July 222009

 

House Hearings Continue on
Automaker Bankruptcies and Financial Reform Proposals

The House Judiciary Committee will continue its
examination of U.S. automaker bankruptcies today as the Subcommittee on
Commercial and Administrative Law holds a hearing titled
“Ramifications of Auto Industry Bankruptcies.” 
href='http://judiciary.house.gov/hearings/hear_090722.html'>Click
here for more information.

The House Financial Services Committee will hold the
first of a two-part hearing today titled 'Regulatory Perspectives on the

Obama Administration's Financial Regulatory Reform Proposals.' 

href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/fchr_072209.shtml'>Click

here for more information.

White House Sends Congress
Proposal for Tighter Oversight of Credit Rating Agencies

The Obama administration yesterday sent Congress
legislation seeking to tighten government oversight of Wall
Street’s credit rating agencies and stem potential conflicts of
interest in their business practices to protect investors, the
Associated Press reported today. The plan also seeks to reduce reliance
on an industry widely criticized for failing to give investors adequate
warning of the risks in subprime mortgage securities that helped cause
the financial crisis. The legislative proposal is meant to bring greater

transparency to the rating agencies and would bolster the authority of
the Securities and Exchange Commission over them. The administration
proposal would bar rating agencies from doing consulting work for any
companies whose securities they rate and would require every rating
report issued to include disclosure of the fees paid by the company for
a specific rating. With an eye to reducing so-called “ratings
shopping” by companies for a more favorable assessment, companies
would be required to disclose all the preliminary ratings they receive
from various agencies. 

href='http://www.journalstar.com/articles/2009/07/22/news/business/doc4a660d6ae418a534370117.txt'>Read

more.

Commentary: New Study Shows
Difficulties of Mortgage Modification

New research by economists at the Federal Reserve Bank

of Boston suggests that the government’s loan-modification effort
may be based on faulty economic assumptions, according to a

face='Times New Roman'>
size='3'>Washington Post editorial today.
According to the research, the ideas behind government’s
modification proposal understate two of lenders' strongest incentives to

foreclose. The first is that roughly 30 percent of troubled debtors
eventually can pay without a modification; thus, for lenders, 30 percent

of the total cost of modifying loans is wasted. And since lenders can't
know in advance which 30 percent will 'self-cure,' they hesitate to
offer any modifications. The second problem is the risk that borrowers
redefault on a modified loan. By the time that happens, the value of the

house has declined further, and foreclosure costs the lender even more
than it would have earlier. Under the Obama administration's Home
Affordable Modification Program (HAMP), the Treasury Department offered
lenders up to $75 billion to help them defray the cost of reducing
borrowers' monthly payments to 31 percent of their incomes. It also
enticed loan servicers with $1,000 for each modification, plus another
$1,000 for each modified loan that is still performing after three
years. The administration estimated that as many as 4 million households

might benefit. But after four months, only 350,000 borrowers have even
been offered new loans, just over half of which have gone into effect,
according to the Treasury. In short, say the Boston Fed economists, 'the

number of 'preventable foreclosures' may be far fewer than many
believe.' 

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/21/AR2009072102747_pf.html'>Read

more.

Additionally, 
href='http://podcast.abiworld.org/'>click here to listen to
ABI’s latest podcast that discusses a new California study
pointing to how consumers’ equity-stripping practices led to
greater numbers of foreclosures.

House Democrats Splitting
over Regulating Derivatives Market

House Democrats are diverging on how to best regulate
the multitrillion-dollar derivatives market, especially over placing new

curbs on a trading practice that was blamed for the downfall of American

International Group,
face='Times New Roman' size='3'>CongressDaily
size='3'>reported today. House Agriculture Chairman Collin Peterson
(D-Minn.) said yesterday that a bill he is working on with House
Financial Services Chairman Barney Frank (D-Mass.) would include new
regulations on insurance-like contracts called credit default swaps that

are used by companies to mitigate risk. In AIG's case, the insurance
conglomerate tied the swaps to subprime loans, which led to its downfall

and prompted a federal government rescue by supplying more than $180
billion. Peterson said that, at the urging of Frank, their bill would
ban 'naked' credit default swaps where the seller does not own the
underlying product in the trade. That provision would be in contrast to
legislation backed by the 65-member New Democrat Coalition to be
unveiled today. Proponents contend that this practice is similar to
common techniques such as short-selling and plays a crucial market role
in valuing an underlying asset.

