April 21 , 2006
Fed Policy Makers Say End to Rate-Increase Cycle Is Near
After 15 interest-rate increases in 21 months, Federal Reserve policy makers gave the clearest signal yet that they are close to finishing—they just didn't say when, Bloomberg News reported today. Traders took yesterday's revelation that most policy makers believed three weeks ago that the end was “likely to be near'' as meaning that the Fed will pause after lifting its benchmark rate to 5 percent next month. Some economists stuck to their forecasts for two or three more increases before a stop. Future rate decisions will depend on “the implications of incoming information'' for economic growth and inflation, according to minutes of the Federal Open Market Committee's March meeting. That gives economists at Bear Stearns Cos., Bank of Tokyo-Mitsubishi UFJ Ltd. and Lehman Brothers Holdings Inc. plenty of room to judge for themselves when the Fed will cease.
Yields on Treasury notes rebounded today after dropping on yesterday's report. The yield on the two-year note rose 4 basis points to 4.87 percent, while the benchmark 10-year Treasury's yield gained 4 basis points to 5.02 percent. Read more.
GM Cut Loss in Quarter, but Increased Its Inventory
General Motors sharply reduced its loss in the first quarter, providing a much-needed breakthrough for a company battered by accounting missteps and doubts about the fate of its chief executive and of the automaker itself, the New York Times reported yesterday. Investors pushed GM shares higher yesterday, but analysts expressed concern about GM's inventories, which are at higher-than-normal levels, and about the impact that rising fuel prices could have on the automaker's new sport utility vehicles and pickups, whose success is critical to its turnaround. GM reported a first-quarter loss of $323 million, or 57 cents a share, compared with a loss of $1.25 billion, or $2.22 a share, in the period a year ago. The year-ago loss, originally $1.1 billion, was restated earlier this year, along with GM's loss for all of 2005 and its results for several other quarters. Rick Wagoner, GM's CEO, called the performance "a significant milestone" in GM's restructuring efforts. Read more.
Court Cuts General Dynamics Payment
A federal judge has reduced from $137.9 million to $19.87 million the amount that General Dynamics Corp. must pay for breaking a contract with onetime partner Final Analysis Communication Services Inc., a small Lanham, Md., satellite firm, the Washington Post reported today. The case centered on whether General Dynamics, which has headquarters in Falls Church, Va., violated agreements to help Final Analysis develop a $400 million project to launch low-flying satellites for data transmission, including paging and text-message services. A jury ruled in favor of Final Analysis after a seven-week trial in September. In his ruling Monday, U.S. District Judge Peter J. Messitte also certified the jury's decision that Final Analysis pay General Dynamics $8 million from a countersuit, reducing the total amount due the smaller firm to $11.87 million, according to the court documents. Read more.
Judge Nixes Bid in Dana Bankruptcy
A New York bankruptcy judge yesterday denied a motion that would have created a separate creditors' committee for asbestos-injury claimants, a move that could have bogged down the chapter 11 restructuring of Dana Corp., the Toledo Blade reported today. U.S. Bankruptcy Judge Burton Lifland dismissed the request, saying, "This is not an asbestos-driven case." Lawyers who said they represent more than 50,000 people with asbestos injuries had claimed that the Toledo-based auto parts maker would be liable for far more than $200 million Dana estimated for asbestos liability. However, the existing committee of unsecured creditors had resisted the proposal of a separate committee, contending that such a separate panel would drain Dana's resources and that the projected asbestos liabilities are too low to justify an additional committee. Read more.
ProLiquids Environmental Services continues to accept truckloads of waste at its Hammond, Ind., facility, despite the revocation last month of its state operating permits after an inspection discovered numerous hazardous waste violations there, the Indiana Times reported today. A hearing in federal bankruptcy court scheduled for yesterday afternoon— which could have forced the company to immediately close with the liquidation of all its assets—was continued to May 19. But after an April 12 inspection at the site disclosed further illegal actions, the Indiana Department of Environmental Management notified ProLiquids on Wednesday that the firm would likely face legal enforcement action. Read more.
Easy Gardener Files for Chapter 11
Lawn and garden products maker Easy Gardener Products Ltd. said that it has filed a voluntary petition for chapter 11 reorganization as part of its plan to sell substantially all of its assets, along with assets from certain subsidiaries, Reuters reported yesterday. The assets are set to be sold to Green Thumb Acquisition Corp., an affiliate of Bayside Capital, for about $57 million, subject to adjustments and conditions. The deal allows for Easy Gardener to conduct an auction to determine if there were other potential buyers prepared to pay more than Green Thumb. Easy Gardener said it would have to pay a break-up fee and expense reimbursement of $2 million to Green Thumb if it chose to do a deal with another bidder or under certain other conditions. Read more.
