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August 31, 2009
Commercial Real Estate
Continues to Loom in Mortgage Crisis
Federal Reserve and Treasury officials are scrambling
to prevent the commercial real estate sector from delivering a big hit
to the U.S. economy just as it struggles to regain momentum amid the
mortgage downturn, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. Government efforts could be undermined by a
surge in foreclosures of commercial property carrying mortgages that
were packaged and sold by Wall Street as bonds. Nearly $700 billion of
commercial mortgage-backed securities are suffering from two kinds of
pain, which, according to credit rater Realpoint LLC, sent its
delinquency rate to 3.14 percent in July, more than six times the level
a year earlier. One is simply the result of bad underwriting. In the era
of looser credit, Wall Street's CMBS machine lent owners money on the
assumption that occupancy and rents of their office buildings, hotels,
stores or other commercial property would keep rising. The second is
coming from the inability of property owners to refinance loans bundled
into CMBS when these loans mature. By the end of 2012, some $153 billion
in loans that make up CMBS are coming due, and close to $100 billion of
that will face difficulty getting refinanced, according to Deutsche
Bank.
href='http://online.wsj.com/article/SB125167422962070925.html'>Read
more. (Subscription required.)
Guaranty Financial Group
Files for Chapter 11
Guaranty Financial Group Inc. has filed for chapter 11
protection, just days after regulators forced it to sell most of its
assets to a European bank,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported on Friday. The Austin, Texas-based bank and three of
its affiliates submitted voluntary bankruptcy petitions on Thursday in
the U.S. Bankruptcy Court for the Northern District of Texas, citing
$24.3 million in assets and $323.4 million in debts. Guaranty blamed a
portion of its bankruptcy on the subprime mortgage crisis that began in
2007, saying it lost $256 million in the first quarter of 2009 after a
“substantial increase” of defaults on mortgage-backed
securities. The case is
face='Times
New
Roman' size='3'>In re Guaranty Financial Group Inc
size='3'>., case number 09-35582, in the U.S. Bankruptcy Court for the
Northern District of Texas.
href='http://bankruptcy.law360.com/print_article/119568'>Read
more. (Subscription required.)
Media
Paper Owner Freedom Plans
to File for Chapter 11
Freedom Communications Inc., the owner of the
size='3'>Orange County (Calif.) Register, is
expected to declare bankruptcy this week, the
face='Times New Roman'>Wall
Street Journal reported today. The company,
majority owned for more than 70 years by the Hoiles family, has reached
agreements with its lenders to restructure its debts. With annual
revenue of about $700 million, Freedom owns the
face='Times New Roman'>
size='3'>Register and more than 30 other daily
papers and eight TV stations. Earnings before interest, taxes,
depreciation and amortization have declined about 75 percent over the
past five years to about $50 million. Freedom's lenders, which hold
roughly $770 million in debt, are expected to take control of the
company as it operates under bankruptcy protection. They include J.P.
Morgan Chase & Co., SunTrust Banks and Union Bank of
California.
href='http://online.wsj.com/article/SB125166593642570507.html'>Read
more. (Subscription required.)
Auction for Philly
Newspapers Set for October
Parties interested in bidding on Philadelphia
Newspapers must submit their bids by Oct. 22 for an auction of the
bankrupt publisher of the
face='Times New Roman' size='3'>Philadelphia Inquirer
size='3'>and
face='Times New Roman' size='3'>Philadelphia News
size='3'>, the Associated Press reported on Saturday. Creditors seeking
to take control of Philadelphia Newspapers in the chapter 11 case have
attracted a longtime publisher of the two dailies to their side. Bob
Hall, publisher of
face='Times New Roman' size='3'>The Philadelphia Inquirer
and
face='Times New Roman' size='3'>Philadelphia News
size='3'>from 1990 to 2003, would be part of the management team if
creditors take over the company. Hall has been advising the bank lenders
since April and attended Friday's court hearing. Philadelphia Newspapers
is seeking to shed most of its $400 million in debt by repurchasing the
company through a bankruptcy auction for about 22 cents on the dollar.
Publisher Brian Tierney, a former public relations executive who led the
2006 purchase, would remain in charge.
href='http://www.google.com/hostednews/ap/article/ALeqM5hOSrp-uxxzdg3DYhyKaLf…'>Read
more.
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Tribune Chief’s
Role Uncertain Amid Restructuring
The Tribune Company could well emerge from bankruptcy
this fall with much of its current top management intact, but it remains
unclear whether that might include the company’s chairman and CEO,
Samuel Zell, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. Since filing for chapter 11, it has been clear
that Zell’s $315 million investment and warrants to buy a large
share of the company would almost certainly be wiped out. He is also
being sued on multiple fronts over the $8.2 billion deal that took the
company private in December 2007. However, experts involved in the
restructuring cautioned that the major creditors have not yet given a
clear indication as to whether they want Zell to leave or remain in some
capacity.
href='http://www.nytimes.com/2009/08/31/business/media/31zell.html?ref=busine…'>Read
more.
Analysis: Deals for Failed
Banks Put U.S. on Hook for Billions
To encourage banks to pick through the wreckage of
their collapsed competitors, the Federal Deposit Insurance Corp. has
agreed to assume most of the risk on $80 billion in loans and other
assets, the
size='3'>Wall Street Journal reported today.
