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May 17, 2007
name='1'>Private-Equity Buyouts
Draw Attention of Congress
Private-equity deals such
as the $7.4 billion
acquisition of DaimlerChrysler AG's Chrysler Group by Cerberus Capital
Management L.P. came
under scrutiny at a House Financial Services Committee hearing
Wednesday,
the Wall Street
Journal
reported today. House Financial Services Committee
Chairman Barney Frank
(D-Mass.), expressed concern that employees may be left worse off when
public companies are
taken private, even as partners who invest in such deals grow rich.
Private Equity Council
President Douglas Lowenstein defended the industry in his testimony,
saying it invests in
the hope of profiting by expanding businesses, not by stripping assets
or shedding
employees. Republicans on the panel said they see plenty of upside to
private equity, noting
that going private eliminates stock-market pressures, including the
pressure to meet
quarterly earnings forecasts, allowing companies and executives to focus
on long-term
href='http://online.wsj.com/article/SB117933354077205040.html?mod=us_business_whats_news'>Re
ad more. (Registration required.)
href='http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht051607.shtml'>Click
here to read the testimony from yesterday’s House Financial
Services Committee
hearing.
name='2'>Daimler and Cerberus to
Invest $1.2 Billion in Pension Fund at Chrysler
The United Automobile
Workers union said that
DaimlerChrysler and Cerberus Capital Management, which is buying the
Chrysler Group, have
agreed to invest $1.2 billion in the pension fund of Chrysler workers
under terms of the
sale, the New York
Times
size='3'>reported today. The $7.4 billion deal, announced Monday, calls
for Daimler to pay
Cerberus $677 million as part of the transaction, which ends a nine-year
merger between the
German and American companies. Cerberus agreed to invest $5 billion in
Chrysler over the
next five years and is taking responsibility for Chrysler’s $18
billion liability for
its workers’ health care benefits and pension obligations. The
union’s pension
plan is overfunded by about $2 billion, UAW president Ron Gettelfinger
said.
“Additionally, Cerberus has committed to contributing an
additional $200 million to
the pension fund and Daimler is providing a conditional guarantee of $1
billion for up to
href='http://www.nytimes.com/2007/05/17/business/worldbusiness/17auto.html?pagewanted=print'
>Read more.
In related news,
DaimlerChrysler CEO Dieter
Zetsche told senior managers that the deal to sell Chrysler to Cerberus
Capital Management
and Daimler’s continued minority shareholding offered the
“best possible future
setup for Chrysler,” the
size='3'>New York
Times reported today. By last fall, when
Chrysler’s sales
deteriorated and the carmaker tumbled into losses, Zetsche said that it
was starting to
become clear that there was no longer a case for keeping Daimler and
Chrysler together. The
American auto market was simply too volatile, and the scope for
synergies between the
Mercedes division of Daimler and Chrysler, which Zetsche had made an
urgent priority when he
took the helm of DaimlerChrysler in January 2006, were proving to be
disappointing.
Moreover, Chrysler’s emphasis on large vehicles was ill-suited to
an era of high
gasoline prices, making it vulnerable not only to Japanese imports but
to its crosstown
rivals, Ford and General Motors.
href='http://www.nytimes.com/2007/05/17/business/worldbusiness/17daimler.html?_r=1&oref=
slogin&ref=business&pagewanted=print'>Read
more.
name='3'>Commentary: Fixing the
Student Loan Mess
As colleges that have
been caught steering
students to loan companies in exchange for kickbacks, Congress is
fashioning bills that
would explicitly outlaw collusion between lenders and schools while
closing loopholes that
the two have routinely used to enrich themselves at the expense of
students, according to
a New York
Times
size='3'>editorial today.
size='3'>Sen. Michael
Enzi (R-Wyo.) introduced a bill that would phase out a lucrative but
shady program that
permits colleges to serve as middlemen for lenders. Congress created the
so-called
“school as lender” program at a time when it seemed that the
business might not
be profitable enough to attract real lenders. The program addressed the
reasonable concern
that students with scant credit histories might not get the loans they
needed. The
Government Accountability Office warned in 2005 that schools were being
drawn to the program
by the quest for revenue and not to ensure broad access to student
loans.
href='http://www.nytimes.com/2007/05/17/opinion/17thu2.html?pagewanted=print'>Read
more.
name='4'>Solutia Files Amended
Reorganization Plan
Solutia Inc. filed an
amended reorganization
plan in hopes of emerging within months from its 3 1/2-year stretch in
chapter 11
bankruptcy, the St.
Louis
Post-Dispatch reported today. Solutia said its
financial progress
— including bigger sales, jumps in profit and plans for new
manufacturing capacity
in
size='3'>China and
w:st='on'>
size='3'>Belgium
size='3'>— means that
unsecured creditors would get about 85 cents on the dollar. Under the
initial plan filed in
February last year, they would have only received 52 cents on the
dollar. The amended plan,
which has the support of the creditors’ and retirees’
committees, still has to
be approved by the court and by creditors. The company hopes to end its
bankruptcy between
href='http://www.stltoday.com/stltoday/business/stories.nsf/story/418ECA7C5D4474B1862572DE00
0CEBE6?OpenDocument'>Read more.
