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November 4, 2009
First Day Orders Put CIT Group on Bankruptcy Fast Track
Bankrupt commercial lender CIT Group Inc. won approval Tuesday to immediately tap $125 million of a debtor-in-possession loan through Bank of America Corp. as part of its package of first-day motions seeking to sustain operations during a speedy restructuring effort, Bankruptcy Law360 reported yesterday. Judge Allan Gropper of the U.S. Bankruptcy Court for the Southern District of New York signed off on CIT's routine first-day motions during a hearing Tuesday, giving it access to the first chunk of Bank of America's $500 million DIP loan, as well as permission to continue making intercompany loans and pay essential employees and vendors. Judge Gropper set a Dec. 8 hearing date to weigh approval of CIT's reorganization plan, which already has secured the preliminary approval of 90 percent of eligible debt-holders who signed off on the prepackaged chapter 11 plan. CIT filed a voluntary chapter 11 petition late Sunday night, listing assets of $71 billion and liabilities of $65 billion, with debt securities held by more than 500 creditors. CIT's failure is the largest bankruptcy by a financial lender and ranks as the fifth-largest bankruptcy in U.S. history. Last December, the lender received $2.3 billion in taxpayer funds through Congress' Troubled Asset Relief Program. The government has acknowledged that its stake in CIT likely will not be recovered.
Under the prepackaged CIT plan, holders of CIT common and preferred stock likely will be wiped out as well. Read more (subscription required).
Legislation
name='2'>Bankers, Chamber at Odds on Financial Oversight
The banking lobby is splitting with the U.S. Chamber of Commerce over a key battle to revamp the nation's financial regulatory structure, with the two sides differing over whether a council to monitor systemic risk throughout the financial markets should also oversee accounting rules, CongressDaily reported today. The American Bankers Association and the Financial Services Roundtable are lobbying in support of legislation by Reps. Ed Perlmutter (D-Colo.) and Frank Lucas (R-Okla.) to create a Financial Accounting Oversight Board within the council of regulators, overriding powers the SEC has over the Financial Accounting Standards Board. A version of the bill could be offered as an amendment to legislation to be marked up today by the House Financial Services Committee that would create an oversight council of regulators and allow it to seize and unwind at-risk firms on the verge of collapse. The markup is slated to go into next week. Bankers argue that such a change is needed in the aftermath of an accounting rule that exacerbated the housing crisis, where, under mark-to-market rules, banks were forced to value mortgage assets at their then-low values, taking billions of dollars in losses, even though in the long term these assets are likely to recover. Read more (subscription required).
name='3'>Dodd Might Push Out Regulatory Overhaul Legislation
Senate Banking Chairman Christopher Dodd is getting ready to move ahead with financial regulatory reform legislation, a move that committee Republicans said represents a potential partisan push on legislation that had been expected to win backing from both parties in committee, CongressDaily reported today. Though a timeline is not set, Dodd 'could release a discussion draft as soon as this week and the committee could mark up a bill as early as the week of Nov. 16,' according to a spokeswoman. Dodd has not detailed his plans, but has indicated the bill would create an independent consumer protection agency and create a bank regulator by combining powers held by the FDIC, the Office of Thrift Supervision, Office of the Comptroller of the Currency and the Federal Reserve. Dodd and Banking ranking member Richard Shelby remain at odds on creation of an independent consumer financial agency, Senate aides said. Shelby declined to comment on Dodd's plans Tuesday, but Sen. Bob Corker (R-Tenn.), a key Republican on the panel who has worked with Sen. Mark Warner (D-Va.) to develop bipartisan reform proposals, said he is concerned Democrats might move without real GOP input. Corker said areas of contention will include creation of the consumer agency and what he called Democratic plans to codify 'a too-big-to-fail mentality.' A Banking Committee spokeswoman said Dodd's urgency reflects the fact that 'it's been over a year since the collapse of Lehman Brothers and every day we don't pass reform we leave the economy open to the risk of' similar failures.
