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February 25,
2009
size='3'>CBO: Bankruptcy Filings Would Rise Under Mortgage
Modification Bill
The Congressional Budget Office
said that more than one million distressed homeowners could benefit from
filing for bankruptcy under proposed legislation allowing bankruptcy
judges to modify mortgages on primary residences, the Washington
Post reported today. The CBO estimated that of the million,
about 350,000 homeowners would take advantage of the proposed change by
filing for bankruptcy during the next 10 years. Yet the report added
that 'the number of additional bankruptcy filings that would occur under
the bill is, however, very uncertain.' After growing 14 percent in 2008,
chapter filings will increase 13 percent this year, the CBO said. It
also said that 96 percent of those who file for chapter 13 are
homeowners. The House is expected to take up a housing package tomorrow
that would include a provision allowing bankruptcy judges to modify such
mortgages, including lowering the principal owed on loans.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/02/24/AR2009022403436_pf.html'>Read
more.
name='2'>President Obama Outlines Road to Economic
Recovery
President Obama offered a grim
portrait of America's plight in an address to a joint session of
Congress last night, but he promised to lead an economic renewal that
would lift the country out of its current crisis without bankrupting its
future, the Washington Post reported today. the president
said that his stimulus plan, bank bailout proposal, housing programs and
health care overhaul would work in concert to turn around the nation's
struggling economy. Under pressure to explain the necessity of a bank
bailout program that many see as a reward for Wall Street, Obama made a
detailed case for continuing to pour government money into the financial
sector. 'If we do not restart lending in this country, our recovery will
be choked off before it even begins,' he said.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/02/24/AR2009022401832_pf.html'>Read
more.
Autos
name='3'>Potential GM Bankruptcy Could Yield $1.2 Billion in
Advisers' Fees
A General Motors Corp.
bankruptcy could potentially yield $1.2 billion in fees for bankers,
accountants and lawyers, surpassing record fees being made by advisers
on the collapse of Lehman Brothers Holdings Inc., Bloomberg News
reported today. GM, trying to lower debt and wages out of court, said
Dec. 2 that it must slash $62 billion in liabilities by almost half,
excluding government loans. Otherwise it may wind up like Lehman, which
will pay an estimated $906 million in judge-approved charges for
professional services, said Prof. Lynn LoPucki of UCLA. Law
firms including Dewey & LeBoeuf LLP and Weil, Gotshal & Manges
LLP, already advising the automaker, would be among those reaping
millions in fees in a GM bankruptcy. Investment bankers and
restructuring experts at Morgan Stanley, Blackstone Group LP and
Evercore Partners Inc. also have been counseling GM, and the UAW
autoworkers union consults Lazard Ltd.
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=a3lW8E3hvu7Q&refer=home'>Read
more.
name='4'>U.S. Automakers Meet with White House Task
Force
Members of President Barack
Obama's auto task force met with top procurement executives from General
Motors Corp., Ford Motor Co. and Chrysler LLC this week to discuss
growing concerns about U.S. car-parts makers, the Wall Street
Journal reported today. GM's Bo Andersson, Ford's Tony Brown
and Chrysler's Scott Garberding met separately with members of the task
force, including a key adviser, Ron Bloom, on Monday. Auto suppliers
have been raising the alarm over their finances in recent months, and
the industry's trade group, the Motor & Equipment Manufacturers
Association, submitted its own proposed rescue plan to the Treasury
Department on Feb. 13. Treasury officials say they are paying close
attention to the problem, but the administration doesn't appear poised
to act immediately. Still, concern over the shakiness of the auto-parts
base is consuming enough of the administration's attention that it could
delay resolution of GM's and Chrysler's bailout requests. That could
push the bailout talks past the March 31 deadline outlined in the terms
of the $17.4 billion in loans the two companies were granted in
December.
href='http://online.wsj.com/article/SB123552307156465101.html?mod=testMod'>Read
more. (Subscription required.)
name='5'>Delphi Wins Approval to End Retiree
Benefits
Delphi Corp., the largest parts
supplier to General Motors Corp., won court approval to terminate health
benefits for thousands of retired salaried employees after arguing the
move is critical to keeping its chapter 11 reorganization afloat, the
Wall Street Journal reported today. Ending the benefits to
about 15,000 people allows the auto supplier, which has been operating
under chapter 11 protection since late 2005, to wipe out more than $1
billion in liabilities and $70 million in annual cash costs. Bankruptcy
Judge Robert Drain decided in Delphi's favor at a hearing
yesterday over the objections of about 1,600 retirees, who said in court
filings that the auto-parts company can't unilaterally terminate their
benefits. The retirees said that GM, Delphi's former owner, promised
lifetime medical coverage to many employees.
href='http://online.wsj.com/article/SB123550401655162009.html?mod=article-outset-box'>Read
more. (Subscription required.)
name='6'>Ford Executives Cut Own Pay 30 Percent for 2
Years
Executives at the Ford Motor
Company have decided to cut their pay by 30 percent for the next two
years, and to suspend bonuses for salaried workers this year, the New
York Times reported today. In addition, Ford will offer another
round of buyouts and early retirements to all of its hourly workers. The
decision was announced a day after Ford reached a deal with the United
Automobile Workers that lets the company pay less cash into a retiree
health care fund. UAW leaders from Ford plants around the country voted
yesterday in favor of the concessions and hope that workers will ratify
the changes by March 9.
href='http://www.nytimes.com/2009/02/25/business/25auto.html?ref=business&pagewanted=print'>Read
more.
