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January 12, 2009
name='1'>Judges Agree with Mortgage Modification Legislation
Federal bankruptcy judges say they agree with legislation that
gives them the power to restructure primary mortgages for struggling
debtors because it could save hundreds of thousands of homeowners from
foreclosure, the Wall Street Journal reported today. The
proposal allowing mortgage cramdowns is one of several efforts
Democrats are pushing to give homeowners relief as they wrestle with
increasing debt levels and plummeting home values. 'The bankruptcy
system depends on people making deals, but the deal-making piece of it
has disappeared when it comes to mortgages because of the way mortgages
were sold and packaged,' Bankruptcy Judge Sam Bufford
said. 'There's nobody on the lender side to do the deal unless you [get
permission] from investors, and that's impossible.' Financial
institutions have gotten help from the government, but the only way to
fix the economy is through 'a holistic approach' that also 'solves the
problem of people losing their homes,” said Bankruptcy Judge
Laurel Isicoff. Bankruptcy Judge A. Jay
Cristol said that changing the bankruptcy law would be
beneficial because 'after foreclosure, families get broken up and
lenders hold on to nonperforming assets that they sell at a
loss.'
href='http://online.wsj.com/article/SB123170970691971885.html'>Read
more. (Subscription required.)
name='2'>Study: U.S. Mortgage Meltdown Linked to
BAPCPA
Three researchers at the Federal Reserve Bank of New York are arguing
that BAPCPA shifted risk from credit card lenders to mortgage lenders,
helping trigger the surge in home foreclosures, the Kansas City
Star reported today. Steering more people into chapter 13
bankruptcy, the Fed researchers said that cash-strapped homeowners who
might have saved their homes by filing for chapter 7 are now much more
likely to face foreclosure. “Before the reform, overindebted
households might file bankruptcy and get rid of their credit card debt,
and that would free up income to pay the mortgage,” said Donald P.
Morgan, a research officer at the New York Fed. “The new law
blocks that escape route and forces better-off households to continue
paying credit card debt, which makes it harder than before to continue
paying the mortgage.” The conclusions of Morgan and his colleagues
echo earlier findings that the new law's tougher requirements appear to
have increased the number of people defaulting on their mortgages or
walking away from their homes rather than seeking bankruptcy
protection.
href='http://www.kansascity.com/105/story/976039.html'>Read more.
/>
Retail
Analysis: Wave of Retail Bankruptcy
Filings Expected after Slow Holiday Season
Drained by the worst consumer-spending slump in decades and burdened by
debt, U.S. retailers are expected to begin a wave of post-holiday
bankruptcy filings, the Wall Street Journal reported today.
Several of the industry's biggest lenders, including General Electric
Co.'s GE Capital, CIT Group Inc. and Wachovia Corp., are tightening
lending terms and reducing exposure to retailers. Their tougher terms
are making it harder for retailers to find capital to reorganize under
bankruptcy protection, as they were able to do in the past, meaning
there are likely to be more liquidations. Circuit City Stores Inc.,
which filed for chapter 11 protection in November, warned Friday that it
risked liquidation if talks with two parties about a possible sale or
cash infusion weren't successful. Earlier last week, Goody's Family
Clothing Inc., Knoxville, Tenn., announced it was liquidating its
remaining 287 stores -- just three months after exiting
bankruptcy.
href='http://online.wsj.com/article/SB123171955382272193.html'>Read
more. (Subscription required.)
name='4'>Circuit City Cleared To Sell Off Its
Assets
Circuit City was authorized by a bankruptcy court yesterday to sell some
or all of its assets, and the company warned that the nation's No. 2
electronics retailer could go out of business if a buyer does not emerge
by Friday, the Washington Post reported on Saturday. Bankruptcy
Judge Kevin R. Huennekens in Richmond approved Circuit City's plan to
pay its creditors by selling to one of two potential buyers with whom it
is negotiating or by auctioning its operations to bidders on Tuesday.
Circuit City did not disclose the identities of the potential
buyers.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010903407_pf.html'>Read
more.
