July 282008

 

Senate Approves Housing Bill, but Critics Say Law Unlikely to
Prevent Most Foreclosures
Even as a huge bipartisan majority in the Senate voted Saturday

to send a sprawling housing bill to the White House, economists,
consumer advocates and other analysts said the package of programs for
struggling homeowners and shaken mortgage lenders is unlikely to relieve

the foreclosure crisis that is driving the nation toward recession, the
Washington Post reported yesterday. The Senate voted 72 to 13
to approve the bill, which seeks to halt the steepest slide in house
prices in a generation, rescue hundreds of thousands of families from
foreclosure and restore confidence in the nation's largest
mortgage-finance firms. White House officials said President Bush is
likely to sign it by midweek, despite his opposition to nearly $4
billion in aid to local communities. During Senate debate, Christopher
J. Dodd (D-Conn.), chairman of the Senate Banking Committee and one of
the bill's lead sponsors, cited a litany of grim statistics about the
mortgage crisis, including that an estimated 8,500 families a day are
falling into foreclosure and that one in every eight homes is projected
to enter foreclosure over the next five years. 'This legislation will
not perform miracles. I want the American people to have realistic
expectations about what we're about to do,' Dodd said. 'But as others
have said, it is a step, and an important step, towards putting our
nation on the road to economic recovery.' Both presidential candidates,
Sens. John McCain (R-Ariz.) and Barack Obama (D-Ill.), expressed support

for the legislation, though neither took a break from the campaign trail

to attend yesterday's vote. 

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Congress to Look at Credit Scoring
The House Financial Services Oversight Subcommittee will hold a hearing
tomorrow on the use of credit scores on consumers, Congress
Daily reported today. Oversight Subcommittee Chairman Melvin Watt
(D-N.C.) has sponsored legislation that would curtail insurers from
using credit scores to help set premiums, alleging that such use
unfairly targets minorities. The hearing will address the use of credit
scores in applying for credit cards and mortgages.

SemGroup Co-founder Reassures Employees Amid Probe
SemGroup LP co-founder Tom Kivisto this weekend attempted to
reassure employees of the embattled company, following his removal as
chief executive and president amid investigations by federal regulators
and the U.S. Attorney's Office, the Associated Press reported yesterday.

Kivisto added he believes 'as the facts and truths surrounding this
chain of events are revealed, the SemGroup employees will regain their
trust in what they initially believed' about the organization. The
comments came one day after Bank of America Corp. sued Kivisto and his
trust organization in Tulsa federal court for $12.8 million and interest

unpaid on a 2006 loan. Kivisto guaranteed that $15 million loan himself
and through the Thomas L. Kivisto Trust's limited partnership interest
in SemGroup, according to the complaint. Other litigation has been filed

by creditors and shareholders; those complaints include allegations that

subsidiaries defaulted on loans, used loan funds improperly or sold
common stock earlier this year without warning investors about the cash
shortage and debt load. The privately held Tulsa energy trading, storage

and transportation company filed for chapter 11 bankruptcy protection on

Tuesday in Delaware, as reports indicated SemGroup LP lost $2.4 billion
on the oil futures market, $290 million of that by Kivisto
himself. 

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Municipal Bankruptcies

Vallejo (Calif.) Bankruptcy Judge Denies Unions'
Request
A federal bankruptcy judge on Friday denied as premature a
request to designate Vallejo, Calif.'s employee unions' legal counsel to

represent city retirees, The Mercury News (Calif.) reported
Friday. U.S. District Judge Michael McManus announced his decision at
the end of the third day of the city's chapter 9 bankruptcy hearing, as
union attorneys' cross-examination continued to try to disqualify
Vallejo from bankruptcy protection. Hearings in the case began
Wednesday, and challenges to the city's insolvency are expected to
continue at least through mid-August. The city initially filed for
bankruptcy May 23. The employee unions, including the Vallejo Police
Officers Association, International Brotherhood of Electrical Workers
2376 and International Association of Fire Fighters 1186, had asked the
judge last month to allow their lawyer to represent their respective
retirees. McManus denied that request, contending that the retirees had
lacked enough time to respond to the representation offer. He also cited

a likely conflict of interest problem in a tentative ruling. The city's
pendency plan proposes no changes to future retirees' medical benefits
and the 'plan's impact on current employees represented by the union is
drastically different from the plan's impact, or absence thereof, on the

retirees' non-pension benefits,' McManus wrote. He added that he may
look to legal representation for retirees in the future if he accepts
the city's bankruptcy petition and begins to consider the city's plan to

emerge from bankruptcy, but only after receiving input from the U.S.
Trustee. 
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Majority of Jefferson County Commission (Ala.) Opposed to

