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December 17,
2009
Airline Unions Ask House
Panel for Changes in Bankruptcy Law
A group of unions representing airline workers is
seeking changes to U.S. bankruptcy laws that would make it harder for
airlines to scrap labor agreements in court, the
face='Times New Roman'>
size='3'>Washington Post reported today. The
Coalition of Airline Pilots Association and other unions told a House
Judiciary panel yesterday that current law gives airlines an unfair
advantage over workers in the bankruptcy process. Several major U.S.
airlines have filed for bankruptcy in the past decade, including US
Airways, Continental Airlines, Delta Air Lines and Northwest Airlines.
Union groups have complained for years that the bankruptcy process has
allowed airlines to dismantle labor agreements, leaving employees with
diminished pay, pensions and work rules. The unions say they want
legislation that would give airline workers the same type of contract
protections enjoyed by rail workers, whose labor agreements are more
difficult to change. Industry analyst Jerry Glass, president of F&H
Solutions Group, testified that major airlines would have died in
bankruptcy court if they had faced greater restrictions on lowering
labor costs.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/12/16/AR2009121604097_pf.html'>Read
more.
href='http://judiciary.house.gov/hearings/hear_091216_2.html'>Click
here to read the prepared witness testimony.
Judge Allows Lehman to Pump
$100 Million into Bank Unit
Bankruptcy Judge
face='Times New Roman' size='3'>James Peck
size='3'>said yesterday that Lehman Brothers Holdings Inc. could inject
another $100 million into its Aurora Bank unit so that it does not fall
below the required regulatory capital level, Reuters reported yesterday.
Judge Peck said that he would approve the additional funding for the
bank, which has already received about $250 million of capital
contributions from Lehman since March. Aurora Bank FSB, formerly known
as Lehman Brothers Bank, employs the bulk of the remaining Lehman
Brothers staff and could be worth as much as $1 billion to Lehman
Brothers' creditors along with the company's other bank, Utah-based
Woodlands. The bank has struggled to meet capital requirements as
regulators have limited its ability to offer new certificates of
deposit.
href='http://www.reuters.com/article/idUSN167679220091216'>Read
more.
In related news, Judge Peck said that Lehman Brothers
Holdings Inc. could pay $50 million in bonuses to employees still
grappling with a huge derivatives portfolio 15 months after Lehman's
collapse, the Wall Street Journal reported
today. Lehman said that the bonuses are crucial to prevent employee
defections as it works to settle a derivatives portfolio with a total
value of more than $10 billion, according to court documents.
Richard Krasnow said the 230 employees given the task
of unwinding the portfolio must achieve a total recovery of at least $10
billion to trigger the bonus payments. The payments increase as the
recovery value rises. The total bonus pool is $50 million.
href='http://online.wsj.com/article/SB10001424052748704541004574600014098964806.html'>Read
more . (Subscription required.)
SEC Approves Tougher Rules
on Executive Pay
The Securities and Exchange Commission voted 4 to 1
yesterday to require companies to reveal more information about how they
pay their executives amid a public outcry over compensation, the AP
reported yesterday. The agency also changed a formula on how public
companies report stock options and stock awards in regulatory filings.
Separately, the agency voted unanimously to require thousands of
investment advisers who have custody of clients’ money to submit
to annual surprise exams by outside auditors. The surprise audits would
allow independent accountants to review the books and verify that the
money is there. The snap audits would apply to about 1,600 investment
advisers that do not use third-party custodians, out of roughly 11,000
advisers registered with the SEC.
href='http://www.nytimes.com/2009/12/17/business/17pay.html?ref=business&pagewanted=print'>Read
more.
Court Hears Credit-Bid
Arguments in Philly Newspapers Case
Amid a legal debate over the interpretation of the
U.S. Bankruptcy Code, a federal appeals panel on Tuesday heard arguments
as to whether Philadelphia Newspapers L.L.C.'s lenders can use the money
they are owed as a “credit bid” to purchase the assets of
the media firm at auction, the
face='Times New Roman' size='3'>Philadelphia Inquirer
size='3'>reported yesterday. The company's senior lenders argued that
U.S. District Judge Eduardo C. Robreno had erred last month when he
reversed a bankruptcy court’s order that permitted the senior
lenders to credit bid at an auction conducted pursuant to a liquidating
plan of reorganization.
size='3'>Judge Robreno ruled that because the auction was being
conducted under §1129 of the Bankruptcy
Code—and not under §363—the
credit bidding provisions of §363(k) did not
apply to the auction, and the lenders could not credit bid their
indebtedness (some $300 million) in order to acquire the assets. On
appeal to the Third Circuit, the senior lenders argued that Judge
Robreno focused too narrowly in his ruling on language within a
subsection of §1129. Lawrence G.
