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September 23,
2009
House Hearings Examine
Discharging Student Debt in Bankruptcy, Financial Regulatory
Reform
The House Judiciary Subcommittee on Commercial and
Administrative Law will hold a hearing today titled, “Undue
Hardship? Discharging Educational Debt in Bankruptcy.”
The first panel of the hearing will include Rep. Danny K.
Davis (D-Ill.), while the second panel will include Lauren Asher,
president of the Institute for College Access and Success, Prof. Rafael
I. Pardo of the Seattle University School of Law, J. Douglas Cuthbertson
of Miles & Stockbridge P.C. (McLean, Va.) and Brett Weiss of Joseph,
Greenwald &Laake, P.A. (Greenbelt, Md.).
href='http://judiciary.house.gov/hearings/hear_090923_1.html'>Click
here to view the prepared witness testimony.
Additionally, the House Financial Services Committee
will begin its series of hearings to examine the Obama
administration’s proposal for a consumer financial protection
agency. Treasury Secretary Timothy Geithner will testify at
today’s hearing.
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/fchr1_092309.s…'>Click
here to view the prepared testimony.
Analysis: Delayed
Foreclosures Stalk Market
Legal snarls, bureaucracy and well-meaning efforts to
keep families in their homes are slowing the flow of properties headed
toward foreclosure sales, even when borrowers are in deep distress,
the
size='3'>Wall Street Journal reported today.
While that buys time for families to work out their problems, some
analysts believe the delays are prolonging the mortgage crisis and
creating a growing 'shadow' inventory of pent-up supply that will
eventually hit the market. As of July, mortgage companies had not
started the foreclosure process on 1.2 million loans that were at least
90 days past due, according to estimates prepared by LPS Applied
Analytics, which collects and analyzes mortgage data. An additional 1.5
million seriously delinquent loans were somewhere in the foreclosure
process, though the lender had not yet acquired the property. Moreover,
there were 217,000 loans in July where the borrower had not made a
payment in at least a year but the lender had not started the
foreclosure process. In other words, 17 percent of home mortgages that
are at least 12 months overdue are not in foreclosure, up from 8 percent
a year earlier.
href='http://online.wsj.com/article/SB125366552480532521.html#mod=WSJ_hpp_LEF…'>Read
more. (Subscription required.)
Chase and Bank of America
Revise Fee Policies
Bank of America and JPMorgan Chase announced plans
yesterday to drastically overhaul their debit card programs by lowering
or eliminating fees, changing the way they credit transactions and
allowing customers to opt out of overdraft protection, the
face='Times New Roman'>New York
Times reported today. Bank of America said it
would allow current customers to turn off the ability to spend when
their account hits zero, starting Oct. 19. Next June, the bank plans to
limit the number of times each year that current customers can overdraw
their accounts when using a debit card at a store. It will let new
customers choose whether they want overdraft protection when they are
opening their account. Chase plans to eliminate by the first quarter of
next year a common industry practice that enraged many consumers.
Instead of lumping a day’s worth of debit card and ATM
transactions together and then processing the highest amounts first
— a practice that has caused large numbers of consumers to
overdraw more quickly and pay more fees — it will credit the
transactions chronologically. Chase also plans to allow customers to opt
out of overdraft coverage.
href='http://www.nytimes.com/2009/09/23/your-money/credit-and-debit-cards/23c…'>Read
more.
Officials Call for Tighter
Regulations of OTC Derivatives
SEC Chairwoman Mary Schapiro and Commodity Futures
Trading Commission Chairman Gary Gensler yesterday urged the House
Agriculture Committee to strengthen a Treasury Department proposal to
tighten the regulation of over-the-counter (OTC) derivatives,
size='3'>CongressDaily reported today.
Schapiro said that securities-related OTC derivatives should be
regulated more like securities, and derivatives not related to
securities should be regulated more like futures. Furthermore, Schapiro
said, Congress should act to give regulatory agencies additional
authority to combat fraud and manipulation; consider whether to expand
the definition of 'security-based swap' to include broad-based credit
default swaps; and raise the qualification standards for participation
in OTC markets to protect less sophisticated municipal governments.
Gensler noted that American International Group's derivative trading
subsidiary was not subject to regulation. 'Approximately $180 billion of
the tax dollars that you and I paid went into AIG to keep its collapse
from further harming the economy,' Gensler said. Schapiro said that the
failure of even small derivatives dealers can 'wreak havoc.'
href='http://agriculture.house.gov/hearings/statements.html'>Click
here to read the prepared hearing testimony.
