Move by General Growth Rattles Malls' Investors

The Wall Street Journal - When General Growth Properties Inc. sought Chapter 11 protection last month, it took a step its biggest debt holders had believed was impossible: It took 166 of its malls into bankruptcy with it.

The surprised debt holders had believed the malls would be insulated from the parent's bankruptcy because of the way General Growth had structured the assets.

General Growth's action has rattled investors throughout the $700 billion market for securities backed by commercial mortgages, or CMBS. Investors in other deals had also figured their investment was insulated from a parent company's bankruptcy. Now they're worried that General Growth's move will set a precedent that could affect them.

General Growth is the single largest CMBS borrower in the U.S. The CMBS market has grown up over the past two decades to become the major source of financing for commercial real estate.

Some of General Growth's biggest lenders have filed objections to the company's approach in bankruptcy court. A hearing is scheduled Friday to consider, among other things, whether General Growth can use cash flow from the 166 malls as part of its restructuring.

"The filing for so many of these well-capitalized, performing malls is an outrage," says Richard Jones, a lawyer at Dechert LLP, which represents some secured creditors in the General Growth bankruptcy case. "The company is doing something that would damage the entire CMBS industry."

General Growth's goal in taking the malls with it into Chapter 11 was to improve its bargaining position with lenders down the line, company executives said in court papers and media conference calls. In particular, General Growth hoped to be better positioned to bargain with its creditors to extend the terms of its debt and avoid foreclosure, the executives said.

But arranging the bankruptcy petitions for the malls required some maneuvering because of how their debt was structured.

In past years, to get the malls' mortgages, General Growth had set up 166 "special purpose entities" whose sole purpose was to borrow money. SPEs are attractive to lenders because, according to legal experts, they are "bankruptcy remote," meaning their cash flows are dedicated to paying debt service. The lenders issued securities backed by the SPEs. Holders of securities expect the structure would ensure they'd be paid even if the parent company went bust.

General Growth had to get approval from the board of each SPE before the malls could file for Chapter 11, legal experts say. In the weeks before the bankruptcy filings, General Growth replaced directors -- originally selected by Corporation Service Co., which specializes in staffing such boards -- on roughly 90% of its SPE boards.http://online.wsj.com/article/SB124163910180492861.html#mod=testMod

Downturn Pushes More Into Bankruptcy Despite Tougher Rules

The ailing economy continues to pull more Americans into bankruptcy court, where the number of troubled consumers filing for protection soared in March to its highest level since October 2005, when a new law made it more arduous and expensive to file.

And as job losses continue to climb, they may well drag bankruptcy filings along with them.

An average of 5,945 bankruptcy petitions were filed each day in March, up 9 percent from February and up 38 percent compared with a year earlier, according to Mike Bickford, president of Automated Access to Court Electronic Records, a bankruptcy data and management company. In all, 130,793 people filed for bankruptcy in March.

The law, the Bankruptcy Abuse Prevention and Consumer Protection Act, made it more difficult for consumers to erase their debts through Chapter 7 bankruptcies. Those who earn more than their state’s median income are now required to first pass a means test — based on income, living expenses and other factors. If they are deemed able to repay some debts, they are then forced to pursue a Chapter 13 bankruptcy, which sets up a three- or five-year repayment plan and makes it more difficult to get a fresh start.http://www.nytimes.com/2009/04/04/your-money/04bankruptcy.html?scp=1&sq=Bankruptcy%20rules&st=cse

Bankruptcy Funding Solicited for Car Makers

The Wall Street Journal - Outside advisers to the U.S. Treasury have started lining up the largest bankruptcy loan ever, talking with banks and other lenders about at least $40 billion in financing for General Motors Corp. and Chrysler LLC, in case the two auto makers need it, said several people familiar with the matter.

While acknowledging the grimness of the task, administration officials involved in the auto talks said they are trying to find a way to restructure the two companies without resorting to bankruptcy proceedings. They stressed the latest efforts were "due diligence" on the part of the government advisers, and that bankruptcy financing may not be necessary.

