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September 27,
2007
Mortgage
Lending
name='1'>Cox Says SEC Will Review Credit Agencies' Subprime
Role
SEC Chairman
size='3'>Chris
Senate Banking Committee yesterday that his agency would look into
claims that credit-rating agencies played an improper role in the
subprime mortgage meltdown,
size='3'>CongressDaily reported yesterday. Cox
said the SEC will look into whether the credit-rating firms violated
conflict-of-interest rules with securities firms that paid them for
judging the quality of mortgage-backed securities that drove growth in
the subprime lending market. 'Particularly, the commission is examining
whether the ratings agencies were unduly influenced by issuers and
underwriters to publish a higher rating,' Cox said. 'This examination
will seek to determine whether the ratings agencies' role in the process
of bringing [mortgage-backed securities] to the market compromised their
impartiality.' In the aftermath of the subprime fallout, credit-ratings
agencies since June have downgraded 2,400 tranches, which are
mortgage-backed securities that have been sliced off into segments based
on risk. Moody's Investors Service and Standard & Poor's Rating
Service defended their business model, noting that much of the downfall
can be attributed to a tightening of liquidity and fall in home prices
-- factors outside of the rating for a specific mortgage-backed
security.
href='http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=279'>Click
here to read the written testimony from yesterday’s
Senate Banking Committee hearing on the role of credit rating agencies
in the subprime mortgage downturn.
Also of note, the House
Financial Services Subcommittee on Capital Markets, Insurance, and
Government Sponsored Enterprises will hold a hearing today titled
“The Role of Credit Rating Agencies in the
Structured Finance Market” today at 2 p.m. ET.
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht092707.shtml'>Click
here to review the witness list.
name='2'>Pension Fund Sues Moody's Corp over Subprime
Ratings
A pension fund sued
Moody's Corp. yesterday, alleging that the credit-ratings agency
misrepresented or failed to disclose that it had assigned 'excessively
high ratings to bonds backed by risky subprime mortgages,' Dow Jones
Newswires reported yesterday. In a lawsuit filed in federal court
in
size='3'>Manhattan
282 Pension Trust Fund alleged that the
w:st='on'>
York company's ratings of
bonds backed by subprime mortgages - including bonds packaged as
collateralized debt obligations - were materially misleading to
investors concerning the quality and relative risk of those
investments. On July
11, Moody's announced it was downgrading 399 mortgage-backed securities
issued in 2006 and reviewing an additional 32 for downgrades,
representing about $5.2 billion of bonds, according to the lawsuit. The
company also disclosed it had downgraded 52 bonds issued in 2005,
according to the complaint.
href='http://money.cnn.com/news/newsfeeds/articles/djf500/200709261852DOWJONESDJONLINE000811_FORTUNE5.htm'>Read
more.
name='3'>Wilbur Ross Leads Bidding for American Home
Unit
Wilbur Ross, a specialist
in buying distressed assets, is bidding roughly $500 million for the
loan-servicing business of bankrupt mortgage company American Home
Investment Corp., MarketWatch.com reported yesterday. The U.S.
Bankruptcy Court for the District of Delaware approved an entity
sponsored by WL Ross & Company LLC as the stalking-horse bidder for
American Home's mortgage-servicing platform and its mortgage-servicing
rights, the company said. The purchase price
is based on a formula, tied mainly to the principal amount of unpaid
loan balances under servicing contracts and outstanding servicing
advances as of the closing date, which could be roughly $500
million, American Home estimated. American Home said it's now soliciting
competing bids for its mortgage servicing business by Oct.
2.
href='http://www.marketwatch.com/news/story/story.aspx?guid=%7BC5CEB2A0%2DD895%2D4D2A%2D9020%2DA7E5EB2D4A0F%7D&siteid=rss'>Read
more.
name='4'>Quality Home Loans, Countrywide Settle over
Loans
Bankrupt lender Quality
Home Loans asked the bankruptcy court to approve a settlement agreement
with Countrywide Home Loans Inc. over mortgage loans purchased by
Countrywide before Quality filed for chapter 11,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday.
size='3'>Before it filed for bankruptcy, hard money lender Quality would
frequently sell pools of loans to the highest bidder or use Countrywide
to securitize a pool of loans using real estate mortgage investment
conduits (REMICs). In its motion for relief
from the stay, Countrywide claimed that it had purchased mortgage loans
from Quality “on a service-releasing basis,” meaning that
Quality sold all the rights to the loans including the servicing rights.
