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July 29, 2008
Banks Act to Aid Mortgage
Lending
Four of the nation's largest banks will begin issuing a type of debt
that the Bush administration has been advocating as a way to help
reinvigorate the housing market, the Wall Street Journal reported today.
Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and
Wells Fargo & Co. yesterday said that they would begin issuing
“covered bonds,” a popular method of financing in Europe
that could make more mortgage financing available in the United States.
Covered bonds stay on a bank's balance sheet and are backed by a 'cover
pool' of high-quality mortgages that must meet certain criteria, such as
being up to date in their payments. Investors are also protected because
if the mortgages go bad, the bank must step in to ensure that
bondholders get their interest. The move came as federal regulators
announced a set of voluntary industry guidelines intended to provide
clarity to issuers and investors about the types of assets banks must
hold if they issue such bonds and how investors would fare in the event
of a bank failure.
href='http://online.wsj.com/article/SB121727042664390535.html?mod=hpp_us_whats_news'>Read
more. (Subscription required.)
Delphi's Suit against Appaloosa Moves
Forward
Bankruptcy Judge Robert D. Drain ruled yesterday that
auto parts maker Delphi Corp. could sue hedge fund Appaloosa Management
LP, Goldman Sachs Group and others that last month pulled out of a $2.55
billion investment deal with Delphi, derailing its emergence from
chapter 11, Bankruptcy Law360 reported yesterday. Delphi filed
an adversary proceeding against Appaloosa and the other investors in
May, claiming they had breached their contract with Delphi along with
allegations of fraud in the failed deal. Appaloosa countered in its own
filing and at the hearing that while there was a breach of contract in
the collapse of the reorganization plan, there was no fraud because
there was a breakup provision in the plan.
href='http://bankruptcy.law360.com/articles/64055'>Read
more. (Subscription required.)
Regulators Launch Probes into SemGroup
Energy
Federal and state regulators have opened up investigations into a public
unit of SemGroup LP, which filed for bankruptcy protection last week
after suffering billions of dollars in losses from bad bets on energy
contracts, Bankruptcy Law360 reported yesterday. The Securities and
Exchange Commission asked the firm on July 21 to preserve, retain and
produce certain documents relating to liquidity issues of SemGroup
Energy's Tulsa, Okla.-based parent, which filed for bankruptcy on July
22. The U.S. Attorney's Office followed suit a couple days after the SEC
by serving SemGroup Energy with grand jury subpoenas seeking financial
records and other information related to the parent company's
collapse.
href='http://bankruptcy.law360.com/articles/64017'>Read more.
(Subscription required.)
Retailers
Retailer Files Reorganization Plan
and Disclosure Statement
Bankrupt retailer Goody's Family Clothing Inc. has filed a
reorganization plan and disclosure statement that are supported by the
company's unsecured creditors' committee, Bankruptcy Law360
reported. The plan and disclosure statement, filed Thursday in the U.S.
Bankruptcy Court for the District of Delaware, is slated for a court
hearing on Aug. 25, after any objections are filed. According to
the proposed plan, Goody's will obtain new financing, which will be used
to fund working capital and refinance its $175 million
debtor-in-possession facility from General Electric Commercial Finance
Corporate Lending.
href='http://bankruptcy.law360.com/articles/63858'>Read
more. (Subscription required.)
Linens 'n Things to Close Fewer
Stores
Bankrupt retailer Linens 'n Things yesterday offered a sign that
business may be improving slightly, saying it will close fewer stores
than originally anticipated, the Associated Press reported yesterday.
The home furnishings and bedding retailer, which filed for bankruptcy in
May, said that it will close 57 stores in the latest part of its
restructuring, down from 87 as planned. When combined with the original
list of 120 the company announced in May, the company will end up
closing a total of 177 stores. Michael F. Gries, the company's interim
CEO, attributed the decline in store closings to an improved outlook for
these stores this year and 2009.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/07/28/AR2008072801273_pf.html'>Read
more.
Mervyn's LLC Close to Bankruptcy
Filing
Mervyn's LLC is telling creditors that the regional
department-store chain will file for bankruptcy protection in the next
few days, barring a last-minute cash infusion, the Wall Street
Journal reported today. Mervyn's, which operates 177 stores, mostly
in California, has been struggling in the face of sharp sales declines
this year in California and Arizona, where the real estate markets have
collapsed. Nervous factoring companies, which provide financing for
apparel makers, have cut off funding, leaving Mervyn's with limited
merchandise for the critical back-to-school season.
href='http://online.wsj.com/article/SB121728039723691045.html'>Read
more. (Subscription required.)
Banks Sharply Reduce Business
Loans
The Federal Reserve data showed that commercial and industrial loans
from banks, and short-term “commercial paper” not backed by
collateral, collectively dropped almost 3 percent over the last year, to
$3.27 trillion from $3.36 trillion, the New York Times reported
yesterday. Earlier this year, credit extended by banks to companies and
consumers was still growing at double-digit rates compared with three
months earlier, according to an analysis of Federal Reserve data by
Goldman Sachs. By mid-June, however, bank credit was declining at an
annualized pace of more than 6 percent that financial industry
executives said represented a shift back to realistic assessments of
risk.
href='http://www.nytimes.com/2008/07/28/business/economy/28credit.html?ei=5087&em=&en=68a53e01dfd0f5fa&ex=1217476800&pagewanted=print'>Read
more.
Merrill Lynch Looks to Sell Additional
Mortgage Assets
Merrill Lynch & Co. agreed to sell more than $30 billion in
mortgage-related assets at a steep loss, hoping to purge its balance
sheet of problems that continue to plague the giant brokerage firm, the
Wall Street Journal reported today. Merrill's sale of the
assets for just 22 cents on the dollar will result in a write-down of
$5.7 billion. Faced with another leak in its balance sheet, Merrill also
announced late yesterday that it would sell $8.5 billion in new common
stock. The sale will dilute existing Merrill shareholders by about 38
percent -- and is additionally painful because the firm will have to
make extra payments to an investor that bought shares at a much higher
price in an offering last December.
href='http://online.wsj.com/article/SB121728170968391097.html?mod=us_business_whats_news'>Read
more. (Subscription required).
Billions in Payroll Tax Remain Unpaid
to IRS
Congressional investigators have found that businesses have shorted the
Internal Revenue Service about $58 billion in federal payroll taxes they
withheld from employees' wages over the past 10 years, the
Washington Post reported today. The Government Accountability
Office said in a report to be published today that 1.6 million
businesses did not forward to the IRS taxes they collected for
employees' federal income taxes, Social Security and Medicare payments.
The number of businesses with more than five years of payroll tax debt
more than doubled in the past decade, from 5,367 to 14,681, while the
number of businesses 10 years in arrears on payroll taxes had increased
470 percent.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/07/28/AR2008072802712_pf.html'>Read
more.
Former Refco CEO Plans Appeal of
Prison Sentence
Phillip Bennett, the former CEO of collapsed commodities broker Refco,
has filed court papers to appeal his 16-year prison sentence handed down
for fraud and conspiracy, Reuters reported today. Bennett was sentenced
on July 3 after pleading guilty in February to 20 criminal counts
related to a $2.4 billion fraud that led to Refco's collapse. Refco
sought bankruptcy protection in October 2005 after revealing that
Bennett had hidden $430 million in bad customer debt.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/07/28/AR2008072801062_pf.html'>Read