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March 19, 2008
name='1'>Proposal Looks to Increase Lending Power of Fannie Mae,
Freddie Mac
The Office of Federal
Housing Enterprise Oversight (OFHEO), regulator for Fannie Mae and
Freddie Mac, is expected to announce a plan this morning that will give
the government-sponsored entities more scope to prop up the
home-mortgage market, the
size='3'>Wall Street Journal reported today.
The plan involves a reduction in capital requirements for the companies
and a promise by them that they will each raise several billion dollars
of capital this year, likely through a sale of preferred shares. As a
result, they are expected to be able to provide additional funding of as
much as $200 billion for home mortgages and related securities. OFHEO
for the past several years has required Fannie and Freddie to hold 30
percent more capital than their usual minimum while they have worked to
resolve lapses in their accounting and internal-risk controls, a process
now viewed as largely complete. The regulator is now expected to reduce
that capital 'surcharge' initially to 20 percent. The deal came together
this week amid prodding from the Treasury Department.
href='http://online.wsj.com/article_print/SB120588440681946931.html'>Read
more. (Registration required.)
SEC
May Be Expanding Inquiry of Bear Stearns
The Securities and
Exchange Commission issued a written statement suggesting it has
expanded an inquiry into Bear Stearns Cos. to include what was or wasn't
said in the two months leading up to the brokerage firm's unraveling,
the Wall Street
Journal reported today. The SEC said that its
enforcement division wrote a letter as JPMorgan Chase & Co. was
negotiating to take over Bear Stearns. The letter addressed to JPMorgan
concerned 'investigations and potential future inquiries into conduct
and statements by Bear Stearns before the public announcement of the
transaction with JPMorgan.' Bear Stearns is already the focus of
several civil and criminal probes. The SEC and Justice Department are
investigating Bear for the circumstances surrounding the collapse of its
hedge fund last spring. The
w:st='on'>New
York
also investigating Bear Stearns in connection with its packaging
and selling of mortgage-backed securities.
href='http://online.wsj.com/article_print/SB120589108249147395.html'>Read
more. (Registration required.)
In related news, a battle
looks to be brewing between Bear Stearns’ bondholders, who are
pushing for the deal in hopes of keeping the beleaguered firm out of
bankruptcy and of safeguarding their investments, and the firms
shareholders, who hope to scuttle the deal and secure a higher price for
their stock, the New
York Times reported today. In another frenetic
day on Wall Street, both sides rushed to buy shares of Bear
Stearns on Tuesday. By late morning, the shares had soared as high
as $8.50 — more than quadruple JPMorgan’s $2-a-share offer
price. The shares closed up $1.10, at $5.91, in heavy trading. Holders
of the more than $300 billion in Bear Stearns bonds, in the meantime,
are purchasing Bear stock to strengthen their hand in voting for the
deal, thus guaranteeing that their bond investments will retain the
backing of JPMorgan and its guarantor, the Federal Reserve Bank
of
York
href='http://www.nytimes.com/2008/03/19/business/19bear.html?_r=1&oref=slogin&ref=business&pagewanted=print'>Read
more.
name='3'>Higher Fuel Costs Prompt Delta to Cut
Jobs
Delta Air Lines, faced with a
weak economy, dimmer hopes of a combination with Northwest Airlines and
record fuel prices, said yesterday that it will offer voluntary
severance payouts to roughly 30,000 employees — more than half its
work force — and cut U.S. capacity by an extra 5 percent, the
Associated Press reported. Executives at Atlanta-based Delta said that
the airline's goal is to cut 2,000 frontline, administrative and
management jobs through the severance program, attrition and other
initiatives. One part of the program is for employees who are already
eligible for retirement or for those whose age and years of service add
up to at least 60, with 10 or more years of service. The other part of
the program is an 'early-out' offer for frontline employees — such
as flight attendants and gate and ticket agents — with 10 or more
years of service and for administrative and management employees with
one or more years of service. Besides severance payments, employees who
take the offers also will be entitled to travel privileges and
additional benefits to manage career transitions.
href='http://money.iwon.com/jsp/nw/nwdt_rt_top.jsp?cat=TOPBIZ&feed=ap&src=601§ion=news&news_id=ap-d8vg2nr80&date=20080318&alias=/alias/money/cm/nw'>Read
more.