Winn-Dixie Bankruptcy Extended
Winn-Dixie Stores Inc.'s bankruptcy will last at least through the summer, according to motions approved by the U.S. Middle District of Florida bankruptcy court, BizJournals.com reported yesterday. The extension pushes the deadline for filing a plan of reorganization back 70 days from Thursday to June 21. The company will also have until Aug. 29 to solicit votes of acceptance of the plan amongst its creditors. Winn-Dixie requested the extension as it continues to work with the company's creditors on the issue of what form the reorganization payouts will take, and whether the debts of the company should be consolidated or paid out through each of its 23 operating subsidiaries. Judge Jerry Funk approved the motion, but requested that Winn-Dixie and its creditors examine using either an independent mediator or mediation process as negotiations on a plan distribution continue. Read more.
Trustee Takes Over Queen's Seaport Development Bankruptcy
A trustee appointed to oversee the Queen’s Seaport Development Inc. (QSDI) bankruptcy says he believes the major issues surrounding the year-long dispute could all be resolved within 60 days, according to yesterday’s Long Beach (Calif.) Gazette. U.S. Bankruptcy Court Judge Anthony Zurzolo moved quickly to appoint Howard M. Ehrenberg as trustee last week when all sides agreed one was necessary. Ehrenberg, who was notified of the appointment on April 11 and confirmed April 13, already has taken control of QSDI’s assets and has an office on board the Queen Mary. However, the nonprofit RMS Foundation led by Joseph Prevratil still has control of the ship’s operations. QSDI holds a long-term lease for the Queen Mary and the 55 acres surrounding it, all of which is owned by the city. In turn, the nonprofit RMS Foundation holds a 10-year lease from QSDI for the ship itself, including attractions, the hotel operation and catering with special events. Read more.
Banks See Consumers Paying Off More Credit Card Debt
JPMorgan Chase & Co. and Citigroup Inc. reported this week that their total outstanding card loans declined during the first quarter, MarketWatch.com reported Wednesday. At JPMorgan, card loans fell $8 billion, or 6 percent, to $134.3 billion at the end of March. The decline at Citigroup was $5.7 billion, or 4 percent, leaving its outstanding balance at almost $136 billion. Executives at both banks attributed the declining balances to rising payment rates by consumers—a problem for banks because issuers earn more money when balances are higher. The trend has been developing for several months, with a number of banks last quarter reporting a similar phenomenon. But the magnitude of the first-quarter drop-off surprised bankers, analysts and other experts, who have grown accustomed to consumers racking up credit card and other debt. Read more.
Enron Prosecutors Examine Skilling's Character
Federal prosecutors concluded their questioning of former Enron Corp. chief executive Jeffrey K. Skilling yesterday by accusing him of skirting tax laws and violating the company's ethics code based on investments he made in a former girlfriend's Internet start-up company, the Washington Post reported today. Prosecutor Sean M. Berkowitz argued that Skilling backdated checks to a woman he had once dated to avoid paying gift taxes, an issue that government lawyers claim strikes at the heart of the witness's credibility. Earlier this week, prosecutors introduced evidence that Skilling invested more than $180,000 in PhotoFete, a now-defunct electronic photography business that won $450,000 in contracts with Enron. Skilling expressed little recollection of the investment, which he deemed too "small" to remember years later. Lawyers for Skilling, 52, pointed out that the Internal Revenue Service had scoured his finances and had never brought criminal charges. Read more.
Delta Pilots Pick National Counsel
The Committee of Retired Pilots of Delta Airlines has chosen Stinson Morrison Hecker LLP as its national counsel in the airline's chapter 11 bankruptcy cases, the Kansas City Business Journal reported yesterday. Attorneys Bob West in Stinson Morrison Hecker's Kansas City, Mo., headquarters and Alisa Lacey and Taylor Ashworth in the firm's Phoenix office will lead the case, the firm said in a press release Wednesday. Lacey and Ashworth both have more than 20 years' experience in complex chapter 11 bankruptcy cases, the firm said. The case is pending in the Southern District of New York.
ABB: Lummus Files Asbestos Reorganization Plan
ABB's U.S. subsidiary Lummus has filed for chapter 11 bankruptcy protection in a U.S. court, the engineering group said today, presenting a reorganization plan designed to cap claims relating to asbestos, Reuters reported. In September 2005, 96 percent of claimants to the reorganization plan voted in favor of it, ABB said, adding that it expected the proceedings to close in the second half of the year. The news comes just weeks after ABB's larger $1.43 billion asbestos reorganization plan had been finalized. Earlier this month, an ABB spokesman said that ABB had made provisions for the Lummus plan in the double-digit million region, much smaller than for CE. Read more.