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April 30, 2009
Autos
Chrysler
Bankruptcy Looms as Deal on Debt Falters
Last-minute efforts by the
Treasury Department to win over recalcitrant Chrysler debtholders failed
last night, setting up a near-certain bankruptcy filing by the American
automaker, the New York
Times reported today. Barring an agreement,
which looked increasingly difficult, Chrysler was expected to seek
chapter 11 protectiontoday, most likely in New York.The automaker, which
is in talks with the Italian automaker Fiat, would file for bankruptcy
first and then present an agreement with Fiat to the court for approval,
possibly on Monday. To win over several hedge funds that have been
holding out for better terms, the Treasury increased its cash offer to
holders of Chrysler’s secured debt by $250 million, to $2.25
billion. If all of the secured holders would agree to the new deal
that would give them the cash in exchange for retiring about $6.9
billion of debt, Chrysler would still have a chance of restructuring out
of bankruptcy court.Several investment funds, however, continued to
reject the Treasury’s sweetened offer at a vote of the lenders
yesterday.
href='http://www.nytimes.com/2009/04/30/business/30auto.html?ref=business&pagewanted=print'>Read
href='http://www.nytimes.com/2009/04/30/business/30auto.html?ref=business&pagewanted=print'>
GM
Bondholders Seek to Control Equity
A committee representing
institutions owning General Motors Corp. bonds will present a
counteroffer to the company's debt swap that will seek a majority stake
in the car maker and ease fears about potential U.S. control of a major
manufacturing company, the Wall
Street Journal reported today. The bondholder
committee, which represents about 20 percent of the debt outstanding,
said its offer would save taxpayers $10 billion in cash. Under it, GM
would issue new stock and give 41 percent of it to the UAW, 51 percent
to the bondholders and 1 percent to common equityholders.The
counteroffer seeks to put bondholders on the same plane as the union,
which is owed $7 billion less.The government would not get equity under
this scenario because it wouldn't need to reduce any of GM's loans.
Unsecured bondholders would likely reduce their entire claim on the
automaker under this plan.
href='http://online.wsj.com/article/SB124105121817871157.html#mod=article-outset-box'>Read
more. (Subscription required.)
Analysis:
As Detroit Is Remade, the UAW Stands to Gain
In the devastating slump that has
forced two of Detroit’s automakers to the brink of bankruptcy, the
United Automobile Workers union stands to become one of the
industry’s few winners, the
size='3'>New York Times reported today.
According to restructuring plans proposed this week, the union will have
more than half the stock in Chrysler and a third of General Motors,
meaning it will have tremendous influence with the government in
determining the future of the companies.The United Automobile Workers
union said Wednesday that its members ratified a cost-cutting deal with
Chrysler by a 4-to-1 margin. The prospect of a big ownership stake for
the UAW in GM has angered holders of billions of dollars in bonds, who
stand to get only a fraction of the restructured company. The UAW
members at both automakers stand to lose some of their pay and benefits,
but the cuts are not as deep as those faced by airline and steel workers
when their companies went bankrupt. Under proposed deals devised by the
Treasury Department, UAW pensions and retiree health care benefits would
href='http://www.nytimes.com/2009/04/30/business/30uaw.html?ref=business&pagewanted=print'>Read
more.
Obama
Outlines Credit Card Reforms, “Credit Cardholders' Bill of
Rights” Legislation Set for House Vote Today
The Obama administration
yesterday called for an end to unfair credit card industry practices,
such as retroactive interest rate increases for any reason, late-fee
traps that penalize borrowers with weekend or middle-of-the-day
deadlines, and teaser rates that last less than six months, the
Washington Post
size='3'>reported yesterday. The administration outlined practices it
would like Congress to reform as it considers two pieces of legislation
that would crack down on the industry. One proposal would force card
companies to apply payments above the minimum amount to the highest
interest rate debt. To crack down on over-limit fees, the administration
would also like Congress to require card companies to get customers'
permission to set up accounts so transactions over the limit can still
be processed.To increase transparency, card issuers would periodically
have to post information online about rates, fees and other terms.
Regulators would also be required to formally request public input on
market trends and consumer protection on a biannual basis.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/04/29/AR2009042904909_pf.html'>Read
more.
