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May 20, 2008
Senators Reach Agreement on Housing
Aid
Top Senate Banking Committee members reached an agreement yesterday on
legislation that would provide new oversight to mortgage giants Fannie
Mae and Freddie Mac and use the two's assets to allow the Federal
Housing Administration to insure up to $300 billion in new mortgages for
struggling borrowers, CongressDaily reported today. After a
week of negotiating, Banking Chairman Christopher Dodd (D-Conn.) struck
a deal with ranking member Richard Shelby (R-Ala.) in advance of today's
markup on the measure. The key to the agreement was tinkering with a
proposal designed to provide more liquidity in the mortgage market by
allowing the FHA to guarantee new 30-year, fixed-rate mortgages for
at-risk subprime borrowers, provided that their lenders voluntarily
write down their current notes to below-market value. Under a manager's
amendment to be considered today, the FHA refinancing program would go
into effect on Oct. 1 and end in 2011, a year earlier than originally
slated. Dodd said that the cost of his FHA refinancing provision should
be about $500 million, which is roughly the amount that would have gone
into the affordable housing fund during its first year in operation. The
bill would allocate 50 percent of the trust-fund monies for the FHA plan
in 2010, if its costs were greater than expected, and 25 percent for
2011.
Airlines
Bankrupt Eos Airlines Looks to
Quickly Sell Assets
Bankrupt airline Eos Airlines Inc. has asked the court overseeing
its chapter 11 proceedings to approve its bidding procedures and an
auction schedule so that the now-defunct premium airline can sell off
its assets as soon as possible, Bankruptcy Law360 reported yesterday.
According to the company's sale motion, Eos is hoping to schedule a sale
auction on June 9. The proposed bidding procedures also allow for the
possibility of a stalking-horse bidder, which Eos would negotiate with
before the auction. Although Eos hopes to set its bidding deadline for
June 6, with qualified bidders notifying the parties of their interest
no later than May 30, the company said that it does not yet have any
interested parties that have committed to buying.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=56648'>Read
more. (Registration required.)
British Airways CEO Predicts More Financial
Turbulence in the Airline Industry
British Airways' CEO Willie Walsh expects more failures and more mergers
in the air industry this year as carriers face the challenges of soaring
oil prices and a weak U.S. economy, Reuters reported yesterday. With
crude oil cresting $127 a barrel, roughly twice its price a year ago,
and the U.S. economy dangerously close to a recession, seven airlines
have already declared bankruptcy or stopped operating in the past five
months. Mergers will consolidate the industry further, Walsh said,
following Delta Air Lines Inc.'s deal to buy rival Northwest Airlines
Corp. announced a month ago. 'The high oil price combined with the
economic slowdown may well have made it an imperative for many
(airlines) to consider consolidation,' Walsh said.
href='http://today.reuters.co.uk/news/articlebusiness.aspx?type=businessNews&storyid=2008-05-19T194543Z_01_N16377726_RTRUKOC_0_UK-BRITISHAIRWAYS-CEO.xml'>Read
more.
Sentinel Execs Settle Fraud Suit for $10.7
Million
Several former executives of bankrupt Sentinel Management Group Inc.
have agreed to pay a total of $10.7 million to end a $350 million suit
alleging they perpetrated the fraud that brought down the capital
management firm, Bankruptcy Law360 reported yesterday. Former
Sentinel founder and chairman Philip Bloom, former Sentinel CEO Eric
Bloom and a handful of other defendants have agreed to pay the $10.7
million to Sentinel's estate. If approved by the bankruptcy court, the
settlement will wrap up an adversary proceeding filed against the Blooms
and others by Frederick J. Grede, the chapter 11 trustee for the estate
of Sentinel Management.
href='http://bankruptcy.law360.com/Secure/printview.aspx?id=56706'>Read
more. (Registration required.)
Commentary: Car Makers' Boom Years Now Look Like
a Bubble
While this decade has already seen burst bubbles in tech stocks, homes
and credit, it now seems that the U.S. auto market is falling victim to
irrational exuberance, the Wall Street Journal reported today.