The agency expects it will eventually have to cover $14 billion in
future losses on deals cut so far. The agency's total exposure is about
six times the amount remaining in its fund that guarantees consumers'
deposits, exposing taxpayers to a big, new risk. So far, the FDIC has
paid out $300 million to a handful of banks under the loss-share
agreements. The practice is largely a response to the number of bank
failures of the past 18 months, which has stretched the FDIC's financial
and logistical resources. The FDIC had just $10.4 billion in its
deposit-insurance fund at the end of June, down from more than $50
billion last year.
href='http://online.wsj.com/article/SB125166830374670517.html#printMode'>Read
more. (Subscription required.)
FDIC to Ratchet Up Scrutiny
of Newly Chartered Banks
New banks will face tighter oversight under federal
rules announced Friday, as the Federal Deposit Insurance Corp. looks to
minimize the potential for payouts to depositors at troubled
institutions, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported on Saturday. 'Recent experience demonstrates that
newly insured institutions pose an elevated risk to the Deposit
Insurance Fund, particularly during an economic downturn,' the FDIC said
in a letter to banks. Those that have been covered by deposit insurance
for less than seven years 'are over-represented on the list of
institutions that failed during 2008 and 2009, with most of those
failures occurring between the fourth and seventh years of operation.'
The banks would thus face more frequent examinations -- yearly, instead
of every 18 months. The FDIC will particularly watch for characteristics
tied to bank failures in the current downturn, such as rapid growth and
heavy reliance on volatile funding sources such as deposits obtained
through brokers.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/08/28/AR20090…'>Read
more.
Analysis: As Big Banks Repay
Bailout Money, U.S. Sees a Profit
Nearly a year after the federal rescue of the
nation’s biggest banks, taxpayers have begun seeing profits from
the hundreds of billions of dollars in aid that many critics thought
would be paid back, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. The profits, collected from eight of the
biggest banks that have fully repaid their obligations to the
government, come to about $4 billion, or the equivalent of about 15
percent annually, according to calculations compiled for
The
size='3'>New York Times. The government still
faces potentially huge long-term losses from its bailouts of the
insurance giant American International Group, the mortgage finance
companies Fannie Mae and Freddie Mac, and the automakers General Motors
and Chrysler. The Treasury Department could also take a hit from its
guarantees on billions of dollars of toxic mortgages.
href='http://www.nytimes.com/2009/08/31/business/economy/31taxpayer.html?_r=1…'>Read
more.
House Financial Services
Chairman Said to Back Broader Federal Reserve Audits
Rep. Ron Paul (R-Texas) said that he has a commitment
from House Financial Services Committee Chairman Barney Frank (D-Mass.)
to advance legislation opening the Federal Reserve to broader federal
audits, the
size='3'>Wall Street Journal reported today.
Paul said that Frank agreed to allow a vote on the bill and to work on
language that would allow the Government Accountability Office to audit
the Fed's monetary-policy operations. In recent months, the Fed has
released more information about its lending, though not the identities
of individual banks borrowing through its discount window. Paul said
that he wants the audits to find out more about the Fed's dealings with
foreign central banks, foreign governments and individual firms. While
details are unresolved, the discussions increase the likelihood that a
version of Paul's bill will pass the House.
href='http://online.wsj.com/article/SB125167261849670795.html'>Read
more. (Subscription required.)
Spectrum Brands, Inc.
Emerges from Chapter 11
Spectrum Brands Inc., the Atlanta-based purveyor of
such products as Rayovac batteries, Remington shavers and Cutter insect
repellent, emerged from chapter 11 protection with a significantly
reduced debt load,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported on Friday. The company and its domestic subsidiaries
officially concluded their reorganization, in the U.S. Bankruptcy Court
for the Western District of Texas, after meeting all closing conditions
to the company's reorganization plan, Spectrum's CEO Kent Hussey said.
The plan eliminates $840 million in subordinated debt and $60 million in
annual cash interest expenses. It also calls for common stock in
Spectrum to be extinguished and for no distributions to be made to
holders of the company's current equity.
href='http://bankruptcy.law360.com/print_article/119386'>Read
more. (Subscription required.)
Madoff Trustee Seeks a
Ruling on Bogus Profits
Trustee
face='Times New Roman' size='3'>Irving Picard
size='3'>has asked a bankruptcy judge to determine whether Bernard
Madoff's victims are entitled to their bogus profits from the remains of
a multibillion-dollar Ponzi scheme, the Wall Street
Journal reported on Saturday. Many of the
claimants asking to be reimbursed on the basis of the amounts listed in
their accounts as of Nov. 30 object to Picard's plan, which takes into
account the amount of money invested and already withdrawn. Picard said
that he will file papers supporting his distribution plan by Oct. 16. He
asked Bankruptcy Judge
face='Times
New
Roman' size='3'>Burton R. Lifland to require
objections be filed by Nov. 13, with a hearing to be set for Feb. 2. As
of last month, Picard recovered more than $1.2 billion and paid out
$168.4 million in claims. Investors are eligible for up to $500,000 from
the Securities Investor Protection Corp.
href='http://online.wsj.com/article/SB125148610743167517.html'>Read
more.
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