Extended Stay Hotels’
Deals with Lenders to Be Probed
Bankruptcy Judge
face='Times New Roman' size='3'>James Peck
size='3'>ruled yesterday that Extended Stay Hotels Inc.’s deals
with lenders before it filed for bankruptcy will be probed by an
independent examiner to determine whether the filing was part of a plan
to push out junior debt-holders, Bloomberg News reported yesterday. The
Justice Department’s representative in the case asked for an
examiner in July, citing “serious questions and concerns”
about the deals Extended Stay used to acquire most of the assets now in
bankruptcy. U.S. Trustee
face='Times New Roman' size='3'>Diana Adams
size='3'>sought an investigation following claims by mezzanine lenders
Deuce Properties Ltd. and Line Trust Corp. that the private-equity firms
Cerberus Capital Management LP and Centerbridge Partners LP, in a deal
with senior lenders, are trying to take over the chain’s 680
properties. Extended Stay listed debt of $7.6 billion in a June 15
chapter 11 petition it blamed on decreased business travel spending. The
U.S. government is among the company’s biggest creditors, with
more than $1 billion in claims. The case is
face='Times New Roman'>
size='3'>In re Extended Stay Inc. 09-13764,
U.S. Bankruptcy Court, Southern District of New York (Manhattan).
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=a3wjfb5npFto'>Read
more.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=a3wjfb5npFto'>
Judge Denies Dismissal of
Magna Creditors’ Lawsuit
Bankruptcy Judge
face='Times New Roman' size='3'>Mary Walrath
size='3'>yesterday denied a motion from the parent company of Magna
Entertainment Corp., the largest horse track owner in the U.S., to
dismiss a lawsuit filed by Magna creditors, the Associated Press
reported yesterday. The ruling means Magna's unsecured creditors’
committee will be allowed to pursue claims that Magna officials allowed
parent company MI Developments and billionaire Frank Stronach, who is
chairman of both MID and MEC, to prop up Magna with equity infusions
disguised as secured loans. The committee, which contends the scheme was
meant to ensure that Stronach retained control of MEC's most valuable
assets, also alleges that Magna fraudulently transferred more than $125
million in loan payments to a subsidiary of MI Developments in the two
years leading up to Magna's chapter 11 filing in March. It is asking the
court to recharacterize the loan claims of the MID subsidiary, MID
Islandi, as equity interests, and to subordinate them to other claims.
The committee also is seeking to recover the alleged fraudulent
transfers on behalf of Magna's bankruptcy estate and its
creditors.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/09/22/AR20090…'>Read
more.
Tousa Pushes for Drywall
Claims to Be Handled in Chapter 11 Case
Bankrupt homebuilder Tousa Inc. has asked a bankruptcy
court not to let homebuyers proceed with their state court suits against
the company over its use of allegedly defective Chinese drywall, saying
that such claims need to be addressed as part of a chapter 11
plan,
size='3'>Bankruptcy Law360 reported yesterday.
In an objection filed Sept. 21 in the U.S. Bankruptcy Court for the
Southern District of Florida, Tousa asked the court to deny motions by
two groups of homebuyers to lift the automatic stay in Tousa's
bankruptcy so they can push ahead with their suits.Tousa said it expects
to face many claims over Chinese drywall and pointed to WCI Communities
Inc.'s reorganization plan, which included comprehensive procedures to
address such claims, as a model for how they should be handled.
href='http://bankruptcy.law360.com/print_article/123808'>Read
more. (Subscription required.)
FDIC Considers Prepaid Bank
Fees
The Federal Deposit Insurance Corp. is leaning toward
asking banks to prepay future fees as a way to quickly rebuild the
agency's deposit-insurance fund, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The FDIC had just $10.4 billion in its
deposit-insurance fund at the end of June to protect more than $6.2
trillion in U.S. deposits. The FDIC has an additional $32 billion
already reserved against expected losses in the next year, which agency
officials believe gives them breathing room, but they want to build up
their fund quickly to buttress against future failures. The agency is
expected to propose a new policy at a board meeting next week. A final
decision on how to recapitalize the fund hasn't been made.
href='http://online.wsj.com/article/SB125364192799131357.html'>Read
more. (Subscription required.)
House Bill Extends Jobless
Benefits for Some
Jobless workers in imminent danger of losing their
unemployment benefits would get a 13-week reprieve under legislation
approved by the House of Representatives yesterday, the Associated Press
reported. The House bill, which was approved 331-83, applies to 27
states, the District of Columbia and Puerto Rico, all of which have
unemployment rates of 8.5 percent or higher. It would not, however,
provide extra benefits in states with lower levels of joblessness,
including Nebraska, North Dakota and Utah. The bill, if enacted, would
offer a reprieve to more than 300,000 jobless workers who otherwise
would run out of unemployment compensation at the end of September, as
well as to the more than one million people expected to exhaust their
benefits by the end of the year. Similar legislation is pending in the
Senate.
href='http://www.nytimes.com/2009/09/23/us/politics/23jobless.html?ref=busine…'>Read
more.
