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May 3, 2010
'Too Big To Fail' Took Center Stage at ABI's
Annual Spring Meeting
A Federal Deposit Insurance Corp. official on Friday at ABI's Annual
Spring Meeting urged Congress to pass new regulations designed to wind
down 'too big to fail' financial firms to avoid future bailouts and
disruptive bankruptcy filings, Dow Jones Daily Bankruptcy
Review reported today. 'We cannot afford the status quo,'
Michael Krimminger, the deputy to the FDIC chairman for policy, said.
'We need to get serious about leveling the playing field and protecting
the taxpayer.' Krimminger, speaking on a panel with other federal
officials, said that the authority is needed to ensure that the public's
interests are represented. The bankruptcy process, he said, is better
equipped to consider the interests of creditors than those of the U.S.
taxpayer. However, opponents of the resolution authority proposal say
that the Bankruptcy Code offers sufficient tools to address the many
challenges posed by the failure of a major financial firm. Daniel M.
Flores, chief Republican counsel for the U.S. House judiciary committee,
said that the Lehman Brothers Holdings Inc. Chapter 11 filing itself
didn't cause the financial panic that sent the U.S. economy into a
downward spiral in 2008. Rather, the firm's failure and the government's
decision to refuse the company a bailout after having rescuing Bear
Stearns from collapse earlier in the year sparked the crisis. The
majority of the conference's attendees agreed with him. After a debate
on the matter between two bankruptcy law professors earlier on Friday
morning, just 23 percent of those gathered said they believe a financial
resolution authority is needed.
Bi-Lo Wins Chapter 11 Plan
Confirmation
Bankruptcy Judge Helen Burris on Thursday confirmed the supermarket
chain's reorganization plan, putting Bi-Lo on the precipice of emerging
from chapter 11, the Deal Pipeline reported on Friday. Under
Bi-Lo's plan, private equity firm and majority owner Lone Star Funds
will retain ownership of the debtor by investing $150 million in cash in
exchange for 100 percent of its stock. Credit Suisse Group is leading a
new $200 million senior term loan, while General Electric Co.'s GE
Business Financial Services Inc. is leading an exit revolver of up to
$150 million. Lenders who provided a $125 million debtor-in-possession
loan led by Wachovia Bank NA and GE Capital Corp. will be paid in full.
Bi-Lo expects to emerge from bankruptcy this month.
title='Read more.'
href='http://pipeline.thedeal.com/tdd/ViewArticle.dl?id=10005422018'>Read
more. (Subscription required.)
Senate to Start Voting on Financial
Overhaul Legislation
The Senate will start voting this week on a measure to revamp the
nation's financial regulatory system, with liberals pushing populist
amendments to tighten the screws on Wall Street banks while Republicans
attempt to scale back the reach in consumer regulation and derivatives
oversight, CongressDaily reported today. Senate Banking Chairman
Christopher Dodd (D-Conn.) wants to pass the bill by May 14, an
ambitious deadline for an issue that has taken 16 months to reach the
Senate floor with stop-and-start negotiations, a half-hearted filibuster
and unanimity among members that Wall Street must pay for the 2008
banking crisis. The first vote will come Tuesday on an uncontroversial
amendment by Sen. Barbara Boxer (D-Calif.) that would reinforce language
that no taxpayer money would go to bail out companies whose collapse
posed a threat to financial markets. After that vote, the debate will
become more raucous on the underlying bill, which would create a
resolution process to liquidate 'too-big-to-fail' firms to prevent
another bailout similar to the federal takeover of American
International Group. Dodd and Banking ranking member Richard Shelby
(R-Ala.) have agreed in principle on the issue and are crafting
language, which would remove a $50 billion fund designed to pay for an
orderly liquidation process carried out by the FDIC, and require
creditors to pay back costs under the process beyond what they would
have received through bankruptcy.
