March 22, 2010

Dodd Urges Prosecutors to Look at Lehman

Senate Banking Committee Chairman Christopher Dodd (D-Conn.) on Friday ratcheted up the pressure for prosecutions of Lehman Brothers executives and others who may have used accounting tricks to hide their companies' true financial condition, Reuters reported on Friday. Dodd asked the Justice Department on Friday to probe possible violations of the law at Lehman and other financial firms after disclosures last week that Lehman used an accounting gimmick to manipulate its books. Dodd's request came after a report two weeks ago by the court-appointed examiner in Lehman's bankruptcy found that the investment banking firm used an accounting gimmick, known as 'Repo 105,' to temporarily remove about $50 billion in assets from its balance sheet at the end of the first and second quarters of 2008. Lehman filed the largest corporate bankruptcy in U.S. history on September 15, 2008. Read more.

Analysis: Cities and Municipalities Face Tough Financial Future

Burgeoning retirement and employee benefit obligations, crushing debt loads and shrinking revenues are creating budget shortfalls for cities across the country, and scores are in such poor shape that drastic measures will be necessary, the Deal Pipeline reported on Friday. The bankruptcy route has been predicted for deeply troubled jurisdictions, including Jefferson County, Ala., Harrisburg, Pa., and Detroit, although none has filed. Other cities are raising the prospect to gain leverage to renegotiate union contracts, pensions and debt obligations. States are not permitted under federal law to file for bankruptcy, but many face the same budgetary dilemma. For the investment community, the critical concern is the state of municipal debt. The prospect of defaults on state and municipal debt, long considered among the safest of investments, is as high as any time since the Great Depression. Municipalities' problems are compounded because they rely heavily on property taxes. The declines in real estate assessments are not going to be reversed for years, and the stress on local governments will linger as well. The likelihood of bankruptcies and debt defaults will depend on whether governments can win employee benefit reductions and impose service cuts that bring their other outlays in line with today's conditions, said Richard Ciccarone, managing director and chief research officer at McDonnell Investment Management LLC. Read more. (Subscription required.) 

Senators Fail to Reach Agreement on Regulation of OTC Trades

Sen. Jack Reed (D-R.I.) said on Friday that he was been unable to reach an agreement with Sen. Judd Gregg (R-N.H.) over greater regulation of the multitrillion-dollar derivatives market, CongressDaily reported on Friday. The dispute means a significant section of Senate Banking Chairman Christopher Dodd's (D-Conn.) revamp of the financial regulatory system will not be resolved when the panel starts to mark up the bill today. Dodd had tasked the two to come up with a bipartisan compromise to greater regulate the over-the-counter market, where trades are conducted between parties with few rules compared to trades that are placed onto exchanges. Reed noted that the two had differences over the limits on rules placed on commercial firms that use such trades to hedge risk, such as requiring such businesses to place collateral requirements on the transactions. Groups such as the U.S. Chamber of Commerce are lobbying against such restrictions, arguing they could drive farmers and manufacturers from the market.

Legislation Raises Possibility of Putting Fannie Mae and Freddie Mac into Receivership

Rep. Jeb Hensarling (R-Texas) on Friday unveiled legislation that would place Fannie Mae and Freddie Mac into receivership if they are not financially viable within two years, CongressDaily reported on Friday. Hensarling's measure would set up conditions for the two mortgage giants to re-enter the market without a government charter after a three-year conservatorship period. Congress is beginning to tackle the future of the two government-sponsored enterprises, which own or guarantee more than $5 trillion in home mortgages since the federal government took them over in September 2008 during the financial crisis. The House Financial Services Committee will hold a hearing Tuesday on the next steps for the nation's housing finance system, with HUD Secretary Donovan and Treasury Secretary Geithner slated to appear.

Officials Say Acorn is on the Brink of Bankruptcy 

The community organizing group Acorn, battered politically and suffering from mismanagement along with a severe loss of government and other funds, is on the verge of filing for bankruptcy, the New York Times reported on Saturday. Over the last six months, at least 15 of the group?s 30 state chapters have disbanded and have no plans of re-forming, Acorn officials said. The California and New York chapters, two of the largest, have severed their ties to the national group and have independently reconstituted themselves with new names. Several other state groups are also re-forming outside the Acorn umbrella, and will not be affected if the national organization files for bankruptcy. Read more.

House Approves Sweeping Student Loan Reforms

As part of amendments attached to the health care bill, the House passed an  overhaul of the student loan industry, eliminating a $60 billion program that supports private student loans with federal subsidies and replacing it with government lending to students, the Washington Post reported today. By ending the subsidies and effectively eliminating the middleman, the student loan bill would generate $61 billion in savings over 10 years, according to the nonpartisan Congressional Budget Office. Most of those savings, $36 billion, would go to Pell grants, funding an era of steady and predictable increases in the massive but underfunded federal aid program for needy students. Smaller portions would go toward reducing the deficit and to various Democratic priorities, including community colleges, historically black colleges and universities, and caps on loan payments. The House amendments will now go to be considered by the Senate. Read more.