Newspapers
name='7'>Philly News Execs Skip Raises in Bankruptcy
Case
CEO Brian Tierney of the
recently bankrupt Philadelphia Newspapers LLC pledged yesterday to roll
back a recent $232,000 raise while his company tries to reorganize, the
Associated Press reported yesterday. The company, which publishes the
Philadelphia Inquirer and Philadelphia Daily News,
filed for chapter 11 protection on Sunday, two and a half years after a
group of local investors bought the company for more than $500 million.
Tierney and other executives have insisted that the company, while
strangled by debt payments, remains profitable despite falling
circulation and revenues. Some lenders balked at that analysis at
yesterday's initial hearing on the bankruptcy petition and questioned
decisions being made by the company's current management. Tierney's 38
percent raise was disclosed in the bankruptcy filing; amid criticism,
Tierney and other executives said through their lawyers in court that
they will forgo the pay hikes during the proceedings.
href='http://www.google.com/hostednews/ap/article/ALeqM5i-ngA_SO-9eGzrcFJmJEV0fUA8mwD96IB72O0'>Read
more.
name='8'>Publisher Signals San Francisco Chronicle Is in
Financial Distress
Signaling the newspaper
industry's deterioration from malaise to crisis, Hearst Corp. said it
may close the San Francisco Chronicle unless it can quickly
slash costs at the money-losing daily, the Wall Street Journal
reported today. Hearst said that it will seek 'critical cost-saving
measures,' including a steep reduction in the Chronicle's
workforce, which numbers about 1,500. If it can't reach its cost-saving
target 'within weeks,' Hearst said it will seek a new owner for the
Chronicle. Unlike many big newspaper chains, Hearst has a healthy
balance sheet, but the privately owned company says that the
Chronicle has posted significant losses since 2001, including a
loss of more than $50 million last year.
href='http://online.wsj.com/article/SB123551803197064061.html'>Read
more.
(Subscription required.)
Financial Services
name='9'>Bank's Spending on Sponsorship Events Prompts Legislative
Action
Chicago's Northern Trust Bank,
which received $1.6 billion in federal bailout money, spent millions
last week hosting a series of lavish parties and concerts, prompting a
senior Democratic lawmaker to introduce a bill to end the 'extravagant
spending practices of U.S. banks' that receive taxpayer bailouts,
MSNBC.com reported yesterday. 'I'm sick and tired of picking up the
newspaper and reading about another idiotic abuse of taxpayer money,
while our country is on the brink,' said Sen. John Kerry (D-Mass.), who
plans to introduce legislation this week targeting banks that got
taxpayer assistance under the government's $700 billion Troubled Asset
Relief Program (TARP). House Financial Services Committee Chairman
Barney Frank, along with 17 Democrats on the committee, sent a letter
Tuesday to Northern Trust's CEO asking that the bank repay what it spent
on the entertainment during the golf tournament.
href='http://www.msnbc.msn.com/id/29368534/'>Read more.
name='10'>AIG's Survival Options Shrink
The American International
Group faced two tough options yesterday of either selling prized assets
to competitors or handing over a big part of its business to the federal
government, the New York Times reported today. Grappling with
huge losses, AIG appears to have few choices as the government focuses
on trying to keep the giant insurer from toppling and perhaps injuring
other institutions. The insurer has received a preliminary offer of $11
billion from MetLife for its American Life Insurance Company subsidiary,
called Alico. However, MetLife's offer might slip to about $8 billion,
as more has been revealed about how the global downturn is affecting
Alico, which has operations in more than 55 countries. AIG's need for
capital appears to be growing so quickly that $8 billion, or even $11
billion, would not come close to filling the hole. AIG is expected to
report fourth-quarter losses of perhaps $60 billion early next week, and
losses on that scale could initiate a domino effect like the one that
flattened the company last September.
href='http://www.nytimes.com/2009/02/25/business/25insure.html?ref=business'>Read
more.
name='11'>Citigroup Chafes Under U.S. Overseers
Citigroup is in talks with
federal officials about the U.S. government taking greater ownership of
the bank by converting its 7.8 percent stake of preferred shares to as
much as 40 percent of Citigroup's common stock. Doing so would give the
wobbling bank a desperately needed boost to its capital, but less
control of its destiny, the Wall Street Journal reported today.
