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June 30, 2009
Supreme Court Turns Down Chapter 11 Claim Priority Suit
The Supreme Court yesterday denied Zurich American Insurance Co.'s petition for a writ of certiorari in its suit against Lexington Coal Co. LLC, in which Zurich argued that workers' compensation claims should be entitled to the priority status, even for the parts of the claims that had not been paid as of the confirmation date of the bankruptcy plan, Bankruptcy Law360 reported yesterday. Zurich provided insurance coverage through deductible policies to Horizon Natural Resources LLC as its chapter 11 bankruptcy proceedings were pending. Lexington was created out of Horizon's bankruptcy. After the debtors' reorganization plans were approved, Zurich filed an administrative expense claim for $14.6 million, an estimate of the deductible portion of the claims it believed it would pay for injuries that occurred during the deductible period but were not the subject of insurance claims until after the plans' confirmation. Both the U.S. Bankruptcy Court and the U.S. District Court for the Eastern District of Kentucky denied Zurich's administrative expense claim, holding that it did not constitute an 'actual, necessary cost and expense of preserving the estate.' The U.S. Court of Appeals for the Sixth Circuit ultimately affirmed the district court ruling. Read more. (Subscription required.)
name='2'>Supreme Court Ruling Adds Teeth to State Oversight of Banks
Yesterday, in a decision that marked a major victory for consumer advocates, the Supreme Court held that states can challenge the practices of national banks in court, the Washington Post reported today. Major banks have long argued that only federal bank regulators can compel them to comply with rules meant to protect consumers from potentially unfair lending practices or pursue cases of potential discrimination against minorities. The Supreme Court, in a 5-4 decision, disagreed, concluding that state attorneys general can go after national banks on such matters. The Court ruled, however, that states cannot unilaterally require banks to turn over information or change their behavior the way a regulator can, and they must take the banks to court. During the lending boom earlier this decade, many state officials sought to clamp down on what they viewed as abusive or discriminatory practices by banks, but were rebuffed by long-standing legal principles that only federal authorities can regulate nationally chartered banks. The decision yesterday redraws those lines of authority. Writing for the majority, Justice Antonin Scalia said such arguments effectively leave states without the ability to enforce their own laws. 'The bark remains,' he wrote, 'but the bite does not.' Scalia argued that state authorities must have the power to pursue cases against companies operating within their borders so long as there is no federal law explicitly prohibiting them from doing so and so long as they pursue claims through the court system. Read more (subscription required).
Autos
name='3'>Uncertainty Clouds Recovery of U.S. Investment in GM
If a new General Motors emerges from bankruptcy as planned, U.S. financial aid for the company will expand to nearly $50 billion, but neither the government nor the company is forecasting how much of the public money will be repaid, the Washington Post reported today. The uncertainty stems from the difficulty in valuing the 60 percent GM stake that the United States will receive in exchange for the public investment. The government also gets preferred shares and other compensation. The stake will be worth enough to fully cover the government's direct investment only if GM's stock rises above $68 billion. Even at its recent 2000 peak, GM's stock was worth only $56 billion. The company's own internal analysis, prepared by Evercore Partners and presented to the company's board on May 31, shows how the government could recover its investment. According to that presentation, the equity value of the company in 2012 will range from $59 billion to $77 billion. If the stock value rises to the high end of that range, the U.S. could recover all of its investment. 'We have certainly looked at scenarios where, over time, a very substantial portion and potentially all of the taxpayer investment in General Motors will be returned,' Ron Bloom, a senior adviser to the administration's auto task force, told a Senate committee earlier this month. 'But I certainly by no means would say that I am highly confident that that will occur.' Read more.
