March 4, 2010
Proposed legislation to amend the Bankruptcy Code to protect rank-and-file workers' pay and pensions while prohibiting bonuses for top executives has drawn lukewarm reviews from the debtors' bar and bankruptcy professors, Dow Jones Daily Bankruptcy Review reported yesterday. The proposed bill, unveiled last Wednesday by Sen. Richard Durbin (D-Ill.) and Rep. John Conyers (D-Mich.), would give improved treatment to the claims of employees and pensioners who lose their jobs and retirement benefits when a company files for chapter 11. The legislation would double the value of wage claims entitled to priority treatment to $20,000 for each worker, allow a second claim of up $20,000 for contributions to employee benefit plans and eliminate the restriction that wage and benefit claims must be earned within 180 days of a bankruptcy filing for priority treatment. It also restricts the ability of a company to reject collective-bargaining agreements, prohibits the payment of bonuses to senior officers and requires court approval of executive compensation for firms in bankruptcy. Bankruptcy lawyer Harvey Miller, a partner at Weil, Gotshal & Manges LLP, said that the bill would be 'another nail in the coffin of chapter 11' if passed. Prof. Stephen J. Lubben of Seton Hall University School of Law noted that raising the priority claim limits probably won't help employees too much because they still face the problem of being lower in priority than either the secured lenders or the professionals working on the case. Prof. Jay Westbrook of the University of Texas acknowledged that wage and benefit reforms are needed, but he expressed concern about restrictions on terminating labor pacts and limiting executive pay that could tie a company's hands at a time when it needs the flexibility the most. Babette A. Ceccotti of Cohen, Weiss and Simon, who has represented labor interests in a number of bankruptcy cases, says that while the bill is intended to shake up the chapter 11 status quo, labor isn't pushing for more businesses to liquidate. She says that the bill is simply intended to level a bankruptcy playing field that has tilted too far away from workers and retirees in recent years.
AbitibiBowater Seeks Court Approval of Two Sales
AbitibiBowater Inc. has requested court approval to move forward with two private de minimis asset sales totaling about $2.35 million, the Deal Pipeline reported yesterday. The newsprint, paper and pulp producer plans to sell effluent treatment equipment and property related to a joint venture it has with Alabama River Newsprint Co. to ARN affiliates Alabama River Pulp Co. and Alabama Pine Pulp Co., which would take over AbitibiBowater's role in the partnership. AbitibiBowater said in court filings that it expects to receive $1.25 million in cash in the sale as well as the benefits of exiting the service agreement contract with ARN. Under the partnership between the two companies, an AbitibiBowater affiliate provided ARN with pulp and other raw materials for a newsprint mill on the Alabama River in southern Alabama. The debtor also plans to sell 997 acres of timberland in Rhea County, Tenn., to Rachel Pruett for $1.1 million. Read more. (Subscription required.)
Federal Reserve Proposes Limits on Credit Card Penalty Fees
The Federal Reserve proposed restrictions yesterday on penalty fees that credit card issuers can charge consumers, including limiting the amount of late fees, the Washington Post reported today. One of the most significant changes would prohibit card companies from issuing penalty charges larger than the amount of the violation, a common consumer complaint. The proposal also bans inactivity fees that some card companies have charged if consumers do not make new purchases and prohibits multiple penalty fees for a single transgression. Card issuers must notify consumers of the reason for any interest rate increases and are required to take a second look at any accounts that have had rate increases since Jan. 1. The Fed will accept public comments for 30 days before issuing its final ruling. Read more.
Fed's Fisher Says Too-Big-To-Fail Banks Should Be Dismantled
Richard Fisher, president of the Federal Reserve Bank of Dallas, said yesterday that large, systemically important 'too-big-to-fail' banks should be dismantled and broken up before regulators have to deal with another crisis, Dow Jones Daily Bankruptcy Review reported today. Fisher said that he feared that the current legislative push to give regulators resolution authority to shut troubled banks down if and when the need arises 'might provide false comfort in that...[it] might be viewed favorably by creditors, continuing the government-sponsored advantage bestowed upon' large institutions. 'Given the danger these institutions pose to spreading debilitating viruses throughout the financial world, my preference is for a more prophylactic approach: an international accord to break up these institutions into ones of more manageable size - more manageable for both the executives of these institutions and their regulatory supervisors,' Fisher said, adding that he'd also support unilateral action by the U.S. on this matter. He also said that contrary to various legislative proposals, the Fed should not be stripped of its bank supervision role, a move that he claimed would severely curtail its capacity to conduct effective monetary policy.