Affiliated Media Exits Bankruptcy Protection

Affiliated Media, the holding company for Media News Group and owner of the Denver Post, said on Friday that it has emerged from chapter 11 protection, the Denver Post reported on Saturday.  Judge Kevin J. Carey of the U.S. Bankruptcy Court for the District of Delaware approved the company's reorganization plan March 4, less than six weeks after the media company filed for bankruptcy protection Jan. 22. Affiliated had reached an agreement with its lenders to reduce the company's debt from about $930 million to about $165 million with no management change or change of control of the company. Read more.

Six Flags Bondholders to Own Company after Reaching Settlement

Six Flags Inc. junior bondholders will own the theme park operator under a settlement reached on Friday, ending a two-week bankruptcy trial, the Associated Press reported on Saturday. Company attorney Paul Harner announced the deal after a trial related to the now-defunct reorganization plan was halted so Six Flags and two competing groups of bondholders could negotiate. Under the plan, the junior bondholders, who are owed about $896 million, would put as much as $725 million into Six Flags by buying new stock the company will issue. That pool of cash, along with a new series of loans, will be used to help pay off a competing group of senior bondholders owed about $420 million and the company's lenders, who are owed about $1.1 billion. Read more.

Analysis: Boston Residents Finding in Foreclosure a Beginning, Not an End

Boston Community Capital, a nonprofit community development financial institution, and a housing advocacy group called City Life/Vida Urbana, working with law students and professors at Harvard Law School have developed a strategy of helping struggling homeonwners by intervening after foreclosure rather than before, the New York Times reported today. Working with borrowed money, Boston Community Capital buys homes after foreclosure and sells or rents them to their previous owners, providing new mortgages and counseling to the owners, who typically have ruined credit. During the process the families remain in their homes. Since late fall it has completed or nearly completed deals on 50 homes, with an additional 20 in progress. The organization is now trying to raise $50 million to expand the program. Steve Meacham, an organizer at City Life/Vida Urbana, is one reason banks may be willing to sell their foreclosed properties to Boston Community Capital. When families receive eviction notices, his group holds demonstrations or blockades outside the properties, calling on lenders to sell at market value. It also connects the residents with the Harvard Legal Aid Bureau, whose students work to pressure lenders to sell rather than evict by prolonging eviction and ?driving up litigation costs,? said Dave Grossman, the clinic?s director. Read more.

Judge Approves Lake Las Vegas' Disclosure Statement

Bankruptcy Judge Linda Riegle said on Friday that Lake Las Vegas creditors can begin voting on the troubled Nevada resort community's plan to exit bankruptcy under the control of Texas investment firm Highland Capital Management, Dow Jones Daily Bankruptcy Review reported today. The ruling clears the way for the struggling resort to move forward with a bankruptcy-exit plan, backed by Highland and lender Credit Suisse Group, that provides for the completion of one phase of the massive resort development located about 20 miles from the Las Vegas Strip. Judge Riegle on Friday approved the company's disclosure statement over the objections of the project's former owners, dismissing as 'a delaying tactic' their eleventh hour bid to postpone the hearing. Riegle required Lake Las Vegas to make minor changes to the summary of the plan sent to creditors, including details about a recent algae bloom that has killed off significant number of fish at the resort's 320-acre man-made lake.

Asarco Sues Sterlite over Collapsed 2008 Deal

U.S. copper miner Asarco LLC said on Friday that it has filed a lawsuit against one-time suitor Sterlite Industries Ltd., after the Indian resources company backed out of a $2.6 billion deal to take Asarco out of bankruptcy in 2008, Reuters reported on Friday. Asarco, which exited bankruptcy in December 2009 under the control of Mexican miner Grupo Mexico SAB de CV, said in a March 17 lawsuit that Sterlite had breached its purchase and sale agreement with the miner and forced it to spend more on attorneys fees, marketing, and other costs. Sterlite, based in Mumbai, had bid $2.6 billion for Asarco in May 2008 and was chosen by the Asarco management to sponsor the company's bankruptcy exit. It would have been among the largest Indian cross-border deals, but in October 2008, Sterlite withdrew that offer, saying it needed a substantial reduction in price after copper markets dropped. Read more.

U.S. Trustee Objects to Regent's Reorganization Vote Plan

A U.S. Trustee on Thursday objected to bankrupt radio broadcaster Regent Communications Inc.'s request to waive a shareholder vote on its proposed reorganization plan, Reuters reported on Friday. The Trustee argued that shareholders, who are entitled to a certain amount of cash under the plan, have the right to receive the disclosure statement and ultimately vote on the plan. Regent's reorganization plan proposes to transfer ownership of the company to its lenders and paying unsecured creditors in full. Current shareholders are entitled to get a pro rata portion of $5.5 million in cash. Read more.

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