Still, people involved in talks with senior Obama administration officials said that the administration believes that the option of Chapter 11 filings by the two auto makers needs to be seriously considered.

"Everything is on the table right now," one person involved in the matter said, adding that President Barack Obama doesn't want to see more massive job losses in the auto industry. His administration also doesn't want to anger the United Auto Workers by appearing to push for bankruptcy, this person added.

The initial discussions call for private banks to provide the financing -- known as a debtor-in-possession, or DIP, loan -- with the government guaranteeing or backstopping the loan. In this scenario, some of the financing would be used to pay back the $17.4 billion the government lent GM and Chrysler late last year.

Treasury advisers are handling the effort and keeping GM and Chrysler informed of the steps through back-door channels, said the people familiar with the matter. The interplay between the government, auto makers and the markets is proving to be complicated.http://online.wsj.com/article/SB123535613910745405.html

Journal Register seeks bankruptcy protection

NEW YORK (Reuters) - Journal Register Co sought Chapter 11 bankruptcy protection on Saturday, making it the latest U.S. newspaper company to buckle under deteriorating advertising revenue and debt that it cannot easily repay.

The company publishes 20 daily newspapers, including The New Haven Register and The Trentonian. It joins the ranks of the Minneapolis Star-Tribune, as well as Tribune Co, publisher of the Chicago Tribune and Los Angeles Times, and highlights the challenges U.S. newspapers face as advertisers flee their print editions and more people get their news for free online.

For years, Journal Register has been among the smallest of publicly traded U.S. newspaper publishers. Nevertheless, its filing will increase scrutiny on other U.S. newspaper publishers, including McClatchy Co and Lee Enterprises, which are trying to survive a severe ad downturn without running afoul of their creditors.

Journal Register has already agreed with key creditors on a pre-negotiated reorganization plan, and said it was planning to restructure its operations.

The case is In re: Journal Register Co., U.S. Bankruptcy Court, Southern District of New York, No. 09-10769.http://uk.reuters.com/article/burningIssues/idUKTRE51K20520090222

Nearly broke California faces fiscal crisis - $41 billion in the red

California’s budget woes have forced the cancellation of thousands of infrastructure projects, like this new bridge in Glendale.

The New York Times - LOS ANGELES — The state of California — its deficits ballooning, its lawmakers intransigent and its governor apparently bereft of allies or influence — appears headed off the fiscal rails.

Since the fall, when lawmakers began trying to attack the gaps in the $143 billion budget that their earlier plan had not addressed, the state has fallen into deeper financial straits, with more bad news coming daily from Sacramento. The state, nearly out of cash, has laid off scores of workers and put hundreds more on unpaid furloughs. It has stopped paying counties and issuing income tax refunds and halted thousands of infrastructure projects.

Twenty-thousand layoff notices will go out on Tuesday morning, Matt David, the communications director for Gov. Arnold Schwarzenegger, said Monday night. “In the absence of a budget we need to realize this savings and the process takes six months,” Mr. David said.

After negotiating nonstop from Saturday afternoon until late Sunday night on a series of budget bills that would have closed a projected $41 billion deficit, state lawmakers failed to get enough votes to close the deal and adjourned. They returned to the Capitol on Monday morning and labored into the evening but still failed to reach a deal. They planned to reconvene at 10 a.m. Tuesday to go at it again.

California has also lost access to much of the credit markets, nearly unheard of among state municipal bond issuers. Recently, Standard & Poor’s downgraded the state’s bond rating to the lowest in the nation.

California’s woes will almost certainly leave a jagged fiscal scar on the nation’s most populous state, an outgrowth of the financial triptych of above-average unemployment, high foreclosure rates and plummeting tax revenues, and the state’s unusual budgeting practices.http://www.nytimes.com/2009/02/17/us/17cali.html

Auto Maker Bankruptcy Looms

The Wall Street Journal - Troubled U.S. auto makers and union representatives dug in late Monday for all-night cost-cutting negotiations as the government advanced its point person on auto restructuring, a former investment banker with a record for demanding harsh concessions from manufacturers, unions and investors alike.