Bankruptcy
Three Jefferson County (Ala.) commissioners on Friday lined up against a

proposal to file chapter 9 municipal bankruptcy to solve the county's
sewer debt crisis, The Birmingham (Ala.) News reported
Saturday. A commission majority and their financial adviser said a
proposal by Alabama state pension chief David Bronner to have the
Retirement Systems of Alabama (RSA) buy the deeply indebted sewer system

out of bankruptcy is 'irresponsible.' Bronner fired back, saying that
any plan holding taxpayers accountable for raising money for the sewer
system is 'silly on its face.' Alabama Gov. Bob Riley said in an
interview that no one wants bankruptcy but that Wall Street bankers and
creditors who pushed the risky financing schemes that have left
Jefferson County teetering on insolvency ought to bear a share of the
losses. 'To say that the only option is to raise taxes on citizens of
Jefferson County, I think, is fundamentally wrong,' Riley said. 'There
is enough culpability to go around by various participants. There needs
to be a deal where everyone takes some part of the responsibility.'
Bronner said Wednesday that the RSA would consider offering up to $2
billion for the system, with the money going to retire the system's $3.2

billion debt. The county's creditors would either have to take a loss or

pursue three Wall Street firms that insured the county's debt. 

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Judge Will Rule on Case against Appaloosa
A bankruptcy judge will rule today on whether auto parts maker Delphi
Corp. can sue hedge fund Appaloosa Management LP, Goldman Sachs Group
and others that last month pulled out of a $2.55 billion investment deal

with Delphi, derailing its emergence from chapter 11,
BankruptcyLaw360.com reported Friday. After six hours of
sometimes heated testimony Friday, Judge Robert D. Drain of the U.S.
Bankruptcy Court for the Southern District of New York said he would
rule from the bench today. Appaloosa broke off a deal on April 4, the
breakup deadline in the agreement. In its complaint, Delphi charged that

the hedge fund had been surreptitiously moving to break the deal as
early as December 2007, and had met with individual investors and bank
representatives to help block funding for the deal. Delphi argued that
it had every reason to assume that Appaloosa was working to make a deal
happen. A central part of Friday's testimony was a comment Appaloosa
founder and managing partner David Tepper made in a December hearing
describing his thoughts on the plan. “I understand that when I
shake my hand with somebody and I say I have a deal, I have a
deal,” Tepper said, according to court filings read at Friday's
hearing. Read

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Rising Debt Cases Reveal Erratic System
State judicial officials across the United States and attorneys who
specialize in suing people behind in their bills are coming together
with debtor advocates to change how cash-strapped courts handle a rising

tide of debt-collection lawsuits, Law.com reported today.
Massachusetts is drafting new court rules, California implemented a
revised court system last year, and talks on revisions are underway in
Connecticut, Illinois and Michigan. New or revived creditor bar
associations in Florida, Indiana, Iowa and Pennsylvania are also
planning to initiate changes. Creditors' attorneys, who represent banks
and other lenders, are seeking to streamline processing of the cases
because they're frustrated that court rules change from county to county

within a state. Also, the rules, tailored to more complex litigation,
are too onerous for these simpler cases, they say. Consumer advocates
want to make sure that the court systems remain fair for debtors, who
often don't have legal representation. Courts hope to fairly and more
efficiently process a bigger caseload using shrinking budgets. 
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Four of Home Builder's Units File for Chapter 11

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Four Arizona subsidiaries of a New York-based home builder with
subdivisions in Chandler and Gilbert have filed for chapter 11
bankruptcy protection, the Arizona Republic reported yesterday.

