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December 28,
2009
Eddie Bauer to Seek OK for Liquidation Plan on Jan. 28
Outdoor apparel retailer Eddie Bauer Holdings Inc. will seek approval for a liquidation plan following its $286 million sale to private equity firm Golden Gate Capital, the Deal Pipeline reported Thursday. The Bellevue, Wash.-based specialty retailer will seek approval of its disclosure statement outlining the plan from Judge Mary F. Walrath of the U.S. Bankruptcy Court for the District of Delaware in Wilmington on Jan. 28. Under the liquidation plan, all administrative claims, priority claims, statutory fees, professional fees and general secured claims would be paid in full. Those holding secured claims of roughly $203 million would get between 85 and 96 percent in recoveries, while general unsecured creditors with allowed claims of up to $132.6 million would get between 1 and 20 percent in recoveries. Noteholder securities claims, intercompany claims, interests and interest security claims would be wiped out. Eddie Bauer and eight affiliates filed for chapter 11 on June 17 in Delaware. Judge Walrath approved the company's sale to Golden Gate Capital on July 22. The sale closed on Aug. 4.
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Auto-parts suppliers are making a surprising turnaround, defying fears earlier in the year that many would collapse amid the car industry's downturn and the bankruptcy filings of General Motors Co. and Chrysler Group LLC, the Wall Street Journal reported Saturday. Quick restructurings, some through bankruptcy court, along with financial aid from the government and a brightening sales outlook for 2010, now have many suppliers looking up. The stocks of TRW Automotive Holdings Corp., BorgWarner Inc., ArvinMeritor Inc. and Goodyear Tire & Rubber Co. still trade well below their 2007 levels, but the shares have soared since hitting lows back in March. On Tuesday, TRW, a maker of brake, steering and electronic components, said it has raised $400 million in new loans, an accomplishment in a sector that had been all but locked out of new borrowing for most of the year. Other suppliers on the mend include seat-maker Lear Corp., which reorganized in bankruptcy court. Dana Holding Corp., a maker of axles and drive shafts, slashed costs and is paying down debt, sold a piece of its business to a Mexican parts supplier and now expects a significant increase in earnings in 2010. Earlier this year, many feared than the interdependent network of dozens of large suppliers supported by hundreds of small parts makers would struggle to stay in business as auto makers slashed production. Yet some suppliers are still hurting. Indeed this year, 14 of the top 150 auto-parts suppliers declared bankruptcy, and more than 40 smaller parts makers sought similar restructuring protection and dozens of others quietly shuttered their doors permanently.
href='http://online.wsj.com/article/SB100014240527487041573045746121908006972…'>Read more (subscription required).
Citigroup, Wells Fargo Repay TARP Funds
Wells Fargo & Co. and Citigroup Inc. both repaid government aid as expected, escaping heightened regulatory and public scrutiny, the Wall Street Journal reported Thursday. Wells Fargo said it completed its $25 billion repayment and Citi said it repaid $20 billion and tore up guarantees it received from the U.S. government for losses stemming from securities tied to soured mortgages. Both banks were forced to raise capital that diluted shareholders' equity to exit the Troubled Asset Relief Program (TARP), but the restrictions that came with the aid program and the distraction to management that resulted from holding the funds drove both banks to repay. With the actions by Wells Fargo and Citi, the nation's four largest banks have returned their aid packages, as have several large regional banks. The largest banks that haven't yet repaid their TARP funds are PNC Financial Services Group Inc. and SunTrust Banks Inc. The rush to repay signals that banks once more have access to private capital. But it also reflects bankers' resistance to government influence, which restricted executive pay and, some said, prevented banks from operating freely. Some banks still need the capital, and some are having trouble just paying the government dividends on their aid. According to data from the Treasury Department, 55 banks that received TARP were unable to pay the most recent monthly dividend on the government's preferred stock, the largest being CIT Group Inc., which recently emerged from bankruptcy.
