March 8, 2010
Program Will Pay Struggling Homeowners to Sell at a Loss
In an effort to end the foreclosure crisis, the Obama administration's latest program involves offering struggling homeowners $1,500 to sell for less than the mortgage balance, the New York Times reported today. Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through the short-sale process. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed. ?We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,? said Seth Wheeler, a Treasury senior adviser. Read more.
Premier General Must Answer Involuntary Chapter 7 Petition by March 17
The same creditors that put the affiliate of a water well drilling company Premier General Holdings Ltd. into bankruptcy involuntarily eight months ago have done it again, the Deal Pipeline reported on Friday. Creditors Dillon Water Resources LP and Dean Davenport placed the company into chapter 7 bankruptcy on Feb. 19 with the U.S. Bankruptcy Court for the Western District of Texas in San Antonio, asserting roughly $63 million in claims between them. The company will now have until March 17 to respond to the involuntary petition, said Elliott S. Cappuccio of Pulman Cappuccio & Pullen LLP, who serves as counsel to the petitioning creditors. He said the creditors placed Premier General into bankruptcy because it has failed to make payments on a $63 million court judgment from last year. The same creditors previously placed Premier General into involuntary chapter 7 on July 17, though the case was dismissed on Oct. 19 on the grounds that the move was just a litigation tactic and because at the time the company had less than 12 creditors. Read more. (Subscription required.)
Banks Face Greater Demand to Repurchase Defective Loans
Lenders such as Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. will brave stiff headwinds this year as they face demands to buy back defectively underwritten mortgages, the Wall Street Journal reported today. Annual reports filed by major mortgage lenders show big surges in the volume of loans being repurchased in 2009. Wells Fargo said that it bought back mortgages with balances of $1.3 billion, triple the 2008 total of $426 million. Losses on bought-back loans doubled to $514 million from $251 million in 2008, according to the San Francisco-based company. Bank of America repurchased $1.5 billion of first-lien mortgages that were sold off by the Charlotte, N.C., bank through securitizations but are tied to faulty underwriting, up sharply from $448 million in 2008. As of Dec. 31, J.P. Morgan had set aside $1.7 billion to meet repurchase claims from investors, a 55 percent jump from $1.1 billion a year earlier. Last year, lenders bought back about $20 billion of loans with faulty underwriting, according to Barclays Capital estimates. About half of the total was written off because the loans were delinquent. Read more. (Subscription required.)
GM Offers 661 Shuttered Dealers a Second Chance
General Motors is in the process of calling 661 dealers targeted for shutdown to offer them their franchises back, company executives said on Friday, CNNMoney.com reported. That represents more than half of the dealers who lodged an arbitration appeal last month to fight their planned termination. Last May, as the Detroit auto giant worked its way through bankruptcy, GM notified 2,000 dealers that they would lose their franchise license in October 2010. Congress, however, demanded that the company give dealers an appeal process, and 1,100 of those targeted for shutdown met last month's deadline to file for arbitration in an attempt to regain their license. The arbitration hearings will take place over the next three months, but GM's initial review of the applications convinced it to go ahead and offer more than 600 dealers their franchise back, the company said. Those affected have been sent a 'letter of intent' and will be allowed to resume normal operations if they comply with the letter's terms. Read more.
Key Vacancies Give Obama a Chance to Steer Financial Reform
President Obama has the chance during his first term to appoint leaders for each of the federal agencies that oversee banks, an important opportunity to reshape the government's approach to regulation even as the White House struggles to push structural reforms through the Senate, the Washington Post reported today. In his first such decision, Obama chose to keep Ben S. Bernanke as chairman of the Federal Reserve, in part because administration officials concluded that Bernanke had demonstrated a commitment to increasing the Fed's focus on regulation and consumer protection. The administration also appointed a second Fed governor, Daniel K. Tarullo, to lead an overhaul of the central bank's approach to regulation. A second opportunity comes in August, when John C. Dugan reaches the end of his term as comptroller of the currency, the chief regulator for most of the nation's largest banks. The hiring opportunities, which also include a vacancy at the Office of Thrift Supervision and the end of Sheila C. Bair's term as chairman of the Federal Deposit Insurance Corp. in June 2011, will allow the White House greater control over the implementation of financial reform legislation. Read more.
In related news, the Federal Reserve has tried to fend off very public efforts in Congress to strip it of responsibility for regulating America's banks, but a less-visible battle has been playing out inside the central bank, the Wall Street Journal reported today. The Fed has undertaken a wrenching reorganization of its army of 3,000 bank supervisors, which has centralized more power in Washington, D.C., and sometimes pitted officials at the 12 regional Fed banks against those in the capital. Before 2008, regulators and Wall Street had convinced themselves that a quarter-century of financial innovation had made the system safer by dispersing risk; responsibility was best left in the hands of banks' risk managers rather than regulators. Now a new mind-set prevails in many quarters as the Fed is guiding commercial banks on everything from how to pay employees to how to adjust for risks in areas like commercial real estate and construction loans. Read more. (Subscription required.)
Natural Products Group Emerges from Bankruptcy
Natural Products Group LLC on Friday said that it has emerged from chapter 11 protection, just 37 days after filing a pre-packaged bankruptcy plan, Reuters reported on Friday. The company, which owns the Nature's Gate line of organic soaps and shampoos, filed for bankruptcy on Jan. 27 under a restructuring deal with its bank lenders. Under the deal, lenders owed about $530 million took control of 85 percent of the stock in the reorganized company. The case is In re Natural Products Group LLC, U.S. Bankruptcy Court, District of Delaware, No. 10-10239. Read more.