In related news, H.R. 627, the
“Credit Cardholders' Bill of Rights” sponsored Rep. Carolyn
B. Maloney (D-N.Y.) is scheduled for a House vote today. Treasury
Secretary Timothy Geithner said that the administration supports
Maloney's bill. Maloney's bill closely resembles new rules approved by
the Federal Reserve in December that do not go into effect until July
2010.
Senator's
Push for Cramdown Legislation Falls Short in Advance of Vote on Housing
Bill
For the second straight year,
cramdown legislation championed by Senate Majority Whip Dick Durbin
(D-Ill.) looks poised to fall short in the face of opposition from
Republicans, a block of moderate Democrats and many financial
institutions,
size='3'>CongressDaily reported today. The
cramdown provision will be offered as an amendment today and will need
60 votes to pass, Senate Majority Leader Harry Reid (D-Nev.) said
yesterday. Critics said that Durbin and other cramdown backers failed to
reach out aggressively to Senate moderates who had doubts about the bill
and focused too heavily on cutting deals with financial institutions
before reaching out to lawmakers.Speaking on the floor yesterday, Reid
defended Durbin's effort to pass the bill and praised his persistence.
'He understands that legislation is the art of compromise, but that can
be carried a little too far,' Reid said. 'Quite frankly, I am very
disappointed in the rope-a-dope that has been used on Sen. Durbin.'
While the cramdown provision has backing from President Obama, he has
not gone to bat for it, and a lukewarm endorsement this month from
Treasury Secretary Geithner likely did not add votes.
FBI Looks
into Losses at Freddie Mac
Federal investigators looking
into possible accounting violations at Freddie Mac are raising questions
about whether the giant government-backed mortgage company improperly
delayed the recognition of billions of dollars of losses, the
Wall Street Journal
size='3'>reported today. A confidential February 2008 report by the
investigative firm Kroll concluded that 'inappropriate application' of
accounting rules 'enabled Freddie to defer billions of dollars of losses
incurred from 2001 through 2004' on derivative contracts whose value
depends on fluctuations in interest rates. Those losses, currently
pegged at about $3.7 billion, are due to be gradually recognized in
quarterly earnings statements over the next several years.Investigators
from the Federal Bureau of Investigation have obtained a copy of that
report, which was never publicly released, and recently sought more
information on the issue.
href='http://online.wsj.com/article/SB124104843794670911.html'>Read
more. (Subscription required.)
Investigating Firm over Potentially Misleading Pension Funds on Risky
Securities
Massachusetts Secretary of State
William Galvin said that his office is investigating whether State
Street Corp. misled pension funds by telling customers that funds that
were invested in volatile fare such as mortgage-backed securities were
low-risk vehicles, the Wall
Street Journal reported today. 'It's one thing
when we see a pension fund taking unreasonable risks, but it's worse
when you have a pension fund attempting to do the right thing, and doing
business with a reputable company -- but losing because of
misrepresentation,' Galvin said. State Street, a Boston-based
financial-service provider known as one of the largest managers of index
funds, is facing several private lawsuits over its line of 'enhanced
index' bond funds that were designed to beat the indexes they tracked.
Some customers have said in civil lawsuits that they believed they were
being sold low-risk vehicles, only to find out later that the funds made
mortgage-related investments.
href='http://online.wsj.com/article/SB124103645097869935.html'>Read
more. (Registration required.)
Tropicana
Casino Seeks Fast Auction
Tropicana Casino Resort's trustee
and conservator sought authorization to auction off the casino in a
chapter 11 petition yesterday, while Tropicana received the blessing of
the New Jersey Casino Control Commission for a $200 million sale
proposal from the casino's lenders,
size='3'>Bankruptcy Law360 reported yesterday.
Tropicana's conservator, retired New Jersey Supreme Court Justice Gary
Stein, also filed first-day motions seeking the court's approval of
bidding procedures that aim to have the Atlantic City casino on the
block within the month, in an attempt to secure a buyer by the end of
the year.The filing was entered almost immediately after the commission
authorized Tropicana's senior lenders to submit a $200 million credit
stalking-horse bid for the casino. In the court filings, Tropicana
listed credit obligations of nearly $1 billion and assets between $500
million and $1 billion.The case is
size='3'>In re Adamar of New Jersey Inc., case
number 09-20711, in the U.S. Bankruptcy Court for the District of New
Jersey. Read
more. (Subscription required.)
