March 212008

 

style='FONT-SIZE: 16px'>Credit Crunch Prompts Lenders to Squeeze

Troubled Companies

Companies in chapter 11,
anxious to secure bankruptcy-exit financing amid an intensifying credit
crunch, are signing up for pricier loans and other burdensome conditions

that experts say could undermine their restructuring efforts, Dow
Jones Daily Bankruptcy Review reported today. To persuade jittery
lenders to shell out, bankrupt companies increasingly have agreed to pay

higher interest rates, accepted tough new convenants or pledged to speed

up the chapter 11 process, sometimes by simply selling their assets.
Pre-bankruptcy lenders and other creditors “are pushing for
solutions and reorganizations to occur on very fast timelines,”
said Ted Stenger of AlixPartners on a media Webinar
organized by ABI. Bill Lenhart, a partner at the
restructuring firm BDO Seidman LLP in Chicago, said at the
teleconference that lenders and creditors have also started to push
companies to file for bankruptcy to effect quick sales or liquidations
of their assets because they’re not certain the companies will be
able to reorganize. Bill Derrough of Jefferies &
Co. added that banks are especially leery of lending to troubled
companies because they are less likely to be able to syndicate, or sell
pieces of the loan to other lenders, thereby reducing their risk.
(Subscription required.)

Mortgage
Crisis

name='2'>Mortgage Crisis Hits Home for Nation's Small
Builders

Many of the nation's
small and midsize home builders are on the ropes due to the crisis
ensnaring the
w:st='on'>
size='3'>U.S.
size='3'>housing market, the
size='3'>Wall Street Journal reported today.
Plummeting home sales across the
w:st='on'>
size='3'>United States
size='3'>have left many builders with unsold inventory and land. Some
small builders are falling behind on interest payments, beginning to
face foreclosures on developments and sometimes reaching into their own
pockets to keep operations going. Many smaller builders financed their
developments with so-called recourse debt, which means that if they
default, banks could seize homes, cars and other personal assets.
Builders' problems are now threatening losses for small and medium-size
regional banks. 

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name='3'>Commentary: Fannie Mae and Freddie Mac Will Need Closer
Regulation

Freeing up Fannie Mae and

Freddie Mac to leverage the purchase and securitization of up to $200
billion in home loans will hopefully buoy the struggling mortgage
lending market, according to a
size='3'>Washington Post editorial today.
However, if the housing market continues to tank, and the
government-sponsored enterprises (GSEs) rack up new multibillion-dollar
losses on top of those they have already incurred in recent months, they

will have much less in reserve to fall back on. The Office of Federal
Housing Enterprise Oversight (OFHEO) says that the GSEs are back on a
sound financial footing and that the risks can be mitigated by Fannie
Mae and Freddie Mac’s promise of a 'significant' voluntary
increase in their capital. Even more important is for Congress to revamp

and fortify OFHEO. The GSEs' regulator needs authority to set capital
requirements commensurate with the GSEs' huge role in the mortgage
markets and unique, quasi-governmental status. A bipartisan bill has
been adopted by the House but has languished in the Senate. Strong
reform of GSEs is vital to ensuring that the risks the firms have just
been allowed to assume, in an emergency, will not threaten their safety
and soundness -- or that of the wider economy. 

href='http://www.washingtonpost.com/wp-dyn/content/article/2008/03/20/AR2008032003018.html'>Read

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w:st='on'>
size='3'>U.S.

size='3'> Economic Slump Moves from

size='3'>Wall St.
size='3'>to
face='Times New Roman' size='3'>Main
St
size='3'>.