In related news, several prominent experts say that the financial
regulatory overhaul legislation does not even address the right
problems, leaving the financial system vulnerable to another major
crisis, the New York Times reported today. Some point
to specific issues left largely untouched, like the instability of
capital markets that provide money for lenders, or the government?s role
in the housing market, including the future of the housing finance
companies Fannie Mae and Freddie Mac. Others simply argue that it is
premature to pass sweeping legislation while so much about the crisis
remains unclear and so many inquiries are in progress. ?Until we
understand what the causes were, we may be implementing ineffective and
even counterproductive reforms,? said Andrew W. Lo, a finance professor
at the Massachusetts Institute of Technology.
href='http://www.nytimes.com/2010/05/03/business/economy/03crisis.html?ref=business'>Read
more.
Bair Warns Against New Curbs on Bank
Trading
Federal Deposit Insurance Corp. Chairman Sheila Bair has urged
lawmakers to scrap a controversial Senate plan that would force banks to
spin off their derivatives businesses, saying that it could destabilize
banks and drive risk into unregulated parts of the financial sector, the
Wall Street Journal reported today. Bair's warning came in a
three-page letter to key Senate lawmakers days before voting is expected
to begin on a broader financial overhaul. Her letter echoed fears raised
recently by Federal Reserve officials, who said in an unsigned memo that
the provision 'would impair financial stability' and 'be highly
disruptive and costly' for banks and their customers. Bair said that the
bill could force $294 trillion in derivatives contracts outside of
federally regulated banks and into companies such as hedge funds and
foreign banks 'beyond the reach of federal regulation.' Republicans have
been very critical of the provision, and Sen. Judd Gregg (R., N.H.) last
week said that the legislation would chase the derivatives industry
overseas and into dark corners.
href='http://online.wsj.com/article/SB10001424052748703969204575220541275711182.html?mod=WSJ_hps_LEFTWhatsNews'>Read
more. (Subscription required.)
Analysis: Chapter 11 Professional Fees
Continue to Increase in the Lehman Brothers Case
The lawyers, accountants and restructuring experts overseeing the
remains of Lehman Brothers have already racked up more than $730 million
in fees and expenses to date, according to a New York
Times report on Saturday. While most of corporate America may
be just emerging from the Great Recession, bankruptcy specialists have
spent the last two years enjoying an unprecedented boom. Ten of the 20
largest corporate bankruptcies in recent decades have occurred over the
last three years, according to BankruptcyData.com, with Lehman being the
largest corporate bankruptcy in U.S. history. These megacases -
Lehman, General Motors, Chrysler and Washington Mutual, to name a
few - are orders of magnitude larger than most bankruptcies in the
past, and their size and complexity have created a feeding frenzy of
sorts for those asked to sort them out. Lawyers and restructuring pros
who are picking up the pieces of companies swamped by the bankruptcy
wave say that their fees are well deserved and that their services help
make the bankruptcy process more efficient. And they say the pay is more
than made up for by a tidier resolution of a financial debacle or,
as in General Motor's case, the revivification of a wounded
company.
href='http://www.nytimes.com/2010/05/02/business/02workout.html?hpw=&pagewanted=print'>Read
more.
General Growth Favors Brookfield
Proposal
Shopping-mall owner General Growth Properties Inc. yesterday selected
as its preferred option for exiting bankruptcy a revised proposal led by
Brookfield Asset Management Inc. over a competing offer from rival mall
giant Simon Property Group Inc., the Wall Street Journal reported
today. The decision by General Growth's board is the latest twist, but
perhaps not the final one, in months of competition between the
Brookfield group and Simon over which suitor would get the nod to
finance General Growth's bankruptcy exit in exchange for much of the
company's stock. General Growth, which owns 204 U.S. malls, sought
chapter 11 protection in April 2009 to restructure its $27 billion of
debt and intends to emerge later this year.
href='http://online.wsj.com/article/SB10001424052748704342604575221401268472286.html?mod=WSJ_business_whatsNews'>Read
more. (Subscription required.)
United and Continental Confirm
Merger
United Airlines and Continental Airlines today announced a $3 billion
merger that would create the world?s biggest airline, the New York
Times reported today. United is buying Continental, and the combined
company will keep the United name and be based in Chicago. Jeffery A.
Smisek, Continental?s chief executive, will run the company. Assuming
the deal wins antitrust approval, the merged airline would replace Delta
Air Lines as the top carrier. The boards of both companies met yesterday
to approve the all-stock deal. The UAL Corporation, United?s parent
company, will issue 1.05 shares for each Continental share, valuing the
acquisition at $3.17 billion, based on Friday?s closing price. The
merger is expected to be completed before the end of the year.
id='bir4' title='Read more.'
href='http://www.nytimes.com/2010/05/04/business/04air.html?ref=business&page…'>Read
more.
