April 6, 2010
Report: Detroit Needs Drastic Change to Avoid Bankruptcy
A new report on the Detroit's troubled finances calls on Mayor Dave Bing and the City Council to drastically restructure government and reduce the deficit before the city falls into bankruptcy or state receivership, the Detroit News reported today. The Citizens Research Council of Michigan, a nonprofit public policy research group, authored 'The Fiscal Condition of the City of Detroit' at the request and with some grant funds from the Business Leaders for Michigan. The 60-page report outlines much of what city officials already know: The city's dramatic population loss, high unemployment and other ills have had adverse effects on the city. Now government must respond in a dramatic way to downsize and make sound budget choices, the report argues. 'Detroit city government must be restructured,' the reports states. 'The new structure must reflect both the reduced tax base and the limited ability of state government to provide shared revenues.' Read more.
Rhodes Emerges from Chapter 11 Owned by Its Lenders
Nevada homebuilder Rhodes Cos. LLC has exited bankruptcy under control of its senior lenders, the Deal Pipeline reported yesterday. Under the plan, proposed by a steering committee of first-lien lenders, Rhodes will exchange about $325.2 million in first-lien debt for all of its new equity plus $50 million in new first-lien notes. The senior lenders will also split a $1.5 million cash payment on a pro-rata basis. Credit Suisse Group's Credit Suisse Candlewood Special Situations Master Fund Ltd., Credit Suisse Asset Management, Credit Suisse Loan Funding LLC, CypressTree Investment Management LLP, General Electric Capital Corp., Highland Capital Management LP and Sorin Capital Management belong to the steering committee, which holds roughly 60 percent of the first-lien debt. Meanwhile, second-lien lenders owed $70.7 million plus interest also would receive an interest in the litigation trust and share 50 percent of any litigation proceeds that arose from a lawsuit Rhodes filed against Stanley Consultants Inc. The case is pending in the Superior Court of Arizona for Maricopa County. Read more. (Subscription required.)
Lehman Secures Creditor Support For Asset Management Unit
Lehman Brothers Holdings Inc. has cleared a hurdle in its bid to spin off an asset management company outside of bankruptcy, winning the support of a key creditor group for the plan, Dow Jones Daily Bankruptcy Review reported today. Lehman's unsecured creditors' committee says that it will back the plan to establish a company that will oversee a pool of Lehman assets ranging from derivatives to real estate. Under the proposal, Lehman would set up a company called Legacy Asset Management Co. to manage illiquid assets with a market value of between $25 billion and $30 billion. Existing employees would oversee the assets as well as potential assets from third parties. Lehman says that the plan is a better deal for creditors than simply liquidating the assets as part of a bankruptcy plan, which would be typical for a company winding down in chapter 11.
Philly Newspapers Seeks to Keep Control of Bankruptcy Case
Philadelphia Newspapers LLC is seeking to maintain control of its chapter 11 case until Aug. 23 so that the publisher can see through a bankruptcy-exit plan built around an auction for its assets scheduled for later this month, Dow Jones Daily Bankruptcy Review reported today. The publisher of the Philadelphia Inquirer and Philadelphia Daily News is seeking a four-month extension of its exclusive right to file a Chapter 11 plan. The company's current exclusive filing period is set to expire April 21. Allowing rival plans to be filed 'might foster a chaotic environment' at the time when the company is focusing on its restructuring efforts, Philadelphia Newspapers said. Philadelphia Newspapers said that the request for an extension is not an attempt to exert pressure on creditors, but is necessary to give the publisher a fair chance to reorganize now that the U.S. Court of Appeals for the Third Circuit ended a five-month-long fight with lenders. That court ruled last month that the secured lenders owed $300 million could not bid their debt at an auction for the newspapers' assets.
Fannie Mae, Freddie Mac Look to Start Using Swaps Clearinghouse
The regulator of Fannie Mae and Freddie Mac is on the cusp of making big changes to the market for interest-rate swaps, in a move that could potentially cut into Wall Street firms' revenues and generate new business for some firms that run exchanges, the Wall Street Journal reported today. The Federal Housing Finance Agency, which oversees the government-owned mortgage giants, expects them to start using a clearinghouse to trade the swaps by year's end. The impending change away from private 'over-the-counter' contracts has generated behind-the-scenes meetings among officials at Fannie and Freddie, the banks that now command their business and the exchanges that want it. Fannie and Freddie are among the biggest buyers of interest-rate swaps. The swaps are two-way derivative contracts in which one party pays a fixed rate in exchange for a rate that floats along with the market. For years, the mortgage firms have purchased the swaps from Wall Street banks to hedge their huge mortgage portfolios against rate swings. The banks, such as Goldman Sachs Group Inc. and JPMorgan Chase & Co., make money by structuring the deals and selling them to clients. With so-called central clearing, banks play a similar role but operate under the umbrella of a clearinghouse that guarantees the trade for both parties in case one side defaults. The guarantee is something that many felt was badly missing during the financial crisis when markets seized up amid fears that some firms would falter and be unable to make good on their swap trades. Read more. (Subscription required.)
