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April 8, 2009
id='1' name='1'>Analysis: Small Towns Reeling from Risky Deals
Hundreds of small cities and counties across America are
reeling from their reliance in recent years on risky municipal bond
derivatives that went bad, the
face='Times New Roman' size='3'>New York Times reported
today. The municipal bond marketplace was so lightly regulated that in
Tennessee, Morgan Keegan & Company was able to dominate almost every
phase of the business. The firm, which is based in Memphis, sold $2
billion worth of municipal bond derivatives to 38 cities and counties
since 2001, according to data compiled by the state comptroller’s
office. Morgan Keegan pointed out that they saved cities and counties
money for years by delivering lower interest rates, and that the
economic decline that created the turmoil in the bond market was beyond
their control. Moody’s credit rating agency yesterday issued a
negative outlook for the fiscal health of municipal governments. In
Washington, D.C., federal regulators are now considering ways to
restrict the use of municipal bond derivatives. Regulators and some in
the industry are challenging whether it is appropriate for large
investment banks to engage small cities and counties in transactions
that lower interest rates but carry higher risks.
href='http://www.nytimes.com/2009/04/08/us/08bond.html?_r=1&ref=business&pagewanted=print'>Read
more.
Autos
GM, Chrysler Miss
Benchmark for $25 Billion Fuel Efficiency Loan Program
Next month, $25 billion in loans aimed at
producing more fuel-efficient cars will start flowing to suppliers and
automakers, but not to General Motors and Chrysler, the
face='Times New Roman'>
size='3'>Washington Post reported today. The
Energy Department program dictates that companies must be 'financially
viable' to receive the loans. Last week, the Obama administration ruled
that, at least for now, both GM and Chrysler cannot meet that benchmark.
GM has applied for $10.3 billion to fund projects such as the Chevrolet
Volt, its plug-in electric car. Chrysler is seeking about $8 billion to
build hybrids and other battery-powered vehicles. Ford, which may be the
only domestic automaker that qualifies, applied for $5 billion in direct
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/04/07/AR2009040701226_pf.html'>Read
more.
Commentary: Advantages
for General Motors in Chapter 11
The real debate over a potential GM
bankruptcy is between a federal bailout outside bankruptcy, without any
of the protections afforded by the bankruptcy process, and a federal
bailout inside chapter 11, according to a commentary in
today’s
size='3'>Detroit Free Press. GM's record thus
far suggests that it cannot accomplish what needs to be done outside
bankruptcy. In December, GM's 'worst-case' forecast for U.S. auto sales
in 2009 was 10.5 million units. Two months later, its worst-case
scenario got worse -- 9.5 million units. Current estimates by Autodata
for 2009 vehicle sales are 9.1 million units. To survive, GM needs the
tools provided by bankruptcy law -- the ability to reject unprofitable
contracts, to reduce the amount paid on certain claims, and to modify
the collective bargaining agreement and retiree benefits.
href='http://www.freep.com/article/20090408/OPINION05/904080312'>Read
more.
Real Estate Industry Pushes
Fed to Extend TALF Terms
The real estate industry is lobbying the
Federal Reserve for modifications to a bailout program that the industry
said may avert a wave of commercial-property defaults, the
face='Times New Roman'>Wall
Street Journal reported today. Real estate
owners and investors who have talked to the Fed predict that the central
bank will begin offering some five-year loans under the government's
Term Asset-Backed Securities Loan Facility (TALF), longer than the
three-year loans being offered. Real estate investors said that the
longer-term debt is critical to saving the commercial real-estate
business, which faces a record amount of debt coming due in the next
three years. Industry observers are expecting the delinquency rate to
double by the end of this year and go higher next year.
href='http://online.wsj.com/article/SB123914790506498993.html'>Read
more. (Subscription required.)
Revive Consumer Lending
Participation in the government's signature
program to restart lending to consumers was weak this month as $1.7
billion in government support for credit card loans and auto loans was
supplied in the second month of the Term Asset-Backed Securities Loan
Facility (TALF), the
face='Times New Roman' size='3'>Washington Post
size='3'>reported today. That is down from $4.7 billion in the first
month, and the Federal Reserve and Treasury Department ultimately
envision the program deploying up to $1 trillion to support all sorts of
lending. The program is designed to use Fed and Treasury money to
support the markets for securities that ultimately fund most credit
cards, auto loans, student loans and small-business loans. Experts say
that investors are wary, concerned that if they participate in the
program and ultimately make high returns, Congress will place
retroactive limits on their behavior, particularly executive
compensation and the hiring of immigrants through the H-1B visa program.
There are also more technical problems that the Federal Reserve Bank of
New York, which administers the program, is working through. The
contracts between the private parties involved in TALF have proved
immensely complicated and are taking time to work out and many private
investors participating are unfamiliar with the world of student loans
and Small Business Administration loans.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/04/07/AR2009040704021_pf.html'>Read
more.
Approval to Use Cash Collateral
Bankruptcy Judge
face='Times New Roman' size='3'>Robert D. Drain
size='3'>authorized U.S. Energy Systems Inc. to access cash collateral
to pay costs incurred because of its chapter 11 case, also allowing the
company up to $6 million to operate its U.K. subsidiaries and drill new
wells at one of its natural gas-fired power plants,
face='Times New



