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April 6, 2009
Business
Bankruptcies Continue to Climb as Defaults Increase
The number of businesses seeking
bankruptcy protection hit its highest level in more than two years in
March, as the recession is sending more companies into financial crisis,
Dow Jones Daily Bankruptcy
Review reported today. The 7,843 commercial
bankruptcy filings last month represent a 23.2 percent jump from the
6,365 filings in February.It’s also the highest monthly total of
business filings since atl east 2006, according to Automated Access to
Court Electronic Records (AACER). Other data from AACER showed that
20,251 businesses sought either chapter 7 or chapter 11 protection in
the first quarter of the year, representing a 52.4 percent increase over
the 13,291 business bankruptcy filings during the same period last
year.
Commentary:
Economic Uncertainty Might Keep Bankruptcy Professionals
Busy
The uncertainty and market
instability undoubtedly will result in more bankruptcy filings this year
than in the past few years, according to a commentary today in
the Fort Worth
Star-Telegram by former ABI president
John Penn of
Haynes and Boone LLP. We have all been told that the economy is in
trouble, that trillions of dollars have been devoted to turning it
around and that many trillions more will be needed, according to Penn.
Few, if any, will publicly estimate the total cost of the overhauls, and
no one talks about the cost of repaying the debt.Until a clear and
consistent message emerges about how we got where we are and how we are
going to move forward, Penn expects that the economy will stay down for
quite a while.Private and corporate money will stay on the sidelines
until that pathway emerges, but corporate bankruptcy professionals will
be busy.
href='http://www.star-telegram.com/245/v-print/story/1300365.html'>Click
here to read the full commentary.
Offer Plan to Fight Home Loan Scams
The Obama administration today
will announce a multi-agency effort to combat loan modification scams,
the Washington Post
reported yesterday. As the country's foreclosure rate
rises, companies have popped up offering to help borrowers save their
homes. But banks and consumer advocates complain that the fees, which
can reach thousands of dollars, do not translate into results and that
many of the programs are scams.In particular, state and local officials
and consumer advocates have said they were concerned that homeowners
looking for help through the administration's foreclosure prevention
plan, Making Home Affordable, could be taken advantage of. The plan
calls for lenders to receive a federal subsidy in return for lowering a
homeowner's monthly payments to affordable rates.The new federal effort
is scheduled to be announced by Treasury Secretary Timothy Geithner,
Attorney General Eric Holder and Secretary of Housing and Urban
Development Shaun Donovan.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/04/05/AR2009040501437_pf.html'>Read
more.
Commentary:
Don't Let General Motors Go Bankrupt
Proponents of General Motors filing for
chapter 11 fail to acknowledge that GM is a consumer-facing company
whose success or failure is in the hands of millions of average
Americans, according to a commentary on CNN.com today by Jack R. Nerad,
executive editorial director for Kelley Blue Book. Nerad said that
Kelley Blue Book conducted a survey of 500 potential new-vehicle buyers
of their potential purchasing habits if GM went bankrupt. When asked
'How likely would you be to buy a car from General Motors if they were
to go bankrupt,' 42.1 percent of new-vehicle buyers said they were
either 'not at all likely' or 'not very likely' to do so. Even with a
warranty guarantee from the federal government, consumers are not very
enthusiastic about considering a GM purchase. However, when asked, 'How
likely would you be to buy a car from General Motors if they were
allowed to keep operating but had to renegotiate their contracts and
agreements with suppliers and laborers?' the responses changed. Given
that scenario, only 31.6 percent of new-vehicle buyers said they were
either 'not at all likely' or 'not very likely' to purchase a GM
vehicle, and they were outnumbered by the 41.5 percent who said they
were either 'very likely' or 'extremely likely' to do so.Beyond its
potentially chilling effect on consumer demand, a chapter 11 filing by
GM would also have an extremely negative impact on the supplier
community.
href='http://www.cnn.com/2009/POLITICS/04/06/nerad.general.motors/'>Click
here to read the full commentary.
Misstatements in 21 Percent of Cases
A March report of debtor audits by the U.S. Trustee
Program (USTP) revealed that at least one material misstatement was
reported in 21 percent of audit cases. In FY 2008, the USTP designated
1,691 cases for audit and of those cases, 306 were either still in
process as of Oct. 15, 2008, or were dismissed before the case was
assigned to an audit firm. Of the remaining
1,385 cases, 1,025 were random audits and 360 were exception audits
(audits of cases with income or expenditures above a statistical norm).
The USTP continued to successfully administer the statutorily required
audits of individual chapter 7 and chapter 13 bankruptcy
cases. The audits are designed to provide
baseline data to gauge the magnitude of fraud, abuse and error in the
bankruptcy system; to assist the USTP in identifying cases of fraud,
abuse, and error; and to enhance
deterrence.
href='http://www.usdoj.gov/ust/eo/public_affairs/reports_studies/docs/Debtor_Audits_FY_2008_Public_Report.pdf'>Click
here to read the full report.
Filene's
Basement in Talks with Vendors to Avoid Bankruptcy
Filene's Basement has named a
financial adviser and begun talks with its suppliers in an effort to
help the retailer avoid bankruptcy, Reuters reported on Friday.Filene's,
known for its bargain clothes and accessories, is cooperating with an ad
hoc group of more than 10 suppliers that came together after Filene's
stopped paying its bills in recent weeks, according to
face='Cambria' size='3'>Lawrence Gottlieb of
Cooley GodwardKronish LLP. Filene's said that it plans to close some of
its 36 stores as sales have fallen, and Retail Ventures warned in
February that the chain may need more money beyond its current lending
agreements.
href='http://www.reuters.com/article/bondsNews/idUSN0335452020090403'>Read
more.
