Sbarro Incorporated bankruptcy plan approved by court

Reuters reports a United States bankruptcy judge has approved Sbarro Incorporated Chapter 11 bankruptcy plan and will allow the fast food pizza chain to move forward with their Chapter 11 bankruptcy, the second bankruptcy the ailing restaurant has filed in three years.

Under the new Chapter 11 bankruptcy plan, Sbarro Inc. should be able to reduce its $148 million debt load to $20 million, an 85% drop. The court order was signed and approved by Judge Martin Glenn of the Manhattan bankruptcy court. Continue reading

Detroit automakers asked to help raise money for pensioners

Reuters reports Detroit’s top automakers have been tapped by the Detroit Institute of Art (DIA) to help raised money for Detroit pensioners, a move some argue is critical for Detroit to complete their bankruptcy plan and emerge from Chapter 9 bankruptcy.

The Detroit Institute of Arts (DIA), philanthropic foundations, and the state of Michigan hope to raise approximately $816 million under the so-called grand bargain. The DIA would raise approximately $100 million to ease pension cuts combined with money from other groups. If the money is raised it could also stave off a sale of the city’s artwork.

The state of Michigan must also raise another $350 million which the governor and legislatures are negotiating now. If the current proposal is approved the state would provide a $350 million contribution over 20 years or a $195 million lump sum payment now.

Automakers support the efforts of the DIA

According to Chrysler spokesman Kevin Frazier, “Chrysler Group is committed to playing a positive role in Detroit’s revitalization. Accordingly, we are reviewing the DIA’s request.” Ford also acknowledged they are also discussing the DIA proposal and have supported the museum for many years. General Motors echoed the sentiments of the other two automakers and said they are also “giving very careful consideration to how we can help preserve this treasure at such a critical time.” The DIA has not provided any additional information about the request and has declined to comment.

U.S. Bankruptcy Judge Steven Rhodes has announced he will begin reviewing Detroit’s plan to restructure $18 billion on July 24th. City workers and retirees will also start receiving information about the plan this week. Objections to the plan have also been announced by the U.S. government, bond holders, and nearby counties and bond insurance companies who are likely to receive much less than they are owed if the plan is approved and pensions are not cut.

Kevyn Orr makes pitch for state help

In other bankruptcy news, Kevyn Orr, Detroit’s emergency manager, told a special committee of Michigan lawmakers on Tuesday that the state’s money was essential to completing the Detroit bankruptcy adjustment plan, and if the state did not provide some help, the city will be “pushed back to the starting gate of the bankruptcy process.”

The plan is relying on an estimated $860 million to be raised from the state, the Detroit Institute of Art and other philanthropic groups. Orr told the committee the funds are critical because they could stave off larger pension cuts which would lead to a higher number of legal challenges which could derail Orr’s plans to finish the bankruptcy process by early September.

“We have an ambitious schedule. We have what we think is a reasonable plan. But to put it bluntly, we need your money,” Orr told the committee.

If the state agrees to provide assistance to Detroit it is also likely they will create a seven-member commission to oversee the city’s finances, a move that is similar to what the city of New York did to help recover from their financial crisis in the 1970s. Others who are supporting the state’s assistance argue that if the cuts are too severe some of the pensioners could require state assistance in the future.

 

Stockton faces off with remaining creditors today

Reuters reports Stockton, a city of nearly 300,000, which became the most populated city in American history to declare bankruptcy two years ago, is scheduled to face off against one of their creditors this week. Experts suggest it could be a landmark hearing this week as the rights of impaired bondholders are pitted against retirees and other creditors.

Franklin Templeton rejects repayment plan

Investment firm Franklin Templeton has objected to Stockton’s Chapter 9 bankruptcy plan arguing the repayment plan would effectively eliminate the debt they are owed while not reducing payments to employee pension plans and treating other creditors with a similar priority status in a more favorable position, which is not allowed under bankruptcy law.

If Franklin Templeton loses and the court rules against their objection, Franklin High Yield Tax-Free Income Fund and Franklin California High Yield Municipal Fund would receive less than a penny on the dollar.