Delphi to Proceed with Sale
after Creditors Reject Its Plan

Delphi Corp. intends to pursue a plan to sell its
assets to former parent General Motors Co. and private-equity firm
Platinum Equity, even though most of the auto supplier’s creditors

voted to reject the deal, Dow Jones

face='Times










New

Roman' size='3'>Daily Bankruptcy Review
size='3'>reported today. Delphi plans to ask a bankruptcy judge to
approve a cramdown, although most of the creditors eligible to vote on
the company’s government-orchestrated bankruptcy-exit plan voted
against it. While most of Delphi’s creditors rejected the
company’s reorganization plan, five classes of impaired creditors
- including GM and the Pension Benefit Guaranty Corp. - approved it,
according to court papers filed Monday night with U.S. Bankruptcy Court
in Manhattan. Meanwhile, an auction for Delphi’s assets scheduled
for yesterday was postponed until Friday amid continuing talks between
Delphi, GM, potential bidders and the U.S. government.

In related news, the Pension Benefit Guaranty Corp.
said that it will assume responsibility for the pension plans of some
70,000 current and former workers of auto parts maker Delphi Corp. and
move to become trustee of the plans, the

face='Times










New

Roman' size='3'>Wall Street Journal reported
today. The agency said that it expects to be responsible for about $4
billion of the hourly worker plan's shortfall of nearly $4.4 billion,
about $2.2 billion of $2.6 billion in underfunding for the salaried
pension plan, and $50 million in underfunding for four smaller
plans. 
href='http://online.wsj.com/article/SB124826066892471781.html'>Read
more. (Subscription required.)

Ritz Camera Looks to
Continue Operating after Auction

Ritz Camera CEO David Ritz teamed up with a group of
investors to rescue the financially troubled 91-year-old photo chain
from being sold at auction to liquidators, the Washington
Post reported today. Ritz’s team
registered a winning bid of $33.1 million at the auction, and once
approved by a bankruptcy court, Ritz is looking to keep between 163 and
375 stores open. 'Ritz Camera is not buying itself out of bankruptcy,'
said

size='3'>Brian Shaw of Shaw Gussis
Fishman et. al LLC. 'There is a group
that is buying Ritz's assets out of bankruptcy.' Under Ritz's plan, a
new photo chain would emerge as a separate entity from the old
debt-ridden one. The new company would be placed under a payment plan
allowing it to take care of a portion of the remaining debt from the old

company over time, said
face='Times New



Roman'>Jay Indyke of Cooley
Godward Kronish, which represented the creditors’
committee. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/21/AR2009072103187_pf.html'>Read

more.

Department of Interior Balks

at Pacific's Shedding of Alaska Assets

The U.S. Department of the Interior yesterday objected

to a plan by Pacific Energy Resources (PER) Ltd. to abandon a handful of

oil and gas properties in Alaska due to environmental concerns,

size='3'>Bankruptcy Law360 reported yesterday.

According to the DOI and the Bureau of Land Management (BLM), PER has
not taken the proper actions to ensure that “no imminent danger to

the public health and safety” will occur upon the abandonment of
the properties. In order to prove that the abandonment will not cause
negative environmental effects, BLM said that the energy company must at

least conduct a temporary shut-in and Phase I investigation, which will
cost about $45,000. The objection further requests that the debtors make

$45,000 available for the inspection and shut-in. 
href='http://bankruptcy.law360.com/articles/112518'>Read
more. (Subscription required.)

Frontier Rejection of
Teamsters Contract Overturned

A district court has overturned a ruling allowing
bankrupt Frontier Airlines to reject one of its union contracts after
finding that the bankruptcy judge improperly considered proposals
submitted after the start of the rejection hearing,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported yesterday.

Judge P. Kevin Castel of the U.S. District Court for the Southern
District of New York on Monday vacated and remanded a November 2008
bankruptcy court ruling that allowed Frontier to obtain wage concessions

from mechanics and maintenance workers and potentially outsource more
work overseas. On Nov. 14, Bankruptcy Judge
face='Times New Roman'>Robert
D. Drain had allowed Frontier to void a
collective bargaining agreement with the Teamsters Airline Division of
the International Brotherhood of Teamsters and adopt the airline's final

proposal after the two sides were unable to agree on terms during
negotiations. 
href='http://bankruptcy.law360.com/articles/112431'>Read more.
(Subscription required.)

U.S. Trustee Balks at Star
Tribune Disclosure Statement

U.S. Trustee

face='Times










New

Roman' size='3'>Diana G. Adams on Monday
objected to the proposed disclosure statement of media company Star
Tribune Holdings Corp., claiming that the statement doesn't contain
adequate information regarding third-party releases,

face='Times New







Roman'>

face='Times










New

Roman' size='3'>Bankruptcy Law360 reported
yesterday. Specifically, the trustee objects to the discharge of
nondebtor third parties, alleging that neither the disclosure statement
nor the proposed reorganization plan explains why the releases are
warranted. A third-party release prevents a nondebtor from prosecuting
claims against another nondebtor. The disclosure statement calls for a
long list of parties — including the creditors’ committee,
the reorganized company, administrative agents and others — to not

incur any liability to any holder of a claim or interest for any act or
omission in connection with the plan except for willful misconduct or
gross negligence, the objection states. 
href='http://bankruptcy.law360.com/print_article/112393'>Read
more. (Subscription required.)

