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October
9, 2007
name='1'>Senate Declines Action on Private Equity Tax Proposal This
Year
Senate Majority Leader
Harry M. Reid (D-Nev.) told private-equity firms in recent weeks that a
tax-hike proposal they have spent millions of dollars to defeat will not
get through the Senate this year, the
size='3'>Washington Post reported today.
Reid's assurance all but ends the year's highest-profile battle over a
major tax increase. Democratic lawmakers, including some presidential
candidates, had been pushing to more than double the tax rate on the
massive earnings of private-equity managers. The move to tax
private-equity earnings began last spring after some of those companies,
also known as buyout firms, started to sell themselves to the public.
Their initial public offerings forced the firms to disclose how much
their managers earn, and the amounts reached into the hundreds of
millions of dollars. Several prominent lawmakers expressed surprise to
find that the managers' profits, known as carried interest, were taxed
as capital gains, for which the rate is usually 15 percent.
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/10/08/AR20071…'>Read
more.
name='2'>Commentary: Supreme Court to Examine Fraud Liability
in
size='3'>Stoneridge Case
As the Supreme Court
opens oral arguments today in
size='3'>Stoneridge Investment Partners v. Charter
Communications, the primary question to be
answered in the case is whether liability under the federal securities
laws -- Rule 10b-5 -- extends to silent partners in a fraudulent scheme,
according to a commentary today in the
size='3'>Legal Times. The case involves the
alleged overstatement of earnings by Charter, a major cable TV company
that filed for bankruptcy in 2003. Among other things, Charter allegedly
overpaid for converter boxes it bought from Motorola and Scientific
Atlanta (the secondary defendants), which in turn agreed to use the
overpayments to buy advertising from Charter, thus artificially raising
its reported revenues. The plaintiff class in
size='3'>Stoneridge filed suit against Charter
claiming this misstatement of revenues. It also sued the secondary
defendants as alleged participants in the scheme. Simply stated, Charter
could not have reported higher revenues from advertising if the box
providers had not participated in the scheme. In its 1992 decision
in
size='3'>Central Bank, the Supreme Court held
that Rule 10b-5 did not extend to claims of aiding and abetting, but it
did allow that liability might nonetheless extend to participants in the
primary fraud.
href='http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=1191834192514'>Read
more.
Mortgage
Lending
name='3'>Legislative Proposals Offer Differing Approaches to
Regulation of Mortgage Industry
As turbulence in the home
mortgage market continues with increased foreclosures and lender
downsizing, two influential Congressmen have released proposals that
would establish regulation of the mortgage industry, with slight
differences in their approaches,
size='3'>CongressDaily reported today. House
Financial Services Chairman Barney Frank’s (D-Mass.) proposal
would subject brokers to new HUD licensing to act in the best interest
of the borrower, unless they are registered under a state law that has
standards such as bonding, minimum qualifications and a mechanism for
consumer redress. His proposal would also ban brokers from receiving a
yield spread premium. Senate Banking Committee Chairman
size='3'>Chris
(D-Conn.)’s proposal would clarify that the broker would have a
fiduciary responsibility to the borrower and that they could not steer a
borrower to a more costly loan, and it would also ban yield spread
premiums. Frank and Dodd want to ban certain loan provisions. Dodd would
ban prepayment penalties, require escrow for taxes and insurance and
mandate an analysis of the borrower's ability to repay and documentation
of income. Frank would establish a federal duty of care for all mortgage
originators and have federal banking regulators establish a license and
registration for lenders. The key difference between the two proposals
is that Frank would place limited liability on those who securitize
mortgages and sell them off into the secondary market.