With Wall Street caught
in a credit crisis that has captured headlines, the forces assailing the

economy are now spreading beyond areas hit hardest by the real estate
downturn, the New York
Times reported today.

size='3'>  For the country as a whole, recent

data shows that the economy is deteriorating at an accelerating rate.
From September to January, average home prices fell 6 percent compared
with a year earlier. Consumer confidence has been plummeting. The
private sector shed 26,000 jobs in January and 101,000 in February,
while those out of work have stayed jobless longer, according to the
Labor Department.
size='3'>Some economists fear that the economic downturn will last
longer and inflict more bite on workers and businesses than the last two

recessions, which gripped the economy in 2001 and for eight months
straddling 1990 and 1991. 

href='http://www.nytimes.com/2008/03/21/business/21econ.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read

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CIT
Taps Credit Lines and Talks of Asset Sales

The CIT Group, a
century-old company that lends money to small businesses and midsize
corporations, was forced yesterday to draw on $7.3 billion of emergency
bank credit lines, the
size='3'>New York Times reported today. CIT,
whose businesses range from making student loans to financing purchases
of airplanes and railroad cars, announced that it would try to sell some

assets or businesses to raise cash and repay its debts. Unlike banks and

now Wall Street firms, commercial lenders like CIT cannot borrow from
the Fed and they depend almost solely on the capital markets to raise
money. CIT said that a “protracted disruption” in the credit

markets and ratings downgrades meant that it could no longer secure
short-term debt financing to pay loans. 

href='http://www.nytimes.com/2008/03/21/business/21cit.html?ref=business&pagewanted=print'>Read

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Airlines

name='6'>Aloha Airlines Files for Chapter 11

Aloha Airlines has filed
for chapter 11 protection after emerging from bankruptcy two years ago,
the Associated Press reported yesterday. Aloha Airgroup, the parent of
Aloha Airlines, said that it was unable to generate sufficient revenue,
alleging “predatory pricing” by Mesa Air Group’s
discount airline Go. Mesa Air Group, based in
w:st='on'>
size='3'>Phoenix,
introduced Go to the inter-island market in 2006 to compete with Aloha
and Hawaiian Airlines. In January, Go reported an operating loss of $20
million in its first 16 months of operation. Meanwhile, Aloha and
Hawaiian reported combined losses of nearly $65 million since Go began
operating. 

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name='7'>PBGC Seeks to Enter Delta Pension Fray

The Pension Benefit
Guaranty Corp. sought bankruptcy court permission Wednesday to file a
reply to the controversy stemming from Delta's recent objection
to its lingering pension-related claims,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Unable to meet its massive legacy
obligations, Delta and the PBGC signed off in December 2006 on a deal
that allowed the airline to jettison its pension plans in exchange for
giving the government agency an unsecured claim of $2.2 billion in
Delta’s bankruptcy. The decision, though, caused 13 retired pilots

to file individual proofs of claim related to various benefits,
triggering an objection from Delta. Delta argued in a March 10 motion
that the claims had no legal basis because the protesting retirees were
already covered by the earlier settlement agreements. 

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name='8'>Judge Approves Reliant's $468 Million Power Facility

size='3'>Sale

Bankruptcy Judge
Mary Walrath
size='3'>on Wednesday approved Reliant Energy Inc.'s proposed sale of
its Channelview facility for $468 million to power producer Kelson
Energy LLC, on the condition that it consider alternative bids in an
open auction, Bankruptcy

Law360 reported yesterday. The original
bidding procedures submitted March 7 to the 
w:st='on'>
size='3'>U.S. Bankruptcy
Court for the District of Delaware included a $15
million breakup fee for Kelson if Reliant decided to go with another
bidder. The modified version of the bidding procedures approved by Judge

Walrath does not allow for the fee. To be eligible for consideration in
the auction, which is set for April 7, bids must be at least $5 million
more than
size='3'>Channelview's current
purchase price, Judge Walrath said. Potential buyers must also provide
evidence of their ability to pay and provide a $40 million
deposit. 

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Dura
Wins Exclusivity Extension

Bankruptcy Judge
Kevin J. Carey

size='3'>on Wednesdaygranted an extension for Dura Automotive to
maintain exclusive control over its reorganization plan until April 30
and until June 30 to win support for it,

size='3'>Bankruptcy Law360 reported yesterday.