“What we’re finding now in municipal bankruptcies is the pensions – the obligations which are the most onerous – don’t get touched,” said Tawil. “The judge is going to have to say that [Stockton is] not touching the largest debt pool and, nonetheless, this is still a feasible plan.”

Bond market watching Stockton decision

Stockton’s Chapter 9 bankruptcy is similar to several other cases around the country. If the court decides the unmanageable pension obligation should be repaid but they allow other debts to be cut, experts argue the bond market could be shaken. Bonds which have traditionally been a sound investment could take a hit.

Bonds are used to generate funds by state and local governments to raise money to pay for everything from new roads to schools and are currently a $3.7 trillion market, but investors may not feel as comfortable investing in bonds in the future if they do not feel equally protected by bankruptcy courts.

Stockton’s bankruptcy case is minute compared to the case which is currently being reviewed in Detroit. In fact, Stockton’s $26 million pales in comparison to Detroit’s $18.5 billion case, but the issues for the two cities are similar. Both cities are debating how much they can cut from state government pension plans and how much money bondholders are willing to accept for repayment.

Bankruptcy court will determine if Stockton’s plan is fair

Stockton’s repayment plan will be reviewed in a span of four days beginning today. U.S. Bankruptcy Court Judge Christopher Klein will decide if the plan is “feasible and fair” by reviewing the dispute with Franklin. At issue is whether the $94,000 which would be repaid to Franklin for their $35.1 million loan is fair while other creditors will receives 52 to 100 percent of their claims. The plan also fails to address the pension liabilities for the city. A move Franklin argues is unfavorable to them.

“The city seeks to cram down a plan of adjustment that essentially provides Franklin with no recovery whatsoever,” the creditor wrote in February.

 

Target CEO to resign among data breach controversy

Data for millions of Target customers isn’t the only casualty of the massive holiday season data breach. USA Today reports Target’s President and CEO, Gregg Steinhafel, has resigned today, in another step Target has taken to repair its image.

Target has assigned John Mulligan, Target’s chief financial officer, to serve in Steinhafel’s place as the interim president and CFO. According to a memo posted on the company’s website, the decision was made after “extensive discussions” with all concerned parties agreeing that Target should seek new leadership.

Gregg Steinhafel to receive severance package

Gregg Steinhafel, who has been with the company for thirty-five years, will help with the transition and will receive some type of severance package, although the details have not been finalized by the board.

 

Steinhafel, a 35-year veteran of Target, will serve as an advisor during the transition. In an SEC filing Monday, Target said Steinhafel is entitled to severance pay but that the board “has not made a final determination on other compensation-related aspects” of Steinhafel’s departure.

In a letter to the board of directors, posted to Target’s website Monday, Steinhafel said, “The last several months have tested Target in unprecedented ways. From the beginning, I have been committed to ensuring Target emerges from the data breach a better company, more focused on delivering for our guests.”

Target hired executive recruitment firm Korn Ferry to assist in finding its next CEO.

Some say Steinhafel’s resignation should have come sooner.

“It would have been better to start the year with fresh eyes and a fresh approach,” says Brian Sozzi, CEO of Belus Capital Advisors. “I think this reflects the very slow-moving nature that is inherent of Target’s culture.”

Target should now take the opportunity to look for a leader outside the company and one with international business experience who could help salvage the retailer’s unsuccessful launch in Canada, Sozzi says. Target opened 124 stores across Canada last year and announced in January that it plans to open nine more in 2014.

Sozzi characterizes Target’s Canadian expansion as a “giant failure,” adding that the company opened too many stores at once and has failed to connect with Canadian shoppers who still see more value going to Walmart and Costco.

“They didn’t have the operation of the store properly thought out,” he says. “We’ve seen consistent merchandise out of stock. Prices are too high.”

Target’s Canadian operation lost $329 million in its fiscal fourth quarter and $941 million for the year ended Feb. 1. In contrast, its U.S. segment earned $1.4 billion in the quarter and nearly $5 billion for the year.

Target said in February that its Canadian stores lowered its unadjusted fourth-quarter earnings per share by 40 cents to 81 cents a share and sliced $1.13 per share from its full-year unadjusted earnings of $3.07 per share.