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U.S. Promises Unlimited Financial Assistance to Fannie Mae, Freddie Mac
The Obama administration pledged Thursday to provide unlimited financial assistance to mortgage giants Fannie Mae and Freddie Mac, an eleventh-hour move that allows the government to exceed the current $400 billion cap on emergency aid without seeking permission from a bailout-weary Congress, the Washington Post reported Friday. The Christmas Eve announcement by the Treasury Department means that it can continue to run the companies, which were seized last year, as arms of the government for the rest of President Obama's current term. Even as the administration was making this open-ended financial commitment, Fannie Mae and Freddie Mac disclosed that they had received approval from their federal regulator to pay $42 million in Wall Street-style compensation packages to 12 top executives for 2009. The compensation packages, including up to $6 million each to Fannie Mae and Freddie Mac's chief executives, come amid an ongoing public debate about lavish payments to executives at banks and other financial firms that have received taxpayer aid. But while many firms on Wall Street have repaid the assistance, there is no prospect that Fannie Mae and Freddie Mac will do so. The administration faced a congressionally mandated deadline of Dec. 31 to increase the amount of aid it could provide to Fannie Mae and Freddie Mac, which together have already received $111 billion in assistance.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/12/24/AR20091…'>Read more (free subscription required).
Freddie Mac Sees Rates Headed to 6 Percent by End of 2010
After hitting an all-time low in early December, the average rate on a 30-year, fixed-rate mortgage rose to 5.05 percent this week and could climb to 6 percent by the end of 2010, the Washington Post reported on Saturday, citing U.S. mortgage financier Freddie Mac's latest survey. The results are noteworthy because rates have not topped 5 percent since the last week of October, when they reached 5.03 percent, based on the results of this survey, which polls lenders during the first three days of every week, the newspaper said. Amy Crews Cutts, deputy chief economist at Freddie Mac, told the newspaper that interest rates were bound to rise to 6 percent by the end of 2010 because private buyers would demand a higher rate of return on the securities than did the Federal Reserve, the U.S. central bank. Lenders may have to raise the rates they charge to consumers in order to make that happen.
href='http://news.yahoo.com/s/nm/20091226/bs_nm/us_mortgages_usa_rates;_ylt=A…'>Read more.
Senate Banking Committee Leaders Close to a Deal on Financial Regulatory Reform
The chances that the Senate would produce bipartisan financial reform legislation seemed to grow longer with each passing minute at the mid-November hearing at which Sen. Richard C. Shelby (R-Ala.) read 2,600 words of scornful disapproval for the draft bill circulated by Sen. Christopher J. Dodd (D-Conn.), the Washington Post reported Friday. As Dodd jokingly thanked Shelby for his support, the differences between the two men appeared vast and fundamental. That scene made for a striking contrast with Wednesday's announcement by the two senators, who serve as chairman and ranking member of the banking committee respectively, that they have resolved key differences and hope to complete a compromise by the end of the Senate's winter vacation. President Obama declared financial reform one of his major legislative priorities this summer as he unveiled a package of proposals that would effect the greatest increase in federal oversight of the financial industry since the Great Depression. His administration pushed Congress to take action by the end of the year, and the House passed a bill containing most of the president's proposals earlier this month. Dodd, who is guiding reform legislation through the Senate, initially said he also planned to produce a bill this year. The House bill was passed without any support from the minority party, but that is a more difficult battle in the Senate. Aides to both parties say that senators would prefer to find common ground.
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Fed Bought $15B Net in Agency MBS in Latest Week
The Federal Reserve bought $15 billion net of agency mortgage-backed securities in the latest week, the New York Fed said, Reuters reported Thursday. That is down from the previous week's net purchases of $16 billion. The purchases brought the U.S. central bank's purchase of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae to roughly $1.102 trillion since January. The Fed said it bought $17.430 billion gross of agency MBS from Dec. 17-23. At the same time, it sold $2.430 billion in mortgage securities. The Fed aims to buy $1.25 trillion of agency MBS in a bid to bring down mortgage rates and to stimulate the battered housing sector and the overall economy.
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name='8'>Analysis: After the Bailouts, Washington's the Boss
In 2008 and 2009, Washington strove to save the economy. In 2010, Americans will get a clearer picture of how Washington has changed the economy, according to an Associated Press analysis today. Only as the recession recedes will it become fully evident how permanently the state's role has expanded and whether, as a consequence, a new, hybrid strain of American capitalism is emerging. One thing is clear: The government is a much bigger force in today's U.S. economy than it was before the financial crisis. To prevent crumbling housing and credit markets from sinking the broad economy, the Bush and Obama administrations and the Federal Reserve spent, lent and invested more than $2 trillion on one initiative after another. Washington pumped $245 billion into nearly 700 banks and insurance companies and guaranteed almost $350 billion of bank debt. It made short-term loans of more than $300 billion to blue-chip companies. It propped up life insurers and money-market funds. It bailed out two of the three U.S. auto makers. It lent billions trying to jump-start commercial-real-estate, small-business and credit-card lending. In two February stimulus bills enacted a year apart, the government committed $955 billion to rouse the economy. Today the U.S. government, directly or indirectly, underwrites nine of every 10 new residential mortgages, nearly twice the percentage before the crisis. Those who defend this robust interventionism and those who decry its effects are vying to shape the nation's take on the events of the past 16 months. Lawrence Summers, President Barack Obama's chief economic adviser, says the intervention was essential, short-term therapy, not a reinvention of capitalism. 'Our overarching goal was to save an economy that was near the abyss, where depression looked like a real possibility,' he says. The bailouts 'were designed to be, and have proved to be, temporary,' Mr. Summers says. 'There is no aspiration of any kind to change the private-sector basis of our economy.' Even so, he says government won't return to its pre-crisis form. 'The way our financial system was operating was much more fragile than many had supposed. Those events point up a need for substantial changes in the way in which we regulate the economy and regulate finance,' he says.