White House Offers Bill to Restrict Big Banks? Actions
The Obama administration put forward legislation yesterday to rein in the size and scope of the nation?s largest banks, but the proposal faces strong resistance in Congress, where lawmakers have shown little appetite for adding to the prolonged debate on overhauling financial regulations, the New York Times reported today. The legislation would ban banks that take federally insured deposits from investing in hedge funds or private equity funds and from making trades that are for the benefit of the banks, not their customers. Goldman Sachs and Morgan Stanley would probably be the Wall Street firms most affected by the ban, known informally as the Volcker Rule, but they might be able to shed their status as bank holding companies, to avoid some of the restrictions. The legislation also would ban any bank from acquiring another bank if the merged company would have more than 10 percent of all liabilities in the financial system. Read more.
Citigroup CEO Returns to Capitol Hill's Hot Seat
Citigroup Inc. CEO Vikram Pandit will be in an uncomfortably familiar position today when he testifies to the congressional panel in charge of overseeing the U.S. government's rescue of battered financial firms, the Wall Street Journal reported today. The New York company still has $25 billion in money from the U.S. Treasury, which owns a 27 percent stake that makes some lawmakers leery about taxpayer exposure to the financial giant. Pandit, who has been working to steady Citigroup since taking over in December 2007, is expected to tell the Congressional Oversight Panel that the company looks and is run very differently than when he arrived. Citigroup has reduced its leverage ratio to 12 from 18, lopped the size of its balance sheet by 21%, or $500 billion, and sold more than 30 businesses deemed poor fits with the company's strategy. Pandit also is expected to tell the oversight panel that Citigroup made $160 billion in mortgage and credit-card loans last year and helped more than 800,000 families avoid foreclosure. Still, Citigroup reduced the overall size of its loan portfolio by 15 percent last year, or $102.7 billion, according to its annual report filed last Friday. Read more. (Subscription required.)
Reliance Does Not Plan to Raise Its Offer for LyondellBasell
India's Reliance Industries Ltd. doesn't plan to raise its bid again to take control of petrochemicals maker LyondellBasell Industries AF when it exits bankruptcy, saying that market conditions don't justify such a move, Dow Jones Daily Bankruptcy Review reported today. Bloomberg News reported Tuesday that the board of Rotterdam-based LyondellBasell rejected a $14.5 billion bid from Reliance. Reliance had sweetened its bid in February, boosting the valuation of the petrochemical maker to $14.5 billion after Lyondell rejected a previous sweetened bid that valued the company at around $13.5 billion. That offer had been increased from an initial November bid valuing Lyondell at around $12 billion.
General Growth Wins Nearly 5-month Extension
U.S. mall operator General Growth Properties yesterday won a nearly five-month extension of the exclusive right to present a plan to exit bankruptcy, a setback for some creditors and suitor Simon Property Group, Reuters reported yesterday. Bankruptcy Judge Allan Gropper extended General Growth's right of exclusivity to July 15, about a month less than the company had requested. It was a blow to Simon, which had initially argued against any extension and then joined General Growth's unsecured creditors committee, saying it could live with a 45-day extension. Simon, the largest U.S. mall owner, has offered to buy General Growth for $10 billion, under a plan that has drawn the support of GGP's unsecured creditors. The extension could pressure Simon to raise what has been called a low-ball bid if it wants the company. Read more.