FDIC Seeking $518.6 Million from AmTrust Bank's Parent
The Federal Deposit Insurance Corp., which seized Cleveland's faltering AmTrust Bank late last year, is seeking more than a half-billion dollars from the failed thrift's corporate parent in a dispute the agency says is of 'critical importance' to the nation's taxpayers, Dow Jones Daily Bankruptcy Review reported today. The FDIC says that AmTrust Financial Corp. owes it at least $518.6 million, according to a claim filed on Thursday against the holding company in its bankruptcy case. That amount is equal to the gap between how much capital the bank was required to have and what it actually had on hand when it was seized by regulators. The FDIC says that AmTrust's holding company in recent years made numerous commitments to regulators to shore up the bank's capital. The regulator is now going after the bank's parent for those funds in a dispute with the parent has 'implications far beyond' the failure of the Ohio bank.
New Mexico Developer Files for Bankruptcy
Westland DevCo Inc. filed for bankruptcy yesterday listing $361 million in assets and $198 million in debts, Reuters reported yesterday. The company said it planned a total of 39,328 residential lots in Albuquerque, N.M. over the next 20 years, but only had a few hundred lots under contract. Westland DevCo's limited partners are units of D.E. Shaw and SunCal Cos. SunCal bought 55,000 acres in Albuquerque in 2007 for $250 million. The developer's secured loan matured in July with $181.8 million outstanding. The company said that disputes among the lenders was making it difficult to negotiate a restructuring. The case is In re Westland DevCo LP, U.S. Bankruptcy Court, District of Delaware, No. 10-11166. Read more.
Six Flags Amends Bankruptcy Plan
Six Flags Inc. filed an amended reorganization plan on Thursday formalizing last month's agreement putting junior bondholders in control of the company when it emerges from bankruptcy, Reuters reported yesterday. The new reorganization plan drops its support for a plan backed by bondholders led by Avenue Capital Group, known as SFO noteholders, in favor of a plan proposed by bondholders led by Stark Investments, known as SFI noteholders. The newest plan proposes to use new debt and an equity investment by the Stark Investments-led bondholders to pay the claims of secured lenders and the Avenue Capital-led bondholders. The company originally entered bankruptcy in the middle of last year backing a plan from secured lenders. Read more.
Shareholders Seek Examiner for Visteon Bankruptcy
Shareholders of auto parts maker Visteon Corp. asked a judge on Friday to appoint an examiner to determine if it is possible to craft a reorganization plan more favorable to equity investors, Reuters reported yesterday. An examiner is needed because the company appears to be squandering 'significant value' and proposing to wipe out shareholders while its operations are 'vastly exceeding' projections, according to the filing from Friday. The ad hoc group of shareholders also asked the judge to consider the request on short notice. The company will be seeking court approval next week of its disclosure statement, which will clear the way for Visteon to begin seeking votes from creditors on its reorganization plan. Read more.
Report: Shortfall Awaits California's Big Pension Funds
A study released yesterday by Stanford University estimates that California's three largest state-operated, public-employee pension funds?the California Public Employees' Retirement System, California State Teachers' Retirement System and University of California Retirement System?currently face a total shortfall of more than $500 billion, the Wall Street Journal reported today. The figure dwarfs the funds' own combined shortfall estimate of $55 billion as of July 2008, according to the report, which doesn't account for the more than $100 billion loss sustained by the funds during the recession. The report also recommended increasing contributions to the funds, investing in less risky assets and trimming pension benefits for future employees. Gov. Arnold Schwarzenegger (R) warned yesterday that pension-fund shortfalls could lead California, which faces a $20 billion budget gap in the coming fiscal year, to divert more funds from other state programs to cover pension costs. Read more. (Subscription required.)
Judge Tosses Lawsuit against Marvel, Stan Lee
U.S. District Judge Paul Crotty last week dismissed a lawsuit against Marvel Entertainment Inc. and comic book creator Stan Lee over the ownership of famous characters including Spider-Man, The Incredible Hulk, The Fantastic Four and X-Men. The $750 million lawsuit filed on behalf of Stan Lee Media Inc. alleged that shareholders were harmed when Lee in 1998 transferred rights to the characters to Marvel, which is now owned by Walt Disney Co. Stan Lee Media filed for bankruptcy protection in 2001. In his ruling, Judge Crotty noted that litigation over the characters had lasted nearly a decade in various state and federal courts in New York, California and Colorado, and included a securities class-action settlement. The judge concluded that the shareholders, Jose Abadin and Christopher Belland, lacked standing to sue because they did not acquire their Stan Lee Media shares until 1999, more than a year after the alleged illegal conduct. Read more.
Gemstone Shopping Channel Files for Chapter 11
Gems TV Ltd., which operates a 24-hour home-shopping channel devoted exclusively to colored-gemstone jewelry, sought chapter 11 protection yesterday with plans to shut down its business, according to the Wall Street Journal's Bankruptcy Beat Blog. Weighed down by a $120 million debt load, the company said that it was looking to wind down its assets in chapter 11 after failing to generate sufficient revenues to support its business. It blamed the economic downturn for putting a damper on consumers? interest in jewelry and also cited high gold prices as an obstacle to maintaining a healthy balance sheet. Read more.
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