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August 12, 2009
Analysis: Fed Grapples with
Extended Stay Inc. Bankruptcy
The Federal Reserve, with $900 million on the line, is
getting actively involved in the bankruptcy of Extended Stay Inc., the
biggest hotel bankruptcy, an awkward role for the central bank as it
tries to shore up the financial system, the
face='Times
New
Roman' size='3'>Wall Street Journal reported
today. On one hand, the Fed is clearly concerned that the bankruptcy of
the 680-property Extended Stay Inc. chain has exposed major fault lines
in the commercial real-estate market, which threatens to drag down the
economy just as it is starting to show signs of recovery. On the other,
the Fed's role is tricky because it is facing off against financial
firms it has to deal with in other rescue matters. For example, Cerberus
Capital Management LP is on the other side of the Fed in the Extended
Stay bankruptcy, but the firm had to work closely with the Fed and the
government in the bailouts of Chrysler and GMAC, which Cerberus
controlled. The Fed, through a fund called Maiden Lane, wound up holding
about $900 million in Extended Stay debt in the wake of Bear Stearns's
failure. A team at the New York Fed is working with BlackRock Inc. and
other private-sector advisers to try to maximize its recovery on that
debt. However, under a controversial plan proposed by Extended Stay and
endorsed by a small group of creditors, the Fed's position could take
big hits.
href='http://online.wsj.com/article/SB125003659369724401.html'>Read
more. (Subscription required.)
Ruling Lets Mall Owner Seek
Extensions on Debt
Bankruptcy Judge
face='Times
New
Roman' size='3'>Allan Gropper yesterday
rejected creditors' motions to dismiss several properties from General
Growth Properties Inc.'s chapter 11 case, clearing the way for the mall
owner to begin talks with its lenders about long-term debt extensions
that would eventually allow it to exit bankruptcy protection,
the
face='Times
New
Roman' size='3'>Wall Street Journal reported
today. Judge Gropper ruled against the arguments of loan servicers ING
Capital Loan Services LLC and Helios AMC LLC and lender Metropolitan
Life Insurance Co. The three had separately argued that the General
Growth malls they financed with mortgages are structured as individual
special purpose entities (SPEs) that shouldn't be included in a broad
corporate bankruptcy filing. Judge Gropper ruled that the SPE structure
doesn't preclude an entity in danger of financial difficulty, such as a
loan default, from being included in such a filing. He added, however,
that the ruling has no bearing on the question of substantive
consolidation. The case is being closely monitored by realestate
investors and borrowers, since many securitized mortgages are packaged
as SPEs.
href='http://online.wsj.com/article/SB125002994015123943.html'>Read
more. (Subscription required.)
President Obama Sends
Derivatives Proposal to Congress
President Barack Obama sent Congress his proposal for
reining in over-the-counter derivatives, including restrictions on
municipalities and small investors seeking to trade in the $592 trillion
industry, Bloomberg News reported yesterday. “Enormous risks built
up in these markets -- substantially out of the view or control of
regulators -- and these risks contributed to the collapse of major
financial firms in the past year and severe stress throughout the
financial system,” the U.S. Treasury said yesterday. The proposal
includes a provision to “better protect” small
municipalities and “unsophisticated investors” by limiting
their eligibility to trade derivatives. The proposal overall mirrors
earlier legislative outlines by asking Congress to impose higher capital
and margin requirements, move most derivatives to regulated exchanges
and clearinghouses and impose supervision over all dealers. The Obama
administration is asking Congress to subject derivatives users to new
capital rules and to require all standardized derivatives products to be
cleared through regulated clearinghouses and executed on a regulated
exchange or trading platform. Customized products that can’t be
centrally cleared would carry higher capital and other
requirements.
href='http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ahjw9sswwzOI#'>Read
more.
Media
Journal Register Co.
Emerges from Bankruptcy
U.S. publisher Journal Register Co., which filed for
chapter 11 protection in February, said yesterday that it had emerged
from bankruptcy, Reuters reported today. The Yardley, Pa.-based
publisher said that it closed on its exit financing consisting of $150
million from JPMorgan Chase & Co. and $75 million from Wells Fargo
& Co. as well as a new credit agreement with Wachovia. When it filed
for bankruptcy, Journal Register operated 20 daily newspapers, including
the
size='3'>New Haven Register and
the
size='3'>Trentonian, and more than 300
non-daily publications and Websites. The publisher's chapter 11 plan,
which was approved last month, called for converting secured lenders'
debt into 100 percent of the equity in a reorganized company, as well as
new secured loans, court records show. Unsecured creditors will also
receive some distributions, while shareholders received nothing.
href='http://www.reuters.com/article/bankruptcyNews/idUSBNG52426720090812'>Read
more.
Judge Orders Tribune to
Give Union Details on $70 Million Bonus Plan
Bankruptcy Judge
face='Times
New
Roman' size='3'>Kevin Carey yesterday ordered
bankrupt newspaper company Tribune Co. to turn more information about
its proposed $69.9 million bonus plan over to a union representing its
employees,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Judge Carey ruled that Tribune must allow
the Washington-Baltimore Newspaper Guild (WBNG), which represents 225
Tribune employees and has objected to the plan, limited access to
details of the bonus plan. However, the judge ruled that the WBNG may
not share the information with two Teamsters unions and the Newspaper
Guild of New York, which joined in WBNG's objection. Judge Carey also
said that Tribune didn't have to turn over a compensation consultant's
report it used to create its bonus plan.
href='http://bankruptcy.law360.com/articles/116103'>Read more.
(Subscription required.)
