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June 7, 2006
name='1'>Asbestos Legislation a Big Risk, Former CBO Chief
Says
A U.S. Senate proposal for a
privately funded trust to pay asbestos injury claims is laden with
uncertainty and taxpayers risk footing the bill, the former head of the
Congressional Budget Office (CBO) plans to tell a Senate committee
today, Reuters reported yesterday. The highly critical assessment of the
asbestos legislation by Douglas Holtz-Eakin appears in testimony
prepared for delivery on Wednesday at a Senate Judiciary Committee
hearing. Holtz-Eakin did an analysis last year, while still CBO
director, that estimated claims at between $120 billion and $150
billion. The bill's sponsors said that showed that a $140 billion fund
would have enough money. Holtz-Eakin said that revenues could fall short
of $140 billion, while the overall scale of asbestos injury claims for
decades to come is difficult to predict. Asbestos legislation has
been stalled since February, when it failed by one vote to get past a
procedural hurdle in the Senate.
href='http://www.nytimes.com/reuters/washington/politics-congress-asbestos-ri…'>Read
more.
name='2'>Northwest Airlines Flight Attendants Reject Wage
Cuts
Northwest Airlines Corp. flight
attendants rejected a pay cut package on Tuesday, setting up a possible
showdown with the nation's fifth-largest carrier, the Associated Press
reported yesterday. The Professional Flight Attendants Association
(PFAA) said 80 percent of its members voted against the wage-cut deal.
Northwest, which has been operating under bankruptcy protection since
last Septemnber, had said previously that it would have the right to
impose terms if the tentative agreement was rejected. “PFAA is
prepared to immediately return to negotiations with the company in order
to reach a fair and equitable agreement as soon as possible,'' union
President Guy Meek said in a hotline message to members. He said the
union reserves the right to strike. A strike authorization ballot won
support from 92 percent of union members in February.
href='http://www.wbz.com/topic/ap_news.php?story=AP/APTV/National/a/a/Northwe…'>Read
more.
In related news, Northwest
Airlines said it would attempt to terminate its employee pensions in
bankruptcy if Congress did not approve legislation giving airlines more
time to finance those plans, Reuters reported yesterday. In a letter to
House of Representatives Majority Leader John Boehner (R-Ohio), the
carrier said that delays in moving the pension bill on Capitol Hill
threatened the progress of restructuring and that action was needed to
save pensions. “Without congressional leadership and action, the
NWA pension plans will be terminated and the retirement security of over
70,000 men and women placed in jeopardy,'' wrote Douglas Steenland, the
airline's president and chief executive.
href='http://www.nytimes.com/reuters/business/business-airlines-northwest-pen…'>Read
more.
Autos
name='3'>GM Opposes
size='3'>Delphi
Void Supply Contracts
General Motors Corp. has
made yet another attempt to thwart bankrupt auto parts maker Delphi Corp
from voiding the supply contracts between the two companies, filing
another objection to
size='3'>Delphi
the agreements,
size='3'>Portfolio Media reported yesterday.
In the objection, GM attacked Delphi’s efforts to win bankruptcy
court approval to void the contracts, claiming that Delphi is motivated
by “the unexplained theory that Delphi can parlay that option into
a suicidal and tortuous shutdown threat that will somehow convince GM to
pay billions of extra dollars to
face='Times New Roman' size='3'>Delphi
size='3'>not to destroy itself.” GM said in its 189-page filing
that voiding the contracts could cost the car maker more than $1 billion
per month. In opposing Delphi’s bid, GM argued that it needs time
to analyze Delphi's request and claimed that the supplier has refused to
hand over documents essential to that examination. The case is
In re Delphi Corporation et
al., case number 05-44481, in the U.S.
Bankruptcy Court for the Southern District of New
York.
In related news, the U.S.
Securities and Exchange Commission (SEC) has sent target letters to at
least seven former officials from Delphi Corp., signaling that the
regulator’s two-year investigation into the bankrupt
company’s accounting practices is gaining traction,
Portfolio Media
reported yesterday. When the SEC launched the
investigation into the company’s accounting fraud, six Delphi
executives and other lower-level employees were ousted from the company,
including the company’s vice chairman and chief financial officer
Alan Dawes, former treasurer Pam Geller and chief accountant and
controller Paul Free. John Blahnik, the company’s vice president
for treasury of mergers and acquisitions, was also fired. While four of
the officials are believed to have received the notices by the SEC, the
lawyers for these officials refused to comment.
name='4'>Top Hedge Fund Opens Investor Door to Solidify Bet on
Bankrupt Auto-Parts Makers
In a letter to investors late
last week, David Tepper's hedge fund, Appaloosa Management, said it was
aiming to raise as much as $1.8 billion to 'enhance and protect our
current positions, including [bankrupt companies] Delphi Corp. and Dana
Corp,' the Wall Street Journal reported today. The fund
plans to tap existing investors first and open the door to outsiders if
necessary. Appaloosa could use the extra cash to increase its influence
over how the companies emerge from bankruptcy court. The move is radical
for Appaloosa, a $4 billion hedge fund that has made a fortune buying
bonds and stocks of struggling companies.Over the past three years, it
instead returned more than $2 billion to its investors, saying that
promising opportunities were scarce amid a proliferation of competing
hedge funds and a decline in bankruptcy filings.
href='http://online.wsj.com/article/SB114964870526973444.html?mod=us_business…'>Read
more. (Registration required.)
name='5'>Commentary: Insolvency of National Flood Insurance Program
Predicted for Years
The National Flood
Insurance Program is broke and there is little hope for recovery unless
Congress authorizes major premium increases and other changes, according
to a commentary in today’s
size='3'>Lafayette Daily Advertiser. The
program has been in serious trouble for years, and the flooding that
accompanied recent hurricanes finally brought about the predicted
insolvency. Congress is considering a major rate increase and a bill to
broaden the risk pool by forcing other property owners, such as owners
of vacation homes, older properties that have flooded repeatedly and
structures in high-risk coastal zones, to join the insurance program.
