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March 19, 2009
House Set to Vote on Tax Targeted at Executive Bonuses
U.S. House Democratic leaders have set a vote for today on a proposed 90 percent tax on executive bonus payments by companies receiving more than $5 billion in federal bailout funds, Bloomberg reported on Thursday. The bill is a response to the national furor that erupted this week when it was learned that American International Group Inc. (AIG) paid $165 million in bonuses to 4,600 employees, including many in the financial products unit whose investments brought the company to the brink of bankruptcy. The bill was being drafted yesterday as AIG Chief Executive Officer Edward Liddy told a House Financial Services subcommittee that he asked employees who got bonuses over $100,000 to repay half. AIG so far has received $173 billion in federal bailout funds. The 90 percent tax would apply to people with overall income exceeding $250,000, including bonuses. The tax would apply to bonus payments made after Dec. 31, 2008, and it would cease when the U.S. government's investment in the company falls below $5 billion. The tax wouldn't apply to any bonus returned to a company, and the legislation wouldn't attempt to impose the tax on foreign employees of companies such as AIG, said Ways and Means Committee spokesman Matthew Beck. Many of AIG's bonus recipients work in the London office of the credit-default swap unit. The Senate is writing its own measure that would impose a 70 percent excise tax on the bonuses, split between the company and employee. That tax would be collected from foreign workers by making the company responsible for paying the employee's 35 percent excise tax if the levy couldn't be collected using normal withholding in place under existing tax treaties, according to a description released by the Senate Finance Committee. The Senate has not yet set a date for taking up its version of the legislation. Read more.
name='2'>Hearings Today on Capitol Hill
The House Financial Services Committee's Subcommittee on Housing and Community Opportunity will hold a hearing today on 'Examining the Making Home Affordable Program,' at 10:00 a.m. ET in Room 2128 of the Rayburn House Office Building. Click here for the witness list.
The House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit will hold a hearing today on 'H.R. 627, the Credit Cardholders' Bill of Rights Act of 2009; and H.R. 1456, the Consumer Overdraft Protection Fair Practices Act of 2009,' at 2:30 p.m. ET in Room 2128 of the Rayburn House Office Building. Click here for the witness list.
The Senate Committee on Banking, Housing and Urban Affairs will hold a hearing today on 'Modernizing Bank Supervision and Regulation 'Video Courtesy of C-SPAN,'' from 10:30 a.m.-2:00 p.m. ET in Room 538 of the Dirksen Senate Office Building. Click here for the witness list.
name='3'>Valero to Pay $477 Million for VeraSun's Ethanol Plants
Valero Energy, the country's largest independent refiner, said that it would buy seven ethanol plants from VeraSun Energy for $477 million, giving the biofuel industry a lift at a time when it is suffering from excess production capacity and falling gasoline consumption, The New York Times reported today. VeraSun, the nation's second-largest ethanol producer after Archer Daniels Midland, filed for chapter 11 bankruptcy protection last fall. Valero's purchase signals important new support for a flagging industry from an unexpected quarter. In recent years, refiners have opposed congressional mandates for refineries to blend increasing amounts of ethanol in gasoline, arguing that it made neither economic nor environmental sense. The Valero purchase of an ethanol plant is the first by a traditional refiner, pumping cash into the industry at a time of tight credit and removing a potent political opponent, at least in part. VeraSun, like many ethanol companies, has suffered financially in recent months after committing to buy corn last year at high prices. Those prices have since dropped sharply, and ethanol prices have declined along with gasoline since last summer. Read more.
name='4'>Moody's May Cut $241 Billion Jumbo Mortgage Debt
Moody's Investors Service said it may downgrade $240.7 billion of securities backed by prime-quality 'jumbo' U.S. residential mortgages because defaults will be higher than they expected, Reuters reported today. Jumbo mortgages are typically larger than $417,000 and go to borrowers with good credit. But Moody's said in the last six months, there have been 'substantial increases in serious delinquencies and decreases in prepayment rates, levels that are unprecedented in this asset class.' Moody's put on review for downgrade 4,988 tranches of jumbo residential mortgage-backed securities with a current outstanding balance of $173.3 billion, and an original balance of $240.7 billion. The securities are backed by mortgages issued between 2005 and 2008. Moody's said home prices have already fallen 25 percent from their peaks and could drop another 11 percent by year end, when prices in many parts of the United States may bottom out. Read more.
name='5'>Lear Corp Buys Time, but Bankruptcy Fears Remain
Auto parts supplier Lear Corp. has said it may not be able to avoid bankruptcy proceedings in spite of having bought time from its lenders, according to a report today on Domain-B.com. The company has until May 15 to restructure its debt-heavy balance sheet. Lear shares spurted after it announced that lenders have agreed to waive the existing defaults under its primary credit facility. But the auto supplier warned in its annual report that it may eventually be forced to file for chapter 11 protection unless it works out a long-term agreement with its lenders. If a deal cannot be reached by May 16, the Michigan-based company will be considered in default and lenders will have the right to speed up the company's debt obligations. Read more.