However, Quality agreed to continue servicing the loans for the
interim. In return,
Countrywide agreed to securitize the loans it purchased in
mortgage-backed security offerings. Countrywide has completed one
mortgage-backed security offering, but over $22 million of the
securities remain to be sold, Quality Home Loans said.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=35907'>Read
more. (Registration required.)
name='5'>Late Payments Rise on
w:st='on'>
size='3'>U.S.
size='3'>Home Equity Credit Lines
The American Bankers
Association reported yesterday that late payments on U.S. home equity
lines of credit rose to a 5-1/2 year high in the second quarter of 2007,
but delinquencies on many other types of consumer loans fell, Reuters
reported yesterday. In its quarterly report on consumer borrowing, the
bankers group said delinquencies in repaying home equity lines of credit
rose to 0.77 percent in the April-June period.
size='3'>That compared to a rate of 0.60 percent in the first quarter
and represented the highest rate since the fourth quarter of 2001, when
the rate was 0.81 percent. When it came to paying credit card bills in
the second quarter, consumers improved, according to the report. The
delinquency rate on credit card bills fell to 4.39 percent from 4.41
percent in the first quarter,
w:st='on'>
size='3'>ABA
href='http://www.cnbc.com/id/20989598'>Read more.
name='6'>Credit Suisse to Cut 150 Workers
Credit Suisse said
yesterday that it is laying off about 150 workers from its
mortgage-backed securities unit, the
size='3'>New York Times reported today The job
cuts were the latest response to the subprime mortgage implosion that
rocked the markets this summer. But Credit Suisse’s numbers were
relatively mild by comparison to some of its peers. Lehman Brothers last
month closed down one of its home lending units, laying off 1,200
people, or 4.2 percent of its work force. Bear Stearns, which closed two
hedge funds because of heavy subprime-related losses, laid off 240
employees at two home-lending units.
name='7'>Bankrupt Bear Stearns Funds Win Stay
Two bankrupt Bear Stearns Cos.
hedge funds got a little more breathing room on
size='3'>Wednesday after a bankruptcy court judge agreed to stay an
earlier ruling that had blocked their bid for chapter 15 bankruptcy
protection, Bankruptcy
Law360 reported yesterday. Bankruptcy
Judge Burton R.
Lifland signed off on the order on Wednesday,
putting his Aug. 30 decision not to allow the chapter 15 filing on the
shelf pending an appeal by the hedge funds. The stay will keep the hedge
funds' creditors at bay for now.
size='3'>Under the terms of the order, the hedge funds must also deposit
in U.S. bank accounts all funds that originated from the
after Aug. 1. Within 10 business days, the hedge funds
must deposit $4 million for each hedge fund—$8 million
total—into the accounts. The liquidators of the two failed Bear
Stearns hedge funds filed notice earlier this month that they were
appealing Judge Lifland's decision that the Cayman Island-registered
hedge funds were ineligible for chapter 15 bankruptcy
protection.
href='http://bankruptcy.law360.com/secure/ViewArticle.aspx?Id=35802'>Read
more. (Registration required.)
Autos
name='8'>Federal-Mogul Struggles to Exit Chapter
11
Federal-Mogul Corp. has
resolved a key dispute that threatened to delay its exit from
bankruptcy, but the judge overseeing the case remains skeptical the
company will meet its goal of wrapping up its six-year chapter 11
reorganization by the end of 2007, the Associated Press reported
yesterday. Lawyers for the struggling auto-parts company said at a court
hearing Wednesday that Federal-Mogul has come to terms with
PepsiAmericas Inc., but that it has yet to resolve objections –
mainly from insurance companies – to other parts of the
company’s chapter 11 plan. Under the circumstances, the company's
bid to get its bankruptcy plan confirmed by the end of December is 'just
an impossibility,' Bankruptcy Judge
size='3'>Judith Fitzgerald said. Federal-Mogul
has been rushing to beat a Dec. 31 deadline, but if its chapter 11 plan
isn't confirmed by then, the company risks losing the favorable terms it
secured on a $3.5 billion bankruptcy exit loan from
Citibank.