In fact, Steinhafel’s resignation may have as much to do with the aftermath of the data breach as the company’s overall strategic initiatives, including its Canadian segment.

“The board may just believe that it’s time to find somebody else who can take the reins and maybe take them in a different direction,” says Ken Perkins, an equity analyst with Morningstar. “I think that they really will want somebody who can take an objective look at the Canadian operations and help turn those around.”

Steinhafel stepping down follows other recent executive leadership changes. Target appointed a new chief information officer last week. Bob DeRodes takes over the position today after former CIO Beth Jacob resigned in March. DeRodes is a Target outsider, coming to the company after working for payments processor First Data. DeRodes also formerly served as CIO at The Home Depot, serves on the board of transaction company NCR Corporation, and was a government adviser on information technology.

Target said in December that hackers stole credit and debit card information from 40 million customers. In January it revealed that personal information like email addresses and phone numbers may have been stolen from up to an additional 70 million customers.

In the months since, Target adopted a faster timeline for switching to more secure chip-based credit and debit cards, and the payment terminals that accept them. As part of the $100 million effort, Target announced last week that it all of its store-branded cards would be reissued as MasterCard chip-and-pin cards in 2015.

Target shares were down $1.77, or 2.85%, to $60.24 shortly before 11 a.m

 

Energy Future Holdings gets interim loan

Reuters reports it took more than seven hours of contentious arguments in court before the bankruptcy court made a decision to approve interim loans for the biggest power company in the state of Texas, Energy Future Holdings Corporation.

The $2.7 billion dollar loan was originally proposed, but after testimony Judge Christopher Sontchi authorized only a paltry $20 million could be spent. But the battle is not over. Energy Future Holdings Corporation and their creditors will be back in court next week to discuss the balance of the money, and creditors will be given a chance to discuss their concerns over scheduling, value and how to administer the bankruptcy case.

Energy Future Holdings one of the largest Chapter 11 bankruptcies in history

Energy Future Holdings Corp. filed one of the largest Chapter 11 bankruptcies on Tuesday. They have worked for a year to negotiate with their creditors but have not been able to come to an agreement. According to a lawyer for the company, the complexity of the business and the number of creditors will make this case “wildly complicated.”

Under discussion is how the company can be divested from its parent company Luminant power plant and TXU Retail electricity business. According to Reuters, “They are also considering turning the holding company that owns those assets over to lenders.” Texas’s largest network of power lines, which is controlled by Oncor, could also be sold to another group of unsecured creditors.

Objections were voiced by creditors of Texas Competitive Electric Holdings Co. If the plans above were approved they would be left with less than 3 percent of the funds they are now due, which totals an estimated $1.6 billion.

Reorganization called fraudulent transfer

The lowest priority creditors of the TXU Retail and Luminant business have called the deal to reorganize the corporate family a potential fraudulent transfer. Lawyers have also said Energy Future has undervalued the company. According to Reuters, the undervaluation “would steer those assets into the hands of investment firms that hold the $24.4 billion in loans.”

Others close to the deal argue this is just the starting point for negotiations. Alan Kornberg of Paul, Weiss, Rifkind, Wharton & Garrison said, “This is not the end of the story. You have to start somewhere.” He said he will continue to work with the creditors he represents to gain support.

Ownership of Oncor business to be swapped

Another part of the suggested deal would allow ownership of Oncor to two groups of unsecured creditors. Oncor currently operates power lines in the state of Texas and would borrow an estimated “$7.3 billion to pay off higher-ranking creditors of the Oncor business.”

There has been some opposition to this deal, however. Creditors argue the agreement may not provide them with “added payment for retiring their debt prior to maturity.” According to Reuters, the company “will litigate with creditors that hold out for that added money, known as a make-whole payment.”

Currently Energy Future Holdings Corp owes an estimated $49.7 billion to hedge funds and investment firms. Its $36.4 billion in assets make it one of the biggest non-financial Chapter 11 filings in United States history.

 

Energy Future Holdings scheduled to file bankruptcy

Reuters reports Energy Future Holdings will file for Chapter 11 bankruptcy in Delaware today, according to sources. The ailing company has struggled the last several years due to a high debt load of more than $40 billion. Experts suggest the reason is primarily due to the extremely inexpensive price of electricity.