Deal Gives
Worldspace Unsecured Creditors $1.3 Million
A court has approved a deal
between bankrupt satellite radio company Worldspace Inc., its unsecured
creditors, secured lenders and proposed buyer Yenura Pte. Ltd. under
which secured lenders will be paid slightly less than their full claims
in order to offer a modest payment to unsecured creditors,
Bankruptcy Law360
size='3'>reported yesterday. The settlement, which was approved Monday
by Bankruptcy Judge Peter J.
Walsh, will likely provide about $1.3 million
in cash for distribution to unsecured creditors, according to
Worldspace. The company originally anticipated having nothing available
for its unsecured creditors.
href='http://bankruptcy.law360.com/articles/99025'>Read
more. (Subscription required.)
Bank of America Chairman
Ousted
Bank of America Corp.
shareholders voted to strip Kenneth Lewis of his duties as chairman,
weakening the embattled CEO as he struggles to steady the troubled bank
and fend off criticism of his rocky takeover of Merrill Lynch & Co.,
the Wall Street
Journal reported today. The largest U.S. bank
said that a shareholder proposal to split the chairman and CEO positions
passed with 50.34 percent of the vote. Bank of America said that Lewis
would relinquish the chairman slot immediately but continue as president
and CEO. Bank of America named Walter E. Massey, a longtime director and
president emeritus at Atlanta's Morehouse College, its new
chairman.
href='http://online.wsj.com/article/SB124101668502368771.html#mod=testMod'>Read
more. (Subscription required.)
In related news, U.S. lawmakers
continued pressing for answers about whether the Treasury Department and
the Federal Reserve pressured Bank of America Corp. Chairman and CEO
Kenneth Lewis to not publicly raise questions about the bank's deal to
buy Merrill Lynch & Co., the
size='3'>Wall Street Journal reported today.
Rep. Spencer Bachus (R-Ala.) yesterday called for hearings into
'possible violations of the securities laws.' Rep. Dennis Kucinich
(D-Ohio), chairman of a House Oversight and Government Reform
subcommittee on domestic policy, has already requested that the Fed and
Treasury provide documents dealing with the negotiations with Bank of
America.Senate Banking Chairman Christopher Dodd (D-Conn.) said Tuesday
that he intends to schedule a committee hearing after Bank of America
has its annual shareholder meeting, which took place yesterday.
href='http://online.wsj.com/article/SB124105282660671291.html#mod=article-outset-box'>Read
more. (Subscription required.)
Media
name='11'>Newspaper Group Files for Bankruptcy
Protection
American Community Newspapers Inc.,
which operates smaller newspapers in four major U.S. markets, has filed
for bankruptcy protection, citing 'an unprecedented and severe decline
in advertising revenue,' the Associated Press reported yesterday. The
company filed its chapter 11 petition Tuesday in U.S. Bankruptcy Court
in Delaware, becoming the sixth publisher of daily newspapers to file
for bankruptcy protection.The company said its secured creditors will
provide a $5 million debtor-in-possession credit facility. In its
filing, the company lists assets in the range of $50 million to $100
million and debts totaling about $107 million.
href='http://www.washingtonpost.com/wp-dyn/content/article/2009/04/29/AR2009042902698_pf.html'>Read
more.
Radio
Giant Faces Crisis in Cash Flow
Clear Channel, the nation’s
largest radio station operator and an outdoor billboard company, is
finding its revenues plunging and so is its cash flow, making it
harder to meet the payments on the billions in debt accumulated in the
process of buying out its public investors, the
face='Cambria' size='3'>New York Times
size='3'>reported today. The company announced yesterday that it was
laying off 590 employees after cutting 1,850 employees in January, for
an overall staff reduction of 12 percent since the acquisition.Bishop
Cheen, who follows corporate bonds for Wachovia, wrote recently that
Clear Channel was on track to become the biggest default among media
companies and therefore the biggest workout ever in the
industry.
href='http://www.nytimes.com/2009/04/30/business/media/30clear.html?ref=business&pagewanted=print'>Read
more.
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