
href='http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aJa0P8qxSNgo#'>The
60 days projected by the President on April 30,when the automaker filed
for bankruptcy, only applies to a sale of Chrysler’s best assets
to a new entity, according to administration officials. Afterward,
creditors will fight over factories and other assets to recover money,
lawyers said. As a streamlined Chrysler is launched, the remaining
entity will be saddled with debt and other liabilities, such as
product-defect and asbestos-damage claims. Some claimants may be
disappointed as creditors compete to squeeze payments out of the sale of
discarded factories. “The unsold assets and liabilities may take
years to sort out due to the complexities of resolving thousands of
commercial, tort, future asbestos, dealership and employee
claims,” said Dewey & LeBoeuf LLP partner
face='Times New Roman' size='3'>Martin Bienenstock
size='3'>, who has advised General Motors Corp. and Chrysler Financial
on restructuring.
href='http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aJa0P8qxSNgo#'>Read
more.
name='4'>Fiat Can Boost Chrysler Stake by Making Engines in United
States
Fiat SpA will be allowed
to increase its ownership stake in Chrysler LLC if the Italian automaker
achieves certain goals such as starting production of its engines in the
United States, the Wall
Street Journal reported today. Under the terms
of their alliance, Fiat will get an initial 20 percent stake in Chrysler
and can increase its holding in 5 percent increments up to 35 percent if
it achieves three goals by Jan. 1, 2013, the filings show. Fiat will get
an additional 5 percent if it starts production of Fiat engines in the
United States, and a further 5 percent if it introduces a Fiat-developed
vehicle in the U.S. market that can go 40 miles on a gallon of gasoline,
according to a 'Master Transaction Agreement' that was filed yesterday
in the U.S. Bankruptcy Court in Manhattan. Fiat can get another 5
percent if Chrysler is able to generate more then $1.5 billion in sales
outside of the North American market.
href='http://online.wsj.com/article/SB124218648848214101.html#mod=testMod'>Read
more. (Subscription required.)
name='5'>Southeast Auto Parts Makers Feel Effects of Detroit’s
Financial Pain
Auto industry upheaval is
devastating local economies across the Southeast, forcing layoffs at
factories that make car parts and driving some counties' unemployment
rates far higher than the national average, the Associated Press
reported today.If Michigan is the epicenter of the auto industry
earthquake, Tennessee, South Carolina, Kentucky and neighboring states
heavily dependent on auto parts factories are feeling powerful
reverberations that are likely to get stronger as Chrysler navigates
bankruptcy court and General Motors tries to keep itself out of chapter
11. Before last year's wave of layoffs, auto parts suppliers were the
leading private employers in Kentucky, South Carolina and Tennessee,
accounting for a combined nearly 102,000 jobs, according to a 2007
report by the Center for Automotive Research. Today it is about 98,222,
down nearly 4 percent.In Alabama, Georgia and North Carolina, there were
nearly 66,255 parts supplier jobs, according to the report, but now
about 2,358 of those jobs are gone.
href='http://www.businessweek.com/ap/financialnews/D984O8FG0.htm'>Read
more.
Administration Eyes Bank Pay Overhaul
The Obama administration
has begun serious talks about how it can change compensation practices
across the financial services industry, including at companies that did
not receive federal bailout money, the
size='3'>Wall Street Journal reported today.
Administration and regulatory officials are looking at various options,
including using the Federal Reserve's supervisory powers, the power of
the Securities and Exchange Commission and moral suasion. Officials are
also looking at what could be done legislatively.Among ideas being
discussed are Fed rules that would curb banks' ability to pay employees
in a way that would threaten the 'safety and soundness' of the bank --
such as paying loan officers for the volume of business they do, not the
quality. The administration is also discussing issuing 'best practices'
to guide firms in structuring pay.
href='http://online.wsj.com/article/SB124215896684211987.html#mod=testMod'>Read
more. (Subscription required.)
name='7'>Freddie Mac Loses $10 Billion for Quarter
Freddie Mac yesterday
reported that it lost $10 billion in the first three months of the year,
as investments in mortgages continued to fall in value at the federally
run housing finance giant, the
size='3'>Washington Post reported today. The
disclosure automatically prompts a $6 billion investment from the
Treasury Department to keep the company solvent, bringing Freddie Mac's
bailout total to $51 billion in the first nine months of its government
rescue. Last week, Fannie Mae reported that it lost $23.2 billion in the
first three months of the year as mortgage defaults increasingly spread
from risky loans to the far-larger portfolio of loans to borrowers who
have been considered safe. The loss brought District-based Fannie Mae's
total bailout to $34 billion.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/05/12/AR2009051203410_pf.html'>Read
more.
AIG
Trustees Promise Swift Changes to Company's Board
Trustees overseeing
taxpayers' controlling stake in American International Group Inc. are
laying the groundwork for a permanent CEO eventually to replace Edward
Liddy, who was criticized by Congress during testimony two months ago
and has said that he would like to leave within a year, the
Wall Street Journal
reported today. The AIG trustees are looking for new
board members, and the new board is expected to search for the next. The
former CEO of Allstate Corp., Liddy will be on Capitol Hill today to
talk about AIG's business plans. AIG's three trustees, appointed by the
government to represent the taxpayers' 80 percent stake in the company,
will also face congressional scrutiny, responding to questions about
what they have been doing and how they are accountable to
taxpayers.
href='http://online.wsj.com/article/SB124215047119211479.html#mod=testMod'>Read
more. (Subscription required.)