Pharmaceuticals
name='6'>Pfizer May Sell Units to Clear Wyeth Deal
Pfizer Inc. may have to shed some of its animal-health business so that it can gain antitrust clearance for its planned purchase of Wyeth, the Wall Street Journal reported today. But any potential asset sales would probably be less than 10 percent of Pfizer's combined animal-health revenue, Chief Financial Officer Frank D'Amelio said. Pfizer has a strong presence in companion and livestock animal-health products, while Wyeth is strong in animal vaccines, according to D'Amelio. He added that the companies also overlapped in those areas, and talks with antitrust authorities were ongoing. Pfizer said in January it would buy Wyeth in a deal then valued at $68 billion. Read more.
Drug Fair Group Files for Chapter 11 Protection
Drug Fair Group Inc. and its parent company CDI Group Inc. have filed for chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware, according to PharmacyChoice.com yesterday. Drug Fair entered into an agreement with a subsidiary of Walgreen Co. to sell substantially all of its assets associated with 32 of its stores to Walgreens. Prior to its filing, Drug Fair sold various assets at 13 locations to third parties, including Walgreens, who purchased prescription files 11 Drug Fair locations in New Jersey. The company also announced that it has arranged a four-month secured DIP financing of $40 million. Read more.
name='8'>Eddie Bauer Risks Violating Debt Obligations
Specialty apparel retailer Eddie Bauer Holdings Inc. said it faced significant risk of violating its consolidated secured leverage ratio as early as the first half of fiscal 2009, Reuters reported today. In order to avoid a 'going-concern opinion' from its independent registered public accountants, the company is seeking an amendment to a term-loan agreement to provide covenant relief and flexibility to manage through the recessionary economy, it said. Eddie Bauer submitted two previous proposals to its amended term loan lenders, both of which were not approved, before reaching an agreement in principle on the current amendment terms. The terms being discussed include up-front cash and payment-in-kind fees, a substantial increase in interest rates, and the issuance of warrants for its stock. The company reported a 5.7 percent decline in fourth-quarter revenue. It has closed 24 retail and five outlet stores in 2008. Read more.
name='9'>Foamex Wins Final DIP Approval
Foamex International Inc. has been given enough of a financial cushion to begin crafting an asset sale, TheDeal.com reported yesterday. The Media, Pa., maker of foam cushions said that the U.S. Bankruptcy Court in Wilmington, Del., granted it final approval of a $95 million DIP loan from MatlinPatterson Global Opportunities Partners III LP and Bank of America NA. MatlinPatterson's DIP will help alleviate some of Foamex's prepetition debt problems and also kick-start an auction. Court papers show that the DIP will roll up the $39 million due on Foamex's prepetition senior revolver with lenders led by Bank of America. This leaves about $56 million in new money to finance the debtor's operations along with cash collateral. The DIP will mature on the earlier of 120 days from Foamex's Feb. 18 petition date and 60 days after the court approves bidding procedures. Foamex filed for chapter 11 on Feb. 18, marking its second trip to bankruptcy court since Sept. 19, 2005. The company listed $363.82 million in assets and $379.71 million in debts in its new petition. Read more.
name='10'>Chemtura's U.S. Operations File for Bankruptcy
The U.S. operations of Chemtura filed for bankruptcy protection, as collapsed demand choked off its liquidity, according to ICIS.com yesterday. Chemtura's foreign subsidiaries were not included in the filing. The company, a global supplier of plastic additives, pool and spa products, seed treatment and miticides in the agricultural market and a producer of urethane polymers, listed assets of $3.06 billion and debts of $2.60 billion and has up to 50,000 creditors, according to court documents. In addition, Chemtura said it has received a commitment for up to $400 million in DIP financing. Chemtura CEO Craig Rogerson said the company was hoping to announce a $700 million asset sale by the end of March and that the proceeds would pay down $374 million in debt with any extra money being used to address any liquidity concerns, Rogerson said. However, Chemtura did not have much time to arrange such a sale, as it was operating under a credit waiver. With the waiver set to expire, bankruptcy was the company's best course, Rogerson said. Read more.
name='11'>Trump Entertainment: Final Cash OK
Donald Trump may no longer be an executive at the bankrupt casino empire bearing his name, TheDeal.com reported yesterday. But his presence was still felt when Trump Entertainment Resorts Inc. (TER) headed to court on March 17, seeking access to some postpetition cash. TER won final access to cash collateral from Bankruptcy Judge Judith Wizmur of the U.S. Bankruptcy Court in Camden, N.J., which is secured by lenders led by Beal Bank, which are owed some $488.8 million in prepetition debt. While Judge Wizmur approved the cash collateral request, she did deal a blow to TER's noteholders, who are owed more than $1 billion from the company's 2004 bankruptcy. The judge denied the debtor's request through the cash collateral agreement to cover attorney fees for an ad hoc group of the noteholders. The company filed for chapter 11 on Feb. 17, marking its second trip to bankruptcy court since 2004 and its third since 1991. Read more.
International
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