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February 21,
2008
name='1'>Lending Squeeze Hits Ailing Firms
With the economy
sputtering and banks pulling back on lending, struggling companies
looking to gain financing to rescue or bolster their operations are
running into road blocks, according to the
size='3'>Wall Street Journal today. Yesterday,
the credit crisis hit two national retailers as San Francisco-based
Sharper Image, which sells high-tech gadgets such as air purifiers and
massage chairs, and Lillian Vernon Corp., which sells low-cost gifts
such as Easter baskets and welcome mats, both filed for chapter 11
protection. The filings come after years in which companies had access
to easy money for everything from expansions to acquisitions to
leveraged buyouts. For many, this global credit boom forestalled painful
plant closings, job cuts and asset sales. However, corporate defaults
and bankruptcies have risen sharply this year. The total value of
corporate-bond defaults is already approaching the total for all of
2007. Even some companies already operating under federal bankruptcy
protection are feeling the squeeze as auto-parts maker Delphi Corp. and
chemicals concern Solutia Corp. have been unable to line up financing to
href='http://online.wsj.com/article_print/SB120356179488682019.html'>Read
more. (Registration required.)
name='2'>Mortgage Plan Seeks to Stem Foreclosures
The Office of Thrift
Supervision is preparing a plan to help mortgage borrowers who owe more
than their homes are worth and to discourage them from abandoning those
properties, the
size='3'>Washington Post reported today. Under
the regulatory agency's proposal, still in its early stages, these
borrowers would refinance into government-insured loans that cover the
current value of their homes. The refinancing would pay part of what's
owed to the original lender. For the remainder, the lender would get
what the plan's backers call a 'negative equity certificate.' The lender
could redeem the certificate if the home is eventually sold at a higher
price. The agency, which has been closely involved in talks about
government responses to the mortgage problems, focused on borrowers
whose home values have plummeted because a growing number of people are
in that situation and unable to refinance.
href='http://www.washingtonpost.com/wp-dyn/content/article/2008/02/20/AR2008022002710_pf.html'>Read
more.
name='3'>Supreme Court Allows Retirement Plan Participants to Sue
Over Losses
The Supreme Court ruled
yesterday that individual participants in the 401(k) retirement plans
can sue under a pension protection law to recover their losses, the
Associated Press reported yesterday. The unanimous decision has
implications for 50 million workers with $2.7 trillion invested in
401(k) retirement plans. The case was brought forward by James LaRue
of
size='3'>Southlake,
w:st='on'>
size='3'>Texas
that the value of his stock market holdings plunged $150,000 when
administrators at his retirement plan failed to follow his instructions
to switch to safer investments. The issue in the LaRue case was whether
the Employee Retirement Income Security Act permits an individual
account holder to sue plan administrators for breaching their fiduciary
duties. Justice John Paul Stevens, in his opinion for the court, said
that such lawsuits are allowed. 'Fiduciary misconduct need not threaten
the solvency of the entire plan to reduce benefits below the amount that
participants would otherwise receive,' Stevens said. The decision
in
size='3'>LaRue v. DeWolff, 06-856, overturned
a ruling by the Fourth U.S. Circuit Court of Appeals in
size='3'>Richmond
w:st='on'>
size='3'>Va.
href='http://www.law.com/jsp/law/LawArticleFriendly.jsp?id=1203508155235'>Read
more.
href='http://www.supremecourtus.gov/opinions/07pdf/06-856.pdf'>Click
here to read the Stevens’ opinion for the court.
name='4'>Senator Weighs In on Pacific Lumber
Bankruptcy
Sen. Dianne Feinstein
(D-Calif.) has weighed in on Pacific Lumber Company
face='Times New Roman'>Inc.'s bankruptcy proceedings,
pushing for any reorganization plan that would adhere to long-standing
conservation agreements designed to protect old-growth redwoods,
Bankruptcy Law360 reported
yesterday. In a statement filed with the U.S. Bankruptcy Court for the
Southern District of Texas, Feinstein said the chapter 11 proceedings
should be guided by both the 1996 Headwaters Agreement and the 1999
Habitat Conservation Plan. “The mismanagement of Pacific Lumber
should not be allowed to undermine these far-reaching agreements that
were carefully negotiated and fully accepted by all the parties,”
Feinstein said in the court filing. Feinstein also noted that the
federal government paid $250 million and the
w:st='on'>
size='3'>California state
government paid $130 million to consummate the deals.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=47672'>Read
more. (Registration required.)
Approves Congoleum's Disclosure Statement
Bankruptcy Judge
Kathryn C. Ferguson
approved Congoleum Corp.'s disclosure statement, setting
the stage for possible approval of the flooring company's reorganization
plan later this year,
size='3'>Bankruptcy Law360 reported yesterday.
The plan would allow the company to emerge from bankruptcy without
liability for existing or future asbestos claims through the
establishment of a trust to handle such claims. Congoleum, the
bondholders’ committee and the claimants’ committee all
approved a reorganization plan earlier this month. With the judge's
approval in place, objections to the plan must be filed by April 9, and
a hearing on confirmation of the reorganization plan is set for June
26.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=47662'>Read
more. (Registration required.)