Stratland Estates LLC, Stratland Enterprises of Coolidge LLC, Stratland
Enterprises of Buckeye Inc. and Stratland Enterprises of Goodyear Inc.
all filed for voluntary reorganization Thursday in U.S. Bankruptcy
Court. According to Arizona Corporation Commission records, New York
resident James Bovino incorporated all four companies in mid- to late
2005. Parent company Stratland Enterprises Inc., which builds homes in
Arizona, New York, New Jersey, North Carolina, Georgia and Florida, did
not file for bankruptcy with the court. Other Arizona subsidiaries not
in bankruptcy are Stratland Enterprises of Cooley Inc., Stratland
Enterprises of Maricopa Inc. and Stratland Hayden Estates.

Editorial: Credit Card Reforms Long Overdue
Federal Reserve officials have said consumer complaints have helped
shape the tougher rules proposed for credit card companies, an opinion
piece in the Minneapolis Star Tribune said today. At the same
time the federal government is bailing out a banking industry reeling
from the real estate collapse, it's also taking some less-heralded but
significant consumer protection steps aimed at the industry's cash cow:
credit cards. Help is long overdue, but the good news is that strong
protective measures are under consideration in two places with the clout

to really make a difference: the Federal Reserve and Congress. The
Federal Reserve sets banking practice rules. And while its past consumer

protection measures have essentially resulted in cardholders receiving
more incomprehensible paperwork under the guise of disclosure, these
proposed new rules have some welcome teeth. 

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Controversial Physician Faces Bankruptcy Hearings

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John A. King, the controversial osteopathic physician who was on the
staff of Putnam General Hospital in Birmingham, Ala., between November
2002 and June 2003, will face two major legal hearings in the next
month, the Charleston Gazette reported yesterday. The Alabama
State Board of Medical Examiners has scheduled an Aug. 27-28 hearing
about whether King should have his Alabama license revoked. On Wednesday

afternoon, King faces a legal challenge filed by an Alabama law firm
seeking to have his bankruptcy petition rescinded. King generated 124
medical malpractice lawsuits during six months at Putnam General and has

lost or surrendered his medical licenses in several state. He filed for
chapter 7 bankruptcy in Birmingham on Dec. 4, listing a 14-year-old
Volvo worth $500 as his only financial asset. 
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Bondholders Ask Court to Halt Pacific Lumber Bankruptcy
Exit
Bondholders in Pacific Lumber Co.'s bankruptcy case mounted an
eleventh-hour bid to put the brakes on an investment group's plan to
take control of the company and bring it out of bankruptcy, Dow
Jones Daily Bankruptcy Review reported today. The bondholders, led
by trustee Bank of New York, were in U.S. Bankruptcy Court in Corpus
Christi, Texas, Friday morning seeking to halt final confirmation of a
court-approved plan by hedge fund Marathon Asset Management to fund
Pacific Lumber's exit from bankruptcy protection. The emergency hearing
came a day after federal appeals court rejected a bid by the bondholders

to halt the court-approved plan by hedge fund Marathon Asset Management
and California lumber company Mendocino Redwood Co. to fund Pacific
Lumber's exit from bankruptcy. While the U.S. Court of Appeals for the
5th Circuit rejected bondholders bid to halt the plan, the three-judge
panel said they could appeal Bankruptcy Judge Richard Schmidt's order
approving the Marathon-Mendocino plan to bring Pacific Lumber out of
chapter 11. The appellate panel put the bondholders' appeal on a fast
track. In a letter sent Thursday to Pacific Lumber and its new owners,
Bank of New York, as the trustee for the bondholders, said that it won't

cooperate in any consummation of the plan pending the appeal. The
bondholders believe their appeal strips Schmidt of his authority to
enforce his confirmation order so that the bankruptcy plan can take
effect.