Securitizers, but not bondholders or investors, would
face such liability if they did not take sufficient steps to avoid
purchasing predatory loans. Dodd, however, did not include any liability
provisions for secondary market players.
name='4'>Commentary: The American Dream in
Reverse
Congress and the Bush
Administration should take further steps to avert the deepening crisis
in the housing market, where homeownership in the
w:st='on'>
size='3'>United States
size='3'>is set to decline for the first time in nearly 30 years,
according to a commentary in yesterday’s
face='Times New Roman' size='3'>New York Times
size='3'>. Federal regulators and Treasury officials are urging mortgage
lenders and mortgage servicers to do their utmost to modify loan terms
for at-risk borrowers, but that hasn’t
worked so far. To be effective, modifications must reduce a loan’s
interest rate or balance or extend its term, or some combination of the
three. Congress should also act on legislation to amend the Bankruptcy
Code provision that prohibits the courts from modifying repayment terms
of most mortgages on a primary home. The change would give defaulting
homeowners and their advocates much needed leverage in dealing with
lenders and servicers.
href='http://www.nytimes.com/2007/10/08/opinion/08mon1.html?ref=opinion&pagew…'>Read
more .
name='5'>Wilbur Ross Is Winning Bidder for American Home
Unit
Wilbur L. Ross Jr., who
became a billionaire by investing in failed steel and textile companies,
won the bidding for the loan-servicing unit of bankrupt American Home
Mortgage Investment Corp. with a $435 million offer, Bloomberg News
reported on Friday. Ross is betting on a rebound in the mortgage
industry after at least 16 lenders, including American Home, collapsed
when investors refused to buy loans they made to borrowers with poor
credit. American Home canceled an auction because no higher offers were
received before scheduled bidding Friday, creditor lawyer Mark
Indelicato said. That left Ross, the stalking-horse bidder, as the
winner. The case is In
re American Home Mortgage Holdings Inc., 07-
11047, U.S. Bankruptcy Court, District of Delaware (
w:st='on'>
size='3'>Wilmington
size='3'>).
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=awgXs1truDHc&refer=…'>Read
more.
name='6'>Ohio AG Tackles Mortgage Crisis
As foreclosures rise to
record rates in
face='Times New Roman' size='3'>Ohio
size='3'>, the state’s Attorney General, Marc Dann, is taking
action against lenders and brokers in order to keep more people in their
homes, the Wall Street
Journal reported yesterday. Dann has pursued
several mortgage cases in the state, delaying foreclosures involving New
Century Financial Corp., suing more than a dozen lenders and brokers for
allegedly inflating home appraisals and engaging in other practices that
misled troubled homeowners. 'Everyone who helped create this crisis will
be held accountable,' Dann said. He is one of several attorneys general
focusing on the mortgage industry. The attorney general of
size='3'>New York
Securities and Exchange Commission and the Committee of European
Securities Regulators also are looking into these issues.
href='http://online.wsj.com/article/SB119180486673551828.html?mod=us_business…'>Read
more. (Registration required.)
name='7'>Mortgage Slump Hits Home Decor Industry
U.S. consumer spending on
furniture and bedding this year is expected to be the industry’s
worst since 2001 as business was predicted to grow by just 1.5 percent
this year and 2.2 percent in 2008, the Associated Press reported on
Sunday. Last year, before troubles in the mortgage lending business
accelerated the worst housing downturn more than a decade, the nation's
largest furniture stores posted a 6.6 percent increase in sales, said
Jerry Epperson, a furniture industry analyst with Richmond, Va.-based
investment firm Mann, Armistead and Epperson. After three years of
growing losses and declining sales, Bombay Co. filed for chapter 11
protection last month. Virginia-based Stanley Furniture Co. has laid off
200 workers and reported a loss in its most recent quarter.
face='Times New Roman'>Second-quarter profits at
Furniture Brands International Inc., the maker of Broyhill,
size='3'>Thomasville
Lane brands, were off 66 percent. The St. Louis-based company said in
April that it was closing three
w:st='on'>North
Carolina
cutting 330 jobs as it continues to move production to lower-cost
factories offshore. It recently said that its third-quarter loss will be
larger than previously expected due to the soft business environment and
weak orders.
href='http://www.nytimes.com/aponline/business/AP-Mortgage-Mess-Furniture.htm…'>Read
more.
w:st='on'>
name='8'>U.S.
face='Times New Roman' size='3'> Consumer Credit Debt Increases 5.9
Percent in August
The Federal Reserve
reported Friday that outstanding
w:st='on'>
size='3'>U.S.