GM to Seek Approval to Sell Itself
General Motors Corp. is heading to bankruptcy court on today to seek approval to sell its assets to a 'New GM' in a plan to reinvigorate the automaker under U.S. government ownership, Reuters reported today. GM is seeking approval for the sale from Bankruptcy Judge Robert Gerber just 30 days after filing for chapter 11. Under the deal, brokered by the Obama administration's autos task force, the company would sell its assets under 363 to a 'New GM' and continue to operate its best assets, such as Chevrolet and Cadillac, while gaining access to billions in funding from the U.S. Treasury. GM's old assets would remain behind in bankruptcy court to be liquidated. The deal faces several objections from bondholders and those concerned about the fate of its dealerships, but no competing bidders have emerged as an alternative to the U.S. government's $60 billion financing for GM, including a proposed equity investment of $50 billion that would give the U.S. Treasury a 60 percent ownership stake. Read more.
name='5'>Lear Corp. on the Brink of Bankruptcy
Southfield, Mich.-based auto supplier Lear Corp. has until the end of the day today to make an interest payment to its bondholders and to reach a deal with its banks to stay out of bankruptcy, the Detroit Free Press reported today. Lear, the world's second-largest automotive seatmaker, is one of several suppliers that have run into financial trouble as auto sales plummeted, pushing it to the brink of a chapter 11 filing. Lear defaulted on its credit agreements last year when the company tapped a $1.2 billion credit line and did not repay money owed on that credit line. Since then, the company has negotiated two waivers with its banks and the latest one expires today. Read more.
name='6'>Judge Approves Milacron Asset Sale to Lenders Group
Bankruptcy Judge J. Vincent Aug on Friday approved the $175 million sale of chemical processing company Milacron Inc. to a group of its senior secured noteholders after no other offers topping the bid came in, Bankruptcy Law360 reported yesterday. In return for Milacron's assets, the purchasers will repay or assume the company's debtor-in-possession loan facilities, assume other liabilities and debt, credit bid $6.1 million of prepetition secured notes, and provide additional consideration to noteholders who are not part of the purchasing entity. According to Milacron, the deal is substantially the same as an agreement in principle announced March 10, the same day the company filed for chapter 11 protection. The company said that the deal will be completed in July.
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name='7'>Unions Lose Appeal of Vallejo's Chapter 9 Eligibility Ruling
The U.S. Bankruptcy Appellate Panel of the Ninth Circuit rejected a bid by two labor unions to overturn a ruling that the city of Vallejo, Calif., was eligible to file for chapter 9 protection, Bankruptcy Law360 reported yesterday. The ruling on Friday affirmed Bankruptcy Judge James McManus' Sept. 8, 2008, ruling and denied a challenge from the International Association of Firefighters, Local 1186 and the International Brotherhood of Electrical Workers, Local 2376. The unions claimed that Vallejo had not met eligibility requirements under chapter 9. If the settlement discussions between the IBEW, IAFF and Vallejo don't bear fruit, Judge McManus will rule on the city's motion to reject the IAFF's and the IBEW's collective bargaining agreements, according to the city. Read more. (Subscription required.)
name='8'>U.S. Trustee Objects to Anchor Blue's Proposed Bonus Plan
U.S. Trustee Roberta A. DeAngelis on Friday objected to Anchor Blue Retail Group Inc.'s proposed bonus plan, claiming that it is really a retention plan in disguise and improperly compensates the company's executives regardless of performance, Bankruptcy Law360 reported yesterday. DeAngelis' objection contended that the proposed $800,000 in bonuses lacked any incentive criteria and essentially lavished money on executives for merely seeing that the all-credit stalking-horse bids succeed. The executive incentive program, therefore, rewards executives without justification and fails to meet the standards of the Bankruptcy Abuse Prevention and Consumer Protection Act, the objection stated. Read more. (Subscription required.)
