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March 14, 2008
Mortgage Lending
Countrywide Seeks to Block U.S. Trustee Inquiry
Countrywide Financial Corp. has sought to block a Justice Department probe into its treatment of bankrupt homeowners, saying that the agency is exceeding its authority in a way that has 'really staggering' implications for other big lenders, the Wall Street Journal reported today. Last month, the U.S. Trustees Office sued Countrywide in Ohio, Florida and Georgia, alleging that the big mortgage lender mishandled loan payments, made improper threats of foreclosure and slapped unnecessary charges on bankrupt homeowners. Last year, it called into question Countrywide's practices in more than 200 bankruptcy cases in Pittsburgh. The trustee's office says looking out for abuses by creditors is part of its job. Separately, Countrywide said its foreclosure rate continued to climb as its loan-delinquency rate rose sharply in February from a year earlier, though it fell slightly from January. The Calabasas, Calif., mortgage lender's delinquencies increased to 7.44 percent of unpaid principal balances from 4.48 percent a year earlier. Foreclosures as a share of unpaid principal balance climbed to 1.64 percent in February from 0.8 percent a year earlier. Read more. (Registration required.)
name='2'>Mortgage Lenders' Plan Leaves Subordinate Claimholders without Reimbursement
Mortgage Lenders Network USA Inc. has unveiled a chapter 11 liquidation plan that would provide $600 million to pay anywhere from 1 to 15 percent of unsecured claim amounts but would leave holders of subordinated claims and equity interests without reimbursement, Bankruptcy Law360 reported yesterday. The plan anticipates paying allowed administrative claims, professional fees and priority tax claims in full. It also expects a full recovery for any holders of secured claims via the proceeds of whatever collateral is securing a given claim. However, the disclosure statement appears to estimate that there will be no secured claims in the case. Holders of unsecured claims, meanwhile, would receive a pro rata share of the net plan proceeds, which the disclosure statement estimates would come to between 1 and 15 percent of the asserted sums. Finally, the plan dictates no recovery for holders of subordinated claims or for those possessing equity interests, given that the plan assets are not estimated to be sufficient to provide for full recovery to all those claimants in higher classes. Court documents did not reveal any scheduled deadlines or hearing dates related to the plan and statement. Read more. (Registration required.)
name='3'>Commentary: Bush Administration's Mortgage Proposal Needs More Work
A New York Times editorial today said that the Bush administration's proposal for revamping the nation's ailing mortgage market contains some sensible ideas, but it is too modest and relies heavily on voluntary cooperation. Much like legislaiton already proposed in Congress, the administration's proposals call for nationwide licensing of mortgage brokers. However, the administration's proposal fails to impose accountability on Wall Street firms in the mortgage chain. A bill passed in the House of Representatives gives wronged borrowers some leeway to sue firms that abetted bad lending. Read more.
name='4'>U.S. Economy Hammered by Blend of Ailments
A toxic blend of economic and financial developments is testing policy makers and lawmakers who are struggling to contain the slump brought on by the collapse of the mortgage market, a downturn that now looks sure to push the economy into a recession, the New York Times reported today. Reports from across numerous economic sectors yesterday showed that mortgage rates are rising, the dollar is falling and prices of key commodities like oil are increasing to record levels. Many specialists say policymakers can do only so much to protect the economy and warn that the government should be careful not to exacerbate inflation and create a new bubble like the one in housing that has burst. A Standard & Poor's report predicted that subprime mortgage write-downs at banks were nearly done, though losses in other areas might continue. Read more.
name='5'>Sharper Image Gets Approval for Chapter 11 Auction
Bankruptcy Judge Kevin Gross approved Sharper Image Corp.'s request to hold an auction for liquidation firms seeking to conduct going-out-of business sales at half of the specialty retailer's stores, the Associated Press reported yesterday. Initial offers, and a 5 percent earnest money down payment, were due March 7 under the accelerated timetable called for in the company's bidding rules. The auction rules don't set a floor price for the liquidation rights, which will enable the winning bidder to conduct store-closing sales at 96 of Sharper Image's 184 stores, as well as one of its distribution centers. A number of Sharper Image's landlords objected to the sales, saying that they would violate lease agreements the retailer has with them. Read more.
