Tag: creditors
Judge Forces Detroit Bankruptcy Foe To Name Its price: 75 Percent Of What’s Owed

Judge Forces Detroit Bankruptcy Foe To Name Its price: 75 Percent Of What’s Owed

By Nathan Bomey, Matt Helms and Tresa Baldas, Detroit Free Press

DETROIT — Detroit’s most vociferous bankruptcy opponent said Wednesday the city cannot legally justify treating pensioners better than financial creditors and said it wants to be paid 75 percent of what it’s owed.

In a dynamic exchange, Bankruptcy Judge Steven Rhodes demanded that Marc Kieselstein, an attorney for bond insurer Syncora, reveal the payout the financial creditor is seeking.

“Something that’s within shouting distance” of Detroit pensioners, Kieselstein responded.

“I want a percentage and I want it now,” Rhodes retorted.

After complaining that he would have to violate the judge’s mediation order protecting the confidentiality of closed-door talks, Kieselstein caved and said Syncora wants 75 cents on the dollar. Attorneys for Syncora have said the city owes the insurer about $400 million.

If that’s what the insurer truly wants, the two sides are far apart. The city’s official plan is to play zero to ten cents on the dollar, depending on whether Syncora-insured debt holds up as legal in court.

In a full-blown assault on Detroit’s bankruptcy plan, Kieselstein got biblical Wednesday, claiming the city wants the court to blindly accept certain arguments “by faith alone, no explanation is necessary.”

Kieselstein’s remarks came on day two of Detroit’s history bankruptcy trial, which will determine the fate of the city’s sweeping restructuring plan to slash more than $7 billion in liabilities and invest $1.4 billion over ten years in services.

Detroit emergency manager Kevyn Orr and investment banker Ken Buckfire relied on faulty logic and improper legal standards to design a plan of adjustment that favors pensioners, Kieselstein argued before Rhodes.

“We are not in a house of worship,” Kieselstein said. “There is no gospel according to Mr. Buckfire or Mr. Orr.”

The dispute between Syncora, fellow bond insurer Financial Guaranty Insurance Co. and the city is one of the last fights preventing an amicable resolution to the largest municipal bankruptcy in U.S. history.

Syncora and FGIC are fighting Detroit’s bankruptcy plan because they face massive losses after insuring a $1.4 billion debt deal brokered by Mayor Kwame Kilpatrick’s administration in 2005 to fund pension payments.

The city wants to wipe out that debt, deliver smaller cuts to pensions and green-light a $1.4 billion, ten-year reinvestment plan in services, including police, fire and blight removal.

Kieselstein said the plan unfairly gives preferential treatment to retirees over other creditors.

“This plan has epic levels of discrimination,” said Kieselstein, who repeatedly argued that the city has no business justification for, as he sees it, giving retirees a better deal than others. He also argued: “It didn’t have to be this way.”

Pensioners this summer voted in favor of Orr’s plan, which calls for general retirees to take a 4.5 percent pension cut and lose annual inflation adjustments. Retired police officers and firefighters would lose only a portion of their annual cost-of-living raise.

Kieselstein argues the grand bargain is flawed and discriminatory: Pensioners get something; other creditors get nothing.

“This is where the line is crossed, in my view,” Kieselstein argued.

Kieselstein also challenged Orr’s claim that the impact of Detroit’s bankruptcy on pensioners involves a “human dimension” — meaning the pensioners are people who did nothing wrong to deserve hardship.

Kieselstein said that theory is legally impermissible under bankruptcy law.

“Bankruptcy is sadly the land of broken promises,” he said.

Jones Day attorney Bruce Bennett defended the city’s plan as fair and said it’s imperative for the city to invest in basic services after exiting bankruptcy.

“The evidence will show that Detroit has a better future after Chapter 9,” Bennett said. “Detroit has earned this court’s help.”

Critically, Bennett said that the city’s elected officials support the plan of adjustment, despite some quibbling about the details of the reinvestment plan.