Commentary:
Congress Should Move Swiftly on Credit Card Protections
While the Federal Reserve Board
credit card protection rules will not take effect until July of next
year, Congress now has an opportunity to move far more swiftly,
according to an editorial in today’s
face='Cambria' size='3'>New York Times. Senate
Banking Committee Chair Christopher Dodd (D-Conn.) has offered a credit
card bill that is stronger than the Fed’s regulations and would
provide consumers relief more quickly than the credit card bill now
moving through the House.The Dodd bill would help end “bait and
switch” tactics like promising a very low interest rate then
adding hidden fees and other charges. It would also provide stronger
protection against abusive practices — charging very high fees,
for instance, for minor mistakes like being hours late paying the
bill.
href='http://www.nytimes.com/2009/04/06/opinion/06mon3.html?ref=opinion&pagewanted=print'>Read
more.
Former
Football Star’s Bankruptcy Plan Rejected
The uncertainty suspended NFL
star Michael Vick's return to pro football as well as vague book and
film deals prompted Bankruptcy Judge
size='3'>Frank J. Santoroto reject Vick's
chapter 11 plan and order a new one, the Associated Press reported on
Saturday. Vick currently owes $1 million in fees from the bankruptcy
case and about $3.7 million in legal bills — some $13,700 a day
since he filed for chapter 11 protection in July.Vick also faces at
least $200,000 in annual living expenses if he keeps two Virginia homes
and three vehicles. His only guaranteed income is a $10-an-hour
construction job that will be part of his probation when he is moved
from federal prison to home confinement in May. Judge Santoro considered
those obligations and other expenses and concluded that Vick would need
to earn $7.5 to $8 million a year to break even over the next three
years.'There is no evidence he will be able to make that kind of money,'
href='http://news.yahoo.com/s/ap/20090404/ap_on_sp_fo_ne/fbn_vick_bankruptcy_41/print'>Read
more.
Commentary:
Geithner's Bank Plan Is a Good Start
The Treasury's new Public-Private
Investment Plan should be regarded as a pilot study to see if this
approach can remove impaired assets from the nation's banks, according
to a commentary in today’s
size='3'>Wall Street Journal. If it works,
Treasury will have to go back to Congress for substantially more funding
to remove enough impaired assets to get the banks lending again.
Increased bank lending is the key to a sustained recovery. Households
and businesses that cannot obtain credit are now unable to spend and to
invest, dragging down total demand and GDP. The problem of uncertain
asset values is particularly acute with respect to residential
mortgages. An unprecedented one-third of all such mortgages now exceed
the value of the houses that serve as their collateral. The Treasury's
primary plan is to induce private investors to buy pools of such
high-risk mortgages from the banks. Read the
href='http://online.wsj.com/article/SB123879993742688425.html'>full
commentary.
Nova Biosource into Chapter 11
Biodieselcompany Nova Biosource,
along with several subsidiaries, has filed for chapter 11 protection
after reporting an $11 million loss in the first quarter of the fiscal
year, Bankruptcy
Law360 reported on Friday. According to Nova's
bankruptcy petition, filed March 30 in the U.S. Bankruptcy Court for the
District of Delaware, the company has over $100 million in assets and
between $50 million and $100 million in liabilities.Last month, Nova
announced that as of Jan. 31, the company had about $110 million in
assets and $111 million in liabilities, and that it had lost over $11
million during that quarter.The company said that it planned to file
motions to allow it to continue running its business while it
restructures.The case is In re
Nova Biosource Fuels Inc., case number
09-11090, in the U.S. Bankruptcy Court for the District of
Delaware.
href='http://bankruptcy.law360.com/articles/95386'>Read
more. (Subscription required.)
Some
Creditors Object to Polaroid Sale
New York-based private equity
firm Patriarch Partners LLC has purchased bankrupt camera pioneer
Polaroid Corp. for about $60 million at auction, in spite of some
objections from creditors, with whom Polaroid has been embroiled in a
trademark spat, Bankruptcy
Law360 reported on Friday. Another bidder, a
joint venture formed by Hilco Consumer Capital LP and Gordon Brothers
Brands LLC, put forward a bid of about $10 million less cash than
Patriarch but with substantially more equity in the new company.
Polaroid's counsel prepared a bid package, but Polaroid ultimately
rejected it.The sale will be vetted by the court at a hearing scheduled
for today.
href='http://bankruptcy.law360.com/articles/95516'>Read
more. (Subscription required.)
Treasury
Chief Says He’s Open to Ousting Heads of Frail
Banks
Treasury Secretary Timothy F.
Geithnersaid yesterday that he is prepared to oust the senior management
and directors at banks that require extensive aid from the federal
government, Bloomberg News reported today. Geithner said that the chief
executives of the American International Group, Fannie Mae and Freddie
Mac had been removed after it became clear the companies could not
survive without government rescues. The Treasury is reviewing how much
capital the biggest financial companies would need to endure a severe
economic downturn. Geithneralso pledged to enforce Congressional
legislation that limits pay at companies receiving government loans.
“Our obligation is to apply the laws that Congress just
passed,” he said. “We want the American taxpayers’
assistance going to generate greater lending, not providing excess
compensation.”
href='http://www.nytimes.com/2009/04/06/business/06geithner.html?_r=1&ref=business&pagewanted=print'>Read
more.
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