Automakers invited customers to buy cars at employee prices, extended
no-interest loans for up to six years and sold unprecedented numbers of
vehicles to rental fleets -- all strategies that some analysts say drove
U.S. auto sales to artificial highs. Through most of the 1990s,
automakers sold a little over 15 million cars and light trucks a year in
the U.S. market. That changed in the late 1990s as auto sales surged
thanks to low gasoline prices and many U.S. consumers feeling flush from
the tech-stock boom. Sales peaked at 17.4 million in 2000 and remained
near 17 million for another five years. However, sales started falling
in 2006 and this year are expected to be right back where they were in
the 1990s, at just over 15 million. Last week, market researcher Global
Insight Inc. lowered its 2008 forecast for U.S. vehicle sales to below
15 million. Global Insight now believes sales won't reach previous highs
again until 2012, a year later than it had previously thought.
href='http://online.wsj.com/article_print/SB121124778122705883.html'>Read
more. (Registration required.)
Environmental Groups Take Issue with Sierra
Pacific's Bid in PALCO Case
A coalition of environmental groups has warned that a successful
takeover of bankrupt Pacific Lumber Co.'s mill in Scotia, Calif., by
Sierra Pacific Industries would lead to continued conflict over logging
in the state's redwood forests, Bankruptcy Law360 reported
yesterday. ForestEthics, Ebbets Pass Forest Watch and the Environmental
Protection Information Center took issue with Sierra Pacific's record of
clear-cutting and conversion of timberland, as well as its
“aggressive approach” to environmental regulation. According
to documents filed last week with the U.S. Bankruptcy Court for the
Southern District of Texas, Sierra Pacific wants to buy Pacific Lumber's
Scotia mill, its related co-generation plant and its related working
capital for about $45 million. It would then invest an additional $30
million or so to remodel and operate the facility.
href='http://bankruptcy.law360.com/secure/printview.aspx?id=56614'>Read
more. (Registration required.)
Buyout Firm Faces Cash Shortage
NexCen Brands, a fast-growing buyout firm that owns the fashion
house Bill Blass, retailer Athlete's Foot and the ice cream chain Maggie
Moo's appeared to be on the verge of financial collapse yesterday, the
New York Times reported today. The company said that it faced a severe
cash crunch and warned that there is “substantial doubt”
that it would remain in business. NexCen said that it must repay $30
million of the $70 million it borrowed to finance the $89 million
acquisition of Great American Cookie by October, leaving it with little
cash to operate.
href='http://www.nytimes.com/2008/05/20/business/20shops.html?_r=1&ref=business&oref=slogin'>Read
more.
Supreme Court Upholds Municipal Bond
Exemption
The U.S. Supreme Court yesterday upheld longstanding state tax
exemptions for municipal bonds, the Associated Press reported. In a 7-2
ruling in a case from Kentucky, the justices permitted states to exempt
interest on their own bonds from taxation while taxing residents for
interest on bonds issued by other states. In the $2.5 trillion municipal
bond market, 42 states exempt some or all interest on their bonds from
income taxes while taxing interest on bonds from other states. States
argued that throwing out the system of exemptions that began 90 years
ago would have a devastating impact on state finances. In the majority
opinion, Justice David Souter said that the state tax exemptions go back
to 1919 and have not hindered commerce among the states.
href='http://www.law.com/jsp/article.jsp?id=1202421508045'>Read
more.
Former AOL Executives Sued in
Ad-Revenue Case
The Securities and Exchange Commission filed fraud charges
yesterday against eight former America Online executives, saying that
they had inflated online advertising revenue by more than $1 billion,
the New York Times reported today. The allegations involve a
series of online advertising transactions beginning in 2000 - a time
when AOL was under increasing pressure to reach revenue targets to
justify its merger with Time Warner - that eventually led to several
earnings restatements. The actions by the accused had the effect of
conveying to investors and Wall Street analysts that AOL Time Warner was
a “healthier, stronger company than it really was,” said
Scott W. Friestad, an associate director in the SEC's division of
enforcement. “The conduct occurred at a time when the Internet
bubble was deflating.”
href='http://www.nytimes.com/2008/05/20/technology/20aol.html?ref=business&pagewanted=print'>Read
more.
Rising Tide for Boat
Repossessions
The faltering real estate market has trickled down into the boating
industry as boat owners have found they cannot sell their boats for
what they owe and cannot refinance either, the New York Times
reported today. Boating was traditionally the pastime of the well-off,
but the long housing boom and its gusher of easy credit changed that.
People refinanced their homes and used the cash for down payments on a
cruiser, miniyacht or sailboat. From 2000 to 2006, retail sales for the
recreational boating industry rose by more than 40 percent, to $39.5
billion, while the average loan amount more than tripled to $141,000.
Now, the repossession business has grown as many owners have simply
stopped paying on their purchases.
href='http://www.nytimes.com/2008/05/20/business/20repo.html?sq=bankruptcy&st=nyt&scp=2&pagewanted=print'>Read
more.