TARP
Congressman Introduces TARP Reform
and Accountability Legislation
House Financial Services Committee Chairman Barney Frank (D-Mass.) on
Friday introduced H.R. 384, the TARP Reform and Accountability Act to
amend the Troubled Assets Relief Program (TARP) provisions of the
Emergency Economic Stabilization Act of 2008 (EESA), according to a
press release. The legislation will strengthen accountability, close
loopholes, increase transparency, and require Treasury to take
significant steps on foreclosure mitigation. This bill will amend
the Troubled Assets Relief Program (TARP) provisions of the Emergency
Economic Stabilization Act of 2008 (EESA) to strengthen accountability,
close loopholes, increase transparency, and require Treasury to take
significant steps on foreclosure mitigation. It further requires
that Treasury act promptly to permit the smaller community financial
institutions that have been shut out so far to participate on the same
terms as the large institutions that have already received funds.
href='http://www.house.gov/apps/list/press/financialsvcs_dem/hr384.pdf'>Click
here for H.R. 384 'TARP Reform and Accountability Act of
2009.'
In related news, the TARP
Oversight Committee, headed by Prof. Elizabeth Warren
of Harvard, released its second report on the government's use of the
funds for the nation's economic stabilization. The report was highly
critical of the fund allocations to date and suggested that more of the
funds should be used to help distressed homeowners.
href='http://cop.senate.gov/documents/cop-010909-report.pdf'>Click
here to read the report.
name='6'>Obama Team in Talks to Tap TARP
The incoming Obama administration, stymied by political
opposition to the Bush administration's financial rescue, is negotiating
with lawmakers to avoid a messy political fight as it seeks the second
half of the $700 billion bailout, the Wall Street Journal
reported today. Members of Obama's transition team, including Treasury
Secretary-nominee Timothy Geithner, are working to satisfy lawmakers'
concerns by proposing using the funds for new purposes, such as
preventing foreclosures, and imposing tougher conditions on recipients,
according to people familiar with the negotiations. Congress can deny
the funds by passing a resolution disapproving of Treasury's plan within
15 days. Such a resolution, which requires a simple majority vote in
both chambers, has already been introduced in the House.
href='http://online.wsj.com/article/SB123171956148872195.html'>Read
more. (Subscription required.)
name='7'>Artificial Sweetener Manufacturer Files for Chapter
11
Chicago-based Merisant Worldwide Inc., maker of the artificial sweetener
Equal, filed for chapter 11 protection on Friday, hobbled by the global
credit crisis and sliding sales, the Chicago Tribune reported
yesterday. Merisant, largely owned by private-equity firm Pegasus
Capital Advisors, is saddled with $560.7 million in debt, compared with
$331.1 million in assets, according to U.S. Bankruptcy Court filings in
Delaware. Merisant was scheduled to make $78.3 million in debt payments
in the 12 months ending Sept. 30, according to a November filing with
federal securities regulators.
href='http://www.chicagotribune.com/business/chi-biz-merisant-bankruptcy-nutrasweet-jan09,0,7108298.story'>Read
more.
name='8'>Casino Operator Tropicana Beats Creditors to Reorganization
Plan
Bankrupt casino operator Tropicana Entertainment LLC filed its chapter
11 reorganization plan on Thursday, just hours before a hearing was
scheduled on a bid by the company's unsecured creditors' committee to
file its own reorganization plan and disclosure statement, Bankruptcy
Law360 reported on Friday. The plan was filed in the U.S. Bankruptcy
Court for the District of Delaware without an accompanying disclosure
statement. The case is In re Tropicana Entertainment LLC, case number
08-10856, in the U.S. Bankruptcy Court for the District of
Delaware.
href='http://bankruptcy.law360.com/articles/82370'>Read
more. (Subscription required.)
name='9'>SEC Choice Is Sued Over a Merger of Regulators
/>
Mary L. Schapiro, who appears this week at a confirmation hearing on her
selection to head the Securities and Exchange Commission, has been
accused in two lawsuits of making misleading statements to quickly
complete a merger of regulatory organizations after which she received a
57 percent raise in her pay, the New York Times reported today.
