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February 13,
2009
Rescue Plan for Housing
The Obama administration is trying to come up with a
standardized approach for using taxpayer money to modify the mortgages
of people in danger of losing their homes, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. Administration officials cautioned that they
were still evaluating options, but that one possibility is to subsidize
lower monthly payments for troubled borrowers after doing a standardized
reappraisal of the value and affordability of their homes. The approach
would be a variant of one developed by the Federal Deposit Insurance
Corp., which has created a loan-modification program for borrowers at
banks it has taken over. Other options include expanding the Hope for
Homeowners program, which was set up to refinance seriously delinquent
borrowers, and subsidizing mortgage rates by increasing government
purchases of mortgage-backed securities.
href='http://www.nytimes.com/2009/02/13/business/economy/13housing.html?ref=business&pagewanted=print'>Read
more.
Tear Up Mortgage Contracts
While legislation is moving swiftly through Congress
to allow bankruptcy judges to modify home mortgages by reducing both the
interest rate and principal amount on the loan, it would come at a great
cost to Americans looking to obtain credit of any kind, according to a
commentary by Prof.
face='Times New Roman' size='3'>Todd Zywicki
size='3'>in today’s
face='Times






New
Roman'
size='3'>Wall Street Journal. Mortgage
modification would indeed provide a windfall for some troubled
homeowners -- but its costs will be borne by aspiring future homeowners
and by any American who uses credit of any kind, from car loans to
credit cards. Mortgage costs will increase if bankruptcy judges can
rewrite mortgage loans after they are made, according to Zywicki.
Allowing mortgage modification in bankruptcy also could unleash a
torrent of bankruptcies. To gain a sense of the potential size of the
problem, consider that about 800,000 American families filed for
bankruptcy in 2007. Rising unemployment and the weakening economy pushed
the number near one million in 2008. But by recent count, some five
million homeowners are currently delinquent on their mortgages and some
12 million to 15 million homeowners owe more on their mortgages than the
home is worth. If even a fraction of those homeowners file for
bankruptcy to reduce their interest rates or strip down their principal
amounts to the value of their homes, we could see an unprecedented surge
in filings, overwhelming the bankruptcy system and destabilize the
market for all other types of consumer credit, Zywicki said.
href='http://online.wsj.com/article/SB123449016984380499.html'>Click
here to read the full commentary.
Analysis: Ailing Banks May
Require More Aid to Keep Solvent
Economists and other finance experts say that a
larger, more direct government role than in the Treasury
Department’s plan outlined this week would be necessary to aid
banks as they recover from losses on toxic assets, the
face='Times New Roman'>New York
Times reported today. Nouriel Roubini, a
professor of economics at the Stern School of Business at New York
University, estimates that total losses on loans by American financial
firms and the fall in the market value of the assets they hold will
reach $3.6 trillion, up from his previous estimate of $2 trillion. Of
the total, he calculates that American banks face half that risk, or
$1.8 trillion, with the rest borne by other financial institutions in
the United States and abroad. Simon Johnson, a former chief economist at
the International Monetary Fund, estimates that the U.S. banks have a
capital shortage of $500 billion. “In a more severe recession, it
will take $1 trillion or so to properly capitalize the banks,”
said Johnson, an economist at the Massachusetts Institute of Technology.
The banking industry bridles at such broad-brush analysis as it defines
solvency bank by bank, and uses the value of a bank’s assets as
they are carried on its books rather than the market prices calculated
by economists.
href='http://www.nytimes.com/2009/02/13/business/economy/13insolvent.html?_r=1&ref=business&pagewanted=print'>Read
more.
Wave of Bad Debt Swamps
Companies
The United States is entering a period likely to
feature the most corporate-debt defaults, by dollar amount, in history,
the
size='3'>Wall Street Journal reported today.
By various estimates, U.S. companies are poised to default on $450
billion to $500 billion of corporate bonds and bank loans over the next
two years. In percentage terms, the projections from the three main
credit-rating agencies for defaults on high-yield bonds approach levels
last seen in 1933, according to an 87-year default-rate history compiled
by Moody's Investors Service. The agencies expect default rates on these
non-investment-grade bonds to triple to about 14 percent or higher this
year, from around 4.5 percent last year. The defaults will likely be
spread across many industries. At the moment, debt-rating agencies are
singling out media, entertainment, casino and hotel companies, car
makers and retailers as the most distressed sectors. Standard &
Poor's Corp. estimates that nearly 90 percent of 263 rated media and
entertainment companies -- a group that also includes hotels and casinos
-- are at risk for default, based on their speculative-grade credit
ratings.
href='http://online.wsj.com/article/SB123446235205578373.html?mod=testMod'>Read
more. (Subscription required.)
Charter Communications to
File for Chapter 11 by April
Charter Communications Inc., the nation’s
fourth-largest cable provider, has reached an agreement with some of its
debt-holders to restructure more than $8 billion of debt and agreed to
file for chapter 11 by April 1,
face='Times






