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January 14, 2009
Corporate Bankruptcies to Rise Steadily
Through 2010
The surge in corporate bankruptcy filings in 2008 and abysmal credit
conditions that forced more companies to resort to quick, nontraditional
bankruptcies are both trends that attorneys predict will continue until
at least 2010, according to Bankruptcy Law360 yesterday. Nearly
11,504 business bankruptcy petitions were filed in the second quarter of
2008, the highest that figure has been since the final quarter of 2005,
when the total was 12,798, according to bankruptcy statistics compiled
by the U.S. courts. Of the total business filings in the second quarter
of 2008, 2,712 were chapter 11 bankruptcies. With the exception of the
first quarter of 2008, the bankruptcy courts have not seen such a high
figure since the fourth quarter of 2005, when chapter 11 bankruptcies
made up 1,955 of the total business filings. According to bankruptcy
attorneys, the reason for the surge in filings is driven by a severe
lack of liquidity and retraction of consumer spending. Economic factors
have also forced more companies to resort to a shift from standard
reorganizations in favor of quick asset sell-offs.
href='http://bankruptcy.law360.com/articles/77548'>Read
more. (Subscription required.)
name='2'>Moody's Expects Junk Default Rate to Triple in
2009
Moody's Investors Service said yesterday the global default rate on
junk-rated debt quadrupled by the end of 2008 to 4 percent and will
likely triple this year as the economic slowdown further pressures those
already struggling firms, the Wall Street Journal reported
today. Corporate defaults were at historic slows in 2006 and 2007, but
have begun moving back toward more normal levels as the credit crunch
and other woes have pressured results of companies and inhibited the
ability of some to refinance debt. Moody's is expecting some 300
junk-rated companies to default this year, compared with 104 in 2008. Of
that, 22 occurred in December, led by Tribune Co. through its bankruptcy
filing and GMAC LLC because of its $38 billion note exchange. Only 18
such defaults occurred in all of 2007.
href='http://online.wsj.com/article/SB123193531765480993.html'>Read
more. (Subscription required.)
name='3'>Nortel Files for Bankruptcy Protection
Telecommunications-equipment maker Nortel Networks Corp. filed for
chapter 11 protection today in Delaware, the Wall Street
Journal reported. Toronto-based Nortel is reeling from the sudden
drop in demand for its voice-only telecom-network equipment and has been
trying to cut costs and sell assets to survive the downturn. It is
expected to file for protection from creditors in Canada as well. Nortel
was facing a $107 million bond interest payment this week. The company
owes bondholders more than $3.8 billion, according to court
filings.
href='http://online.wsj.com/article/SB123193994047481129.html'>Read
more. (Subscription required.)
name='4'>PBGC Stakes Claim in Madoff's Bankruptcy Case
/>
The Pension Benefit Guaranty Corp. (PBGC) identified itself as a
creditor in the liquidation of Bernard Madoff's firm, suggesting it is
preparing for bankruptcies by companies in the wake of an alleged $50
billion Ponzi scheme, the Wall Street Journal reported today.
The PBGC yesterday joined a Manhattan bankruptcy court proceeding
involving the Madoff firm, which is being liquidated by a
court-appointed trustee. The agency said that it is preparing to take
over a pension plan sponsored by a small company that manages
residential buildings in Manhattan and whose employees include doormen.
It is also looking into pension plans of charities whose endowments were
invested with Madoff. “Our preliminary review has given us serious
concern that those pensions may also have been fully invested in
Madoff,' said Charles Millard, the agency's director. 'We are also
concerned with several dozen union pension plans in upstate New York'
that reportedly have exposure to the Madoff firm, he said.
href='http://online.wsj.com/article/SB123188273492678629.html'>Read
more. (Subscription required.)
name='5'>Fed Officials Say Ailing Banks Require More U.S.
Funds
Top Federal Reserve officials said yesterday that the incoming Obama
administration must pump more money into ailing financial institutions
and might need to take bad assets off the hands of banks, the Wall
Street Journal reported today. President-elect Barack Obama visited
Capitol Hill yesterday to lobby Senate Democrats for the remaining funds
in the financial-rescue plan passed in October, amid deep concerns among
lawmakers about the program's effectiveness. The request comes as banks
show new hints of strain. Bank stocks are down more than 15 percent so
far this year. Fed Chairman Ben Bernanke made a push yesterday for a new
effort to help banks get bad loans off their balance sheets, the TARP's
original purpose. He also warned that while TARP funds helped prevent a
global financial meltdown last year, bad assets continue to clog the
balance sheets of financial institutions. Plans to stimulate the economy
with tax cuts and government spending 'are unlikely to promote a lasting
recovery unless they are accompanied by strong measures to further
stabilize and strengthen the financial system,' Bernanke said.
href='http://online.wsj.com/article/SB123185225001377063.html'>Read
more. (Subscription required.)
name='6'>General Growth Facing Deadlines on Two Debt
Payments
The likelihood of a bankruptcy filing is looming larger for mall giant
General Growth Properties Inc., threatening to overlay the worst retail
market in decades with one of the biggest real estate bankruptcies ever,
the Wall Street Journal reported today. Most immediately, the
company must extend the payment deadlines of two debts that lenders
could call due a few weeks from now: a $2.6 billion credit line and a
$900 million mortgage on two Las Vegas malls. At a meeting with lenders
in New York on Monday, General Growth senior management and advisers
outlined separate scenarios of the company operating under bankruptcy
protection or instead grappling with its debt burden outside of
bankruptcy court.