Approves Deal
between Northwest and Shareholder Group
Northwest Airlines
overcame a major obstacle
on its path to exiting bankruptcy Wednesday when a judge approved a
settlement with a
shareholder group that had opposed the carrier's reorganization, the
Associated Press
reported yesterday. Judge
size='3'>Allan
Gropper approved the $5 million settlement at
the start of a
Northwest hearing to seek acceptance of its restructuring plan.
Northwest and the ad hoc
equity-holders’ committee, led by the Owl Creek hedge fund, agreed
on Monday that the
shareholder group would drop its opposition to the restructuring plan if
Northwest would pay
up to $5 million in fees and expenses incurred by the group. The U.S.
Trustee objected,
arguing that the shareholder group should not be paid because it had not
made a substantial
contribution to aid the company's emergence from bankruptcy. Northwest
expects to be worth
roughly $7 billion when it emerges, plus another $750 million when it
sells new
href='http://www.kare11.com/money/business_article.aspx?storyid=254178#'>Read
more.
name='6'>Oracle Joins
Opposition to New Century
w:st='on'>
w:st='on'>Sale
Oracle
w:st='on'>
size='3'>USA has
joined others in
objecting to New Century's bid to sell its loan servicing business to
Carrington Capital
Mortgage LLC and Carrington Mortgage Services LLC unless a higher bidder
is found,
Bankruptcy Law360
size='3'>reported yesterday. General Electric Capital, Wells Fargo and
Deutsche Bank
National Trust Company, among others, have previously filed objections
to the deal. In its
motion, Oracle said that it and New Century Mortgage Corp. entered into
a license and
services agreement in May 2005, when New
size='3'>Century acquired licenses for certain Oracle software programs
and related
technical support services. The licenses are still covered by an active
contract for
technical support services, scheduled to expire this May, according to
Oracle. Oracle
objected to the sale because it said the licensing of patent and/or
copyrighted materials
cannot be assumed or assigned without Oracle's consent.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=24845'>Read
more. (Registration required.)
Affordable Case
The $40 million Ponzi
scheme scandal that
felled NJ Affordable Homes Corp. widened on Monday, with the U.S.
Securities and Exchange
Commission adding a defendant to its fraud case against the bankrupt
real estate
company, Bankruptcy
Law360
size='3'>reported yesterday. The amended complaint, filed May 10 in the
U.S. District Court
for the District of New Jersey and publicly announced by the SEC on
Tuesday, added Kenneth
Lagonia as a defendant in the case, originally filed in September 2005.
Lagonia, who acted
as a consultant to NJ Affordable and was president of NJ Affordable
affiliate Quality Homes,
played an “integral role” in the company’s final two
years in soliciting
investments from both new and existing investors and perpetuating the
Ponzi scheme,
according to the SEC’s amended complaint. The SEC has alleged that
NJ Affordable and
its founder and owner Wayne Puff collected $40 million from nearly 500
investors by
promising lofty annual returns. Lagonia joined NJ Affordable and Puff in
this conduct
beginning in the fall of 2003, according to the amended
complaint.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=24857'>Read
more. (Registration required.)
name='8'>Bondholders Blast Pacific
Lumber's Extension Bid
Pacific Lumber
Co.’s bondholders have
objected to the company’s request to retain exclusive control over
its chapter 11 case
for another four months,
size='3'>Bankruptcy
Law360 reported yesterday. The
bondholders’ objections come
on the heels of a group of
w:st='on'>
face='Times New Roman'
size='3'>California
size='3'>state agencies also attempting to block Pacific Lumber’s
exclusivity bid,
arguing that the bankrupt timber company’s requests are not
supported by any
evidence. Despite
objecting to another
four months, the bondholder group did throw its support behind an
additional 30 days for
Pacific Lumber to try to work its reorganization plan details. The
Pacific Lumber Co. and
its subsidiary debtors’ cases are being jointly administered,
under case number
07-20027, in the U.S. Bankruptcy Court for the Southern District of
Texas.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=24832'>Read
more. (Registration required.)
name='9'>Executive Pay Proposals
Rejected at AMR
Shareholders of AMR, the
parent company of
American Airlines, rejected two proposals aimed at setting controls on
executive pay at the
company’s annual meeting, the New York
Times reported today. The Allied Pilots
Association had sponsored
a resolution to give stockholders an advisory vote on executive
compensation each year.
Votes representing about 59 percent of AMR’s shares went against
the
proposal. A second resolution that was also
defeated would have
required that 75 percent of stock options or restricted stock awards
given to executives be
based on performance. Representatives of the Transport Workers Union
presented the chairman
and chief executive of AMR, Gerard J. Arpey, with an online petition
bearing 17,000
signatures that protested AMR’s executive compensation practices.
