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August 27, 2008
Alabama County Prepares for
Bankruptcy
Jefferson County, Ala., officials told their lawyers to prepare a
bankruptcy filing if the county can't reach an agreement with creditors
over how to escape from $3 billion of bonds with soaring interest rates,
Bloomberg News reported yesterday. The Jefferson County Commission voted
unanimously yesterday to have the law firm Bradley, Arant, Rose and
White LLP and the county attorney take over negotiations with creditors
led by JPMorgan Chase & Co. and draw up bankruptcy papers should
talks falter. The agreement with creditors that provided the county time
to work toward a solution expires on Aug. 29 because a special session
of the Legislature won't be called to consider the most recent plan to
end the crisis.
href='http://www.bloomberg.com/apps/news?pid=20601103&sid=ao_DG5WEykaM'>Read
more.
FHA Raises Its Premiums to Insure
Repayment of Mortgages
The Federal Housing Administration (FHA), the U.S. agency rapidly
shouldering more of the risk on home loans, raised the premiums it
charges for insuring that mortgages will be repaid, the Wall Street
Journal reported today. The FHA said that the upfront premiums
charged to most borrowers will be 1.75 percent of the loan amount,
effective Oct. 1, up from the 1.5 percent that was in effect until July
14. It was on that date when FHA adopted a 'risk-based' pricing system
that created a range of charges depending on borrowers' credit scores
and the amount of the down payment or equity they owned in their homes.
In late July, Congress approved a housing bill that included a provision
requiring the FHA to revert to a standard premium at least until Oct. 1,
href='http://online.wsj.com/article/SB121978888706674303.html?mod=hpp_us_whats_news'>Read
more. (Subscription required.)
Thornburg Mortgage Continues to
Struggle
Jumbo home loan specialist Thornburg Mortgage Inc. said that its
survival remained in doubt following additional margin calls, but it is
on track to complete a restructuring and avoid collapse, Reuters
reported yesterday. Thornburg CEO Larry Goldstone said yesterday that
the Santa Fe, N.M.-based company expects to complete an exchange offer
next week for some preferred stock that will ensure its survival.
Thornburg ended June with $27.2 billion of adjustable-rate mortgage
assets on its books. Thornburg said it has been hurt as credit rating
agencies downgrade some of its 'triple-A' and 'double-A' rated
securities, pushing their market value down. It said it covered $219
million of margin calls on August 21 and may face another $25.9 million
of collateral demands.
href='http://www.nytimes.com/reuters/business/business-thornburg.html?dbk=&pagewanted=print'>Read
more.
FDIC Weighs Tapping Treasury as Funds
Run Low
Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair said
yesterday that her agency might have to borrow money from the Treasury
Department to see it through an expected wave of bank failures, the
Wall Street Journal reported today. Bair said that the
borrowing could be needed to cover short-term cash-flow pressures caused
by reimbursing depositors immediately after the failure of a bank. The
borrowed money would be repaid once the assets of that failed bank are
sold. The last time the FDIC borrowed funds from Treasury came at the
tail end of the savings-and-loan crisis in the early 1990s after
thousands of banks were shuttered. Bair said that she did not expect the
FDIC to take the step of tapping a separate $30 billion credit line with
Treasury, which has never been used.
href='http://online.wsj.com/article/SB121977767814673649.html?mod=hpp_us_whats_news'>Read
more. (Subscription required.)
New Credit Hurdle Looms for
Banks
U.S. and European banks, already burdened by losses and concerns about
their financial health, face a new challenge of paying off hundreds of
billions of dollars of debt coming due, the Wall Street Journal
reported today. At issue are that so-called floating-rate notes, which
typically mature in two years, will come due over the next year or so at
a time when banks are struggling to raise fresh funds. The crunch will
begin next month, when some $95 billion in floating-rate notes mature.
J.P. Morgan Chase & Co. analyst Alex Roever estimates that financial
institutions will have to pay off at least $787 billion in floating-rate
notes and other medium-term obligations before the end of 2009. That's
about 43 percent more than they had to redeem in the previous 16
months.
href='http://online.wsj.com/article/SB121978478790274083.html?mod=hpp_us_whats_news'>Read
more. (Subscription required.)