name='4'>Lenders Scale Back W.R. Grace's Exit
Financing
Several banks in the syndicate
of lenders that promised to finance W.R. Grace & Co.'s exit from
chapter 11 protection have scaled back their funding offers, prompting
the company to rethink its financing package, Bankruptcy Law360
reported yesterday. The sudden lack of funds has forced the company to
reduce its chapter 11 exit finance package from $250 million to $200
million. W.R. Grace's current financing deal expires on April 1, and
though the company asked the syndicate banks to extend their loans for
two more years, many declined. Despite the defections, the company
succeeded in winning approval for a $200 million package, which will be
in place until 2010.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=50414'>Read
more. (Registration required.)
name='5'>Lionel Files Third Amended Plan
Grappling with the
tightening credit market, model-train-maker Lionel LLC is asking the
bankruptcy court to expedite approval of a third amended reorganization
plan and disclosure statement that reflect a change in its debt
financing, Bankruptcy
Law360 reported yesterday. The revised plan
contains six notable changes, including that holders of interest in
Class 6 will no longer receive or retain any property and consequently
will not be eligible to vote on the new plan, according to Lionel. The
altered plan also lets Lionel off the hook from having to file a plan
supplement in addition to allowing the company to choose to fund its
dispute claim reserve with cash or a letter of credit, court documents
state. The company is asking for the bankruptcy court to authorize
certain changes to the solicitation procedures and to extend the
objection deadline until March 25.
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=50414'>Read
more. (Registration required.)
w:st='on'>
name='6'>Miami
size='3'> Businessman Indicted in $132 Million Tax Fraud
Case
w:st='on'>
size='3'>Miami
Edward Okun, who once owned fleets of planes, boats and automobiles, was
arrested yesterday on federal charges that he defrauded hundreds of
investors in his tax-shelter scheme out of $132 million, the Miami
Herald reported today. Okun
was indicted on one count each of mail fraud, bulk cash smuggling and
making false statements. The grand jury said that Okun used his 1031 Tax
Group to fraudulently obtain millions of dollars from clients engaged in
real estate transactions. The company was in the business of holding
transaction funds as a neutral third party, a so-called ''qualified
intermediary,'' and allowing investors to legally defer taxes. The
company is now in bankruptcy in
w:st='on'>New
York
possessions have been sold.
href='http://www.miamiherald.com/breaking_business/story/461404.html'>Read
more.
GMAC LLC named Alvaro G.
de Molina to succeed Eric Feldstein to be its CEO effective April 1,
the Wall Street
Journal reported. De Molina had been chief
financial officer at Bank of America until he was hired as GMAC's chief
operating officer in August. De Molina said that he believes the worst
of the troubles with GMAC's mortgage business are over and GMAC sees
'realizable value' in it over the long-term. The business, called
Residential Capital LLC, or ResCap, led the company into big losses due
to mortgage defaults. While de Molina concedes there could be more
losses related to the company's exposure to subprime mortgages and other
assets, he said 'the idiosyncratic issues at ResCap are behind us.' GMAC
is 51 percent controlled by private-equity concern Cerberus Capital
Management LLP.
href='http://online.wsj.com/article_print/SB120584338984744989.html'>Read
more. (Registration required.)
Allows Litigation against Deloitte for Adelphia Audit
U.S. District Judge
Lawrence McKenna denied a second plea by Deloitte & Touche LLP to be
dropped as a co-defendant from the multidistrict securities litigation
against Adelphia Communications Corp., leaving hedge funds' fraud claims
as actionable against the firm over its auditing of the collapsed cable
company's financial reports,
size='3'>Bankruptcy Law360 reported yesterday.
The funds, among them Appaloosa Investment Ltd Partnership, claim that
they bought debt securities issued by Adelphia at inflated prices,
relying on materially false announcements and regulatory filings
prepared by Deloitte. Judge McKenna agreed in September to dismiss some
of the plaintiffs' claims on the grounds that they had been
“reckless” in their decision to buy shares in the company
and could not justifiably claim to have relied on Adelphia's alleged
fraudulent statements about its financial health when investing their
money. However, the judge declined to toss other securities claims that
required only that the plaintiffs were unaware of the alleged falsity of
href='http://bankruptcy.law360.com/Secure/ViewArticle.aspx?id=50434'>Read
more. (Registration required.)
name='9'>Wilbur Ross Adds to Mortgage Buys with Option One
Purchase
Investor Wilbur Ross
announced Monday that his investment firm, WL Ross & Co., would buy
the mortgage-servicing business of tax-preparation firm H&R Block
Inc. for nearly $1.1 billion, Dow Jones
size='3'>Daily Bankruptcy Review reported
today. Ross previously bought the mortgage-servicing rights of subprime
lender American Home Mortgage Investment Corp. for nearly $500 million.
Together, the two units will handle nearly $100 billion of loans, the
second-largest servicing business for subprime loans after mortgage
lender Countrywide Financial Corp., Ross said.