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August 22, 2008
Merrill, Goldman, Deutsche Settle
Auction-Rate Probes
New York Attorney General Andrew Cuomo announced yesterday that Merrill
Lynch & Co., Goldman Sachs Group Inc. and Deutsche Bank AG agreed to
buy back almost $15 billion in failed auction-rate securities and pay
fines totaling about $160 million, settling probes by state regulators,
Bloomberg News reported. The agreements bring to eight the number of
firms that have settled investigations in the last two weeks into claims
that they misled investors by fraudulently billing the long-term
securities as easy to buy and sell. Merrill will buy back as much as $12
billion in securities and pay fines of $125 million.
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=akf_dAYkHPq0&refer=home'>Read
more.
Some Fear Commercial Property Loans Will
Be Next Stage in Downturn
Experts are now concerned that commercial real estate loans could be the
next victim of the credit crunch and overall housing downturn, the
New York Times reported today. For Wall Street banks, which
hold about $100 billion of commercial mortgage-backed securities, the
prospect has fanned new worries that a deterioration of the overall
commercial property market could prompt more write-downs in the coming
quarter, on top of losses already expected from their distressed
mortgage securities holdings. At the end of the second quarter, Deutsche
Bank held $25.1 billion worth of commercial loans. Morgan Stanley held
$22.1 billion and Citigroup had $19.1 billion. Lehman Brothers, which
has the largest exposure, is shopping about $40 billion worth of
commercial real estate assets, as well as its entire commercial real
estate business.
href='http://www.nytimes.com/2008/08/22/business/22commercial.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
Autos
Bondholder Seeks to Block Delphi
Loan
Highland Capital Management LP wants to stop Delphi Corp. from borrowing
$300 million more from former parent General Motors Corp., the Wall
Street Journal reported today. Highland Capital, a Delphi
bondholder, is asking the U.S. Bankruptcy Court in Manhattan to reject
the financing arrangement, which would increase GM's loans to the auto
supplier to nearly $1 billion. The hedge fund said that recoveries for
unsecured creditors in Delphi's bankruptcy case will be 'eroded' by the
financing. Highland Capital wants the court to appoint an examiner to
investigate the deal. Hedge fund CR Intrinsic Investors LLC joined
Highland Capital in the objection as both funds hold a combined $495
million in Delphi senior notes, according to court documents.
href='http://online.wsj.com/article/SB121936696010262309.html?mod=us_business_whats_news'>Read
more. (Subscription required.)
Detroit Automakers Likely to Be
Next Federal Bailout
After the government bailouts of Bear Stearns, mortgage lenders and
borrowers and potentially Fannie Mae and Freddie Mac, the Detroit
automakers are now making their own pitch for direct federal loans
around Washington, D.C., according to an editorial in today's
Wall Street Journal. With a goal of unveiling a plan
after Labor Day, Ford, GM and Chrysler are looking for the government to
lend some $25 billion to auto makers in the first year at an interest
rate of 4.5 percent, or about one-third what they're currently paying to
borrow. The government would also have the option of deferring any
payment at all for up to five years. Presidential
candidate Barack Obama recently signaled that he's open to federal
money to help the auto makers invest in 'renewable' technology, and Sen.
Debbie Stabenow (D-Mich.) and Rep. John Dingell (D-Mich.) are supporting
the $25 billion in loans to the Big Three as part of a second-round
economic stimulus.
href='http://online.wsj.com/article/SB121936530892762135.html?mod=opinion_main_review_and_outlooks'>Read
more. (Subscription required.)