size='3'>consumer debt rose at an annual rate of 5.9 percent in August,
pushed higher mostly by a gain in credit card debt, according to a
MarketWatch.com report on Friday. The overall increase of $12.2 billion
was the highest since May, the Fed reported. Revolving debt such as
credit cards was the biggest driver behind the overall rise in August,
the data show. That debt climbed by 8.1 percent in August, or by $6.1
billion. Auto, student, personal and other forms of non-revolving debt
climbed at an annual rate of 4.7 percent, or $6 billion, in August. The
Fed's data don't include mortgages or other loans backed by real
estate.
href='http://www.marketwatch.com/news/story/story.aspx?guid=%7B68E0E9B6%2D9CF…'>Read
more.
href='http://www.federalreserve.gov/releases/g19/Current/'>Click
here to view the Federal Reserve’s statistical release on
consumer debt.
name='9'>Banks, Funds Appeal Enron Bankruptcy
Decision
A group of Enron Corp.'s
creditors filed an appeal to overturn a decision that denied the banks'
motion to subordinate certain claims to pre-petition agreements
guaranteeing “senior indebtedness,”
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. The appeal addresses whether the U.S.
Bankruptcy Court for the Southern District of New York erred in not
applying the rule of the last antecedent, a rule of contract
interpretation, in ruling that the banks' claims could not be
subordinated to certain agreements that have been granted senior
indebtedness status. Enron Finance Partners LLC, a subsidiary of Enron
implicated in parts of its accounting fraud, held a number of claims
against the company in the form of promissory notes, which were later
transferred to the banks filing the current appeal. At issue is whether
or not these claims can be subordinated to the indenture agreements
between Enron and the appealing companies, since they were transferred
to the creditors not through a sale, but as part of an earlier
settlement with the Choctaw and Zephyrus lenders.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=36900'>Read
more. (Registration required.)
name='10'>TransLand's Bankruptcy Trial Scheduled for Oct.
19
The trial for the
TransLand Financial Services involuntary bankruptcy was moved to Oct.
19, the Orlando Business
Journal reported on Friday. Originally set for
Oct. 3, the trial was delayed after the judge granted a request by
creditors for a continuance. The case began
in August when Sanford, Fla.-based Federal Trust Bank, Minnesota-based
MidCountry Bank and Nebraska-based Tier One bank sought to force
TransLand into involuntary bankruptcy. The petitioning creditors say the
Maitland-based lender owes them $22 million in loan payments. In
addition, at least 24 individual lawsuits are on hold, awaiting the
outcome of the involuntary bankruptcy proceeding. In the lawsuits, the
plaintiffs allege that TransLand led them astray during their purchase
of property in southwest
w:st='on'>
size='3'>Florida
size='3'>.
name='11'>Aegis Wants Units' Chapter 11 Cases Dropped
Aegis Mortgage Corp.
asked the court overseeing its bankruptcy proceedings to dismiss two of
its subsidiary debtors from chapter 11 following the Sept. 28 closing of
the sale of Aegis' loan platform assets to Ranieri & Co.
Inc., Bankruptcy
Law360 reported on Friday.
face='Times New Roman' size='3'>Aegis Loan Servicing LP and AMC
Insurance Agency of Texas Inc. are holding companies, one for mortgages
and one for licenses, and should now be dismissed from bankruptcy
because Ranieri purchased the equity in the two companies. The only
known potential creditor of Aegis Loan Servicing is Residential Funding
Co. LLC, although there are certain potential de minimus tax
claims and regulatory fee claims, and the only known potential creditor
of AMC Insurance is Madeleine LLC, along with potential de
minimus tax claims, Aegis said, adding that both Madeleine and
Residential Funding had been notified of the pending motion.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=36784'>Read
more. (Registration required.)
name='12'>Dura Wins Support from Court, Creditors
Bankruptcy Judge
Kevin Carey
size='3'>signed off on the latest version of Dura Automotive Systems
Inc.’s disclosure statement and plan solicitation procedures on
Thursday, giving the auto parts maker until Oct. 11 to distribute copies
of its reorganization plan, statement and ballots to voting creditors
and allowing creditors until Nov. 5 to object to the plan,
Bankruptcy Law360
reported on Friday. Judge Carey also handed down a voting
deadline of Nov. 15, the same date by which he said that Dura must
respond to any potential objections, and scheduled a confirmation
hearing for the plan for Nov. 26. Meanwhile, on Tuesday, the company's
unsecured creditors' committee filed with the court a letter it planned
to send to members urging them to vote in favor of Dura's new
plan.