name='4'>Frank Seeks House Vote in December on Financial Measures
Lawmakers are still mulling a number of key issues on how to deal with the nation's largest financial-services firms, with the goal of passing legislation through the House of Representatives next month, a top Democrat said, the Wall Street Journal reported yesterday. Rep. Barney Frank, who chairs the House Financial Services Committee, said that he anticipates that the various pieces of regulatory overhaul legislation that have been proposed will be voted on by the House in December. That includes creation of a new consumer financial-protection agency, new regulations for derivatives, and new authority to deal with the largest financial firms. Mr. Frank acknowledged that a number of important questions remained unanswered and that lawmakers were still trying to determine how to properly address the problem of financial firms considered too big to be allowed to fail, for fear of damaging the economy more broadly. He also said lawmakers are considering ways to scale back the Federal Reserve's leeway in lending to specific institutions. 'No more Fed to AIG, no more Fed to Bear Stearns,' he said. Frank added that Harvard Law Prof. Elizabeth Warren should be in the running as the first head of a new consumer financial-protection agency that would be created under the proposed legislation, which would have oversight over credit cards, mortgages and other financial products marketed to consumers. Warren currently heads the oversight panel keeping tabs on the Treasury Department's $700 billion financial rescue program. Read more.
Autos
GM Backs Out of Deal to Sell Opel, Vauxhall
In a dramatic change of course, General Motors Co. backed out of a deal to sell the company's European operations to car-parts supplier Magna International Inc., and now plans to spend billions to restructure the money-losing business itself, the Wall Street Journal reported today. The decision to keep control of Opel of Germany and its British sister company Vauxhall was made at a board meeting Tuesday in which the company's directors strayed from the plan of Chief Executive Frederick 'Fritz' Henderson, who had spent months negotiating the Magna agreement. GM's change of heart reflects the carmaker's increasing confidence about its outlook as well as the direction of its aggressive new chairman, Edward E. Whitacre Jr. The Opel sale plan was concocted as GM faced insolvency and the need for a $50 billion U.S. bailout. Since emerging debt-free from bankruptcy reorganization in July and 60 percent owned by the U.S., it has seen car sales climb. Read more.
name='6'>Delphi Names Directors; No Board Seat for CEO
Four weeks after emerging from bankruptcy, Delphi Automotive LLP is creating a new board of directors in an overhaul orchestrated by GM and several of Delphi's former lenders, which bought most of its assets, the Wall Street Journal reported today. The big auto-parts maker, a key GM supplier, announced Wednesday seven members of a board that includes a majority of directors with no ties to either GM or the lenders. The chairman will be retired DuPont Co. Chief Executive John 'Jack' Krol. In an unusual move, Delphi Chief Executive Rodney O'Neal won't get a seat for now. Delphi Corp. ended a four-year stay in bankruptcy court last month by selling some assets to GM, its former parent, and most of the remainder to a group led by lenders including Silver Point Capital LP and Elliott Management. The assets purchased by the lenders was renamed Delphi Automotive LLP, in which GM has an equity stake. Read more.
name='7'>Chrysler to Unveil Recovery Plan to Revive Sales
Chrysler said it will introduce its five-year plan for revival today, including a streamlined product lineup that it hopes will win back buyers, the New York Times reported yesterday. Chrysler said yesterday that its new-vehicle sales in the United States fell 30 percent in October, a month when total sales were flat for the industry, including for GM and Ford Motor Co. Based on figures so far for the year, Chrysler will most likely sell fewer than one million vehicles in all of 2009. Two years ago, it sold more than two million. Its market share fell to 7.9 percent last month Ñ less than half of Ford's share and a little more than one-third of GM's. Chrysler's market share was 11.3 percent a year ago.
