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When a bank holding company files for bankruptcy, it usually occurs after the Federal Deposit Insurance Corp. has taken away its banking subsidiary, according to commentary in the The New York Times's DealBook from Prof. Stephen J. Lubben. In such a chapter 11 case, the only thing left for the company to do is marshal the assets and pay out the results to creditors before liquidating. Washington Mutual provides the most obvious example of this basic model. However, Anchor BanCorp Wisconsin plans to use chapter 11 to recapitalize rather than liquidate, which a judge approved late last week. It filed for chapter 11 on Aug. 12 before its bank, AnchorBank, was taken over by regulators. Indeed, it hopes that its chapter 11 case will avoid such a takeover. By filing for chapter 11, it could take three crucial steps. First, it would be able to pay off more than $180 million in debt owed to other banks for just $49 million. Second, it could convert the U.S. Treasury’s preferred stock into a small equity stake, worth about $6 million, in the holding company. Lastly, Anchor said that it would cancel its existing shares and sell the remaining new equity to investors, leading to the recapitalization of the holding company. Federal regulators still need to officially sign off on the plan, but Anchor said that it had been in contact with those regulators and that they “have not raised any objection.”

Bank of America Corp. cannot be sued by unified groups of homeowners in different states over its failure to modify mortgages, a federal judge in Boston ruled, Bloomberg Law reported today. Home-mortgage borrowers in 26 states claimed in lawsuits that Bank of America mismanaged loan requests under the Home Affordable Modification Program and sought class-action status to pursue their cases. Bank of America is one of many mortgage lenders participating in HAMP, which is designed to prevent mortgage foreclosures. The homeowners who sued claimed that they made all required trial payments under the plan to the bank and still didn’t receive permanent loan modifications or written denials of eligibility by a certain date. The case is In re Bank of America Home Affordable Modification Program Contract Litigation, 10-02193, U.S. District Court, District of Massachusetts (Boston).

A bankruptcy judge said that Longview Power, LLC, a private-equity-backed West Virginia power plant that filed for chapter 11 protection Friday, can use its lenders' cash to fund its bankruptcy case, setting up showdown between the company and a group of contractors over disputed letters of credit, according to a Dow Jones newswire report yesterday. Judge Brendan Linehan Shannon said Tuesday at a hearing in U.S. Bankruptcy Court in Wilmington, Del., that he'd give Longview interim approval to use its lenders' cash to pay its employees and vendors over objections from a trio of contractors about the company's intention to draw on $59 million in disputed letters of credit. Contractors Siemens Energy Inc., a unit of Siemens AG, the North American arm of Norwegian construction firm Kvaerner ASA, and German engineering firm Foster Wheeler AG claim that the letters of credit were assigned to them, and that Longview is trying to circumvent the arbitration proceedings by finding a safe haven in bankruptcy court. Lawyers for Longview said that the company would likely breach cash-balance covenants with its lenders if it is unable to draw on the letters of credit. Judge Shannon said that he would approve an order that bars Longview Power from drawing down on the letters of credit absent an order of the court, and scheduled a hearing on matter for Oct. 7.

Unsecured creditors of General Motors Co are appealing a defeat in a $1.5 billion fight with the company's lenders that shows the potentially drastic implications of a paperwork error, Reuters reported on Friday. Through an appeal lodged on Thursday in bankruptcy court, the creditor group continued a three-year fight over whether lenders, led by JPMorgan Chase & Co, should have to pay for accidentally filing a financing document that may have terminated their lien on GM's assets. After the automaker, or "Old GM," filed for bankruptcy in 2009, its best assets were sold to the new General Motors Co. The remainder of the company was liquidated for the benefit of creditors, who have been litigating various matters in hopes of recovering money. In this case, the creditor group claimed JPMorgan and a host of other holders of a syndicated $1.5 billion term loan may have terminated their lien on GM's assets, resulting in unsecured creditors being entitled to at least a portion of those assets. In a March 1 opinion, Bankruptcy Judge Robert Gerber explained that, as part of a process to terminate a lien on an unrelated loan, GM and JPMorgan accidentally submitted a filing under Uniform Commercial Code guidelines whose language effectively nixed the lien for the term loan.