Autos
Dana Looks to Build on Savings Achieved after Emerging from Chapter 11
Dana emerged from chapter 11 protection at the end of January without the credit issues that have delayed the bankruptcy exits of suppliers Delphi Corp. and Dura Automotive Systems, the Detroit Free Press reported today. It did so through an unusual relationship with private equity and its unions that has enabled the company to cut its labor costs. Dana's unions won an investment from Centerbridge Partners LP and managed to keep open at least two plants slated for closure. Additionally, the unions adopted a two-tier wage systemwith new hires earning an hourly wage of about $15, compared with $18 to $24 for veteran workers, according to Lehman Brothers. To entice older workers to leave, Dana has offered retirement incentives of $45,000. The company cut its debt by about $1 billion, sold three of its businesses, launched a plan to close eight plants and won a $750-million investment. Read more.
name='7'>Chrysler Sets a Two-Week Furlough for Most Workers
Chrysler plans to halt virtually all operations for two weeks in July as part of its effort to cut costs and return to profitability, the New York Times reported today. Summer shutdowns are longstanding traditions in the auto industry so plants can be retooled for the new model year, but they primarily involve only hourly workers. Chrysler told its salaried employees Thursday that, except for those who keep working in 'business-critical activities,' they must use vacation time during the shutdown. This will be the first shutdown since Chrysler became a private company, under the equity firm Cerberus Capital Management. Read more.
name='8'>Former National Century Execs Convicted
Five former executives of bankrupt health care company National Century Financial Enterprises were convicted yesterday in a $1.9 billion fraud scheme, the Associated Press reported yesterday. The fivesome of the company's highest ranking executiveswere convicted of multiple counts of conspiracy, wire and securities fraud, and money laundering. Convicted of all charges were Donald Ayers, the company's former chief operating officer; James Dierker, the company's former vice president of client development; Roger Faulkenberry, a former executive vice president who raised money from investors; Rebecca Parrett, the company's former vice chairman; and Randy Speer, National Century's former chief financial officer. Sentencing is expected in two to three months. Read more.
name='9'>Freeze in Auction-Rate Field Finds Its Way to Silicon Valley
Wall Street's crunch is now spilling into the world of Silicon Valley start-ups. Many of these closely held companies, already smarting from dwindling opportunities to go public and a souring economy, are stuck holding illiquid debt instruments called auction-rate securities, the Wall Street Journal reported today. The instruments were marketed as extremely safe investments, but amid wider credit-market worries, the $330 billion market for the securities has seized up, making it hard for holders to convert them to cash. Ken Lawler, a partner at Battery Ventures in Menlo Park, says that 12 of the 65 start-ups in Battery's portfolio hold auction-rate securities, though only a few face near-term liquidity problems. On Feb. 29, eight venture-capital firms participated in a crisis conference call titled 'Failed Auction Forum,' sponsored by financial-analytics firm Clearwater Analytics LLC to discuss solutions to the auction-rate meltdown. Several start-ups that recently filed for initial public stock offerings reported holding auction-rate securities at the time of their filings. They include medical-device company Cardiovascular Systems Inc. of St. Paul, Minn., and molecular-diagnostics firm XDx Inc. of Brisbane, Calif. Read more. (Registration required.)
International
name='10'>Japanese Corporate Bankruptcy Cases Increase 14.3 Percent
Credit research agency Teikoku Databank Ltd. said that Japanese corporate bankruptcy cases rose 14.3 percent in February over last year, Dow Jones Newswires reported yesterday. The total number of corporate bankruptcies as of end of February stood at 10, 206, already much higher than the 9,572 for all of 2006. Debts left behind by insolvent firms climbed 76.8 percent on year to Y496 billion, surging for the first time in three months. Read more.
name='11'>Trial Opens in Parmalat Collapse
The trial on the most serious criminal charges in the multibillion-dollar failure of the Parmalat dairy empire opened today, more than four years after the company acknowledged a crushing debt that would lead to Europe's biggest corporate bankruptcy, the Associated Press reported. Parmalat founder Calisto Tanzi and former CFO Fausto Tonna are among 24 former executives who face charges including fraudulent bankruptcy and criminal association. The charges carry a maximum 15 years in prison, the most severe penalties in any of the series of trials in Milan and Parma. The Parmalat failure is also the subject of civil cases in the United States. Read more.