name='9'>Poll: Alan Greenspan to Blame for Credit Crisis
Gary Jenkins, head of Fixed Income Research at Evolution Securities, recently ran a poll of about 200 mostly fund managers and investors asking them to pick their credit crisis culprit, Reuters reported today. Former U.S. Federal Reserve Chairman Alan Greenspan was the clear winner, picking up 35 percent of the votes. Once considered one of the world's greatest central bankers, he has been widely criticized over the past year for low interest rate policies that helped fuel the credit boom. Former U.S. president Bill Clinton figured quite prominently with about 10 percent of votes. Also picked was Richard Fuld, the head of Lehman Brothers, the U.S. investment bank which filed for bankruptcy protection last September. Jenkins himself suggested Microsoft founder Bill Gates take some blame for putting together the technology Ñ spreadsheets and presentation software Ñ that made it easy to create and sell the complex credit products that played a key role. 'That's a bit tongue-in-cheek,' he said. 'If I had to choose one person I would choose Greenspan,' adding that of course it was unfair to blame one person. He said Greenspan's reputation had rapidly switched from being one of the world's leading economic thinkers to someone who helped cause the credit binge and bust. Read more. (Subscription required).
name='10'>Taxpayers to have say on AIG
AIG is expected to formally install its new board today, when the company holds its first annual shareholders meeting since U.S. taxpayers were given majority control, CNNMoney.com reported today. The three trustees that represent the government's 80 percent controlling interest in the troubled insurer plan to elect six new officers to the 11-member board of directors that is tasked with helping AIG repay more than $70 billion debt owed to taxpayers. The company has previously said that it could take up to five years before the government is fully repaid. The new leadership will also oversee the company's roadmap to recovery, nicknamed 'Project Destiny.' The plan involves the government taking a stake in AIG's foreign life insurance units and AIG selling up to 20 percent of its property and casualty business (AIU) in an initial public offering. On the other hand, AIG's foreign insurance units are some of the company's healthiest, and experts say the taxpayers could come out on top when it's time to sell. Shareholders will also have the opportunity to vote on a 20-1 reverse stock split. Shares of AIG were trading at about $1.43 on Monday after having more than quadrupled in the recent near 4-month stock market rally. Still, AIG's stock is down more than 88 percent from the day before the company's bailout was announced in September. Read more.
name='11'>Fed Holds Rates Steady
With signs the economy is improving but still fragile, Federal Reserve policymakers held the Fed funds rate steady Ñ at zero to 0.25 percent Ñ on June 24, and maintained its pace of purchases of government debt at mortgage-backed securities, BusinessWeek Online reported yesterday. The Federal Reserve Open Market Committee (FOMC) said at the end of its two-day meeting that indications are that the 'pace of economic contraction is slowing,' and financial markets have improved in recent months. Household spending is also stabilizing, the FOMC said, but remains hampered by continuing job losses, declines in household wealth, and tight credit. Businesses, meanwhile, are cutting back on spending and staffing, and are reducing inventory. 'Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability,' the Fed statement said, adding that inflation is expected 'to remain subdued for some time.' Read more.
name='12'>Madoff Sentenced to 150 Years for Ponzi Scheme
Bernard L. Madoff was ordered yesterday to serve 150 years in prison, a sentence surpassing that of other recent high-profile white-collar crimes, the Washington Post reported today. In handing down the sentence, Federal District Judge Denny Chin acknowledged that any term above 25 years would be symbolic, given Madoff's advanced age of 71. Nevertheless, the judge said, it was important that the severity of the sentence serve as a deterrent to future offenders. Other major white-collar criminals have received far shorter terms. Bernard J. Ebbers, the former head of WorldCom, received a 25-year sentence in 2006 for his role in an $11 billion accounting fraud that brought down the company. Dennis L. Kozlowski, former chief executive of Tyco International, is serving a sentence of 8 1/3 to 25 years, handed down in 2006, for securities fraud and other charges. Read more.
In related news, federal authorities are pressing a probe of 10 associates of Bernard Madoff despite a sentence that means the mastermind of one of the biggest financial frauds in history will spend the rest of his days behind bars, the Associated Press reported today. Read more.
International
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