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June 4, 2008
Rating Firms Seem Near Legal Deal on Reforms
Under fire for the high ratings they awarded to subprime mortgage
securities, three large credit rating firms are close to announcing a
broad deal with the New York attorney general to reform some of their
core business practices, the New York Times reported today.
Most significantly, the rating firms are considering changing how they
charge fees for ratings to make it harder for investment banks to play
the firms against one another to obtain a better rating, these people
say, adding that negotiations are ongoing and the deal could still fall
apart. As part of the deal being discussed, the firms - Standard &
Poor's, Moody's Investors Service and Fitch Ratings - would also aid
Attorney General Andrew M. Cuomo's broader investigation into how Wall
Street packaged mortgages into securities, in exchange for immunity from
prosecution. The rating agencies will also establish new standards for
how investment banks review mortgage loans.
href='http://www.nytimes.com/2008/06/04/business/04cuomo.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
Congress Looks to Act on 401(k) Disclosure Legislation
Legislation to enhance disclosure of retirement-account fees
paid to financial service providers could be moving forward in the
House, as discussions ramp up this month between House Ways and Means,
and Education and Labor committee Democrats, CongressDaily
reported today. House Democrats want to approve a bill by the August
recess imposing penalties for failure to disclose management and
administrative fees assessed on 401(k)-style retirement plans. The Bush
administration and industry groups oppose legislation at this time,
since the Labor Department is moving forward on its set of disclosure
regulations. However, Democrats say that hidden fees are eating away at
the retirement nest eggs held by the roughly 50 million Americans that
now take part in 401(k)-style plans.
Former Nebraska Broker Files for Bankruptcy in
Arizona
Rebecca Engle, a former Nebraska City broker who is accused of
improperly selling risky investments in several interrelated Florida
companies, has filed for bankruptcy in Arizona, the Associated
Press reported yesterday. More than 130 investors are pursuing claims
against Engle that accuse her and officials at the Florida companies of
defrauding investors of more than $20 million. Several of Engle's
biggest outstanding debts are related to the investment businesses she
used to run in Nebraska City. Engle also faces a $210,000 lawsuit
judgment that a Florida judge ordered.
href='http://biz.yahoo.com/ap/080603/ne_broker_betrayal.html?.v=2'>Read
more.
Autos
Plastech Proposes $17 Million Wind-Down
Settlement
Bankrupt auto parts supplier Plastech Engineered Products Inc. asked a
judge on Monday to approve a settlement with its lenders and major
customers that it says will help sell off its assets and wind down its
operations, Bankruptcy Law360 reported today. Under the
settlement, Plastech's major customers - including General Motors Corp.,
Ford Motor Co., Johnson Controls Inc. and Chrysler LLC - and a separate
group of lenders will each provide $8.5 million to fund administrative
claims on Plastech's estate, according to a motion filed in the U.S.
Bankruptcy Court for the Eastern District of Michigan. The customers and
lenders will also fund the wind-down of Plastech's operations, and will
submit a budget before the hearing on the settlement, according to the
motion.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=58189'>Read
more. (Registration required.)
Commentary: Detroit's Chapter 11 Threat
/>
The stagnant U.S. economy and spiraling commodity prices have brought
back the specter of a chapter 11 filing for the Detroit automakers, the
Wall Street Journal reported today. General Motors appeared to
have shrugged off any lingering fears of impending bankruptcy last fall,
after offloading its legacy health care commitments for about 70 cents
on the dollar -- as did Chrysler and Ford Motor. That, combined with two
years of cost cutting, seemed to leave it in half-decent shape to
weather at least a short, sharp recession. However, market prices for
GM's credit-default swaps imply a greater risk of bankruptcy for GM than
for Ford -- and the smaller car maker also now sports a stock-market
value almost 50 percent higher than GM's.
href='http://online.wsj.com/article_print/SB121255126690644241.html'>Read
more. (Registration required.)