However, Judge Carey said that Dura’s unsecured creditors’
and second-lien holders’ committees have the right to ask for the
exclusivity to be terminated if the company doesn't, in good faith,
pursue the confirmation of its recently filed joint reorganization plan.

Earlier this month, Dura filed a revised reorganization plan that has
won the support of both the unsecured creditors’ and second-lien
holders’ committees. 

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name='10'>Fed-Mogul Insurers May Have to Pay $500
Million

Bankruptcy Judge
Judith Fitzgerald
ruled that Federal-Mogul Corp. insurers may have to pay
more than $500 million for asbestos damages under the chapter 11 plan
that got the company out of bankruptcy last year, the Associated Press
reported yesterday. Judge Fitzgerald ruled against more than two dozen
insurance companies, who were fighting to avoid paying claims for
damages linked to Federal-Mogul's asbestos products. The insurers argued

they had bargained to cover damage claims against the company, and
shouldn't be forced to pay into a trust Federal-Mogul set up in chapter
11. Fitzgerald's decision resolved an issue left open when the

size='3'>Southfield,
w:st='on'>
size='3'>Mich., company
exited chapter 11 in December. Federal-Mogul was allowed to get out of
bankruptcy while insurers and asbestos claimants awaited her ruling on
the coverage issue. 
href='http://www.chron.com/disp/story.mpl/ap/fn/5636694.html'>Read
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name='11'>Wall Street Taps Fed's New Loan Program

Wall Street firms are
stepping up to use the Federal Reserve's new direct lending program,
submitting their hard-to-trade securities for funds from the central
bank, the Wall Street
Journal reported today. The Fed said that the
program, which opened Monday, drew an average of $13.4 billion in daily
borrowing in the week ending Wednesday. The firms had $28.8 billion in
loans outstanding at the end of Wednesday.
face='Times New Roman' size='3'>The Fed didn't disclose the size of
individual loans or the borrowers' identities. Some Wall Street
executives have suggested they were using the overnight-lending program
to borrow small amounts, but the size of the total borrowing suggests
broader interest from the 20 securities dealers eligible for the
loans. 

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name='12'>Moody’s Weighs Changes to Its Municipal
Ratings

Responding to criticism
that ratings firms underrate municipal debt relative to corporate bonds,

one such agency, Moody’s Investor Service, said yesterday that it
was considering changes to its ratings system, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. Under the proposal, cities and states could
request a corporate-scale rating for their tax-exempt bonds in addition
to a standard municipal rating. Moody’s is seeking comments on the

change, which it says could go into effect in May. The move comes a
couple of weeks after California and 10 other states called on the
country’s three biggest ratings firms to use the same scale to
evaluate municipal and corporate debt, ending a difference that has
persisted for decades. Municipalities say the difference in ratings
costs taxpayers because they have to buy insurance on bonds that are not

rated triple-A, the highest grade assigned by the firms. 

href='http://www.nytimes.com/2008/03/21/business/21moodys.html?ref=business&pagewanted=print'>Read

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name='13'>High-Profile Trial Lawyer Agrees to Guilty
Plea

Melvyn I. Weiss yesterday

became the latest prominent trial lawyer to agree to plead guilty to
federal criminal charges, acknowledging his role in a scheme to make
hidden side payments to plaintiffs in class-action lawsuits filed by his

firm, Milberg Weiss, the
size='3'>New York Times reported today. Weiss
will plead that he conspired to pay off plaintiffs in lawsuits against
corporations on behalf of shareholders who contended that corporate
misconduct had occurred. The scheme, hidden from the courts, was
intended to ensure that his firm was best placed to control the
litigation and collect the largest share of legal fees, according to
prosecutors. Under the plea agreement, he faces up to 33 months in
prison and would pay back $9.75 million in “ill-gotten
gains” along with a fine of $250,000. Last month a former Milberg
Weiss partner, William S. Lerach, was sentenced to two years in prison
after pleading guilty to a role in the same kickback scheme that
ensnared Weiss. 

href='http://www.nytimes.com/2008/03/21/business/21legal.html?ref=business&pagewanted=print'>Read

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