Lawmakers Rebuke Treasury
Department over TARP Spending

The Treasury Department took a bipartisan beating
yesterday from lawmakers who claim the agency has failed to live up to
its promises of transparency in handling the federal rescue of the
financial system, the
face='Times New Roman' size='3'>Washington Post
size='3'>reported today. The antipathy during yesterday's hearing of the

House Committee on Oversight and Government Reform was provoked by a
report issued earlier this week by Neil Barofsky, the special inspector
general for TARP, in which he repeated calls for the Treasury to require

regular, more detailed information from banks about their use of bailout

funds. A survey by Barofsky's office of 360 banks that had received
federal aid to support increased lending showed that many institutions
also used some of that money to buy other banks, make investments and
repay existing debts. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2009/07/21/AR2009072103561_pf.html'>Read

more.

Fed Aims to Hold Down
Interest Rates

Federal Reserve Chairman Ben S. Bernanke told Congress

yesterday that the economy is finally improving, but enough potholes lie

ahead that the Federal Reserve needs to keep interest rates close to
zero, at least until unemployment begins to come down, the
face='Times New Roman'>New York

Times reported today. “Job insecurity,
together with home values and tight credit, is likely to limit gains in
consumer spending,” Bernanke said at a hearing before the House
Financial Services Committee. The Fed chairman and the central
bank’s other policymakers argue that inflation is likely to fall,
not rise. It will be “lower in 2009 than during 2008 as a
whole,” they said in the monetary policy report that they submit
semiannually to Congress. Bernanke also signaled that foreclosures on
home mortgages might not have peaked, mainly because of the rising
unemployment rate. In addition, he said, defaults are rising for
commercial real estate, an unwinding that is beginning to require steps
to shore up some lenders. 

href='http://www.nytimes.com/2009/07/22/business/economy/22fed.html?_r=1&ref=business&pagewanted=print'>Read

more.

Analysis: Credit Card
Disputes Tossed into Disarray

Two major arbitration firms are backing away from the
business of resolving disputes between customers and their credit card
and cell phone companies, throwing into disarray a controversial system
that prevents unhappy consumers from filing lawsuits, the
face='Times New Roman'>Wall
Street Journal reported today. The American
Arbitration Association said yesterday it will stop participating in
consumer debt-collection disputes until new guidelines are established.
Its decision came two days after another big group, the National
Arbitration Forum, said that it would stop accepting new cases as of
Friday. Their retreat has big implications for credit card and cell
phone companies, which generally require customers to agree to mandatory

arbitration. They argue arbitration is less expensive and time-consuming

for both parties than going to court. Consumer advocates have criticized

the practice for years, saying consumers often don't realize they are
waiving their right to sue when they sign contracts with the companies.
The National Arbitration Forum said companies prevail over consumers in
94 percent of such cases. Credit card companies defend those results,
arguing that there is typically a long paper trail proving the customers

owe the amounts in dispute. 

href='http://online.wsj.com/article/SB124822374503070587.html#mod=testMod'>Read

more. (Subscription required.)

GE Capital Gets Approval
to Exit Government’s Liquidity Plan

General Electric Co. said today that the Federal
Deposit Insurance Corp. has approved an application allowing its GE
Capital unit to exit the Temporary Liquidity Guarantee Program,
the
size='3'>Wall Street Journal reported today.
The move means GE Capital will no longer issue government-guaranteed
short-term debt and will now be able to issue nonguaranteed long-term
debt with maturities of 18 months to three years. GE Treasurer Kathryn
Cassidy said that GE Capital has issued about $12 billion in long-term
debt outside the liquidity-guarantee program, including about $3 billion

this week in a euro deal that saw strong demand. 

href='http://online.wsj.com/article/SB124826079230071787.html#mod=testMod'>Read

more. (Subscription required.)

Judge Approves Liquidation

of Madoff Feeder Funds

A judge in the British Virgin Islands has approved the

liquidation of the Fairfield Sentry funds, which were the largest
conduits for cash flowing into the hands of Bernard L. Madoff and his
global Ponzi scheme, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. The ruling on Tuesday cleared the way for the
fund’s investors to pursue legal claims against the Fairfield
Greenwich Group and its affiliates, which advised and marketed the funds

worldwide. The global breadth of the group’s funds — and the

success of copycat funds sponsored by other financial entities —
expanded Madoff’s reach beyond the United States into wealthy
enclaves in Europe, Latin America and the Persian Gulf. Lawsuits assert
that the group collected as much as $500 million in fees from fund
investors. 

href='http://www.nytimes.com/2009/07/22/business/22madoff.html?ref=business&pagewanted=print'>Read

more.

International

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