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February 24,
2010
Survey: Hedge Funds to
Invest More in Troubled Companies
Hedge funds will increase their investments in
distressed debt and equity this year and expect to make more money doing
it, according to the results of the Reuters HedgeWorld & Dykema 2010
Insolvency Outlook Survey released yesterday. The most attractive areas
for distressed investing in the next 12 months will be banking, energy
and healthcare, according to the survey by the daily news service
HedgeWorld and the law firm Dykema. Of the 120 hedge fund managers who
answered the questionnaire by email in December and January, 65 percent
said at least some of their portfolios were invested in financially
troubled companies, up from 53 percent in a year-earlier poll. More than
one in every three managers said they had put at least 20 percent of
their portfolios into distressed debt, up from one in 10 a year earlier.
While a majority of those questioned said they plan to hold onto their
debt investments, 39 percent said they are likely to sell debt in 2010,
up from 23 percent a year earlier.
href='http://www.reuters.com/article/idUSN1820121920100223'>Read
more.
Novak Prevails in Auction
for AmTrust's Property and Casualty Assets
Novak Insurance Agency Inc. on Monday won an auction
of bankrupt bank holding company AmTrust Financial Corp.'s property and
casualty business assets with a bid of $600,000 in cash, the Deal
Pipeline reported yesterday. Novak, a Solon, Ohio-based insurance
provider, entered the Monday auction as the lead bidder by virtue of its
$450,000 stalking-horse bid. AmTrust received one competing offer at the
auction but ultimately named Novak's improved bid as the winner, court
filings show. AmTrust said in court filings that it received seven
offers for its property and casualty business before naming Novak as the
stalking horse. Novak and the bank signed an asset purchase agreement on
Jan. 29. The parties revised the agreement on Monday.
href='http://pipeline.thedeal.com/tdd/ViewArticle.dl?id=10005393280'>Read
more. (Subscription required.)
'Volcker Rule' Stalls in
Senate
Key senators are expected to scrap President Barack
Obama's proposal to prohibit commercial banks from certain risky trading
activities, a setback for the administration's bid to limit the size and
scope of the largest U.S. banks, the Wall Street Journal reported
today. The proposal, dubbed the 'Volcker rule' after former Federal
Reserve Chairman Paul Volcker, would have essentially prevented any
commercial bank with federally insured deposits from owning a division
that makes speculative bets with its own capital. However, after
resistance from lawmakers from both parties, Senate Banking Committee
Chairman Christopher Dodd (D-Conn.) and other legislators are expected
to introduce a plan next week that would give regulators more discretion
to limit and potentially ban risky trading at banks, especially if it
poses a risk to the broader economy. The measure would stop short of
banning such trading outright. Under the proposal, regulators would
examine banks on a case-by-case basis and would be able to direct them
to limit or halt certain activities they felt were a systemic
risk.
href='http://online.wsj.com/article/SB10001424052748703503804575083823511212204.html?mod=WSJ_hps_LEFTWhatsNews'>Read
more. (Subscription required.)
Lehman's Bankruptcy Still
Haunting Municipalities
Dozens of cities and counties around the country, from
Sarasota, Fla., to Boulder, Colo., lost a total of $1.7 billion when
Lehman filed for bankruptcy because they held Lehman bonds or other
securities, the Wall Street Journal reported today. The two worst
hit states are Florida and California. Florida public agencies lost a
total of more than $400 million, mostly from a state investment pool.
California municipalities lost a total of $250 million across some 28
cities and counties. A report by Beacon Economics, commissioned by the
San Mateo County, Calif., estimates that the Lehman losses reduced local
government spending, especially on construction projects, by $148
million over two years. The consulting firm says this resulted in 1,648
jobs lost or not created.
href='http://online.wsj.com/article/SB10001424052748704431404575067403119192716.html?KEYWORDS=bankruptcy'>Read
more. (Subscription required.)
Moody's Sees More Municipal
Defaults Amid Revenue Pressure
Moody's Investors Service said that U.S. state and
local governments probably will face ongoing revenue pressures in 2010
and into 2011, Dow Jones Daily Bankruptcy Review reported today.