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name='9'>Lehman to Hire Neuberger Berman to Sell $180 Million in Assets
Lehman Brothers Holdings Inc., the investment bank liquidating itself in bankruptcy, asked a judge to let it hire its Neuberger Berman money management unit to sell $180 million in asset-backed securities, according to a court filing, Bloomberg News reported Friday. Lehman said it owns 56 series of securities issued by trusts that hold pools of mortgage loans and other obligations originated in counties including the U.K., Australia, Italy and Korea. The company is seeking permission to hedge the holdings by posting as much as $55 million of collateral. After two years of being 'severely depressed,' credit markets are starting to recover, Lehman said in yesterday's filing in U.S. Bankruptcy Court in New York. 'Therefore LBHI has determined in its business judgment that it would be advantageous to be prepared to sell the securities at prevailing market prices.' The defunct investment bank owns 49 percent of the common stock of Neuberger Berman and 97 percent of the preferred shares, after giving most of the common shares to Neuberger executives and money managers. The unit's fixed income division will handle the sale, Lehman said in the filing. Lehman filed the biggest U.S. bankruptcy in September 2008 with debt of $613 billion. The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
name='10'>JAL Rehabilitation Plan Includes Bankruptcy Option
Japan Airlines Corp., Asia's biggest carrier by sales, may seek bankruptcy reorganization as one of the options in a turnaround plan proposed by a state-affiliated agency, Bloomberg News reported today. The Enterprise Turnaround Initiative Corp. of Japan submitted a plan to the Development Bank of Japan and three of the carrier's other lenders over the weekend, the report said. Japan's government has pledged to keep Japan Air operating as it bails out the unprofitable carrier for the fourth time since 2001. Rehabilitating the company without bankruptcy reorganization would require agreement from creditors who were owed at least 529 billion yen ($5.8 billion) by the Tokyo-based airline as of July. The airline secured a 100 billion yen bridge loan from a state-affiliated bank and is trying to persuade staff and retirees to accept pension cuts as it battles to avoid collapse. It has also received competing investment offers from Delta Air Lines Inc. and American Airlines. The carrier reported a net loss of 63.2 billion yen in the fiscal year ended March 31 as international travel slumped amid a global recession.
href='http://www.bloomberg.com/apps/news?pid=20601080&sid=ayXFoVXV1WvQ'>Read
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name='11'>Lyondell Seeks Settlement, Touts Creditor Support
Lyondell Chemical Co. asked a bankruptcy court on Thursday to approve a proposed settlement among warring creditors and said its secured lenders committed to support its plan of reorganization, Reuters reported Thursday. Under the previously announced proposal, secured lenders would pay $300 million to unsecured creditors, who brought a $22 billion lawsuit against the banks and advisers that put together Lyondell's leveraged buyout in 2007. The proposal also establishes a fund that can be used to pursue claims against any secured lenders that did not participate in the settlement. The company also said on Thursday secured lenders were committed to supporting its plan to emerge from bankruptcy. But Thursday's request for the court to approve the proposed settlement did little to soften unsecured creditors' opposition. The chemical company also filed a request with the bankruptcy court in Manhattan for approval of a previously announced plan to sell $2.8 billion in stock in the reorganized company. Unsecured creditors asked the bankruptcy court this week to allow a court-appointed examiner to ensure that potential bidders such as India's Reliance Industries, which has offered up to $12 billion to acquire Lyondell, have a chance to compete against senior creditors for the company. Lyondell is a U.S. unit of LyondellBasell, which filed for bankruptcy protection after being unable to meet its debt obligations when demand dropped for petrochemical products during the global economic downturn.