General Motors Corp. and Chrysler LLC are required to submit recovery plans to the government on Tuesday as part of their agreement to receive billions of dollars in federal loans. As the government's auto-industry task force began to take shape ahead of the deadline, President Barack Obama's administration appeared to be turning up the pressure on GM and Chrysler to carry out tough restructuring measures, possibly through the use of the bankruptcy court.http://online.wsj.com/article/SB123483084725295657.html?mod=testMod

GM Offers U.S. Two Choices: More Aid or Bankruptcy

The Wall Street Journal - General Motors Corp., nearing a federally imposed deadline to present a restructuring plan, will offer the government two costly alternatives: commit billions more in bailout money to fund the company's operations, or provide financial backing as part of a bankruptcy filing, said people familiar with GM's thinking.

The competing choices, which highlight GM's rapidly deteriorating operations, present a dilemma for Congress and the Obama administration. If they refuse to provide additional aid to GM on top of the $13.4 billion already committed they risk seeing an industrial icon fall into bankruptcy.

Some experts and members of Congress say bankruptcy reorganization is the surest way for GM to cut costs and become viable. But it could be a politically unpalatable development during a recession that already has thrown millions of workers out of jobs.
http://online.wsj.com/article/SB123458663412987489.html?mod=testMod

Sirius Seeks To Fend Off Takeover, Bankruptcy

Sirius XM Radio Inc. is seeking an investment from Liberty Media Corp., people familiar with the matter say, in a last-ditch effort to fend off an unsolicited takeover approach from satellite entrepreneur Charles Ergen.

The talks set the stage for a battle between the leading U.S. satellite-television providers -- Liberty-controlled DirectTV Group Inc. and Mr. Ergen's Dish Network Corp. -- for control of the country's sole satellite-radio operator.

Liberty, which is controlled by billionaire John Malone, emerged as a potential "white knight" for Sirius after Mr. Ergen made an unsolicited offer late last year to take control of the radio operator.

Though the talks between Sirius and Liberty are advanced, a deal remains far from certain, a person familiar with the matter said. It wasn't clear how much Liberty would be willing to invest in Sirius and whether it would end up with control. Mr. Malone is known as a careful negotiator and is unlikely to cut a deal in haste.http://online.wsj.com/article/SB123440851532776029.html?mod=testMod

Sirius Faces Debt Payment in Test of Its Viability

Sirius XM Satellite Radio Inc. is facing an important test of its viability this month: how it handles $174.6 million in debt coming due Feb. 17.

Questions over how the company can pay it, along with $750 million more in debt due later in the year, have been dogging the company's stock price for months. Trading around $3 a year ago, shares in recent weeks have been stuck in the 10 cent-to-12-cent range.

But even if the company solves its looming debt deadlines, it will have merely bought time to prove to the investment community that its business of paid subscription radio has legs. And the high-interest solutions it seems likely to find would transfer more of the company's value to debt holders and away from stockholders, likely dulling any post-refinancing zip to the share price.

Given the economic environment, "it's a long road back," says RBC Capital Markets analyst David Bank. "And it's not as simple as refinancing the debt."

But dealing with the debt is a key first step. For months, Sirius has been chipping away at the bonds coming due in February, which originally totaled $300 million. By exchanging debt for stock in a series of transactions, Sirius has managed to reduce that debt to $174.6 million. Of course, that has diluted the value of each share, contributing to the rout in Sirius's stock price. http://online.wsj.com/article/SB123353783687837945.html

A Kinder Bankruptcy Law Is Sought as Filings Soar

The Wall Street Journal - As bankruptcy filings ramp up amid the world-wide financial crisis, companies are finding that changes made to the U.S. Bankruptcy Code three years ago have made it more difficult to restructure. But some experts believe relief could be on the way.

U.S. lawmakers are scrambling to find a way to revive the economy and the businesses that drive it amid the recession. Revamped laws designed to make the restructuring process kinder to struggling companies may be seen as part of the solution, bankruptcy experts say.