MedAvant Wins Interim Approval for $2.9 Million in New
Financing
MedAvant Healthcare Solutions, which provides health care technology and

transaction services, announced that the bankruptcy judge presiding over

its chapter 11 case in Delaware approved all of the initial motions for
continued operation, according to a company press release Friday. Among
the motions approved by the court on an interim basis include the
debtor-in-possession financing commitment of $2.9 million in new
liquidity by its senior lender Laurus Master Fund, Ltd., and the court
approved the company's motion to pay employee wages/benefits, honor its
customer rebate programs-both pre-petition balances and post-petition
accruals-and to pay certain critical vendors. The company filed for
chapter 11 protection on July 23 in order to address its debt burdens
through a sale and restructuring process. The company has agreed to sell

substantially all its business to Marlin Equity Partners, subject to
higher and better bids at a §363 auction. The bankruptcy court will

hear the company's motion for approval of the bid procedures (including
the setting of the bid and auction schedule) on Aug. 4.

Perseus Can Control Frontier after Bankruptcy
Frontier Airlines Holdings Inc. said Friday that investment firm Perseus

LLC will be able to buy almost 80 percent of the equity in the airline
as it emerges from bankruptcy protection, the Associated Press reported
Friday. Frontier said Washington-based Perseus has committed to
providing a $75 million debtor-in-possession loan and will be able to
buy 79.9 percent of the equity in Frontier for $100 million once it
reorganizes. The loan and equity plan both need bankruptcy court
approval. Denver-based Frontier filed for chapter 11 protection in New
York in April. It has been cutting flights, planes and employees as it
deals with soaring fuel costs and works through the filing.

Wickes Reaches $1.25M Settlement With Deloitte
Bankrupt furniture retailer Wickes Furniture Co. Inc. asked the
bankruptcy court overseeing its case to approve a $1.25 million
settlement with Deloitte Consulting LLP, putting to rest a lawsuit
Wickes brought against the financial consulting firm before it entered
into chapter 11, BankruptcyLaw360.com reported on Friday. In a
motion filed Tuesday in the U.S. Bankruptcy Court for the District of
Delaware, Wickes revealed that it had reached a settlement agreement
with Deloitte Consulting on July 18, under which the consulting firm
agreed to pay Wickes and drop its claim against the bankruptcy estate in

return for Wickes' dismissal of its 2007 breach of contract suit. In its

complaint, filed in Illinois state court, Wickes alleged that Deloitte
Consulting breached a 2005 contract it had entered into with the
furniture company, and had breached the implied covenant of good faith
and fair dealing. 
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International
Judge Will Not Decide Parmalat-Citi Case Early
A judge has rejected Citigroup Inc.'s bid for an early decision

in Parmalat SpA's $2.2 billion case after the Italian dairy giant told a

jury that the bank, as its underwriter, aided and abetted the fraud that

eventually felled the company in 2003, BankruptcyLaw360.com
reported on Friday. Parmalat said Friday that Judge Jonathan N. Harris
of the N.J. State Superior Court, Bergen County, denied Citi's motion
for a directed verdict - a decision after the plaintiff has presented
its evidence to a jury but before the defendant has. 
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Investors Selling Assets at Throwaway Prices in
India
Lack of provisions in India's bankruptcy laws to deal with cross-border
insolvency may force Western investment companies hit by global credit
crunch to sell off their assets in the country at throwaway prices
instead of being able to sell their worldwide assets in one go to obtain

a better price, the Economic Times reported today. Since Indian

courts do not recognize decisions of insolvency courts in other
countries, bankrupt foreign investment companies would be forced to
scurry for a domestic buyer before their local assets get into
never-ending insolvency proceedings. Industry sources said that many
overseas funds that have invested in Indian companies are owned by
holding companies in the United States and the United Kingdom, and are
in deep financialtrouble. More and more such companies are expected to
put their Indian business on the block, they said. 

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U.K. Bankruptcy Practitioners in High Demand
Increased demand for insolvency practitioners is pushing up salaries by
as much as 15 percent in the Greater Manchester area say recruiters, who

are struggling to satisfy the growth in demand from accountancy firms,
Crain's Manchester Business reported today. “Six months
ago the insolvency recruitment market was quiet, with about 10-15 per
cent of all placements being in the area of corporate insolvency,”

said Russell Corrie, a director at WWB, an Altrincham-based recruitment
consultancy that has an insolvency division. “But now 80 per cent
of the jobs we are dealing with are in corporate recovery and we are
struggling to keep up with the market.” 

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