McMichael, representing the debtor
Philadelphia Newspapers, countered that the issue turned on three words
within the Code. The first was the word “or” that was used
to introduce the last of three provisions in
size='3'>§1129(b), which spell out how to ensure that a disputed
bankruptcy plan is fair and equitable to objecting lenders. McMichael
argued that the word “or” meant that the company could use
any of those provisions to prove that its plan was fair and equitable.
The company chose to rely on only one of those three provisions, one of
which makes no mention of credit bidding but calls for creditors to
receive the 'indubitable equivalent' (the other two words) of the value
of their collateral. The federal panel adjourned without ruling and
could take from several weeks to several months to rule on the
matter.
href='http://www.philly.com/philly/business/79386597.html'>Read
more.
Colonial BancGroup
Challenges Capital Deal with FDIC
Failed bank holding company Colonial BancGroup Inc.
sued the Federal Deposit Insurance Corp. in an effort to void an
agreement on capital maintenance requirements it reached with the FDIC
earlier this year, but wasn't able to fulfill, Bankruptcy
Law360 reported yesterday. Colonial BancGroup
filed an adversary complaint against the FDIC on Tuesday in the U.S.
Bankruptcy Court for the Middle District of Alabama, asking the court to
declare its capital agreement with the FDIC void under
§548 of the Bankruptcy Code. Colonial BancGroup said
that its agreement with the FDIC was constructively fraudulent because
at the time it took effect, the bank was already, or was about to
become, insolvent. The bankruptcy case is
face='Times New Roman' size='3'>The Colonial BancGroup
Inc., case number 09-32303, in the U.S.
Bankruptcy Court for the Middle District of Alabama.
href='http://bankruptcy.law360.com/print_article/139670'>Read more.
(Subscription required.)
Senators Push to Reinstate
Glass-Steagall Act
Sens. Maria Cantwell (D-Wash.) and John McCain
(R-Ariz.) yesterday unveiled legislation that would reinstate the
Glass-Steagall Banking Act of 1933, which prohibited commercial banks
from engaging in riskier investment banking, CongressDaily
reported. The act was repealed with passage of the
Gramm-Leach-Bliley Act of 1999. 'I want to ensure that we never stick
the American taxpayer with another $700 billion ... to bail out the
financial industry,' said McCain, referring to the Troubled Asset Relief
Program. Cantwell and McCain said the wall needs to be rebuilt because
commercial banks are making some of their investment bets with the help
of depositor money, which is under a FDIC guarantee. Banks pay into the
FDIC insurance fund to cover failures, an account that had an $8.2
billion deficit last quarter because of a high number of bank closures.
The measure would prohibit commercial banks from affiliating with an
investment bank and vice versa, even though no major investment banks
were created as a result of the banking crisis. It also would prohibit
commercial banks from engaging in all insurance activities.
href='http://mccain.senate.gov/public/index.cfm?FuseAction=PressOffice.PressReleases&ContentRecord_id=980aae2e-921b-d0c4-d5f7-8689467be57c'>Click
here to read McCain’s press release on the
legislation.
Treasury to Delay Selling
Government's Stake in Citigroup after Share Price Falls
The U.S. Treasury Department yesterday postponed its
plans to start selling the government's 34 percent stake in Citigroup
after the share price of the company fell to $3.15 per share yesterday,
20 percent lower than its price at the beginning of the week, the
size='3'>Washington Post reported today.
Treasury had expected to reap a substantial profit on the shares, which
it acquired at $3.25, but selling now would instead result in a loss of
hundreds of millions of dollars. Treasury still plans to sell its stake
over the next year, but the government will remain a major shareholder
until the sale. Financial analysts say that investors are concerned
about the company's health and are angry that Citigroup is diluting the
value of existing shares as it raises money to repay the government.
Based on yesterday’s lower price, Citigroup will have to issue
even more shares to raise the money that it needs.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/12/16/AR2009121603545_pf.html'>Read
more.