In related news, new
details are emerging about how long federal officials were aware of the
company's recent bonus payments to its executives and of how
inflammatory the payments could be, the
size='3'>Washington Post reported today.
Documents show that senior officials at the Federal Reserve Bank of New
York received details about the bonuses more than five months before the
firestorm erupted and were deeply engaged with AIG as well as outside
lawyers, auditors and public relations firms about the potential
controversy. However, the New York Fed did not raise the alarm with the
Obama administration until the end of February.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/05/12/AR2009051203624_pf.html'>Read
more.
Media
name='9'>Star Tribune Receives Approval to Modify Union
Pacts
Bankruptcy Judge
Robert Drain
size='3'>gave Star Tribune Holdings approval on Monday to amend two
collective bargaining agreements, a critical step in its path toward
exiting bankruptcy,
size='3'>Bankruptcy Law360 reported yesterday.
The amended agreement with the newspaper guild will be effective through
July 2011, with Judge Drain calling the move a “prudent exercise
of Star Tribune's business judgment,” according to the order. Star
Tribune also received permission to withdraw from any multiemployer
pension plans in its agreement with the Teamsters, as long as the
company provides written notice that it is terminating its obligation,
the order said. A multiemployer plan will then have 30 days to file a
proof of claim against the debtor, according to Judge Drain’s
order. Read
more. (Subscription required.)
name='10'>Judge Approves Tribune Bonus Payments
The Tribune Co. yesterday
received authorization from Bankruptcy Judge
size='3'>Kevin Carey to pay $13 million in
bonuses to almost 700 employees for their work last year, the Associated
Press reported today. Tribune CFO Chandler Bigelow III noted that the
proposed payments of $12.2 million to about 670 employees under
Tribune's management incentive program (MIP) do not include the top 10
executives and represent an average payment of only 38 percent of the
target for 2008. He said that the total proposed payments for last year
are lower than those in the two preceding years. Tribune also received
authorization to pay an additional $1.1 million in incentives to 23
individuals who do not participate in the MIP.
href='http://www.lohud.com/article/20090513/BUSINESS01/905130333/1066/BUSINESS01'>Read
more.
Wave of Suits Focuses on “Intense” Investor Relationships
with Madoff
For the third time this
month, the trustee overseeing the liquidation of Bernard L. Madoff
Investment Securities has brought a high-profile suit against a
sophisticated investor demanding the return of millions of dollars, and
more suits are expected soon, the
size='3'>New York Law Journal reported today.
The $1.1 billion action brought yesterday by trustee
face='Times New Roman' size='3'>Irving H. Picard
size='3'>against Harley International Ltd. claims the firm, which had
long-standing ties to Madoff's firm, 'knew or should have known' that
its account statements 'did not reflect legitimate trading activity and
that Madoff was engaged in fraud.'The suit comes on the heels of two
other fraudulent transfer actions collectively seeking the return of
more than $1.5 billion from two prominent money managers with allegedly
close ties to Madoff, who pleaded guilty in March to what some say is
the largest Ponzi scheme in U.S. history.
href='http://www.law.com/jsp/article.jsp?id=1202430660688&pos=ataglance'>Read
more.
name='12'>IBM, Novell Ask Court to Put SCO Group in Chapter
7
Novell Inc. and IBM Corp.
have asked a judge to convert UNIX software provider SCO Group Inc.'s
bankruptcy from chapter 11 to chapter 7, claiming that SCO is
squandering its estate on pointless copyright litigation against Novell
and IBM, Bankruptcy
Law360 reported yesterday. In motions filed
Monday in the U.S. Bankruptcy Court for the District of Delaware, Novell
and IBM said that SCO and its affiliate SCO Operations Inc., which have
already filed three failed reorganization plans, cannot reorganize their
business, and that a liquidation under chapter 7 will preserve the most
value for creditors.The motions by Novell and IBM echoed a motion filed
last week by acting U.S. Trustee
size='3'>Roberta A. DeAngelis, who also asked
the court to convert SCO's bankruptcy to chapter 7.
href='http://bankruptcy.law360.com/articles/101012'>Read
more. (Subscription required.)
name='13'>Circuit City Brand, Web Site Sold at
Auction
Bankrupt Circuit City's brand,
trademarks and e-commerce business have been sold at auction to a New
York-based retailer, the Associated Press reported yesterday.
Richmond-based Circuit City had entered a stalking-horse agreement with
Systemax for $6.5 million plus 2 1/2 years of payments of a portion of
the revenue from the Circuit City Web site. A federal bankruptcy judge
must approve the sale today.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/05/13/AR2009051300588.html'>Read
more.
name='14'>States' Revenue Sinks Amid Income Tax
Drop-Off
A report released today
by the Nelson A. Rockefeller Institute of Government at the State
University of New York said that state tax collections continued to fall
in the first quarter as muted consumption, falling incomes and weak
profits plunged states into a deeper financial distress, the
Wall Street Journal
reported. The 47 states that have reported first-quarter
revenues saw total tax collections fall 12.6 percent -- about $20
billion -- compared with the first three months of 2008, the Institute
said. The steepest drops were in income taxes: Corporate income taxes
declined 16.2 percent in the latest quarter, reflecting weaker profits.
Personal income taxes fell 15.8 percent, and sales taxes were also down
7.6 percent. Forty-five of the 47 states saw revenues decline.
href='http://online.wsj.com/article/SB124218219901913729.html'>Read
more. (Subscription required.)
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