href='http://money.cnn.com/news/newsfeeds/articles/apwire/D8RTC6K80.htm'>Read
more.
name='9'>Commentary: With UAW Accord, GM Looks to a New
size='3'>Detroit
With its new contract
agreement with the United Automobile Workers reached before dawn
yesterday, General Motors has taken a momentous step toward eliminating
much of that benefits burden that it previously said led to a
competitive disadvantage with foreign car companies like Honda
and
size='3'>Toyota, the
New York Times
size='3'>reported today. The contract’s main feature — a
health care trust called a voluntary employee benefit association, or
VEBA — means that GM will no longer have to carry the debt it will
owe for employee and retiree health care benefits on its books. That
debt is estimated at $55 billion for the next 80 years. GM will
establish the trust with about 70 percent of that amount, making an
upfront payment of cash, stock and other assets. The difference is
expected to come from gains on investments by the trust. In return, the
union won guarantees that medical benefits for hourly workers and
retirees and their families will remain in place for the next two years.
GM will also invest money in its American plants, and will maintain its
current union workforce of 73,000, according to Ron Gettelfinger, the
UAW president.
href='http://www.nytimes.com/2007/09/27/business/27auto.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
w:st='on'>
name='10'>London
face='Times















New






Roman'
size='3'> Fog Files Chapter 11 Plan
Bankrupt outerwear company
London Fog Group Inc. filed its chapter 11
size='3'>plan that calls for its remaining assets to be combined and
liquidated, Bankruptcy
Law360 reported yesterday. London Fog entered
bankruptcy protection in March 2006, only five years after the company
had emerged from its first trip into chapter 11.
w:st='on'>
size='3'>London Fog listed assets of $59.8 million and debts of
$93.3 million at the time of its filing. Since then, the company has
sold off its assets, including the valuable London Fog trademarked
brand, which sold to Iconix Brand Group in August 2006 for $37.5
million. London Fog also sold its Pacific Trail outerwear business to
Columbia Sportswear Co. in March 2006 for $21 million, and its factory
outlet stores for $8 million in May 2006.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=35815'>Read
more. (Registration required.)
name='11'>Solutia Poised to Emerge from Bankruptcy
Solutia Inc., a specialty
chemicals company, said yesterday that it has reached a deal with the
major constituents in its chapter 11 cases for a consensual plan of
reorganization that positions it to emerge from bankruptcy by the end of
this year, Reuters reported yesterday. Solutia said the plan provides
for $250 million of new investment in a reorganized Solutia, and it
provides for a resolution of all the litigation between the settling
parties.
name='12'>Investors End Deal to Buy Sallie Mae
One of the largest
private takeovers in history -- the $25.3 billion buyout for college
loan giant Sallie Mae -- unraveled yesterday after its buyers balked at
the price, citing turmoil in the credit markets and federal legislation
to cut subsidies to student lenders, the
size='3'>Washington Post reported today. The
buyers, headed by fund manager J.C. Flowers, left open the possibility
of acquiring Sallie Mae at a lower price. Sallie Mae vowed, however,
that it would fight to keep the deal intact 'to the fullest extent
permitted by law.' The buyers originally agreed to pay Sallie Mae $900
million if they walked away from the deal, one of the largest breakup
fees ever. Instead, they now are invoking an 'escape' clause that would
allow them to cancel the purchase without paying a dime, which Sallie
Mae says it will fight in court.