U.S. Vehicle Sales Declined in May
U.S. vehicles sales declined 10.7 percent in May, the result of a plunge
in truck sales that is shifting the competitive landscape in the world's
largest automobile market, the Wall Street Journal reported
today. General Motors Corp.'s sales fell 27 percent, to 268,892
vehicles, according to Autodata Corp. That pulled GM's market share down
to 19.2 percent, the lowest level in at least 50 years. May sales of
cars and light trucks fell to 1,396,965, Autodata reported. The
seasonally adjusted annualized sales pace for May, typically a strong
month, was about 14.3 million vehicles, the lowest level since 1994,
Autodata said.
href='http://online.wsj.com/article/SB121250107132341361.html?mod=us_business_whats_news'>Read
more.
Airlines
Bankruptcy Court Approves Frontier Airlines' Executive
Severance Plan
Several motions at the Frontier Airlines bankruptcy hearing were
approved yesterday with no objections, including the severance plan for
Frontier's top executives and the retention of a financial adviser, the
Denver Business Journal reported today. Frontier's executives
are now entitled to as much as $144,180 depending on their job title
should the airline fold or they otherwise lose their jobs. Frontier will
now move to evaluate its aircraft fleet leases, and will work vigorously
href='http://www.bizjournals.com/denver/stories/2008/06/02/daily16.html?t=printable'>Read
more.
UAL to Cut an Additional 70 Jets from Its
Fleet
United Airlines parent UAL Corp. is expected to cut its 460-aircraft
mainline fleet by another 70 jetliners by the end of next year to help
the airline cope with surging fuel expenses, the Wall Street
Journal reported today. The jetliner cutbacks will also lead to a
large yet indeterminate number of layoffs of its unionized work force
and a major reduction in routes or daily flight frequencies. UAL plans
to announce today the removal of 64 more Boeing Co. 737s from its fleet
by the end of next year, on top of the 30 the airline already said would
be retired. The company will also announce additional reductions of
salaried and management workers, in addition to the 500 or so jobs it
recently said it would cut.
href='http://online.wsj.com/article/SB121254616236143839.html?mod=us_business_whats_news'>Read
more. (Registration required.)
Bennigan's Owner Looks to Avert Bankruptcy Filing
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The owner of national casual-dining chains Bennigan's, Ponderosa and
Steak and Ale is in talks with its major lender GE Capital Solutions in
an effort to stave off a possible bankruptcy filing, the Wall Street
Journal reported today. Privately held Metromedia Restaurant Group,
a unit of billionaire John Kluge's Metromedia Co. empire, earlier this
year violated several terms of its lending agreement with GE, prompting
the lender to declare a loan default and accelerate payments. Earlier
this year, the parent companies of the Bakers Square, Village Inn and
Old Country Buffet filed for chapter 11 protection, citing fall sales
and rising food costs. A host of other chains -- from Outback Steakhouse
to Ruby Tuesday's -- are also struggling.
href='http://online.wsj.com/article_print/SB121254220633643563.html'>Read
more. (Registration required.)
Fed Chairman Signals an End to Interest Rate Cuts Amid
Concerns About Inflation
Federal Reserve chairman Ben S. Bernanke signaled yesterday that further
interest rate cuts were unlikely because of concerns about inflation,
the Associated Press reported. Bernanke said that the Fed's rate
reductions, which started in September, along with the government's $168
billion stimulus package, including rebates for people and tax breaks
for businesses, should bring about “somewhat better economic
conditions” in the second half of this year. Bernanke suggested
that leaving rates at their current levels should be sufficient to
accomplish the Fed's twin goals of nurturing economic growth while
preventing inflation from taking off.
href='http://www.nytimes.com/2008/06/04/business/04fed.html?ref=business&pagewanted=print'>Read
more.
Union Takes Anti-Buyout Campaign Worldwide
The Service Employees International Union (SEIU), one of the country's
biggest unions, is making plans on July 17 to protest buyout
firms, which the union says have exploited tax loopholes to amass great
wealth at others' expense, the New York Times reported today.
The private equity industry counters that the union is using rhetoric to
bolster its membership rolls. The SEIU's latest effort is an escalation
of a fight that began last April, when it began a broad campaign against
private equity firms with a study questioning the value that the
leveraged buyout industry adds to the national economy. SEIU officials
acknowledge, however, that changing the tax code could upend the modern
corporate regime and say they have not endorsed any specific
proposals.
href='http://www.nytimes.com/2008/06/04/business/worldbusiness/04union.html?ref=business&pagewanted=print'>Read
more.