Philadelphia Newspapers
Look to End Bankruptcy with New Capital
Philadelphia Newspapers hopes to use $35 million in
new capital to settle nearly $400 million in debt and emerge from
bankruptcy, the Associated Press reported today. An opposing creditors'
plan would leave the newspapers saddled with up to $85 million in debt,
making it difficult for the
face='Times New Roman' size='3'>Philadelphia Inquirer
size='3'>and
face='Times New Roman' size='3'>Philadelphia Daily News
size='3'>to survive, according to the company. The company hopes to
raise $35 million in new money from current investor Bruce Toll and
others to try to settle the company’s debts. Few specifics of the
plan were offered, but the plan would leave the company with no more
than $35 million in remaining debt, including $25 million in exit costs
related to the bankruptcy.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/08/11/AR2009081102795_pf.html'>Read
more.
Lehman's $70M Collateral
Suit Against Bank of New York Survives
Bankruptcy Judge
face='Times
New
Roman' size='3'>James M. Peck yesterday
declined to dismiss Lehman Brothers Special Financing Inc's. adversary
lawsuit against an English affiliate of Bank of New York Mellon in which
the Lehman claims that it should get a priority claim to $70 million in
collateral securing a swap deal despite its bankruptcy,
size='3'>Bankruptcy Law360 reported yesterday.
The case in the U.S. is proceeding contemporaneously with a similar
fight in England, where the English High Court of Justice's Chancery
Division made a decision against Lehman late last month. The U.S.
lawsuit, filed in May, claims that the debtor's right to payment
priority is in imminent danger of being modified, with the resulting
loss to the bankruptcy estate. The complaint alleges that BNY Corporate
Trustee Services Ltd. is improperly trying to modify the debtor's right
to priority of payments under swap agreements.
href='http://bankruptcy.law360.com/articles/116087'>Read
more. (Subscription required.)
CDX Disclosure Statement
Wins Court Approval
Bankrupt natural gas exploration company CDX Gas LLC
has won approval of its disclosure statement, despite objections from a
coal company that the statement did not clearly define how certain
contracts would be treated,
face='Times New Roman' size='3'>Bankruptcy Law360
size='3'>reported yesterday. Judge Letitia Paul of the U.S. District
Court for the Southern District of Texas ruled Monday that Houston-based
CDX’s second amended disclosure statement contained enough detail
to allow investors and claims-holders to be able to make an informed
estimate of how their claims would be treated. On June 30, International
Coal Group Inc. and subsidiary CoalQuest, a major producer of coal in
northern and central Appalachia, objected to the statement, claiming
CDX’s planned use of exit financing was vague as it related to
several contracts. The contracts at issue include an operating agreement
between CDX and CoalQuest, an exploration and development agreement
between the two, and an agreement for construction and operation of
gas-gathering facilities.
href='http://bankruptcy.law360.com/print_article/115898'>Read more.
(Subscription required.)
Judge Approves
LyondellBasell Bonus Plan
Top officers and managers at bankrupt chemical giant
LyondellBasell Industries could receive a total of up to $45 million in
bonus pay under a program approved yesterday by Bankruptcy Judge
size='3'>Robert Gerber over the objection of
the United Steelworkers union, the
face='Times
New
Roman' size='3'>Houston Chronicle reported
today. Under LyondellBasell's “management incentive plan,”
officers and managers will receive bonuses only if the company's average
monthly earnings before interest, taxes, depreciation and restructuring
costs exceed a minimum of $133 million over a certain period. If the
minimum target is hit, the group will be eligible for $30 million in
bonuses. A better performance boosts the payout, with the total capped
at nearly $45 million, according to court documents. Judge Gerber also
approved an additional $18 million in employee payouts, including up to
$15 million for retention bonuses for 350 essential nonexecutive
employees.
href='http://www.chron.com/disp/story.mpl/business/energy/6569299.html'>Read
more.
GM Hopes New Lineup Will
Bring Back Excitement
General Motors is focusing on smaller cars and more
fuel-efficient vehicles to lure back consumers who had given up on the
struggling auto giant, the
face='Times New Roman' size='3'>New York Times
size='3'>reported today. GM showed off a lineup that was decidedly
leaner and greener than what the company offered in the months leading
to its bankruptcy filing on June 1. GM’s sales in the United
States have plunged 37 percent this year, and its market share has
fallen just below 20 percent. As part of its effort to reverse that
trend and return to profitability, GM also began selling new cars and
trucks on the auction Web site eBay yesterday and unveiled a prototype
car that would average 230 miles per gallon in city driving. The
company’s core brands — Chevrolet, Cadillac, Buick and GMC
— will be broadened to appeal to younger buyers who value fuel
economy and technology more than size and horsepower.
href='http://www.nytimes.com/2009/08/12/business/12motors.html?ref=business&pagewanted=print'>Read
more.
Key Madoff Executive
Admits Guilt in PonziScheme
A key lieutenant of convicted Ponzi-scheme operator
Bernard Madoff pleaded guilty to multiple counts of fraud, becoming only
the second person after Madoff to admit to complicity in the
multibillion-dollar fraud, the
face='Times
New
Roman' size='3'>Wall Street Journal reported
today. Frank DiPascali Jr. pleaded guilty to 10 criminal charges at a
hearing in federal court in lower Manhattan in New York and was
immediately sent to jail. The plea could prove bad news for others under
investigation in the case, which have included Madoff family members,
employees and some large investors. DiPascali is cooperating with
prosecutors from the U.S. attorney's office in Manhattan, and he may be
able to lend support to document-based evidence that suggests some of
Madoff's highest-profile investors knew about a fraud. In their criminal
complaint yesterday, prosecutors said the scheme included unnamed
'co-conspirators' besides Madoff.
href='http://online.wsj.com/article/SB124999709846222617.html'>Read
more. (Subscription required.)
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