New
Roman'
size='3'>Bankruptcy Law360 reported yesterday.
As part of the agreement, Charter subsidiaries CCH I Holdings LLC and
Charter Communications Holdings LLC will make interest payments of $74
million in the aggregate for outstanding senior notes that were due on
Jan. 15 within the allotted grace period that ends Feb. 15. As of Feb.
11, Charter said it had roughly $800 million in cash and cash
equivalents available and aims to reduce its debt by approximately $8
billion through the financial restricting effort.
href='http://bankruptcy.law360.com/articles/87287'>Read
more. (Subscription required.)
Aleris International Inc., producer of aluminum rolled
products, extrusions and recycling, said yesterday that it filed for
bankruptcy protection for its U.S. operations in U.S. Bankruptcy Court
in Delaware, Reuters reported yesterday. The privately-held aluminum
recycler said that its international operations in Europe, Asia, South
America, Mexico and Canada were not included in the chapter 11 filing.
Base metal prices and the global aluminum industry have been hit hard by
the economic downturn, especially in the U.S. housing market and auto
sales. To fund its global operations during the restructuring, Aleris
said that it secured $1.075 billion of debtor-in-possession
financing.
href='http://www.reuters.com/article/marketsNews/idUSN1247451120090212'>Read
more.
Midway Games Files for
Chapter 11
Midway Games Inc., best known for its 'Mortal Kombat'
video games, said yesterday that it filed for chapter 11 protection, the
Associated Press reported yesterday. Midway said the filing stemmed from
a change in ownership in late 2008 that led to accelerated buyback
requirements related to two classes of debt that the company did not
think it could fulfill. In December, media mogul Sumner Redstone sold
his majority stake in Midway — an interest of about 87.2 percent
— to a company led by private investor Mark Thomas. Midway said
that the filing does not include its operations outside the United
States, and that they will continue to operate as normal.
href='http://tech.yahoo.com/news/ap/20090212/ap_on_hi_te/midway_games_bankruptcy_1'>Read
more.
Landlords Dispute Circuit
City Bid Procedures
Landlords holding leases on Circuit City Stores Inc.
outlets have filed objections to the liquidation plan the company filed
in January, arguing that several of the plan's provisions set the bar
for the landlords' participation in the auction process too high and do
not allow them to reject unwanted tenants,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. According to an objection filed Wednesday
by landlords including Developers Diversified Realtors Corp., General
Growth Properties Inc. and Weingarten Realty Investors, among others, a
provision that would require landlords to give up their entire cure
amount in order to participate in the auction places a high burden on
their entry into the bidding process. Bankruptcy Judge
size='3'>Kevin R. Heunnekens of the U.S.
Bankruptcy Court for the Eastern District of Virginia will hold a
hearing today on the various objections to Circuit City's liquidation
plans. Read
more. (Subscription required.)
to a Rescue Deal
Sirius XM Radio Inc. has significantly narrowed the
divide in talks with satellite mogul Charles Ergen over a deal to save
the company from a bankruptcy filing, the
face='Times






New
Roman'
size='3'>Wall Street Journal reported today.
However, the country's sole satellite-radio operator continues to
discuss a rival offer from Liberty Media Inc., according to people
familiar with the situation. Ergen, who controls Dish Network Corp. and
EchoStar Corp., has offered to inject about $500 million into Sirius and
restructure the debt he holds in the company in return for control. The
offer is contingent on the successful renegotiation of about $600
million in Sirius bank loans and about $200 million in other debt. Under
Liberty's proposal, the company wouldn't acquire Sirius outright or seek
to pair it with DirectTV Group Inc., the satellite-TV provider Liberty
controls. Liberty would make an investment that would enable Sirius to
meet its credit obligations in return for a sizable stake. Neither offer
involves buying out Sirius's equityholders.
href='http://online.wsj.com/article/SB123448973333680447.html?mod=testMod'>Read
more. (Subscription required.)
Congress Moves Ahead on
Economic Stimulus
Congressional leaders haggled over final details
yesterday of the $789.2 billion economic stimulus plan in advance of
votes expected late this week, the
face='Times






New
Roman'
size='3'>Wall Street Journal reported today.
Lawmakers decided to sweeten a planned subsidy to help laid off workers
pay for health insurance. Sen. Susan Collins (R-Maine) won a commitment
from the Obama administration to support later this year a $19 billion
measure that would allow businesses to claim new tax refunds by carrying
back losses into prior tax years. A little more than a third of the
overall package is devoted to tax cuts for business and individuals,
including a $400 payroll tax holiday for workers. The House is set to
vote on the package today while the Senate is reading a vote
tomorrow.
href='http://online.wsj.com/article/SB123445589618578021.html'>Read
more. (Subscription required.)
Fed Calls Gain in Family
Wealth a Mirage
New estimates released yesterday by the Federal
Reserve showed that the leap in wealth that Americans thought they were
enjoying over the last several years has already turned out to be a
mirage, the
size='3'>New York Times reported today. In its
triennial survey of consumer finances, the Fed found that the median net
worth of American households increased by a seemingly healthy 17 percent
between the end of 2004 and the end of 2007. However, adjusting for
housing and stock price declines, Fed officials estimated that the
median family was 3.2 percent poorer as of October 2008 than it was at
the end of 2004. The new report indicates that many households will have
to greatly increase savings rates, which were below 1 percent, to make
up for some of the lost wealth. Adjusted for inflation, the median
household income actually edged down slightly over the three years
ending in 2007. The mean, or average, household income jumped by 8.5
percent.
href='http://www.nytimes.com/2009/02/13/business/economy/13fed.html?ref=business&pagewanted=print'>Read
more.
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