LyondellBasell Emerges from Chapter 11
Bankruptcy Protection
LyondellBasell Industries emerged from chapter 11 protection on
Friday, just a week after a bankruptcy judge signed off on the chemical
giant's restructuring plan, Dow Jones Daily Bankruptcy Review
reported today. The Netherlands-based company's restructuring plan,
which was approved in bankruptcy court on April 23, slashes the
company's funded debt from $24 billion to about $5 billion.
LyondellBasell raised $2.8 billion in new equity financing through a
rights offering backstopped by Apollo Management, Ares Management and
former owner Access Industries. The company also issued $3.25 billion in
debt financing to fund its exit from bankruptcy protection.
MiddleBrook Pharmaceuticals Files for
Bankruptcy
MiddleBrook Pharmaceuticals Inc., which develops and makes
anti-infective products, said that it filed for chapter 11 protection,
Reuters reported on Friday. MiddleBrook said that it had assets of $42.2
million and debt of $29.1 million as of Dec. 31, 2009. The company said
it expects to continue to manage and operate its business and assets
during the bankruptcy period, and will promote its antibiotic Moxatag.
The case is In re MiddleBrook Pharmaceuticals, U.S. Bankruptcy
Court, District of Delaware, No. 10-11485. Read
more.
Movie Gallery Inc. Plans to Shutter its
Remaining U.S. Stores
The movie-rental chain, which filed for bankruptcy in February for
the second time in just over two years, plans to shutter its remaining
U.S. stores after perviously closing more than half its 2,415 U.S.
outlets, the Wall Street Journal reported today. The closure of
the company's remaining stores will likely take place over the next
couple of months or so. The Wilsonville, Ore.-based chain had hoped to
restructure in bankruptcy court and continue operating around a smaller
set of viable stores. The company employed more than 19,000 people when
it filed for bankruptcy. Movie Gallery, the second-largest movie-rental
chain by outlets behind Blockbuster Inc., failed to rebound after it
emerged from bankruptcy in spring 2008 owned by private-investment firms
Sopris Capital Advisors and Aspen Advisors.
href='http://online.wsj.com/article/SB10001424052748704608104575220370429528864.html?KEYWORDS=bankruptcy'>Read
more. (Subscription required.)
International Aluminum to Emerge from
Chapter 11
International Aluminum Corp. said on Friday that its plan to emerge
from chapter 11 protection has been approved by a bankruptcy court,
Reuters reported. The company, which manufactures aluminum and vinyl
products, said that it expects to emerge from chapter 11 protection in
May. Upon its emergence, the company will be known as International
Architectural Group LLC. Under its plan, the company said that its debts
will be satisfied through a combination of new equity, new term notes
and a cash payment to its senior lenders. In addition, that company said
that its trade vendors and suppliers will receive full payment of all
their pre-chapter 11 claims.
href='http://www.reuters.com/article/idUSN3019059820100430'>Read
more.
Colonial BancGroup, FDIC Square Off in
Bankruptcy Dispute
The former parent company of Colonial Bank, which was seized by
federal regulators last year, is battling with the Federal Deposit
Insurance Corp. over the agency's $1 billion bankruptcy claim, Dow Jones
Daily Bankruptcy Review reported today. The FDIC says the bank's
former parent owes it more than $1 billion, an amount equal to the gap
between how much capital its banking subsidiary was required to have and
what it actually had on hand when it was seized by regulators. The FDIC
says that Colonial's holding company in recent years made numerous
commitments to regulators to shore up the bank's capital. It's now going
after the bank's parent for those funds, claiming it's entitled to
immediate payment under the law. Colonial BancGroup Inc., the failed
thrift's corporate parent, said in bankruptcy court papers filed last
week that it believes the FDIC's position is 'without merit,' but if
successful, the holding company will be forced to liquidate. The result,
according to Colonial's lawyers, is that the FDIC will 'reap the
remaining benefits of the estate,' leaving other creditors owed some
$400 million out of the money.
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