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March 12, 2010
Dodd: Financial System Reforms Won't Wait
Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) said Thursday he will move forward next week with sweeping legislation to revamp the nation's financial regulatory system, despite failing to resolve key differences with Republicans, The Washington Post reported today. Although Dodd said he will continue bipartisan talks, unveiling the measure on Monday puts pressure on GOP senators by creating a sense of urgency and forcing the debate into the open. Republicans opposed to key elements of the bill, such as new protections for consumers, would have to make their case publicly. After months of talks, the two sides have been unable to reach final agreement over the enforcement powers of a new consumer watchdog, the scope of the Federal Reserve's regulation over banks and the financing of a new authority that would allow the government to wind down large, troubled financial firms without cost to taxpayers. Dodd said he decided to introduce his bill so the committee could begin discussing it before the Easter recess in early April. He also said he had been facing pressure from liberals who feared he was compromising too much during recent negotiations. Dodd's strategy risks estranging Republican senators who might be willing to support a deal. While Dodd conceivably could move a bill from his committee with only Democratic support, he ultimately must garner GOP support. Democrats control only 59 votes in the Senate, and 60 votes would be needed to overcome a Republican filibuster. Dodd's decision appeared to wound his closest Republican ally on the committee, Sen. Bob Corker (R-Tenn.). The pair had worked for weeks to resolve thorny issues, and both men had said they were on the brink of a deal. Read more (free subscription required).
name='2'>Court Approves Cross Canyon Plan
Oil and gas explorer and producer Cross Canyon Energy Corp. has received court approval of its prepackaged plan of reorganization, getting it one step closer to exiting from chapter 11, The Deal Pipeline reported today. Judge Jeff Bohm of the U.S. Bankruptcy Court for the Southern District of Texas in Houston both approved and confirmed the debtor's plan of reorganization on Thursday. Under the debtor's amended plan, which was filed on March 10, administrative claims, priority tax claims and other priority claims will be paid in full in cash on the effective date. Spring, Texas-based Cross Canyon Energy, which is engaged in the exploration, production and development of natural gas and crude oil, will repay CIT Group/Equity Investments Inc.'s $11.5 million first-lien claim through a new $10 million credit facility and shares of preferred stock. General unsecured creditors, subordinated unsecured creditors and intercompany claimants will also receive payment in full in cash on the plan's effective date. The debtor said it was forced to file for bankruptcy on Jan. 29 after the borrowing base on its debt with CIT was reduced and it was unable to pay the difference between what was owed on the debt and what the borrowing base was reduced to on the debt. Read more (subscription required).
name='3'>Report Details How Lehman Hid Its Woes as It Collapsed
It is the Wall Street equivalent of a coroner's reporta 2,200-page document that lays out, in new and startling detail, how Lehman Brothers used accounting sleight of hand to conceal the bad investments that led to its undoing, according to today's New York Times. The report, compiled by an examiner for the now-bankrupt bank, hit Wall Street with a thud late Thursday. The 158-year-old company, it concluded, died from multiple causes. Among them were bad mortgage holdings and, less directly, demands by rivals like JPMorgan Chase and Citigroup, and that the foundering bank posted collateral against loans it desperately needed. The examiner, Anton R. Valukas, laid out what the report characterized as 'materially misleading' accounting gimmicks that Lehman used to mask the perilous state of its finances. The bank's bankruptcy, the largest in American history, shook the financial world. Fears that other banks might topple in a cascade of failures eventually led Washington to arrange a sweeping rescue for the nation's financial system. According to the report, Lehman used what amounted to financial engineering to temporarily shuffle $50 billion of troubled assets off its books in the months before its collapse in September 2008 to conceal its dependence on leverage, or borrowed money. Senior Lehman executives, as well as the bank's accountants at Ernst & Young, were aware of the moves, according to Mr. Valukas, the chairman of the law firm Jenner & Block and a former federal prosecutor, who filed the report in connection with Lehman's bankruptcy case. Read more.
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New Round of Foreclosures Threatens Housing Market
The housing market is facing swelling ranks of homeowners who are seriously delinquent but have yet to lose their homes, and this is threatening to create a new wave of foreclosures that could hit just as the real estate market has begun to stabilize, The Washington Post reported today. About 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some economists project it could take nearly three years before all these homes have been put on the market and purchased by new owners, and the number of pending foreclosures could grow much bigger over the coming year as more distressed borrowers become delinquent and subsequently wade through the foreclosure process, which often takes more than a year to complete. As these foreclosed properties add to the supply of homes for sale, they could undercut housing prices, which have increased modestly through December, according to the most recent figures in the S&P/Case-Shiller home prices index. That rise partly reflected a slowdown in the flow of foreclosed homes onto the market. The rate at which JPMorgan Chase seized properties, for example, peaked in the middle of 2008 and fell steadily last year, according to a February investor report. The bank expects repossessions to increase this year, nearly doubling to 45,000 by the fourth quarter. While banks repossessed fewer homes in February than a month earlier, borrowers continued to fall behind on their payments, adding to the inventory of properties headed toward foreclosure that have yet to be put on the market, according to RealtyTrac. Read more (free subscription required).