Roman'>
face='Times


New
Roman' size='3'>Bankruptcy Law360 reported
yesterday. Without the use of the collateral, the U.K. operations would
become subject to liquidation or administrative proceedings in the
British legal system, spurring an “immediate and irreparable
decline” in the subsidiaries' value, Judge Drain found. The case
is
face='Times New





Roman'
size='3'>In re U.S. Energy Systems Inc., case
number 08-10054, in the U.S. Bankruptcy Court for the Southern District
of New York.
href='http://bankruptcy.law360.com/articles/95740'>Read
more. (Subscription required.)
Mortgage Lenders Gets More
Time to Sue RBS
Bankruptcy Judge
face='Times New Roman' size='3'>Christopher S. Sontchi
size='3'>on Friday agreed to give Mortgage Lenders Network USA Inc.
three more months to sue a commercial lending unit of the Royal Bank of
Scotland Group PLC to recover alleged fraudulent transfers and overpaid
interest,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Judge Sontchi’s stipulation will
allow the statute of limitations to be extended to June 5 for MLN to
bring an action against Greenwich Capital Financial Products Inc. for
avoidance and recovery of alleged fraudulent and preferential transfers
made when the debtor was insolvent, contract breach and turnover of
alleged overpaid interest.According to a notice filed with the
bankruptcy court on April 2, MLN has identified potential claims against
Greenwich, which has agreed to give the debtor more time to continue to
investigate and potentially resolve the claims without the need for
litigation. The previous statute of limitations for MLN to bring an
action against Greenwich would have expired on April 6.
href='http://bankruptcy.law360.com/articles/95797'>Read
more. (Subscription required.)
Pharmaceutical Company
Considers Bankruptcy Options
Epix Pharmaceuticals Inc. said yesterday that
it may have to file for bankruptcy protection if it is unable to
restructure its debt through an exchange offering of $100 million in
convertible notes,
face='Times New


Roman'
size='3'>Bankruptcy Law360 reported yesterday.
The Massachusetts-based biopharmaceutical company said that it had
commenced an exchange offer for senior convertible notes due in 2024 for
shares of common stock and a cash payment. Epix also said that it had
sold the U.S., Canadian and Australian rights for its magnetic resonance
angiography agent, MS-325, to Lantheus Medical Imaging Inc. for $28
million in cash. The struggling company said that it would use some of
the proceeds from the deal to make the payments in the exchange
offer. Read
more. (Subscription required.)
Team Financial Files for
Chapter 11
Team Financial Inc. and two subsidiaries have
filed for chapter 11 protection, a few weeks after the two banks owned
by the subsidiaries were seized by regulators, the
face='Times New


Roman'>
face='Times



New
Roman' size='3'>Kansas City Star reported
today. Team Financial listed $692,410 in assets and $26.7 million in
liabilities. On March 20, federal regulators took over sTeamBank of
Paola, Kan., after losses largely tied to real estate loans depleted its
capital. Great Southern Bancorp of Springfield, Mo., owner of Great
Southern Bank, took over TeamBank’s branches and bought $450
million in loans and foreclosed properties. Regulators also seized a
smaller bank indirectly owned by TeamBank, Colorado National Bank in
Colorado Springs.
href='http://www.kansascity.com/business/story/1130841.html'>Read
more.
U.S. to Offer Aid to Life
Insurers
The Treasury Department has decided to extend
bailout funds to a number of struggling life-insurance companies,
the
size='3'>Wall Street Journal reported today.
The department is expected to announce the expansion of the Troubled
Asset Relief Program to aid the ailing industry within the next several
days. Shares of life insurers have fallen more than 40 percent this
year. Their troubles led to a string of rating-agency downgrades that
made it more difficult for some insurers to raise funds. Only insurers
that own federally chartered banks will qualify for the program.
Treasury had said last year that life insurers could be eligible for
TARP funds if they owned bank-holding companies, but it hadn't
officially decided to give funds to these companies as it focused much
of its energies on banks and automakers.
href='http://online.wsj.com/article/SB123914741752198971.html#mod=testMod'>Read
more. (Subscription required.)
Two Homebuilders Merge in
$1.3 Billion Deal
In a transaction that would create the
nation’s largest homebuilder, Pulte Homes and Centex said today
that they would merge in a $1.3 billion stock-for-stock deal, according
to a report by the
face='Times New Roman' size='3'>New York Times
size='3'>. The transaction valued by the companies at $3.1 billion,
includes $1.8 billion in debt. Directors of both companies have
unanimously approved the deal. The combined company will use the Pulte
name and will be based in Bloomfield Hills, Mich. The two companies are
hoping that the merger will help them survive a severe slump in the
housing market that has helped lengthen a recession that started in
December 2007. Centex lost $664 million in the quarter that ended in
December 2008 while Pulte reported a $338.2 million loss.
href='http://www.nytimes.com/2009/04/09/business/09build.html?ref=business&pagewanted=print'>Read
more.
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