AMR employees and
unions have taken pay cuts and made other concessions worth $1.62
billion a year through
2008. Last month, the company’s top executives received $21
million in bonuses, a
figure that generated more than 500,000 e-mail messages in
protest.
href='http://www.nytimes.com/2007/05/17/business/17air.html?ref=business&pagewanted=prin
t'>Read more.
International
name='10'>Japan
face='Times
New Roman' size='3'>'s Economy Continues to
Grow
Strong consumer spending
helped generate
robust expansion in
w:st='on'>
face='Times New Roman'
size='3'>Japan
size='3'>during the January-March quarter, indicating that future growth
could be driven
mainly by consumers instead of corporate investment, which has fueled
the economy in the
past few years, the Wall
Street
Journal reported today.
w:st='on'>
size='3'>Japan
size='3'>’s gross domestic
product expanded a healthy 0.6 percent in the January-March period from
the fourth quarter,
which translates into an annualized growth rate of 2.4 percent. The
expansion was, however,
slower than in the previous quarter, when growth was particularly strong
following unusually
weak figures in the July-September quarter. The growth rate for the
October-December quarter
was revised down slightly to an annualized pace of 5 percent from a
previous estimate of 5.5
percent. A key contributor to growth during the January-March quarter
was private
consumption, which expanded by 0.9 percent from the previous
quarter.
href='http://online.wsj.com/public/us?refresh=on'>Read
more. (Registration
required.)
name='11'>TROUBLED COMPANIES
IN THE NEWS
1000’s of companies lose
money or experience
some form of difficulty each quarter.
The business news
articles below are taken
from the Daily Summary
of Troubled &
Fast Growing U.S. Companies and Other Business News
size='3'>published by
Bastien Financial Publications.
To begin receiving the COMPLETE
Daily e-Summary,
that emails you information on over 70 such companies each morning,
email
href='mailto:steve@creditnews.com'>
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size='3'>your name, company name, address, phone and fax.
size='3'>We’ll set you up within 24 hours.
Receive an ABI
member’s discount of 50%
off the $500 annual subscription fee.
size='3'>Indicate “ABI CODE
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size='3'>American Italian
Pasta Co., a
w:st='on'>
face='Times New Roman' size='3'>Kansas City
size='3'>,
size='3'>Mo. maker of
pasta products, extended
once again the date for refiling its financial statement for 2005 with
the Securities and
Exchange Commission. The firm had wanted to file 2005's results at the
end of the month and
2006's results in June, but the firm needs more time because of complex
accounting issues.
American Italian, with total outstanding debt of $244 million, reported
revenue for the
first half of 2007 of about $191 million. Cash on hand totals $14.3
million.
size='3'>Coast Distribution
System Inc., a
w:st='on'>
w:st='on'>
size='3'>Morgan Hill, Ca.
provider of
accessories and replacement parts for recreational vehicles, reported a
first quarter net
loss of $640,000. Revenue declined 15%–to $43.6 million. Coast is
also a big
distributor of boating and marine accessories.
size='3'>Constar
International Inc., a
w:st='on'>
w:st='on'>
size='3'>Philadelphia
size='3'>,
size='3'>Pa. maker of
pet-plastic food and
beverage containers, reported a first quarter net loss of $6.3 million.
The results included
restructuring charges of $300,000. Revenue declined 4%–to $213
million.
size='3'>Freightliner, the big
w:st='on'>
size='3'>Portland, Or.
truck manufacturer,
announced that it will reduce its payroll by more than 1,500 jobs at its
assembly plant in
Rowan County, N.C., unless it arranges new production orders by
6/10. Freightliner has
faced decreased sales since the federal government imposed new
diesel-emission standards,
which resulted in raising the prices for the trucks affected by the
regulation.
size='3'>GlobalStar
Inc., a
w:st='on'>
face='Times New Roman'
size='3'>Milpitas, Ca.
satellite-communications firm, reported its first quarter net income
plummeted 98%–to
$440,000. Revenue declined 24%–to $23.2
million.
Limited Brands Inc., a Columbus, Oh. operator of apparel and
specialty stores, is
selling a two-thirds stake in its Express retail chain to Golden Gate
Capital, a
private-equity firm, for $548 million. At the same time the company
announced that it will
consider strategic options for its Limited Stores retail chain. In
recent years,
Limited has been selling off its apparel brands to focus on its lingerie
and personal-care
products businesses, such as Bath & Body Works and Victoria's
Secret, which are its most
profitable. The Express and Limited chains rang up sales of $2.2
billion last year, or
about a fifth of Limited Brands’ overall sales of $10.7 billion.
The apparel
businesses saw same-store sales slip 2% last year, compared to stronger
growth at
w:st='on'>
Secret, which saw an
11% gain in same-store sales, and Bath & Body Works, where
same-store sales rose
10%. Limited Brands, which also lowered earnings expectations for
the current quarter,
saw its stock price slip 4.5% on the news.