href='http://bankruptcy.law360.com/secure/ViewArticle.aspx?Id=36808'>Read
more. (Registration required.)
name='13'>Movie Gallery Expected to File for Chapter
11
Struggling video-rental
company Movie Gallery aims to file for bankruptcy protection under a
pre-negotiated deal with key creditors under which the company will
convert its bonds into stock, the
size='3'>Wall Street Journal reported on
Sunday. The
face='Times New Roman' size='3'>Dothan
size='3'>,
size='3'>Ala.
will file for bankruptcy this month and hopes to emerge from chapter 11
in early 2008. Under the pre-negotiated plan, Movie Gallery would
convert its bonds to stock, and a portion of its second-lien debt also
will be converted to stock. The company had $1.2 billion in debt as of
July, including $322 million in bonds, $175 million in second-lien debt
and $600 million in first-lien debt. Movie Gallery operates more than
4,600 video rental stores in the United States,
size='3'>Canada
size='3'>Mexico
In July, the company failed to meet financial covenants of its senior
loan from Goldman Sachs Credit Partners. The company attributed the
covenant breaches to softer-than-expected second-quarter results.
href='http://online.wsj.com/article/SB119161726030550495.html'>Read
more. (Registration required.)
name='14'>Lionel Files Amended Reorganization Plan
Model-train maker Lionel
LLC has filed a new version of its chapter 11 plan and disclosure
statement, which includes an estimate from the debtors' financial
adviser putting the value of reorganized Lionel somewhere between $88
million and $112 million,
size='3'>Bankruptcy Law360 reported yesterday.
The newly filed disclosure statement adds more details about Lionel's
ongoing legal battle with Mike's Train House and an estimation of
Lionel's post-confirmation going-concern enterprise value from the
debtors' financial advisor, Houlihan Lokey Howard & Zukin Capital
LP. The statement also noted that in August, the bankruptcy court
granted the debtors' motion to estimate Mike's Train House's money
judgment claim against Lionel, though no estimation procedures have yet
been set by the court.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=36862'>Read
more. (Registration required.)
name='15'>Refco Trustee Files 40 Adversary Complaints
The trustee for the Refco
litigation trust lodged 40 adversary suits against defendants on Friday
including Goldman Sachs & Co., FedEx Corp., Sprint Nextel Corp. and
New York Stock Exchange Inc., seeking to recover what the complaints
label preferential transfers from the debtors to the defendants,
Bankruptcy Law360
reported yesterday. In addition to seeking to avoid
transfers and recover property, the lawsuits object to the allowance of
any claims by the defendant pending the return of the transfers at
issue. The adversary cases were filed in
size='3'>In re Refco Inc. et al., case number
05-60006 in the U.S. Bankruptcy Court for the Southern District of New
York.
href='http://bankruptcy.law360.com/secure/ViewArticle.aspx?Id=36864'>Read
more. (Registration required.)
name='16'>Beef Recall Scandal Shutters Topps Meat Co.
The economic impact of
the second-largest beef recall in
w:st='on'>
size='3'>U.S.
size='3'>history involving more than 21.7 million pounds of ground beef
products has forced Topps Meat Co. LLC to go out of
business,
size='3'>Bankruptcy Law360 reported on Friday.
“In one week we have gone from the largest
w:st='on'>
size='3'>U.S.
size='3'>manufacturer of frozen hamburgers to a company that cannot
overcome the economic reality of a recall this large,' said Anthony
D’Urso, Topps' COO.”We regret that our products have been
linked by public health agencies to recently reported
illnesses.' The company, founded in 1940, said that a small number
of its87 employees will remain at its Elizabeth, N.J., plant for an
“indefinite” time to assist the U.S. Department of
Agriculture in its ongoing investigation and to handle administrative
matters, including ensuring the effectiveness of the recall.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=36739'>Read
more. (Registration required.)