'They have nothing really in their arsenal to compete right now,' said Jessica Caldwell, director of industry analysis at the car-buying Web site Edmunds.com. The company, which is nearly 10 percent owned by the federal government after borrowing $12.5 billion in emergency loans in the last year, has given few indications of its plans since emerging from bankruptcy in June and joining forces with the Italian carmaker Fiat. Read more.
name='8'>Wheel Maker Hayes Lemmerz Wins Bankruptcy Plan Approval
Hayes Lemmerz International Inc., a century-old maker of aluminum and steel wheels for cars and trucks, said it won approval of its bankruptcy reorganization plan yesterday and expects to emerge from chapter 11 this year, Reuters reported yesterday. Judge Mary Walrath of the U.S. Bankruptcy Court in Delaware approved the plan, which is expected to reduce the Northville, Mich.-based company's debt by two-thirds to about $240 million from $720 million. Hayes Lemmerz said it is in talks with potential lenders to obtain $100 million of exit financing, which it said will permit it to emerge from bankruptcy no later than December. The company has also reached agreements with unions, retirees and the U.S. Pension Benefit Guaranty Corp. to reduce its pension and medical liabilities. Hayes Lemmerz filed for bankruptcy protection in May. The case is In re Hayes Lemmerz International Inc, U.S. Bankruptcy Court, District of Delaware, No. 09-11655.
name='9'>Auto Sales Show Industry Beginning to Stabilize
After months of roller-coaster results, the U.S. auto industry showed signs of stability in October, the Associated Press reported yesterday. Total sales of cars and light trucks were unchanged at just over 838,000 compared with October of last year, but rose 12 percent from a dismal September 2009, Autodata Corp. reported Tuesday. The results signaled that some consumers are starting to spend again and the sputtering economy is beginning to pull out of trouble. Last month's sales, if projected for an entire year, rose to 10.5 million after slumping to 9.2 million in September, the month after the government's Cash for Clunkers rebates ran out. Analysts said the figures are good for a normally weak October, but they're still far short of the 17 million annual rates from the late 1990s and early 2000s. The biggest winner among major automakers was South Korea's Hyundai Motor Co., which saw sales skyrocket 49 percent to 31,005 vehicles, boosted by the Elantra small sedan. Japan's Nissan Motor Co. came next with a 5.6 percent gain, followed by GM at 4.7 percent, aided by strong pickup truck sales, the performance of new models and the highest incentives in the industry. It was GM's first year-over-year monthly sales increase in 21 months. Read more. Read more.
name='10'>October Consumer Bankruptcy Filings Reach New Highs, Up 28 Percent Over Last Year
The 135,913 consumer bankruptcy filings in October represented a 27.9 percent increase over last October's monthly total of 106,266, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). The October 2009 consumer filings represented an 8.9 percent increase from the September 2009 total of 124,790. Chapter 13 filings constituted 28.5 percent of all consumer cases in October, a slight increase from the September rate. 'The nearly 9 percent increase in consumer bankruptcy filings in October, together with a 7 percent jump reported in business cases, demonstrates the sustained stress on the U.S. economy,' said ABI Executive Director Samuel J. Gerdano. ABI forecasts that total bankruptcies this year will exceed 1.4 million, the highest number since 2005.
name='11'>Owners Fight Credit Bid in Philly Newspaper Sale
The owners of Philadelphia's two major dailies are waging a late-stage battle to keep the newspapers from creditors in a looming bankruptcy auction, The Associated Press reported yesterday. Under a key ruling in the case, senior lenders have the right to use the $300 million owed them to win The Philadelphia Inquirer and Philadelphia Daily News at the Nov. 18 auction to give them enough clout to beat the opening $67 million bid posted by current and new investors. However, the local owners went to court Tuesday to try to overturn the decision to allow 'credit bidding,' arguing that only cash bids should be allowed to ensure a level playing field. The debtors - local investors who bought Philadelphia Newspapers in 2006 for $515 million, most of it borrowed - say credit bidding would have a chilling effect on the auction, keeping other potential bidders away. But creditors say the debtors have crafted an unusual reorganization plan designed to shed their massive debt while retaining control. The plan includes the auction and an opening 'stalking-horse bid' by a group comprised mostly of company insiders, including housing developer Bruce Toll, who served as company chairman. Chief U.S. Bankruptcy Judge Stephen Raslavich, in the key ruling last month that allowed credit bids, called the stalking-horse bid 'manifestly an insider transaction.' Read more.