Auto Suppliers
Cadence Files for
Bankruptcy
Auto parts supplier Cadence Innovation filed for chapter 11 protection
yesterday citing rising material costs and decreasing demand for larger
vehicles, Reuters reported. Cadence has six plants and various support
facilities in Michigan and Indiana. Its European operations, which
include three plants in Czech Republic and one in Hungary, are excluded
from the bankruptcy. The Troy, Mich.-based company makes door trim,
instrument panels and airbag covers. Cadence listed assets of between
$10 million and $50 million, and liabilities of $100 million and $500
million.
href='http://www.reuters.com/article/bondsNews/idUSN2634725420080826'>Read
more.
Judge Approves Delphi Settlement
with Furukama
Bankruptcy Judge Robert Drain approved a $16.5
million settlement between auto parts maker Delphi Corp. and Furukawa
Electric Co. Ltd., an electronic component manufacturer, Bankruptcy
Law360 reported yesterday. The settlement, submitted to the court
on Aug. 6, resolves a long-running dispute between the two companies
over a sales contract for torque and position sensors, including
litigation in the U.S. Bankruptcy Court for the Southern District of New
York and in Michigan state court. Under the terms of the settlement,
which was reached through mediation, Tokyo-based Furukawa has agreed to
pay Delphi $16.5 million, withdraw a claim in the company's bankruptcy
proceeding in the approximate amount of $2.6 million, and reduce another
claim from $5 million to $4.87 million.
href='http://bankruptcy.law360.com/articles/67238'>Read more.
(Subscription required.)
Citigroup to Pay $18 Million to Settle
Credit Card Probe
California Attorney General Jerry Brown said yesterday that Citigroup
Inc. will pay nearly $18 million in refunds and settlement charges for
taking $14 million from customers' credit card accounts, the Associated
Press reported. Citigroup will make refunds to the 53,000 customers
affected and pay $3.5 million in damages and civil penalties to the
state of California, which had been investigating the questionable
practices for three years, Brown said. The bank will also pay 10 percent
interest to California customers, who accounted for $1.6 million of the
money 'swept' out of accounts and into a Citi fund between 1992 and
2003.
href='http://www.latimes.com/business/la-fi-citi27-2008aug27,0,3150391,print.story'>Read
more.
Grupo Mexico Investors Hit in Texas
Courts by Asarco Bankruptcy
Grupo Mexico SAB may be forced to pay $8.25 billion, or $1.03 a share,
and give up U.S. copper producer Asarco LLC because of fights between
the companies in two federal courts in Texas, Bloomberg News reported
today. Mexico's biggest mining company is accused in a lawsuit of
illegally stripping Asarco of its most valuable asset before it put the
unit into bankruptcy in 2005. A verdict may come next month. Another
judge this fall will weigh competing reorganization plans and decide
whether the Mexican company will keep control of the Tucson, Ariz.-based
subsidiary. Asarco's independent court-appointed directors, who now
control the company, are seeking $8.25 billion in actual damages in
Brownsville, almost five times Grupo Mexico's 2007 net income. They also
want $8.25 billion in punitive damages.
href='http://www.bloomberg.com/apps/news?pid=20601087&sid=aAE.yFCTXBMg&refer=home'>Read
more.
Judge Approves Disclosure Statement
for Goody's Family Clothing
Bankruptcy Judge Christopher S. Sontchi on Monday
approved an amended disclosure statement filed by Goody's Family
Clothing Inc. in its chapter 11 proceedings, Bankruptcy Law360
reported yesterday. The company said that its joint reorganization plan,
which was included in the statement, will allow it to continue operating
and settle disputes with lenders. The court's order also scheduled a
confirmation hearing for Oct. 6 and set deadlines and instructions for
voting and objecting to the reorganization plan, which the company says
has the support of the unsecured creditors' committee.
href='http://bankruptcy.law360.com/articles/67349'>Read
more. (Subscription required.)
International
Berlusconi Weighs Italian
Bankruptcy Law Change in Alitalia Rescue
Italian Prime Minister Silvio Berlusconi is weighing potential changes
to a 2004 bankruptcy protection law as part of Italy's latest rescue
plan for struggling state-controlled airline Alitalia SpA, the Wall
Street Journal reported today. Berlusconi's economic ministers met
yesterday to discuss whether to retool the law, crafted in the wake of
the collapse of Italian food and dairy giant Parmalat. The Italian
government has tried to sell its 49.9 percent controlling stake in the
airline three times in nearly two years without success. The airline,
which had €375 million ($553 million) on hand at the end of June,
is burning through cash and is carrying €1.1 billion in
debt.
href='http://online.wsj.com/article/SB121978253357673863.html'>Read
more. (Subscription required.)