That’s crucial because Rhodes — who has the power to approve or reject the plan of adjustment following the trial — has emphasized that the city’s politicians must be committed to the plan after Orr is gone.

Mayor Mike Duggan and City Council President Brenda Jones will testify during the trial that they understand the plan of adjustment and will implement it.

But Bennett acknowledged that some changes will be necessary to accommodate for unforeseen events.

“In the future things will happen that we have not planned for,” he said, and the city “will have to adjust.”

As for Syncora’s claims that retirees are getting preferential treatment, one lawyer scoffed at that idea.

Attorney Sam Alberts, who represents the U.S. government-appointed Official Committee of Retirees, said in court Wednesday that post-bankruptcy effects will be “life-changing” for retirees and that they will face “drastic” cuts in health care benefits.

Kieselstein said the plan “unfairly discriminates, fails the best interests tests and is not fair and equitable.

He added: “This isn’t Back to the Future. Mr. Orr is not Marty McFly. He cannot pilot the DeLorean back in time,” he said in reference to the 1980s film Back to the Future.

Bennett argued that the plan of adjustment will place the city on a path to an economic recovery by restoring services and drastically reducing the city’s crushing debt load.

Bennett said the Chapter 9 restructuring would prove that Gov. Rick Snyder was correct to authorize the largest municipal bankruptcy in U.S. history.

It should “not be viewed as the lowest point in city’s history but the beginning of the city’s recovery,” Bennett said Wednesday.

AFP Photo/Bill Pugliano

Argentina Blames United States, ‘Incompetent’ Judge For Default

Argentina Blames United States, ‘Incompetent’ Judge For Default

By Sonia Avalos

Buenos Aires (AFP) — Argentina blamed the United States Thursday for the legal battle that forced it into its second default in 13 years, accusing the judge and mediator in the case of “incompetence.”

The country officially went into default Wednesday night after the failure of 11th-hour talks with two U.S. hedge funds refusing to accept a write-down on their Argentine bonds.

Argentine stocks plummeted 6.42 percent at the open Thursday, as the repercussions of the default began to set in.

Argentine President Cristina Kirchner’s cabinet chief, Jorge Capitanich, blamed the American government for the default, brought on by a U.S. court ruling that blocked Buenos Aires from servicing its restructured debt without also paying the hedge funds the $1.3 billion it owes them.

“If there’s a judge who’s an agent of these speculative funds, if the mediator is their agent, what is this justice you’re talking about? There’s a responsibility of the state here, of the United States, to create the conditions for the unconditional respect of other countries’ sovereignty,” he told a press conference in Buenos Aires.

He accused U.S. District Judge Thomas Griesa and court-appointed mediator Dan Pollack of “incompetence” and said Argentina would take the matter to international courts “to exercise its rights before the international community.”

Kirchner was due to give a nationally televised address Thursday evening.

Griesa, meanwhile, set a hearing on the case for Friday at 11 a.m., a court spokesman told AFP.

Ratings agency Standard & Poor’s had already placed Argentina in “selective default” before the unsuccessful end of Wednesday’s marathon negotiations between Argentine Economy Minister Axel Kicillof and hedge funds NML Capital and Aurelius Capital Management.

The talks’ failure caused Argentina to miss a payment of $539 million on the debt it restructured after its 2001 economic crisis.

Griesa barred the country from paying “exchange creditors” who accepted a 70-percent write-down on their bonds without also paying the so-called “holdouts” the full $1.3 billion it owes them.

Argentina says paying the holdouts could expose it to claims for up to $100 billion from exchange creditors, who are entitled to equal treatment under what is called a Rights Upon Future Offers, or RUFO, clause.

Hedge fund NML said Argentina bore full responsibility for its own default.

“During this process, the (mediator) proposed numerous creative solutions, many of which were acceptable to us. Argentina refused to seriously consider any of them, and instead chose to default,” a spokesman said.