Energy Future Holdings, formerly known as TXU Corp, missed a scheduled bond payment last month and has not made the payment within their allowed grace period. At this point creditors are allowed to push the company into default. Energy Future Holdings owns fourteen power plants in Texas and throughout the United States.

Energy Future Holdings bankruptcy one of largest in history

Energy Future Holdings’ bankruptcy would be one of the largest ever filed. Company spokesmen have refused to comment, but those close to the story have commented that the first day court hearings could begin as early as Wednesday and allow the court to give their approval for basic payroll functions such as payment for company employees. Advisors for the company are in Wilmington, Delaware, near the U.S. Bankruptcy Court to prepare for the Chapter 11 bankruptcy filing.

Talks with stakeholders, as well as creditors, have begun, although no deals have been made. Ideally, Energy Future Holdings hopes to also develop “a consensual restructuring framework” with creditors and work together to settle debt issues. Experts note, however, the company has a very “complex capital structure” and is divided into two subsidiaries. Each subsidiary will have to work separately with their creditors.

Who are Energy Future Holdings?

Energy Future Holdings was part of a leveraged buyout in 2007, comprised of TPG, KKR and Goldman Sachs’ private equity unit. Unfortunately, the buyout occurred just before domestic prices sank due to the new drilling technology and an increase in the availability of natural gas. With the energy “boom” the country has seen a decline in the use of coal and decrease in natural gas prices.

Other companies in California have also suffered due to the substantial natural gas price decline. Edison Mission Energy of Santa Ana, California, also filed for bankruptcy recently.

Tax liability for the ailing company

One of the main issues for the company is the tax liability. Reuters reports, “The lenders, including private equity giants like Apollo Global Management and Oaktree Capital Group, are warming to the idea of a deal that does not include the so-called “tax basis step-up” they were initially seeking, two people close to the matter told Reuters last week.”

There are also unsecured creditors who are in discussions with other creditors over costs to refinance Energy Futures’ debts. As well as $9 billion in bankruptcy loans which are being negotiated and will likely be used to repay some of the oldest bond obligations. Secured bondholders, however, they are “entitled to make-whole payments, a form of compensation for agreeing to refinance.” If these issues are not resolved the bondholders would likely file a lawsuit with the court.

 

 

Detroit’s Chapter 9 bankruptcy only first step to financial viability

Detroit’s Chief Financial Officer, John Hill, admitted that completing Chapter 9 bankruptcy is just the first step for the financially devastated city. In a conference sponsored by the Federal Reserve Bank of Chicago and the Civic Federation, Hill announced that “the post-bankruptcy structure is absolutely critical and that right now is a big question mark.”

With Detroit set to exit the biggest municipal bankruptcy in United States history in the next year, questions have risen about who will provide oversight for the city after it is completed. There have been several suggestions. For instance, Michigan Governor Rick Snyder has suggested the city could appoint a control board, similar to the type of board that monitored New York City when they were trying to survive a financial crisis in the 1970s. The United States Judge Steven Rhodes has suggested the city could also appoint a court monitor.

Kevyn Orr set to leave state appointed emergency position

Another option is to keep a position similar to Kevyn Orr’s position as the state-appointed emergency manager, although Orr would not be in contention for this position since he is set to leave by September. Hill has suggested the state could replace him if needed.

Most parties agree that not only will city elected officials need to participate in the planned reforms, they will also be responsible for following the Chapter 9 debt adjustment plan, and without Orr to supervise the work, someone will need to be in charge.

Hill also emphasized that everyone who is left to run the city must understand the vision, and must help fix the city’s financial systems so they not only allow for the highest amount of revenue generation, but they line up with the new vision.

Hill reiterated that sustainability is key. If city officials do not get on board it’s likely all of the work the city has done to get out of bankruptcy will be for not, and the city will simply find themselves in financial crisis again.

Friday deadline for key information for debt repayment plan

Today Detroit is scheduled to submit information for the debt repayment plan. This is the fourth revision of the document. Another meeting will be held on Monday to get approval for the plan. The city will try to understand what led to the financial crisis and how a new plan can help creditors, including retirees and bondholders.