name='5'>Koster Alleges Fraud, Plunder in Fidelis Filing
US Fidelis intentionally shortchanged its customers, and the firm's owners illegally plundered the company for personal gain, Missouri Attorney General Chris Koster alleged in motions filed in federal bankruptcy court Thursday, the St. Louis Post-Dispatch reported today. Because of those and other irregularities, Koster's office has asked a bankruptcy judge to appoint an independent trustee to run the Wentzville-based company, once the No. 1 seller of extended auto service contracts. Late last year, the company laid off hundreds of workers and stopped selling the contracts, which often were marketed as 'extended warranties.' US Fidelis remains open, though it is a shadow of its former self. About 100 call center workers remain, and their primary job is to talk contract holders out of canceling coverage, company lawyers last week told U.S. Bankruptcy Judge Charles E. Rendlen III. The company is now run by turnaround consultant Scott Eisenberg of Amherst Partners, based in Birmingham, Mich. In addition to seeking a trustee to replace Eisenberg, Koster says there ought to be a comprehensive financial audit of the company. He said the Atkinsons appear to have improperly diverted funds out of the company, according to its recent bankruptcy filing and the sworn statement of a former top executive. Read more.
name='6'>Lyondell Arranges $3.2 Billion Debt, Nears Bankruptcy Exit
Having rejected Mukesh Ambani-led Reliance Industries' takeover bid, global petrochemicals giant LyondellBasell on Friday announced tying up $3.25 billion worth of funds and securing court approval for its bankruptcy-exit restructuring plan, TheWire.com reported today. The company said the court has approved its $450 million pact with the creditors, under which they were to support the company's reorganization plan. Following the court's approval for Lyondell's reorganization plan, it would be sent to the company's creditors for their nod. Last month, Lyondell said its unsecured creditors had approved the $450 million settlement, which increases the amount they can recover from $300 million planned earlier. Earlier this week, Lyondell rejected a $14.5-billion takeover bid from Reliance Industries, saying its own reorganization plan was superior to the offer made by the Indian firm. Weighed down by massive debts, LyondellBasell's U.S. operations and one of its European holding companies had filed for chapter 11 protection in 2009. The bankrupt petrochemical firm plans to sell senior secured bonds on a private placement basis and borrow through a senior term loan. It also plans to raise $2.8 billion in a rights offering. Read more.
name='7'>Florida's Celebrity Resorts Files for Bankruptcy
Florida-based Celebrity Resorts, has filed for chapter 11 protection under the weight of $27.8 million in debt, The (Nevada) Record-Courier reported today. According to documents filed March 8 in federal bankruptcy court in Orlando, Fla., Celebrity Resorts and its 35 affiliates, together overseeing 13 resorts nationwide, cited the state of the economy as grounds for the filing. 'Over the past two years, the real estate markets in both the United States and Florida have suffered and continue to suffer losses and decreased capital markets unseen in this country since the late 1920s,' the documents state. Court documents also reveal that Celebrity CEO Jared Meyers was in a legal dispute with his father, Neil Meyers, and brother, Steve Meyers. According to the filing, Celebrity's profits in 2009 increased by about $5.8 million over 2008, and the company's annual gross revenue for 2009 was approximately $40.3 million. Read more.
name='8'>Ex-Mets Lenny Dykstra Wants Bankruptcy Case Dismissed
Lenny Dykstra, the former star baseball center fielder, has asked a federal judge to dismiss his bankruptcy case, Reuters reported yesterday. In a filing last week, Dykstra said he would do a better job satisfying creditors' claims than the court-appointed trustee, whom he said is 'only interested in dumping assets as quickly as possible.' Dykstra said he has 'interested parties' to help him pursue claims outside the bankruptcy process against JPMorgan Chase & Co., which he has said is owed $12.9 million related to his 2007 purchase of a California mansion. He added that he has 'always been financially accountable for his actions and would like the legal right to all his debts and all his assets.' By ending the bankruptcy proceedings, Dykstra said he could 'once again claim his role as a productive member of society.' A hearing in the case is set for April 6. Dykstra filed for chapter 11 protection last July after being sued more than 20 times over his entrepreneurial activities. The case is In re Lenny Kyle Dykstra, U.S. Bankruptcy Court, Central District of California, No. 09-18409. Read more.
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