Experts Say Auto Parts Suppliers
May Face Second Round of Bankruptcies
Restructuring experts say that U.S. auto parts makers that have already
reorganized under bankruptcy could find themselves back in bankruptcy
court as the global economy weakens and U.S. auto sales decline, Reuters
reported yesterday. The largest U.S. automakers have cut production as
gasoline prices reduced demand for SUVs and trucks and soaring commodity
costs ate into the profit margins of auto parts manufacturers. Parts
suppliers were also caught unprepared for the shift by U.S. consumers to
smaller, more fuel-efficient cars. Additionally, companies that have
already filed for chapter 11 could have trouble emerging, said
restructuring experts. 'It has become much more difficult to complete
restructurings given the lack of appetite by the capital markets in
financing the automotive industry,' said Randall
Eisenberg, senior managing director for restructuring advisor
FTI Consulting.
href='http://www.reuters.com/articlePrint?articleId=USN2040049420080821'>Read
more.
GM to Open Formal Talks for Sale
of Hummer Brand
General Motors CEO Rick Wagoner said that the automaker has had initial
expressions of interest from potential buyers of its Hummer brand and is
preparing data and other materials to open formal talks, the Wall
Street Journal reported today. GM decided to consider selling its
Hummer brand earlier this year when the demand for SUVs began to
significantly recede under the weight of $4-a-gallon gasoline costs. One
significant hurdle for GM is its relationships with Hummer dealers.
Because of tough dealer-franchise laws and other agreements the
automaker has with dealers, it needs to negotiate closely with hundreds
of individual store owners on the future steps it takes with the
brand.
href='http://online.wsj.com/article/SB121934396020461037.html?mod=hpp_us_whats_news'>Read
more. (Subscription required.)
U.S. Trustee Wants 30 Percent Fee
Holdback in Levitz Case
U.S. Trustee Diana G. Adams on Wednesday objected to
the latest round of fee applications in the Levitz Furniture Inc.'s
bankruptcy case, arguing that paying the fees in full would be premature
because the outcome of the proceedings remains uncertain, Bankruptcy
Law360 reported yesterday. Adams' objection asked the court to hold
back 30 percent of the interim fees at issue in the bankruptcy of PLVTZ
Inc., which did business as Levitz Furniture. All of the fee
applications at issue in the trustee's objections cover the period
between March 1 and June 30. Adams made similar criticisms when she
objected to previous fee applications on April 22, though in that
objection she only asked for 20 percent holdback.
href='http://bankruptcy.law360.com/articles/66837'>Read more.
(Subscription required.)
Foamex Loses Bid to Toss ERISA Class
Action
A class action brought by a former Foamex LP worker accusing the
bankrupt foam maker of breaches of duty stemming from its management of
an employee savings plan has survived a motion to dismiss, with a
federal judge letting stand six of eight claims in the suit,
Bankruptcy Law360 reported. The action was brought by employee
William Stanford on behalf of fellow workers and Foamex's savings plan
against the company, its benefits committee, plan trustee Fidelity
Management Trust Co. and unknown fiduciary defendants. Stanford alleged
in his October 2007 complaint that the defendants breached their
fiduciary duties under the Employee Retirement Income Security Act
(ERISA) by mismanaging a savings fund that invested solely in the common
stock of Foamex.
href='http://bankruptcy.law360.com/articles/66897'>Read
more. (Subscription required.)
California Attorney General Looks into
IndyMac Letter by U.S. Senator
The attorney general of California is reviewing a request by former
employees of IndyMac Bancorp to investigate whether Sen. Charles E.
Schumer (D-N.Y.) set off the bank's collapse by releasing confidential
information, Reuters reported today. At issue is a much-publicized
letter that Schumer sent in June to the Federal Deposit Insurance Corp.
(FDIC) and the Office of Thrift Supervision questioning the company's
ability to survive. The FDIC took control of IndyMac, which is based in
Pasadena, Calif., on July 11 after depositors withdrew more than $1.3
billion over 11 days. Last week, 51 former IndyMac workers asked
California Attorney General Jerry Brown to look into the issue, alleging
that a run on the bank and its subsequent failure were inevitable after
Schumer's letter was made public.
href='http://www.nytimes.com/2008/08/22/business/22indymac.html?ref=business&pagewanted=print'>Read
more.