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name='12'>Zale Working with Bank Rothschild on Options
Zale Corp., the Texas-based jewelry chain that posted seven straight quarters of losses, is working with Rothschild to evaluate restructuring options, Bloomberg News reported Thursday. The investment bank was named to help the unprofitable retailer weigh its choices in 2010. Jewelry sales slumped as U.S. unemployment climbed, contributing to the demise of chains that include Finlay Enterprises Inc. and Fortunoff Holdings LLC this year. Zale lost $189.5 million last year. It twice delayed releasing fourth- quarter results and last month reported a loss of $57.6 million in the first quarter ended Oct. 31. Zale said in October that it closed more than 200 locations in the 2009 fiscal year through July. It operates more than 1,900 stores in North America, including the Gordon's Jewelers, Piercing Pagoda and Zales Jewelers chains. On Aug. 6, Zale said it would record a $50 million pretax charge to close 118 locations in the quarter ended July 31. The charge included $23 million to cover lease guarantees on Bailey, Banks & Biddle stores, replacing a previous estimate of $62 million. The company said it expected the $23 million to include rent obligations earlier valued at $33 million. Zale sold that chain in 2007 to Finlay Enterprises Inc., which filed for bankruptcy protection on Aug. 5.
href='http://www.bloomberg.com/apps/news?pid=20601109&sid=ax0N9kY5aG3Q&pos=15'>Read more.
name='13'>Black Gaming Files Chapter 11 Bankruptcy Plan
An investment group including South Point hotel-casino owner Michael Gaughan, the Toti family and Randy Black would control Mesquite hotel-casino operator Black Gaming under a pre-packaged bankruptcy plan for Black Gaming filed this week, KCSG.com (Utah) reported Friday. Pounded by the recession and in default on its $206 million debt, Black Gaming LLC announced the filing for chapter 11 bankruptcy reorganization after entering into a 'lockup agreement' with the holders of approximately 70 percent of the company's $125 million in senior secured notes. The lockup agreement allows for the restructuring of Black Gaming's debt and provides for an investment of capital into the company. Creditors, including holders of $66 million in subordinated bonds not part of the lockup agreement, have not yet weighed in on the plan. All operations of the company will continue under current management throughout the restructuring process. Black Gaming operates the Casablanca, Oasis and Virgin River hotel-casinos in Mesquite 35 miles southwest of St. George, Utah.
href='http://www.kcsg.com/news/local/80114907.html'>Read more.
name='14'>Simmons Bedding Financiers Seek Chinese Bidder
A group of financiers is trying to put U.S. mattress maker Simmons Bedding, now under bankruptcy court protection, into play by encouraging Chinese bidders to top an already arranged offer, the Wall Street Journal reported on Saturday. Success looks unlikely for the eleventh-hour effort to encourage a Chinese bidder to challenge a deal already worked out between Simmons, its creditors and new investors. It is the first attempt by the government-linked Chinese financiers behind the Simmons push, as well as the Pennsylvania-based bankruptcy lawyer trying to find similar deals for them, to help Chinese bidders shop for acquisitions in U.S. bankruptcy courts. Simmons discounted the move, however, saying that 'in response to recent rumours ... Simmons wants to reiterate that it is not contemplating any alternate bids in China or elsewhere nor has Simmons authorised any agent in China to solicit any such bids.' In November, Simmons, maker of the Beautyrest mattress and other bedding products, filed for bankruptcy protection and said it expects to be sold to two buyers in a transaction valued at roughly $760 million.
href='http://www.reuters.com/article/idUSSGE5BQ00620091227?type=marketsNews'>Read more.
name='15'>Bankruptcy Court Enters Order Confirming Idearc's Reorganization Plan
Idearc Inc. announced that the U.S. Bankruptcy Court for the Northern District of Texas in Dallas has entered an order formally confirming Idearc's plan of reorganization, positioning the company to emerge from its chapter 11 proceedings on or about Dec. 31, according to a newswire report yesterday. Following a confirmation hearing earlier this month, the court approved a global settlement agreement reached by Idearc and its creditor groups that resolves all pending litigation among the parties and all objections by such parties to confirmation of the plan of reorganization. Under Idearc's proposed plan of reorganization, the company noted its total debt will be reduced from approximately $9 billion to $2.75 billion of secured bank debt, with the company's current bank debt-holders, bondholders and certain other creditors receiving new common stock of reorganized Idearc or, if they choose, cash (subject to proration and closing conditions). The proposed plan provides that the current holders of Idearc's common stock will not receive any distributions as part of the reorganization, and their equity interests will be cancelled and have no value once the plan becomes effective.
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