name='12'>Fred Leighton Jewelers Gets OK to Sell Business Operations
A judge has approved the sale of bankrupt jeweler Fred Leighton Holding Inc.'s business operations for $25.8 million in cash to investors including a group of private equity firms and estate jewelry seller Windsor Jewelers Inc., allowing for a quick change in ownership ahead of the holiday shopping season, Bankruptcy Law360 reported yesterday. Judge Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York on Monday approved the sale of business and inventory assets to a group of two investor consortiums, including Sima G. Ltd. Moonbeam Consulting LLC, European Art & Antiques and Windsor, as well as affiliates of Och-Ziff Capital Investments LLC, Kwiat Enterprises LLC and Triton Equity Partners LLC. The sale is scheduled to close by Nov. 10, a deadline imposed to assuage concerns from the buyers about being able to reap the benefits of holiday sales, according to a motion seeking approval for the transaction. The sale approval is part of a multipart liquidation of the existing Fred Leighton company, which sought chapter 11 protection in April 2008 and has faced intense scrutiny by primary secured creditor Merrill Lynch Mortgage Capital Inc. Other elements of the restructuring include an auction of certain jewelry pieces held by Christie's Inc., on Oct. 21, and a chapter 11 liquidation plan, set for a confirmation hearing on Nov. 6. Merrill Lynch is expected to receive virtually all of the proceeds. Read more (subscription required).
name='13'>Terminator Movie Franchise May Go on Auction Block
The bankrupt company that owns the rights to the Terminator movie franchise is preparing to auction the rights next year and is already seeing strong interest, an advisor to the company said on Tuesday, Reuters reported yesterday. Halcyon Holding Group acquired the rights to the Terminator franchise in 2007 for about $25 million, which includes revenue from future films, games, DVDs and television for the series, but the company has no or limited rights to revenue from the first three films. Halcyon, which filed for chapter 11 bankruptcy protection in August, is a production company that produced the latest movie about the iconic robot from the future, Terminator Salvation. It is looking to conduct a sale of its assets in January, according to Kevin Schultz, senior managing director at FTI Capital Advisors. The company is looking for a potential 'stalking horse' buyer to serve as the lead bidder in the bankruptcy auction in January, Schultz said. The company had been in the process of developing a fifth Terminator film after Terminator Salvation took in about $371 million in worldwide box office returns earlier this year. Read more.
name='14'>Calif. Debt Firm Settles Pa. Class Action Suit
A California debt collection company has agreed to a $2.55 million judgment to settle a lawsuit brought by thousands of Pennsylvanians who claim they were wrongly led to believe they had to pay costly fees to avoid criminal charges for bouncing checks, the Associated Press reported yesterday. American Corrective Counseling Services admits no wrongdoing as part of the settlement approved Monday in bankruptcy court in Delaware. The company sent out letters as recently as last winter purporting to be from various Pennsylvania district attorneys' offices to people who bounced checks. The letters indicated that a crime had been committed, but that the check bouncers could clear up the matter by paying off the checks and various fees and by attending a financial accountability class. American Corrective Counseling Services contracted with about district attorneys in at least 20 Pennsylvania counties. Prosecutors reportedly received fees under their contract with ACCS to resolve bounced check cases outside of court. An attorney with the consumer group Public Citizen, which is also suing the company, said that many prosecutors are not aware of the group's heavy tactics. Public Citizen has brought class-action lawsuits against the company in California, Florida and Indiana, claiming American Corrective Counseling Services violated the Fair Debt Collection Practices Act. Read more.
International
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