With an estimated 4.9 million policyholders paying approximately $2.5
billion in annual premiums, there isn't enough money coming in to repay
the debt while still leaving sufficient funds to pay claims from future
flooding events, according to the Congressional Budget Office.
Legislation pending in the Senate would forgive the flood insurance debt
while implementing numerous changes designed to make the program
financially stable.
href='http://www.theadvertiser.com/apps/pbcs.dll/article?AID=/20060607/OPINIO…'>Read
more.
w:st='on'>
name='6'>New York
face='Times New Roman' size='3'> Developer Files for Chapter
7
Reginald A. Scott,
a
size='3'>New York
size='3'>developer, declared chapter 7 bankruptcy after using credit
cards and a second mortgage on his house to try to keep his business
afloat, the Albany
Times-Union reported today. Scott filed for
chapter 7 bankruptcy on May 26 in the U.S. Bankruptcy Court in
size='3'>Columbia
w:st='on'>
size='3'>S.C.
78-year-old businessman, who now lives in
w:st='on'>
size='3'>Charleston
w:st='on'>
size='3'>S.C.
million in liabilities with $3.7 million in assets. Scott is a retired
real estate agent who built projects throughout the East Coast.
href='http://timesunion.com/AspStories/story.asp?storyID=489261&category=BUSI…'>Read
more.
name='7'>Regulators Soften Guidance for Banks Structuring Financing
Deals
Federal regulators,
responding to criticism from financial institutions, have watered down
guidance issued in the wake of the Enron scandal to banks considering
engaging in risky transactions, the
size='3'>Wall Street Journal reported today.
Financial regulators issued an advisory in May 2004 stating that
financial institutions involved in helping structure complex
transactions must conduct extensive reviews of such deals to make sure
they have a legitimate purpose. In the revised guidance issued last
month, the regulators narrowed the scope of transactions that must be
reviewed and changed the document to give commercial and investment
banks more latitude in deciding whether transactions posed legal risks.
A group of four law professors has sent a letter to regulators and
members of Congress, saying the interagency proposal 'is a mistake
because it can be read to encourage and condone illegal conduct.' The
professors contend that banks could escape potential liability and have
little incentive for backing away from potentially illegal
deals.
href='http://online.wsj.com/article/SB114964755268973414.html?mod=home_whats_…'>Read
more. (Registration required.)
name='8'>Congressman Says Fannie Mae Settlement Shows Need for
Flexibility
House Financial Services
Chairman Mike Oxley (R-Ohio) said Tuesday that a federal regulator's
report on a $10.6 billion accounting scandal at Fannie Mae bolsters a
House-passed bill that would revamp oversight at government-sponsored
enterprises,
size='3'>CongressDaily reported today. Oxley
noted that in the aftermath of a recent Office of Federal Housing
Enterprise Oversight (OFHEO) report that detailed how executives
manipulated earnings to trigger bonuses for senior executives, Fannie
Mae reached an agreement with the regulator to freeze its portfolio at
its Dec. 31, 2005, level of $727 billion. Fannie Mae also paid $400
million in fines and will conduct personnel reviews of those who might
have played a role in the scandal. The House bill would create a
stronger, independent regulator for Fannie Mae, Freddie Mac and Federal
Home Loan Banks, allowing it to reduce mortgage portfolios if they pose
a safety and soundness risk.
size='3'>A similar Senate measure would likely reduce Fannie's and
Freddie's holdings of mortgages and mortgage-backed securities, which
represent a major source of their profits.
name='9'>S&P Predicts Gap in Public Pension
Funding
Credit rating agency
Standard & Poor's said that federal pension plans are underfunded by
$4.5 trillion, the Associated Press reported yesterday. With plans at
the state level also underfunded, taxpayers could be forced to make up
the difference by paying higher federal, state and local taxes. S&P
calculates that state pension plans are underfunded by $284 billion and
corporate pensions are underfunded by $140 billion. 'The cost of
supporting retirees will fall on the work force,' says David Wyss, Chief
Economist at Standard & Poor's. The
biggest contributing factor to the underfunding is demographics,
especially as the baby boomer generation retires and life spans
lengthen.
href='http://www.chron.com/disp/story.mpl/ap/fn/3942409.html'>Read
more.
International
name='10'>Corporate Bankruptcies Dip in
size='3'>
w:st='on'>Germany
There were fewer German
companies filing for bankruptcy in the first three months of 2006, but
the number of private citizens seeking insolvency increased by half, the
country's Federal Statistics Office reported, according to an Associated
Press report today. In the January-March period, the number of corporate
insolvencies fell to 8,410, or 8.4 percent, from 9,185 in the same
period a year ago. However, the number of private bankruptcies rose to
21,726 from 14,468, an increase of 50.2 percent. Total insolvencies,
including companies, households and others, totaled 38,128 in the first
quarter, 23.2 percent more than in the first three months of 2005.
Claims from creditors for unpaid debts declined on the year to euro 8.1
billion ($10.4 billion) from euro 8.8 billion in 2005, helped by the
decrease in corporate insolvencies, which account for about 60 percent
of all claims.
href='http://biz.yahoo.com/ap/060607/germany_corporate_bankruptcies.html?.v=1'>Read
more.
href='http://biz.yahoo.com/ap/060607/germany_corporate_bankruptcies.html?.v=1'>