Media
Law Debenture Demands Tribune Unwind Fee Deal with Lenders
Tribune Co. bondholders are demanding the return of nearly $23.7 million that the company paid JPMorgan Chase & Co. and advisers to lenders out of view of the bankruptcy court that has been overseeing the company's restructuring, Dow Jones Daily Bankruptcy Review reported yesterday. Bondholder Law Debenture Trust Co. of New York says that the payments were illicit, and designed to help J.P. Morgan evade a potential lawsuit over its role in financing Tribune's ill-fated leveraged buyout. Tribune and J.P. Morgan deny any impropriety, saying that the money was due and owing under the loan contract, and that no bankruptcy court authorization was required. Bankruptcy Judge Kevin Carey will decide whether J.P. Morgan and the lawyers and financial advisers who received the money can keep it, weighing arguments outlined in papers filed on Tuesday.
Lenders Look to Stop Philadelphia Newspapers Auction
Lenders to the bankrupt Philadelphia Newspapers LLC asked a federal court to prevent an auction of the company until the issue of 'credit bidding' had been resolved, Reuters reported yesterday. The lenders were responding to a request by Philadelphia Newspapers last month in the bankruptcy court overseeing its chapter 11 case for a schedule that would allow the publisher to emerge from bankruptcy by June. The case is on hold until a decision regarding a key aspect of the publisher's reorganization can be resolved by the U.S. Court of Appeals for the Third Circuit. The appeals court heard arguments in December over whether secured lenders had to bid in cash at an auction of the company's assets. The lenders argue that they should be allowed to bid the roughly $300 million they are owed, known as credit bidding. Read more.
Magna Receives More Time, Financing in Bankruptcy Case
Bankruptcy Judge Mary Walrath yesterday granted horse-track owner Magna Entertainment Corp. permission to obtain additional financing and more time to complete its chapter 11 reorganization plan, the Associated Press reported yesterday. Judge Walrath approved Magna's request for authorization to obtain $7 million in additional financing from a subsidiary of its parent company, MI Developments. MID previously agreed to extend $64.4 million in financing, but Magna said it was facing liquidity issues because of an unexpected decline in horse racing revenues and weather-related race cancellations at Santa Anita Park in California. Over an objection by PNC Bank, Judge Walrath also extended the time during which Magna has exclusive authority to file a reorganization plan to April 30. A court filing by Magna had automatically extended the previous Jan. 31 deadline pending yesterday's hearing. Read more.
Nortel Receives U.S., Canadian Court Approval to Sell Unit
Nortel Networks Corp. said that it received U.S. and Canadian court approval for the sale of its carrier Voice over Internet Protocol and application solutions business to Genband Inc. for about $182 million, Reuters reported yesterday. The company received orders from the U.S. Bankruptcy Court for the District of Delaware and the Ontario Superior Court of Justice approving the asset sale agreement with Genband, Nortel said. Under the agreements, Genband will pay a total of $282 million, subject to balance sheet and other adjustments currently estimated at about $100 million, for a net purchase price of about $182 million.
SEC Charges Miami Couple in Ponzi Scheme
The Securities and Exchange Commission (SEC) charged a prominent Miami couple yesterday with running a $135 million Ponzi scheme that victimized elderly Cuban-Americans living in South Florida, Reuters reported yesterday. The SEC alleged that Gaston and Teresita Cantens, founders and co-owners of real estate developer Royal West Properties Inc in Miami, had enticed investors with promises of 9 to 16 percent returns. Instead, beginning no later than 2002, they used new investor money to repay earlier investors and the company's operating costs, the SEC charged. All told, the couple raised $135 million from hundreds of investors, many from South Florida's Cuban-exile community, the complaint alleged. Read more.
Fraud Case to Proceed against Former Nebraska Brokers
A judge has decided prosecutors have enough evidence to try two former Nebraska City brokers accused of defrauding investors out of more than $20 million, the Associated Press reported yesterday. Rebecca Engle and former Nebraska football player Brian Schuster are accused of improperly selling risky investments in several interrelated Florida companies to more than 130 investors. The two had argued that the evidence didn't support the eight felony counts of securities fraud they each face because investors acknowledged the risks in writing. Prosecutors say that many of the clients told investigators they were never fully informed about the hazards, so the written records don't tell the full story. Engle lost her securities dealing license in February 2008 as part of an agreement with state regulators. She filed for chapter 11 protection in Arizona in the summer of 2008. Read more.
International
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