In a major review of state and local government credit-sector profiles,
the Moody's Corp. unit reported that 'the unprecedented stress in these
sectors is likely to produce defaults at a higher rate than we have seen
in the past' and warned in maintaining a negative outlook that was first
assigned to the states in February of 2008. At the same time, the
ratings firm went to great lengths to explain its belief that municipal
bankruptcies will be 'rare.' In another report Monday, Fitch Ratings, a
unit of Fimalac S.A., said most local governments will face at least
another year of heightened financial pressures. Weakness in property
taxes due to continued assessed value declines and resistance to tax
rate increases remain key obstacles for local governments' revenue
stability in many parts of the nation, the report said.
Pace in 2009
U.S. banks posted last year their sharpest decline in
lending since 1942, suggesting that the industry's continued slide is
making it harder for the economy to recover, the Wall Street
Journal reported today. While top-tier banks are recovering at a
faster clip, the rest of the industry is still suffering, according to a
quarterly report from the Federal Deposit Insurance Corp. Banks fighting
for survival, especially those plagued by losses on commercial real
estate, are less willing to extend loans, siphoning credit from
businesses and consumers. FDIC Chairman Sheila Bair said banks are
'bumping along the bottom of the credit cycle' and that the number of
bank failures in 2010 will likely eclipse the 140 recorded last
year.
href='http://online.wsj.com/article/SB10001424052748704188104575083332005461558.html?mod=WSJ_hps_LEFTWhatsNews'>Read
more. (Subscription required.)
Chemtura Wins Right to
Control Bankruptcy until June
Chemtura Corp. can keep control over its bankruptcy
until June, as it grapples with more than 10,000 claims, many involving
lawsuits over environmental liability and a chemical used to flavor
popcorn, Bloomberg News reported yesterday. Bankruptcy Judge Robert
Gerber granted Chemtura until June 11 to file a reorganization plan
and until Aug. 10 to solicit creditor support for it. The
company’s prior
control of its chapter 11 bankruptcy ended Feb.11, and Judge Gerber
granted a temporary extension until he could hear the request today.
Separately, Chemtura, the world
lang='EN'>’s largest maker of plastic
additives, sold its PVC business for $16.2 million in cash, plus certain
liabilities, after heavy bidding. The case is In re Chemtura
Corp., 09-11233, U.S. Bankruptcy Court, Southern District of New
York (Manhattan).
href='http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aQLCrKZx6nLY'>Read
more.
Trump Bondholders Challenge Icahn over
Future of Casinos
Investor Carl Icahn and ally Beal Bank are fighting with bondholders
over who is best positioned to bail the Trump casinos out of their
financial distress, Dow Jones Daily Bankruptcy Review reported
yesterday. Trump Entertainment filed for chapter 11 protection last
year, squeezed by the recession and new competition from neighboring
states. Icahn and Beal say they will pilot Trump Entertainment out of
chapter 11 debt-free, ending a track record of earnings misses and
bankruptcies. Bondholders say that Icahn's plan is 'nothing more than a
simple foreclosure.' New cash is on the way in the form of a $225
million equity infusion, the foundation of the rival plan advocated by
bondholders led by Avenue Capital Management. Unless there's a deal
along the way, chapter 11 plan confirmation hearings will end with a
ruling that the Trump casinos belong to Icahn and Beal, or to
bondholders, with Donald Trump still in a starring role as the name on
the gambling and hotel enterprise.
Survey: Lack of Customers, Assets Stunting
Growth of Small Business
A survey released yesterday by the National Federation of Independent
Business found that 51 percent of small-business owners reported a lack
of sales as their greatest challenge, while only only 8 percent cited a
lack of loans, the Washington Post reported yesterday. In
addition, the NFIB found that the drop in home prices has made it harder
for many small-business owners to qualify for loans because they can no
longer pledge their homes as collateral. William J. Dennis Jr., the NFIB
senior research fellow who headed the survey, said recent administration
proposals, including $30 billion in new federal aid for community banks,
were not likely to help, but he also said the NFIB was at a rare loss
for ideas on what the government should do instead.
href='http://www.washingtonpost.com/wp-dyn/content/article/2010/02/22/AR2010022204893_pf.html'>Read
more.