Municipal Distress
Detroit Warns of Bankruptcy as It Prepares Bond Sale
Detroit, the largest U.S. city whose debt is rated below investment grade, warned investors of the risk of bankruptcy as it prepares to sell $250 million of bonds to help close its budget deficit, Bloomberg News reported on Friday. The city told bondholders in a March 2 preliminary offering statement that while it hasn?t taken steps to reorganize under chapter 9, it may have few other options if its financial condition worsens. Detroit officials also detailed the steps they would have to take should bankruptcy become necessary. The total deficit this year for Detorit is estimated at $280 million. Only two cities -- Menasha, Wis., and Vallejo, Calif. -- have sought bankruptcy protection during the past two years. Vallejo, which filed in May 2008, is seeking to suspend principal and interest payments on debt for three years. The Detroit School District and Harrisburg, Pennsylvania, have also said that bankruptcy is a possibility. Read more.
To learn more on chapter 9 bankruptcy and the choices faced by a financially struggling municipality, click here to pre-order a copy of the new Municipalities in Peril: The ABI Guide to Chapter 9 in the ABI Bookstore.
Officials Say Toledo Faces a 'Fiscal Emergency'
Unless there is a fundamental change in the way Toledo, Ohio's municipal government operates, the city will likely be unable to pay its employees before the year is through, the Toledo Blade reported yesterday. That looming financial disaster leads people such as Mayor Mike Bell and Councilman D. Michael Collins to throw out words like 'bankruptcy' or 'receivership,' two feared terms, but ones that are not likely to become reality. Being slapped by the state as a 'fiscal emergency' municipality is a real threat, and though some officials are against it, others are advising Toledo to embrace the option given its $48 million deficit. 'If you cannot make payroll for 30 days, you are there. You are in fiscal emergency,' said Deputy Mayor of Operations Steve Herwat. Read more..
Judge Approves Penton Media's Bankruptcy Plan
Penton Business Media Holdings Inc, a publisher of 113 trade magazines, won court approval of its reorganization plan, and expects to emerge from bankruptcy within a few days, Reuters reported on Friday. Bankruptcy Judge Arthur Gonzalez confirmed the New York-based company's chapter 11 plan, which will eliminate more than $270 million of debt with second lien holders recovering 15 cents on the dollar. Penton will get as much as $51.2 million of new equity from its owners, court records show. Management and the board of directors will remain intact. Penton filed a pre-packaged chapter 11 plan with the support of its lenders on Feb. 10, after the privately held company struggled with falling advertising sales as many readers shifted to digital media from print. The case is In re Penton Business Media Holdings Inc., U.S. Bankruptcy Court, Southern District of New York, No. 10-10689. Read more.
AIG Sells Unit to MetLife for Nearly $15.5 Billion
The American International Group yesterday agreed to sell a second major insurance unit, representing another deal that AIG has struck in the past week, raising about $51 billion to repay its taxpayer-financed rescue, the New York Times reported today. Even after wiping away $51 billion of debt, AIG will still owe roughly $50 billion to the government. The boards of MetLife and AIG met yesterday and approved the sale of the AIG unit, the American Life Insurance Company, known as Alico, for nearly $15.5 billion. Read more.
Retailers Balking at Mall Deal
National retailers are expressing growing concern that mall giant Simon Property Group Inc. may gain too much market power if it succeeds in acquiring rival General Growth Properties Inc. out of a bankruptcy proceeding, the Wall Street Journal reported today. The concern raises the possibility that the deal might face antitrust criticism from retailers and others. The combined entity would own roughly half of the 300 U.S. malls with the highest sales, according to estimates by Green Street Advisors Inc. Many retailers have been unwilling to publicly criticize the proposed deal, partly because Simon already is the country's largest mall owner. However, officials with the National Retail Federation, the largest trade association for U.S. retailers, say that large members have complained to the trade group that the deal would give Simon so much market clout that it could dictate higher rents and sway store openings and closings. Read more. (Subscription required.)
NHL Sues Former Phoenix Coyotes Owner Jerry Moyes
The National Hockey League on Friday sued former Phoenix Coyotes owner Jerry Moyes, seeking to recover more than $61 million over the trucking magnate's management of the struggling franchise, Reuters reported on Friday. The team filed for bankruptcy last May and was bought by the NHL for $140 million in November. That purchase followed a U.S. bankruptcy judge's rejection of a takeover bid by Canadian billionaire Jim Balsillie, the co-chief executive of BlackBerry maker Research in Motion Ltd. The NHL filed its lawsuit with the New York State Supreme Court in Manhattan, where the league is based. Read more.
AbitibiBowater Gets Tentative Deal with Union
AbitibiBowater Inc. has reached a tentative labor deal affecting about 4,000 workers, bringing the newsprint maker closer to emerging from bankruptcy protection, Reuters reported yesterday. AbitibiBowater, headquartered in Montreal but incorporated in the United States, filed for bankruptcy protection in April 2009 after crumpling under a heavy debt load. The Communications, Energy and Paperworkers Union of Canada said yesterday that the deal was reached after the company withdrew a proposal to terminate pension plans, which would have reduced pension benefits an average of 25 percent. Read more.
International
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