A plan for Detroit’s water and sewer department also must be created. Rhodes continues to push for a regional authority for water and sewer administration, but Detroit and its three nearby counties have not been able to come to an agreement. Other options for these services include privatization. Orr hopes to have this issue resolved before his departure in September.

Challenges for the legality of Detroit’s bankruptcy

Several major creditors, including the city’s largest union — Michigan Council 25 of the American Federation of State, County and Municipal Employees — and the city’s two pension funds are still waiting for the Michigan court of appeals to hear their challenge to Judge Steven Rhodes’ December order allowing Detroit’s bankruptcy case to proceed. The case is still waiting for review by the court.

 

 

Student loans thrown into default when co-signer dies or files bankruptcy

CNN Money reports students are getting a shock when their student loans are being thrown into default if the co-signer on the loan files for bankruptcy protection or dies. According to the Consumer Financial Protection Bureau, the move towards default for these loans may also force students to make the loan payments in full because the lender cannot count on the co-signer to make payments.

The issue of auto-defaults was revealed after the Consumer Financial Protection Bureau began investigating complaints from consumers. For the investigation the Consumer Financial Protection Bureau reviewed almost 4,000 student loan complaints from October 1, 2013 and March 31, 2014.

What they found alarmed them. According to CFPB Director Richard Cordray, “Students often rely on parents or grandparents to co-sign their private student loans to achieve the dream of higher education. When tragedy triggers an automatic default, responsible borrowers are thrown into financial distress with demands of immediate repayment.”

Is immediate collection allowed?

The issue for immediate default is more prevalent for private student loans, which generally require a co-signer. Federal loans do not. So if the co-signer is no longer able to make the payments or cannot be responsible for the loan, the creditor can begin collection efforts, which can include creditor calls. The legal actions allowed are generally outlined in the private student loan contracts, although students may or may not have paid much attention to the clauses at the time they applied for the loans.

So what should you do if your co-signer is no longer able to make payments or has died? Experts suggest it’s best to contact your lender. Whether or not they are willing to remove the co-signer, however, could depend on several different factors.

For instance, some lenders will allow you to remove the co-signer on the loan if you have good credit, if you have made payments on time for a specific amount of time, or if they believe you will be able to pay your loan on your own. Unfortunately, some lenders are more willing to work with you than others. For more information about how to contact the lender and what information they will need from you it’s best to review a sample letter on the Consumer Financial Protection Bureau’s website.

What is the Consumer Financial Protection Bureau doing?

Due to the increased complaints about auto-defaults the Consumer Financial Protection Bureau is looking into what actions they can take to eliminate the issues. While the Consumer Financial Protection Bureau is hoping that lenders will offer other options besides an auto-default no progress has yet been made. Additionally, the Consumer Financial Protection Bureau remains critical of private lenders who have not clearly stated how the debtor can avoid this issue or who have not made it simple enough to remove a co-signer from a loan. The Consumer Financial Protection Bureau has, however, stopped short from labeling this lending practice unfair or deceptive.

 

Coldwater Creek Inc declares Chapter 11 protection

Reuters reports Coldwater Creek Inc., the upscale women’s clothing retailer, has filed for Chapter 11 bankruptcy today. Coldwater Creek Inc. is just the one of many retailers who has recently decided to declare Chapter 11 bankruptcy in hopes of cutting their costs and restructuring their debt obligations. According to Coldwater Creek’s bankruptcy petitions and schedules, Coldwater Creek Inc. has assets worth $10 million to $50 million and liabilities of $100 million to $500 million. Continue reading

Toyota recalls more than 6 million cars

In light of the recent General Motors recall and controversy over its ignition-switch issues, Toyota announced today they will also recall more than six million vehicles. The recall, which will include more than 3.5 million vehicles such as the Camry, Corolla, Matrix, Highlander, the Pontiac Vibe and the Subaru Trezia, will be done to replace spiral cables that may prevent driver’s-side airbags from deploying. They are also recalling another 2.3 million vehicles so they can inspect and potentially replace front-seat rails if they find the springs are faulty. Other parts that will be inspected include steering column brackets, engine starters, and windshield wiper motors.  Some of the vehicles were manufactured as early as 2004. Continue reading