Analysis: Speculators Seek
Fortune in AIG
American International Group Inc., a symbol of the
financial crisis, has morphed into a playground for speculators,
the
size='3'>Wall Street Journal reported today. A
year after the government sought to avert a market meltdown by rescuing
some of the country's biggest financial firms, speculative traders are
feasting on these companies' remains. In the past seven weeks,
AIG’s common shares have careened between $13 and $55, surging
past $54 yesterday before closing at $45.80. The extraordinary price
action is a dramatic display of an unintended consequence of the U.S.
bailout of AIG. Last Sept. 16, the government propped up the faltering
company by trading $85 billion in loans for an 80 percent stake in AIG
in the form of preferred shares, which don't trade on the market. It
allowed the other 20 percent of the company's equity to continue to
trade publicly. AIG's common shares -- $6.2 billion worth, as of
yesterday – have been trading most actively between short-term
traders, who buy and sell based on market momentum and bet against each
other in risky options trades. Taxpayers aren't profiting, or taking a
hit, from the movement in AIG's common stock since the securities the
government owns aren't traded.
href='http://online.wsj.com/article/SB125366502247832417.html#mod=WSJ_hps_LEF…'>Read
more. (Subscription required.)
Regulators Weigh New
Merger Rules
U.S. regulators are considering updating 17-year-old
guidelines used to determine whether proposed business mergers are
anticompetitive, a move that could result in tougher and simpler
standards for companies, the
face='Times New Roman' size='3'>Wall Street Journal
size='3'>reported today. The review by the Justice Department and the
Federal Trade Commission is expected to bring the 1992 guidelines more
in line with how the agencies currently look at proposed mergers. One
possible change to the guidelines would be to de-emphasize the complex
analyses of the combined market shares of merging companies, which
regulators no longer closely adhere to. More emphasis might be placed on
basic issues such as a merger's impact on consumer prices.
href='http://online.wsj.com/article/SB125362797596530767.html#mod=WSJ_hps_LEF…'>Read
more. (Subscription required.)
Judge Dismisses Bankrupt
Fuel Company's Antitrust Claims
U.S. District Judge C. Darnell Jones II dismissed
antitrust claims brought by bankrupt Willow Creek Fuels Inc. in a $25
million lawsuit accusing a former supplier of breaking distribution
contracts, merging with a Willow Creek rival, then targeting the
company's clients,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Judge Jones ruled on Friday that Fleetwood
Pa.-based Willow Creek had failed to allege that Buckeye Energy Holdings
LLC and Farm & Home Oil Co. had any communications about the
terminated contracts prior to Buckeye's late-2007 purchase of Farm &
Home. Between December 2006 and May 2007, Willow Creek entered into a
series of agreements to buy oil and gas products from Farm & Home in
exchange for monthly payments, according to an amended complaint filed
in February. In November 2007, Farm & Home told Willow Creek it was
terminating certain of the agreements, citing Willow Creek’s
failure to make payments and telling Willow Creek it owed more than $1.5
million, the suit states. As a result, Willow Creek was unable to
fulfill the terms of the sales contracts it had made with its customers,
sustaining losses exceeding $1.2 million, according to the complaint.
The plaintiff was forced into chapter 11 protection in February
2008.
href='http://bankruptcy.law360.com/print_article/123736'>Read more.
(Subscription required.)
RH Donnelley Plan Includes
Debt Cut, Equity Exchange
Phone book publisher R.H. Donnelley Corp. has filed
its chapter 11 reorganization plan that calls for the elimination of
$6.4 billion in debt, pays down debt to prepetition lenders and
exchanges most of its existing debt to noteholders into equity in the
reorganized company,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Under the plan proposed Friday, prepetition
lenders would receive $655 million, plus amortization and interest, to
pay down R.H. Donnelley's existing debt load. Most prepetition
noteholders would receive equity in the reorganized company, the plan
said, with holders of the R.H. Donnelley subsidiary Dex Media West LLC's
8.5 percent senior notes due 2010 and the 5.875 percent senior notes due
2011 receiving an additional $300 million in new seven-year RHDC
unsecured notes issued on a
face='Times New Roman' size='3'>pro rata
size='3'>basis. When it exits bankruptcy protection, R.H. Donnelley said
in its filing, it expects its restructured secured debt to total $3.1
billion and its consolidated debt to come in at $3.4 billion.
href='http://bankruptcy.law360.com/print_article/123738'>Read
more. (Subscription required.)
GM to Call Back 2,400
Factory Workers
General Motors said yesterday that it would call 2,400
hourly workers back to three factories in Michigan, Indiana and Kansas
so that it could meet higher demand for some vehicles, but most of the
workers will have to move from other states, the
face='Times New Roman'>New York
Times reported today. GM plans to operate the
plants around the clock on weekdays to make up for production that will
be lost when three other plants close this fall. GM says many of its
dealers have been running out of popular models like the Buick LaCrosse
and Chevrolet Malibu, particularly after the government’s
cash-for-clunkers program caused a surge in sales last month.
href='http://www.nytimes.com/2009/09/23/business/23auto.html?ref=business&pag…'>Read
more.
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