href='http://online.wsj.com/article/SB123189150883579229.html'>Read
more. (Subscription required.)
name='7'>Jeweler Files for Chapter 11
Diamond retailer Shane Co. has filed for chapter 11 protection after a
dismal holiday sales season put pressure on the company's cash flow,
Bankruptcy Law360 reported yesterday. The company, one of the
10 largest retail jewelers in the United States, filed a petition in the
U.S. Bankruptcy Court for the District of Colorado on Monday, listing
assets and liabilities between $100 million and $500 million. The
family-owned company was founded in 1971 by the company's current chief
executive, Thomas Shane, and all stock in the company is owned by Shane
and family trusts. The bankruptcy case is In re Shane Co., case
number 09-10367, filed in the U.S. Bankruptcy Court for the District of
Colorado.
href='http://bankruptcy.law360.com/articles/82818'>Read
more. (Subscription required.)
name='8'>WaMu Maintains Hold on Shareholder Actions
Bankruptcy Judge Mary F. Walrath on Monday refused to
force Washington Mutual Inc. to abandon derivative actions that are now
part of its estate and allow shareholders to pursue claims against the
failed bank's executives, Bankruptcy Law360 reported yesterday.
After considering the objections of the debtors, the unsecured creditors
and official noteholders, Judge Walrath ruled that Washington Mutual is
not required to abandon the actions and give way for the shareholders to
pursue claims against the bank's officers on its behalf. The shareholder
plaintiffs allege a breach of fiduciary duty on the part of Washington
Mutual's officers and directors accused of insider trading, improper
accounting and making false statements regarding the bank's exposure in
the subprime mortgage market.
href='http://bankruptcy.law360.com/articles/82832'>Read
more. (Subscription required.)
name='9'>Apex Silver Seeks Bankruptcy to Restructure
Debt
Apex Silver Mines Ltd. sought bankruptcy protection to restructure $290
million in debt as part of the sale of a Bolivian silver mine to
Sumitomo Corp., Bloomberg News reported yesterday. The company had
assets of $721.3 million and debt of $930.9 million as of Sept. 30,
according to chapter 11 documents filed late Monday in U.S. Bankruptcy
Court in Manhattan. Apex Silver Mines Corp. also sought protection.
Apex, based in George Town, Cayman Islands, said Sumitomo's offer for
the mine was the superior of two received. The company said it wants to
complete the sale by March 31 and asked the court to speed up approval
of its reorganization.
href='http://www.bloomberg.com/apps/news?pid=20601127&sid=a0v122NHduGA&refer=law#'>Read
more.
name='10'>Democrats See Progress on Proposal for Economy
/>
After lunch at the Capitol with President-elect Barack Obama, Senate
Democrats said that the proposed $800 billion economic recovery plan was
on track for passage by mid-February, and that the incoming
administration had agreed to substantially increase the amount of money
in the package for energy-related tax breaks, the New York
Times reported today. The precise details of what amounts to about
$480 billion in spending and $320 billion in tax cuts will be hammered
out over the next four weeks. House and Senate Democrats had tentatively
settled on $87 billion in additional aid to help states cover rising
Medicaid costs, and $80 billion in grants to cover state and local
education expenses.
href='http://www.nytimes.com/2009/01/14/us/politics/14stimulus.html?ref=business&pagewanted=print'>Read
more.
name='11'>Citigroup Ready to Shrink Itself by a Third
Citigroup Inc. will soon announce a drastic plan to shed a host of
businesses and shrink itself by one-third, which its executives say will
essentially dismantle the financial colossus built by legendary
dealmaker Sanford Weill, the Wall Street Journal reported
today. The bank announced yesterday that it will split off its Smith
Barney retail brokerage into a joint venture with Morgan Stanley.
Citigroup will also announce steps to shed two consumer-finance units
and the company's private-label credit card business, and scale back on
the trading the company does on its own behalf. The moves, which the
company intends to unveil along with its fourth-quarter earnings next
week, would represent the final abandonment of the acquisition-fueled
growth strategy that built Citigroup from a small consumer-finance
business into one of the world's largest financial institutions, with
more than 300,000 employees in more than 100 countries.
href='http://online.wsj.com/article/SB123185686674677225.html'>Read
more. (Subscription required.)
name='12'>Financial Crisis Hits Home-Loan Banks
The federal government may have to prop up some of the 12 regional
home-loan banks, a vital source of funding for thousands of banks across
the country, particularly small, local institutions, the Wall Street
Journal reported today. While the U.S. Treasury established a
credit facility in September for the home-loan banks in case they have
trouble raising money through their regular global debt sales, so far
the banks have not tapped that Treasury line. Investors generally assume
the U.S. government would rescue the home-loan banks in a crisis. As a
result, they have long borrowed on favorable terms in global bond
markets. Their funding costs have risen recently as investors shy away
from all kinds of risk, however. As of Sept. 30, they had combined
borrowings of about $1.3 trillion, making them one of the world's
biggest debtors.
href='http://online.wsj.com/article/SB123189699249279789.html'>Read
more. (Subscription required.)
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