The merger involved the regulatory units of the New York Stock Exchange
and the NASD two years ago. Schapiro was then head of the NASD, and she
spent months traveling the country to persuade its 5,100 members to
support it. The merger created a new self-regulatory organization, the
Financial Industry Regulatory Authority, or Finra, where Schapiro is the
chief executive. The Securities and Exchange Commission relies on Finra
to police Wall Street.
href='http://www.nytimes.com/2009/01/12/business/12schapiro.html?_r=1&ref=business&pagewanted=print'>Read
more.
name='10'>Tronox Files for Chapter 11, Gets Cash for
Closure
Tronox Inc., an Oklahoma City-based chemical company, today filed for
chapter 11 protection, the Wall Street Journal reported today.
The filing doesn't include Tronox's operations outside of the U.S.,
which are based in Australia, Germany and the Netherlands. With annual
sales around $1.4 billion, Tronox is one of the world's largest makers
of a pigment used to whiten everything from plastics and paper to food
and cosmetics. The 45-year-old company will receive about $125 million
in debtor-in-possession financing from a group led by Credit Suisse. The
company has been on the market for DIP financing for several months, but
such lending has largely dried up as part of an overall credit crunch.
Interest rates for bankruptcy financing have spiked in recent months,
more than doubling from a year ago. The average DIP loan in 2006 and
2007 was the London interbank-offered rate plus about 4 percent to 4.5
percent. Last year it jumped to Libor plus 6.1 percent, but rose higher
throughout the year.
href='http://online.wsj.com/article/SB123172771784172753.html'>Read
more. (Subscription required.)
size='3'>Autos
name='11'>Inventory Traffic Jam Hits Chrysler
After a deep slide in sales in the fourth quarter, Chrysler LLC now
faces a new obstacle in its battle to survive as many dealers are loaded
with inventory and aren't ordering new vehicles, the Wall Street Journal
reported today. Chrysler was nearly out of money last month before it
got $4 billion in emergency loans from Washington. During the next few
months, the company needs to find a way to keep revenue coming in as it
scrambles to slash costs. By March, Chrysler has to show the U.S.
Treasury Department it is viable as an independent company, or it could
be required to pay back the money or be denied further loans.
href='http://online.wsj.com/article/SB123172160917772419.html'>Read
more. (Subscription required.)
name='12'>Chrysler Opposes Getrag Motion to Link Chapter 11,
Liens
Chrysler LLC and two other creditors in the bankruptcy case of a failed
$500 million transmission plant project have objected to a motion asking
for the debtor and a general contractor to be included as parties to
foreclosure actions connected to the case, Bankruptcy Law360
reported on Friday. According to Chrysler's objection, the company wants
to protect its right to seek abstention or remand of such foreclosure
proceedings or lien claims - and does not want to be bound by any
settlements reached in such actions. Walbridge Aldinger Co., the general
contractor for the failed auto parts plant prior to the bankruptcy
filing, stopped work on the project Oct. 18. Four days later, Walbridge
filed a lien against the project in excess of $40 million, which was
intended to be inclusive of all amounts owed to subcontractors.
href='http://bankruptcy.law360.com/print_article/82392'>Read more.
(Subscription required.)
name='13'>Federal Charges Dropped Against Former Auto Parts Company
CEO
The acting U.S. attorney concluded that prosecuting David A.
Stockman, the former CEO of bankrupt auto parts manufacturer Collins
& Aikman, and three other men who worked under him 'would not be in
the interests of justice,' the Washington Post reported on
Saturday. Defense lawyers for Stockman, who rose to prominence 28 years
ago as the point man for Reagan's 'trickle down' economic plan,
submitted an extensive white paper just before Thanksgiving refuting the
accounting theories that underlay the government case. Then in early
December they presented their analysis of more than 15 million corporate
documents in a day-long meeting with Lev Dassin, the acting U.S.
attorney, two supervisors in the office's securities fraud unit and
three other prosecutors. The case revolved around how and when the
company posted rebates for parts that the bankrupt company manufactured,
an issue that had tripped up other auto parts makers as the industry
began to collapse more than three years ago. Defense lawyers said that
it was unfair for the government to target Stockman when its rivals such
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010903654_pf.html'>Read
more.
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