GOP Calls for New GSE Accounting
House Republicans yesterday unveiled legislation that would compel
the Office of Management and Budget to place losses sustained by Fannie
Mae and Freddie Mac on the federal government's balance sheet,
CongressDaily reported yesterday. The measure, sponsored by Rep.
Scott Garrett (R-N.J.) would require OMB to account for losses at the
two mortgage giants, which were placed in conservatorship by the federal
government in September 2008, just as the Congressional Budget Office
already does. The Treasury has so far pumped $110 billion into the two
government-supported enterprises - which own or guarantee $4.7 trillion
in home mortgages - to keep them afloat. The CBO fiscal outlook for 2010
estimated that the cost of supporting them over 10 years would reach
$370 billion. The bill also would force Congress to raise the debt
ceiling to reflect Fannie and Freddie's $1.6 trillion corporate debt.
The bill comes ahead of a March 2 hearing by the House Financial
Services Committee on proposals to overhaul the nation's housing finance
system, including Fannie and Freddie. Treasury Secretary Geithner and
HUD Secretary Donovan have been invited to testify.
Hummer Deal May Not Be Cleared by
China
Sichuan Tengzhong Heavy Industrial Machinery Co. has been told that
the Chinese government won't clear its deal to buy General Motors Co.'s
Hummer unit, the Wall Street Journal reported today. GM and
Tengzhong had set a deadline of Jan. 31 to complete a definitive
agreement on the Hummer deal, but later extended the deadline to Feb.
28. The sale was part of GM's efforts last year to revive its business
by shedding or selling noncore brands. GM officials say that the two
companies are still working together to complete the deal.
href='http://online.wsj.com/article/SB10001424052748704240004575084841720106982.html?mod=WSJ_business_whatsNews'>Read
more. (Subscription required.)
Virginia Entrepreneur Faces Fraud
Charges, Bankruptcy
Authorities had thought Virginia steakhouse owner Osama El-Atari
skipped the country to escape his debts of nearly $60 million until U.S.
Marshals tracked him down in Texas, the Associated Press reported
yesterday. As federal prosecutors pursue bank fraud charges, with a
hearing set for today, bankruptcy trustee Kevin McCarthy has the
unenviable task of trying to satisfy El-Atari's many creditors. McCarthy
is also seeking permission from the bankruptcy court to do a thorough
investigation of two dozen names and entities under which El-Atari did
business in the D.C. region, hoping to find funds that will allow
creditors to get back some of what they lost. Before his legal troubles
surfaced, El-Atari was known as the owner of several Original Steakhouse
& Sports Theatre restaurants in the D.C. suburbs. Prosecutors argue
his wealth was built largely on fraud. According to court papers,
El-Atari obtained tens of millions in loans from several community banks
with the same scheme — by
borrowing against non-existent life insurance policies.
href='http://news.yahoo.com/s/ap/20100223/ap_on_re_us/us_life_insurance_scheme/print;_ylt=AuFnhR6l2Pl3hHT._EwAE57s.6F4;_ylu=X3oDMTBvajZzaTFyBHBvcwMxNQRzZWMDdG9wBHNsawNwcmludA--'>Read
more.
Report: Wall Street Bonuses Increase 17
Percent in 2009
The New York State Comptroller released a reported yesterday showing
that investment banks and securities firms paid employees in New York
City an estimated $20.3 billion in annual bonuses, up from $17.4 billion
for 2008, the New York Times reported today. New York Comptroller
Thomas P. DiNapoli acknowledged the divide between the financial
industry and other professions, but said that the financial
industry’s new prosperity
would ultimately trickle down to the rest of the New York economy. His
office estimated that the industry could exceed $55 billion in profits
last year. The 2009 bonus payouts trailed the record $25.6
billion awarded in 2005, when the housing bubble was inflating and the
stock market was flying high.
href='http://www.nytimes.com/2010/02/24/business/24bonus.html?ref=business&pagewanted=print'>Read
more.
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