RI Casino Proposes Chapter
11 Exit Strategy
Bankrupt Rhode Island casino Twin River filed a
proposal to exit chapter 11 protection by signing over its new equity to
lenders but allowing current management to retain control,
face='Times New Roman'>
size='3'>Bankruptcy Law360 reported yesterday.
The casino company UTGR Inc., doing business as Twin River, filed a
chapter 11 reorganization plan and disclosure statement on Tuesday
nearly six months after filing a petition for bankruptcy protection in
hopes of shedding about $290 million in debt. Under the plan, the casino
company’s first-lien lenders will covert their holdings into 100
percent of the new common stock in the reorganized company as well as a
$300 million new senior credit facility, to be secured by a lien on all
of the assets of the reorganized creditors, according to the disclosure
statement. Meanwhile, second-lien debt holders would be entitled to a
stake in proceeds if the casino business is sold or recapitalized within
the next three years. They would receive 50 percent of any proceeds
between $475 million and $575 million and 75 percent of proceeds higher
than $575 million, the disclosure statement says. The casino business
has also attempted to provide for 100 percent repayment of claims for
about 64 percent of allowed unsecured claims, which are mostly from
Rhode Island-based businesses and other entities.
href='http://bankruptcy.law360.com/print_article/139682'>Read more.
(Subscription required.)
Fifth Circuit Clears
Superior Offshore’s Liquidation Plan
The U.S. Court of Appeals for the Fifth Circuit on
Monday upheld a bankruptcy court's confirmation of Superior Offshore
International Inc.'s chapter 11 liquidation plan, finding that the
undersea construction company satisfied bankruptcy rules in its
treatment of securities suit claims related to its initial public
offering,
size='3'>Bankruptcy Law360 reported yesterday.
The Fifth Circuit rejected opposition to the plan by Louis E. Schaefer
Jr., the company’s former CEO, and determined that
Superior’s plan met Bankruptcy Code provisions for treatment of
the unliquidated securities suit claims, shareholder interests and
unsecured claims.Superior, which provided underwater construction
services to oil and gas firms and was privately held by Schaefer
Holdings, conducted an IPO in 2007 and Schaefer sold a significant
amount of his holdings. However, within a year of going public, Superior
filed for bankruptcy and the parties agreed to liquidation.
href='http://bankruptcy.law360.com/print_article/139596'>Read more.
(Subscription required.)
Merisant's Reorganization
Receives Court Approval
Chicago-based Merisant Worldwide Inc., maker of the
artificial sweetener Equal, announced yesterday that its chapter 11
reorganization plan has received court approval, the
face='Times New Roman'>Chicago
Tribune reported today. The company said that
it could emerge from bankruptcy by Jan. 8, almost a year after it
filed for chapter 11, hobbled by sliding sales, a big debt load and the
global credit crisis. Under the reorganization, Merisant's debt will be
cut to $147 million from $567 million, reducing its annual cash interest
expense to $11 million from $36 million. As a result of the
restructuring, Wayzata Investment Partners, a private equity firm, will
become Merisant's majority and controlling shareholder.
href='http://www.chicagotribune.com/business/chi-thu-sub-brf-merisant-1217-dec17,0,782093,print.story'>Read
more.
Plumbing Products Company
Files for Chapter 11
Specialty plumbing products maker Jones Stephens Corp.
filed for chapter 11 protection, citing a drop in commercial and
residential construction and volatility in raw material costs, Reuters
reported yesterday. The Moody, Ala.-based company said in a filing on
Tuesday that it had assets of about $84 million and debt of about $101
million. American Capital Financial Services Inc. was listed as the
largest unsecured creditor with a claim of about $26.7 million. The case
is
size='3'>In re Jones Stephens Corp., U.S.
Bankruptcy Court, District of Delaware, No. 09-14414.
href='http://www.reuters.com/article/idUSSGE5BF0GI20091216'>Read
more.
Bank of America Picks a
Successor to Lewis
After a two-and-a-half-month search, Bank of America
yesterday named Brian T. Moynihan, the head of its consumer banking
business, to succeed Kenneth D. Lewis as CEO of the company, the
size='3'>New York Times reported today.
Moynihan joined Bank of America after it acquired FleetBoston in 2004,
becoming president of global wealth and investment management. Before he
was named head of consumer banking, Moynihan served as president of
investment banking and as general counsel.
href='http://www.nytimes.com/2009/12/17/business/17bank.html?ref=business&pagewanted=print'>Read
more .
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