Citigroup's request could also heighten political pressure to break up
the financial titan, whose 1998 creation helped to dismantle the
Depression-era law separating the banking and brokerage industries. For
taxpayers, Citigroup's quest carries peril, because holders of common
shares have the last claim to repayment in the event of a corporate
liquidation. Citigroup executives are attempting to strike a seemingly
impossible balance: run the business in a way that will please their new
federal masters, but also help the bank rebound from $28 billion in
losses over the past five quarters.
href='http://online.wsj.com/article/SB123553469005467485.html?mod=testMod'>Read
more. (Subscription required.)
name='12'>Analysis: Government's Stress Test for Banks Exposes Rift
on Wall Street
The question of what
constitutes a bank's capital, and how to measure it, used to be largely
academic, but the issue is coming to the fore as federal regulators
start administering a tough new 'stress test' to 20 large banks on today
to determine how the banks would withstand a severe economic downturn,
the New York Times reported today. Investors in the stock market
and the banks are increasingly at odds over how to assess the health of
financial institutions. Where regulators side could determine the fate
of many lenders, particularly big banks like Citigroup and Bank of
America, whose share prices have plummeted this year on fears the
government will increase its ownership of them. Until the financial
system deteriorated last fall, investors focused on what is known as
Tier 1 capital, which consists of common stock, preferred stock and
hybrid debt-equity instruments. Now, however, they are focusing on what
is called tangible equity capital, which includes only common stock,
saying it is a better way to measure the risk in bank shares. Read
more.
href='http://www.nytimes.com/2009/02/25/business/economy/25bank.html?_r=1&ref=business&pagewanted=print'>Read
more.
name='13'>Foamex Receives Court Approval to Tap Up to $20
Million
Foamex International Inc.
announced yesterday that a bankruptcy court judge has granted permission
for it to use as much as $20 million of its $95 million
debtor-in-possession financing as it goes through a chapter 11
reorganization, the Philadelphia Enquirer reported yesterday. The
company, which makes foam cushioning for cars and furniture, filed for
chapter 11 protection on Feb. 18. It said that court has given
permission, in advance of a March 16 hearing for Foamex to spend the
money to continue paying its workers and keep running its business.
href='http://www.philly.com/inquirer/breaking/business_breaking/20090224_Foamex_gets_court_approval_on_up_to__20M.html'>Read
more.
name='14'>Financiers Receive Approval to Foreclose on SouthStar
Homes
Bankruptcy Judge Paul W.
Bonapfel, who is overseeing the liquidation of subprime mortgage
lender SouthStar Funding LLC, lifted a stay on foreclosures on Monday to
allow several financial institutions to take over more than two dozen
delinquent borrowers' homes, Bankruptcy Law360 reported
yesterday. The judge granted relief motions from EMC Mortgage Corp.,
Deutsche Bank National Trust Co., HSBC Bank USA NA, U.S. Bank NA and
Wells Fargo Bank NA. The five financiers were secured creditors of
SouthStar and owned second notes and deeds to secure debt on the
properties at issue. They filed their motions for a lift of the stay
last month. In each of the separate rulings, Judge Bonapfel noted that
there was no opposition to the lifting of the stay. The case is In re
SouthStar Funding Inc., case number 07-65842, in the U.S. Bankruptcy
Court for the Northern District of Georgia.
href='http://bankruptcy.law360.com/articles/88659'>Read more.
(Subscription required.)
name='15'>Builder Levitt & Sons Approved for
Liquidation
Bankruptcy Judge Raymond B.
Ray on Friday confirmed the liquidation plan of bankrupt Levitt and
Sons LLC, a little more than a week after the building and development
company reached a deal with Bank of America NA over a $102 million claim
against the estate, Bankruptcy Law360 reported yesterday. Under
the terms of the deal, the bank has agreed to waive its deficiency claim
against the estate, withdraw its objection to the plan and pay the
debtors $775,000. The settlement relates to partially completed homes
and other construction projects abandoned by the debtor, which will
eventually be foreclosed on by the bank and sold. As a condition of the
settlement, Bank of America agreed not to pursue the difference between
the roughly $100 million Levitt owes and the amount the bank receives
from the sales of the properties.
href='http://bankruptcy.law360.com/articles/88626'>Read more.
(Subscription required.)
name='16'>Noteholders of Bankrupt Jet Maker Look to Convert Case to
Chapter 7
Struggling jet maker Eclipse
Aviation sustained another setback yesterday as senior noteholders filed
a motion in federal court to convert the company's chapter 11
reorganization to a chapter 7 liquidation, the Associated Press reported
yesterday. The noteholders' decision suggests that Eclipse, which filed
for chapter 11 protection in November, hasn't been able to complete its
planned $188 million sale to European-based EclipseJet Aviation
International Inc., an affiliate of ETIRC Aviation. Last week, Eclipse
sent 800 employees home on unpaid furloughs but expressed confidence
that the workers could return when the sale is completed.
href='http://www.forbes.com/feeds/ap/2009/02/24/ap6091475.html'>Read
more.
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