Such changes may provide "a mechanism by which people and businesses can begin economic life anew," said Jack Williams, resident scholar at the nonpartisan American Bankruptcy Institute. "Politically, the winds are right for revisiting bankruptcy law."
http://online.wsj.com/article/SB123250034296300681.html

Minneapolis Star-Tribune files for bankruptcy

The bad news in the newspaper business continued to mount on Thursday as The Star Tribune of Minneapolis filed for bankruptcy protection.

Star Tribune management warned last month that it would seek bankruptcy protection if it did not win a series of labor concessions on wages and other matters by Friday. Talks with the major unions broke down last week and had not resumed.

The newspaper announced the filing on its Web site Thursday evening.

The publisher, Chris Harte, said in a statement, “We intend to use the Chapter 11 process to make this great Twin Cities institution stronger, leaner and more efficient so that it is better positioned for the future.”

Papers nationwide have suffered from a sharp decline in advertising in the last two years, along with a slower, long-term slide in circulation.

The Star Tribune has the additional problem of a heavy debt burden it took on two years ago, when a private equity group, Avista Capital Partners, bought the paper for $530 million. http://www.nytimes.com/2009/01/16/business/media/16paper.html?partner=permalink&exprod=permalink

Wave of Retail Bankruptcy Filings Expected

The Wall Street Journal - Drained by the worst consumer-spending slump in decades and burdened by debt, U.S. retailers are expected to begin a wave of post-holiday bankruptcy filings, altering the landscape at malls and on main streets across the country.

Retailers are particularly vulnerable in the current downturn after a decade of buoyant consumer spending, which encouraged them to overexpand and overborrow. Now, the banks and private investors who financed the boom are pulling back.

Several of the industry's biggest lenders, including General Electric Co.'s GE Capital, CIT Group Inc. and Wachovia Corp., are tightening lending terms and reducing exposure to retailers. Their tougher terms are making it harder for retailers to find capital to reorganize under bankruptcy-court protection, as they were able to do in the past, meaning there are likely to be more liquidations.

Circuit City Stores Inc., which filed for Chapter 11 protection in November, warned Friday that it risked liquidation if talks with two parties about a possible sale or cash infusion, weren't successful. Earlier last week, Goody's Family Clothing Inc., Knoxville, Tenn., announced it was liquidating its remaining 287 stores -- just three months after exiting bankruptcy. Last Monday, Against All Odds USA, a 64-store clothing chain based in New Jersey, said it was entering Chapter 11 proceedings in hopes of selling itself or reorganizing.

According to ratings company Standard & Poor's, nine U.S. retailers and restaurants, including off-price apparel chain Loehmann's Holdings Inc., drugstore operator Duane Reade Holdings Inc. and jeweler Finlay Enterprises Inc. are at significant risk of default, with junk-bond ratings of CCC, or "very weak." A year ago, S&P had six issuers on its list, including three that eventually filed for Chapter 11 protection: Linens 'N Things Inc., Vicorp Restaurants Inc. and Buffets Inc.http://online.wsj.com/article/SB123171955382272193.html

What A GM Bankruptcy Would Mean

What bankruptcy would mean to GM


GM Bankruptcy?

That Student Loan, So Hard to Shake

The New York Times - MOST people struggling to pay off their student loans keep quiet about it. They do not want to acknowledge that, perhaps in a fit of naïve, youthful optimism, they borrowed more than they could handle.

Then there is Alan Collinge, who for years has described his struggle with tens of thousands of dollars in student loan debt to anyone who will listen. He has appeared on “60 Minutes” criticizing Sallie Mae, the nation’s largest student lender, and has been quoted in the pages of this and other newspapers attacking loan companies.

Student lending is a big business, one that has been the subject of many complaints over the past two years after revelations of questionable ties between lenders and colleges’ financial aid officers. More recently, tight credit markets raised the possibility that some students might not be able to borrow to go to college in the fall.

But much less attention has been paid to what happens to students after they borrow. Lenders who make loans guaranteed by the federal government can more easily take steps against borrowers — like garnishing wages and benefits — than they can with other kinds of unsecured consumer debts. And all student loans, federally guaranteed or not, are extremely hard to get rid of in bankruptcy proceedings, more so than credit card or other debt.