U.S. Sen. Elizabeth Warren (D-Mass.) asked regulators how egregiously a bank could break laws before they’d weigh pulling its charter, citing HSBC Holdings Plc (HSBA) providing services to drug cartels and skirting sanctions against Iran, Bloomberg reported yesterday. “What does it take?” Warren asked a panel of banking regulators testifying at a Senate Banking Committee hearing yesterday. “How many billions of dollars do you have to launder for drug lords and how many economic sanctions do you have to violate before someone will consider shutting down a financial institution like this?” Comptroller of the Currency Thomas Curry and Federal Reserve Governor Jerome Powell explained that a charter revocation process would depend on a bank being convicted of a crime, for which Powell said the Justice Department has “total authority.” London-based HSBC settled for $1.92 billion in December and promised to fix its operations. Attorney General Eric Holder said in a March 6 hearing that criminal charges against one of the biggest banks—something that could threaten its existence—may also endanger the national or global economies. That has “made it difficult for us to prosecute” some of those institutions, Holder said.

BlackRock Inc., the world’s biggest money manager, is accused in a lawsuit by two pension funds of reaping “grossly excessive” compensation from securities-lending returns associated with iShares Inc., Bloomberg News reported yesterday. “Defendants have systematically violated their fiduciary duties, setting up an excessive fee structure designed to loot securities lending returns properly due to iShares investors,” representatives of the funds, which invest in iShares, said in a complaint in federal court in Nashville, Tenn. The pension funds allege that BlackRock affiliates collected 40 percent of revenue earned from securities lending transactions as compensation. Blackrock said that the suit is without merit and will contest it.

Fresh from paying back a $182 billion bailout, the board of American International Group Inc. will meet tomorrow to consider joining a $25 billion shareholder lawsuit against the government, the New York Times DealBook blog reported today. The lawsuit contends that the onerous nature of the rescue - the taking of what became a 92 percent stake in the company, the deal's high interest rates and the funneling of billions to the insurer's Wall Street clients - deprived shareholders of tens of billions of dollars and violated the Fifth Amendment, which prohibits the taking of private property for "public use, without just compensation." Maurice R. Greenberg, AIG's former chief executive, who remains a major investor in the company, filed the lawsuit in 2011 on behalf of fellow shareholders. He has since urged AIG to join the case, a move that could nudge the government into settlement talks.

ABI's Commission to Study the Reform of Chapter 11, whose 22 members constitute a venerable bankruptcy industry Hall of Fame, held a hearing yesterday to gather feedback on what is right and wrong with the statutory scheme that has governed chapter 11 bankruptcy since 1978, Reuters reported. The commission's charge includes "literally considering starting from scratch and re-inventing the statute," said Robert Keach, attorney and commission co-chairman. The commission plans to eventually submit a report to Congress, targeted for April, 2014, that could serve as "part blueprint, part outline" for new legislation, Keach said. The commission will study 13 areas of bankruptcy law, including labor & benefits issues, financing rules and government supervision. It is collecting feedback from several groups through a series of hearings, with upcoming dates at the National Conference of Bankruptcy Judges in San Diego on Oct. 26, and a convention of trade group the Turnaround Management Association in Boston on Nov. 3. Read more:
http://www.reuters.com/article/2012/10/18/bankruptcy-reform-idUSL1E8LHP…

To obtain the prepared witness testimony from yesterday's hearing, view background information on the Commission members or to see upcoming dates of activity, please click here: http://commission.abi.org/

ABI's Commission to Study the Reform of Chapter 11 has released the names of nearly 130 corporate restructuring experts who have agreed to serve on one of 13 advisory committees to examine discrete current issues. The diverse group of professionals come from the backgrounds of law, finance and the judiciary. The lists of names can be found on the Commission's website. The thirteen advisory committees/study topics are: Administrative Claims, Critical Vendors and Other Pressures on Liquidity; Avoiding Powers; Bankruptcy Remote Entities, Bankruptcy-Proofing and Public Policy; Distributional Issues Under Plans; Executory Contracts and Leases; Financial Contracts, Derivatives and Safe Harbors; Financing Chapter 11; Governance and Supervision of Chapter 11 Cases and Companies; Labor and Benefits Issues; Multiple Enterprise Cases/Issues; Plan Issues: Procedure and Structure; Role of Valuation in Chapter 11 Cases; and Sales of Substantially all of the Debtor’s Assets, Including Going Concern Sales. The Commission is working to break down each study topic further into subtopics—a process intended to help advisory committees identify all potentially relevant issues and coordinate areas of potential overlap among study topics.

The Commission has announced a schedule of fall public hearings at major insolvency conferences, where interested members of the restructuring community can appear and provide testimony to the Commission or to one or more of the advisory committees. The hearings will be held at the NCBJ annual meeting on October 26, the TMA annual convention on November 3 and the Commercial Finance Association annual meeting on November 15. Other public hearing dates will be announced.