Denies Chrysler’s Efforts to Reclaim Tools from
Plastech
Bankruptcy Judge
Phillip J. Shefferly
denied Chrysler LLC's request to lift the automatic stay
in Plastech Engineering Products Inc.'s bankruptcy proceedings in order
to reclaim tooling equipment used to make Chrysler parts, saying that
doing so could doom the auto supplier's efforts to reorganize under
chapter 11, Bankruptcy
Law360 reported yesterday. Allowing Chrysler
to take back the equipment now would force Plastech to shut down eight
of its 36 plants immediately and significantly impair its ability to
provide parts to its other customers, the judge wrote. The company,
which employs 7,700 people in 36 facilities, also supplies GM, Ford and
JCI. Its projected annual sales, apart from its Chrysler business, are
more than $1 billion, according to court documents.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=47617'>Read
more.
size='3'>(Registration required.)
name='7'>Global Motorsport Loan Draws Fire
Unsecured creditors of Global
Motorsport Inc. are objecting to the company's proposed $3.5 million
bankruptcy loan, saying that the financing benefits the motorcycle-parts
supplier's lenders at the expense of its creditors, the Associated Press
reported yesterday. Global Motorsport has already received permission to
borrow up to $2.5 million of the $3.5 million bankruptcy loan from
Ableco Finance LLC. Ableco, an affiliate of private-equity firm Cerberus
Capital Management LLC, is Global Motorsport's controlling shareholder
and has more than $138 million in prebankruptcy claims against the
company. The unsecured creditors want the bankruptcy court to deny the
company's request to borrow on the balance of the loan at a hearing
scheduled for Wednesday.
href='http://biz.yahoo.com/ap/080220/global_motorsport_bankruptcy.html?.v=1'>Read
more.
Gallery Proposes $4.7 Million Employee Bonus Plan
Video rental company
Movie Gallery Inc. has asked the court overseeing its chapter 11
proceedings to approve its plan to pay approximately 400 employees about
$4.7 million in bonuses,
size='3'>Bankruptcy Law360 reported yesterday.
The proposed bonus plan is composed of two components: a management
incentive plan and a supplemental incentive plan. The management
incentive plan will cost about $3.2 million if the debtors meet their
targets for earnings before interest, taxes, depreciation and
amortization. The supplemental plan, which is geared toward all
full-time employees at the vice president level and below, could be
worth up to $1.5 million, says Movie Gallery's motion.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=47621'>Read
more. (Registration required.)
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name='9'>Chicago
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size='3'> Hedge Fund Accused of Fraud
Federal regulators have
accused a Chicago-based hedge fund of misappropriating more than $11
million from hundreds of people who invested at least $300 million with
it to trade commodity futures contracts, the Associated Press reported
yesterday. The Commodity Futures Trading Commission brought the charges
Tuesday, broadening its existing lawsuit against Lake Shore Asset
Management Ltd. The original suit was filed last June. The charges in
U.S. District Court in
w:st='on'>
size='3'>Chicago
Philip Baker and the companies he controlled, which also include the
Lake Shore Group of Companies Inc.
size='3'>The CFTC, which regulates commodities trading, said in amending
its complaint that the
w:st='on'>
size='3'>Lake
face='Times New Roman' size='3'>Shore
companies fraudulently solicited pool participants and
distributed false account statements showing they were earning
substantial profits when in fact they lost $37.5 million from February
2002 through June 2007.
href='http://biz.yahoo.com/ap/080220/lake_shore_fraud.html?.v=1'>Read
more.
International
id='10'
name='10'>U.K.
face='Times New Roman' size='3'> Official Responds to Questions
over Nationalization Plans for Northern Rock
Chancellor of the
Exchequer Alistair Darling rejected claims that the
w:st='on'>
size='3'>U.K.
size='3'>government won't own the 'best half'' of Northern Rock's
mortgage book when it nationalizes the struggling lender this week,
Bloomberg News reported yesterday. Darling, reacting to a political
dispute that began in the House of Commons late yesterday, said that the
government has little financial exposure to Granite, a trust set by
Northern Rock to finance its mortgages. He also said that the bank has
enough collateral to secure government loans made to the stricken
mortgage lender. The government won't
acquire Granite when it takes control of Northern Rock. At the end of
June, the trust had £45.7 billion ($87 billion) of securitized
mortgages, accounting for 44 percent of Northern Rock's funding from
financial markets.
href='http://www.bloomberg.com/apps/news?pid=20601102&sid=aFFX9JLDXDKA'>Read
more.
name='11'>French Bank Says Its Controls Failed for 2
Years
A preliminary report
released yesterday said that a rogue trader at Société
Générale, Jérôme Kerviel, began making unauthorized
transactions beginning in 2005, and lapses in the bank’s internal
controls allowed the trades to go undiscovered until January, the
New York Times
size='3'>reported today. The report also said there was no evidence to
suggest that Kerviel had accomplices in the unauthorized trading, which
led to $7.1 billion in losses. “At this stage of the
investigations, there is no evidence of embezzlement or internal or
external complicity,” said the report, submitted to
Société Générale’s board by three independent
directors. The committee was formed last month to study the mechanisms
used by Kerviel to hide his activities and identify the lapses that had
enabled the trader to expose the bank to 50 billion euros, or $73.5
billion, worth of risk — more than the market value of the
bank.
href='http://www.nytimes.com/2008/02/21/business/worldbusiness/21bank.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
href='http://www.nytimes.com/2008/02/21/business/worldbusiness/21bank.html?_r=1&oref=slogin&ref=business&pagewanted=print'>
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=aHVtzMqt3jRw&refer=home'>