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/09/26/AR2007092602420_pf.html'>Read
more.
name='13'>Court Ruling Increases Bankruptcy Risk for
Vonage
For the second time in
two days, Internet phone company Vonage Holdings Corp. was hit with bad
legal news yesterday when a federal appeals court upheld a jury verdict
and injunction against it for patent infringement, the Associated Press
reported yesterday. A
w:st='on'>
size='3'>Virginia
awarded Verizon Communications Corp. $58 million in damages in March
plus 5.5 percent royalties on future revenues after finding that Vonage
violated three Verizon patents in building its Internet phone system.
The U.S. Court of Appeals for the Federal Circuit partially upheld the
March verdict, directing the trial court to reconsider the verdict on
one of the three patents. It also vacated the damages and royalty
awards. On Tuesday, Vonage was ordered to pay Sprint Nextel $69.5
million in damages after a jury found that Vonage willfully infringed on
six Sprint telecommunications patents. Buckingham Research Group analyst
Qaisar Hasan said the risk of bankruptcy ''is now increasingly real''
for the Internet telephone company.
href='http://www.nytimes.com/aponline/technology/AP-Vonage-Verizon.html?pagewanted=print'>Read
more.
name='14'>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
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href='mailto:steve@creditnews.com'>
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size='3'><mailto:steve@creditnews.com>
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w:st='on'>
size='3'>ABI
37
size='3'>Amgen Inc., a Thousand Oaks, Ca.
pharmaceuticals firm, will trim its payroll by more than 1,000
employees, including 675 at its headquarters and another 450 in
size='3'>West Greenwich
size='3'>R.I.
size='3'>The layoffs, aimed at saving at least $1 billion in 2008, are
part of a recently announced retrenchment that called for cutting 2,600
jobs and slashing capital expenditures by about $1.9 billion.
Avago Technologies
Ltd., a
w:st='on'>San
Jose
analog interface components, will slash its payroll by about 400
positions as part of a manufacturing-outsourcing program. Most of
the job reductions will be in
face='Times New Roman' size='3'>Asia
Avago, which is privately-held, will take cash charges of between
$5 million and $7 million in its fourth quarter. Earlier, the firm said
it would trim its
w:st='on'>
size='3'>Singapore
face='Times New Roman'>operations by 230 positions. The
company’s products are used in the communications, industrial and
consumer-applications markets.
Bakers Footwear Group
Inc.’s stock price surged 14% after
the
size='3'>St. Louis,
w:st='on'>
size='3'>Mo.
size='3'>shoe company announced that it will engage in a round of
layoffs and undertake other efforts to reduce expenses. The company, now
with more than 250 shoe stores, will shutter underperforming locations,
following disappointing results in its second quarter. The company
hopes to achieve $8 million in savings through the downsizing, which
will result in charges of between $4 million and $8 million in its third
quarter.
H&R Block
Inc., the
w:st='on'>
size='3'>Kansas City
w:st='on'>
size='3'>Mo.
size='3'>tax-preparation company, announced that its Block Financial
Corp. unit borrowed $250 million from a credit line of $2 billion to
fund its operations. This is the third loan for the subsidiary in
just over a month, following weakness in credit markets that rendered it
difficult to sell commercial paper. Block has also been bleeding
losses this year at its Option One Mortgage Corp. business.
Movie Gallery
Inc., the struggling
w:st='on'>
size='3'>Dothan
chain, will shutter about 520 of its weaker Movie Gallery and Hollywood
Video locations across the
w:st='on'>
size='3'>U.S.
face='Times New Roman'>in order to focus on its 4,000
stronger-performing stores. The downsizing, which Movie Gallery
hopes will help it reduce costs and conserve cash, is connected to the
firm’s plan to reduce its $1.1 billion debtload, largely built up
through its takeover two years ago of Hollywood Video.
/>
NaviSite
Inc., an
w:st='on'>
size='3'>Andover, Ma.
provider of e-commerce and outsourced Web services, reported a fourth
quarter net loss of $17 million, on an 18% revenue increase–to
$34.7 million. The results included a charge of $56,000 in the
quarter related to impairment. For the year, the firm reported a net
loss of $26 million, on a 16% revenue increase–to $126 million,
including gains of $231,000. Results for the quarter and the year
included a charge of $15.7 related to a loss on debt
extinguishment.