Autos
size='3'>
id='17' name='17'>Union
Workers to Prepare for Strike
w:st='on'>
size='3'>Detroit
the possibility of two strikes within just three weeks if talks between
the United Automobile Workers and Chrysler fail to produce a deal by 11
a.m. ET tomorrow, the New York Times reported today. Chrysler
confirmed yesterday that the union had set the strike deadline after a
weekend of intense talks that resulted in progress in some areas, but
left many issues unresolved. When the union’s previous contract
with Chrysler expired Sept. 14, it agreed to an indefinite extension
while it focused on GM. Chrysler, which was sold in August to Cerberus
Capital Management, has not been the subject of a significant strike
since 1985, when 80,000 American and Canadian workers staged walkouts
that lasted a total of 12 days. A short strike against Chrysler this
week would have only a mild effect on the company’s production.
Five of Chrysler’s nine U.S. assembly plants, located in
Detroit and Warren, Mich.; Toledo, Ohio; Newark, Del.; and Belvedere,
Ill., are shut this week to balance inventories with slow sales.
href='http://www.nytimes.com/2007/10/09/business/09auto.html?_r=1&oref=slogin…'>Read
more.
name='18'>Commentary: Health Care Deal at GM Shows Shift in Risk to
Workers
The health insurance deal
struck by leaders of General Motors and the United Automobile Workers
union adds GM to the growing list of companies that are reducing
employer-sponsored health coverage and transferring more risks and costs
to their workers, according to an editorial in the Sunday
New York Times
size='3'>. The core of the deal is that GM will transfer responsibility
for more than $50 billion in projected health insurance costs for
retirees and their dependents to a new trust managed by the union. GM
will seed the trust with some $30 billion, which is expected to grow
over time to meet these obligations. Health care trusts might appeal to
other companies stressed by low-cost competitors, especially companies
with many retirees and a smaller base of active workers, but they entail
considerable risk for union members.
href='http://www.nytimes.com/2007/10/07/opinion/07sun2.html?pagewanted=print'>Read
more.
name='19'>American Airlines Seeks to Halt Worker Pay
Raises
American Airlines, profitable
again after racking up $8 billion in losses since 2001, faces a
three-front battle to limit labor costs that are among the highest in
the industry, the Associated Press reported on Sunday. The three unions
representing American's employees want to make up for double-digit wage
and benefit cuts from 2003, when the company was on the brink of
bankruptcy. They argue that their sacrifices saved the nation's largest
airline and they deserve to be rewarded now with big pay raises. This
week, American and the ground workers union broke off talks until
November on a limited contract extension and pay increase.
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/10/07/AR20071…'>Read
more.
href='http://www.washingtonpost.com/wp-dyn/content/article/2007/10/07/AR20071…'>
name='20'>Hedge Fund Woes Draw in Bargain Hunters
This summer's troubles
for the hedge fund industry have whetted the appetite of opportunistic
buyers and insolvency experts, who are hunting through the wreckage in
search of bargains, the
size='3'>Wall Street Journal reported
yesterday. Fifteen hedge funds with more than $100 million under
management have suffered severe problems this year -- such as a sudden,
large loss, a regulator freezing assets or the departure of a key
manager -- that have forced them to suspend redemptions or shut down
entirely. Investment consultants and prime brokers say that the number
is more than the total number of hedge funds that have suffered similar
fates over the past five years.
href='http://online.wsj.com/article/SB119181070406751899.html'>Read
more. (Registration required.)
International
name='21'>Private Equity Firms Express Interest in Northern
Rock
Apollo Management LP and
Blackstone Group LP individually expressed an interest in ailing British
mortgage lender Northern Rock PLC late last week, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported yesterday. Northern Rock has also lined up
potential funding from Citigroup Inc. to help interested parties finance
a potential purchase. The funding might amount to as much as £10
billion, or about U.S. $20 billion, to acquire the bank's assets.
However, Northern Rock's precarious financial state has required it to
turn to the Bank of England for emergency funding, and the potential
buyers are seeking a transfer of control at a distressed level, putting
little or no value on the company's shares.
href='http://online.wsj.com/article/SB119179284387651514.html?mod=us_business…'>Read
more. (Registration required.)
href='http://online.wsj.com/article/SB119179284387651514.html?mod=us_business…'>