But Argentina complained that the creditors — which bought defaulted Argentine bonds at knockdown rates, then sued for full payment — had refused to compromise.

“What we offered them in terms of profit was 300 percent. It was not accepted, because they want more, and they want it now,” Kicillof said.

The economy minister slammed S&P’s downgrade, arguing Argentina could not be regarded as being in default since the money for the repayment was in a U.S. bank account but frozen by Griesa’s court order.

“Argentina paid. It has money. It is going to continue to pay. The one who is responsible for this situation is Judge Griesa,” he said.

The Bank of New York said Thursday that it continued to hold onto Argentina’s $539-million debt payment, saying it was sitting in the U.S. bank’s account at Argentina’s central bank because of Griesa’s ruling.

– Aftershocks of 2001 –

Wall Street and the Buenos Aires stock exchange opened sharply lower Thursday following news of Argentina’s default.

Argentine stocks tumbled 6.42 percent, while the Dow Jones Industrial Average, S&P 500, and Nasdaq were also down.

Argentine press reports, however, suggested an alternative solution was being prepared in which a coalition of Argentine private banks would buy some or all of the outstanding debt.

Argentina got a show of support from French Finance Minister Michel Sapin, who said he was “extremely shocked” by the outcome of the legal battle.

“This undermines a decision taken in everyone’s interest” to restructure Argentina’s debt, he said, warning the court ruling would jeopardize future debt restructuring for countries in crisis.

Analysts have warned the default will deepen the economic malaise gripping Argentina, exacerbating its already unruly inflation — prices rose 15 percent in the first half of the year — and perhaps forcing another devaluation of the peso, already devalued 20 percent in January.

Argentina’s 2001 default on $100 billion in foreign debt, the largest in history at the time, plunged the country into an economic and social crisis it is still battling to overcome.

But the global impact of the new default will be far smaller, since Argentina has been locked out of international capital markets since its 2001 default, analysts say.

AFP Photo/Stan Honda

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Iconic Bookstore Chain Likely Headed For Liquidation

NEW YORK (AP) — Borders Group, the nation’s second largest book store chain that once operated over 1,000 stores, appears headed for liquidation after a judge on Thursday approved its motion to auction itself off with a team of liquidators as its opening bid.

The move came after an offer made earlier this month from a private-equity investor disintegrated overnight.

Borders said it will accept bids until 5 p.m. Sunday and will give notice by Monday if no other bidder emerges.

Earlier this month private-equity investor from Phoenix offered $215 million for the company, plus the assumption of $220 million in debt.

But on Wednesday, creditors objected, saying that the agreement would not prevent Najafi from taking possession of the company and liquidating it immediately for profit. Landlords also objected.

Creditors said a bid from liquidators Hilco Merchant Resources and Gordon Brothers is stronger. They believe it would pay out between $252 million and $284 million in cash.

Creditors said in a court filing that they were hopeful Najafi would submit a higher bid, but Najafi stood by its original offer.

On Thursday, Borders said it wouldn’t seek approval for Najafi’s bid at a scheduled hearing in the U.S. Bankruptcy Court Southern District of New York and designated the liquidators as the primary, or “stalking horse” bid.

Meanwhile, one analyst speculated that if Borders liquidates, that could spark a higher bid for its chief rival Barnes & Noble. Financier John Malone’s Liberty Media made a $1 billion offer to buy Barnes & Noble in May.

Liberty Media has said it values Barnes & Noble for both its Nook e-reader business and its retail stores, so a full liquidation of Borders would increase the value of the retail side of the business, Janney Capital Markets analyst David Strasser said.

“This is perhaps an opportunity for a higher negotiated bid via Liberty or an entrance of another bidder,” he wrote in a note.

Borders Group Inc., based in Ann Arbor, Mich., filed for bankruptcy protection in February. The company started with a single store in 1971, and helped pioneer the book superstore concept along with larger rival Barnes & Noble Inc. It was brought down by heightened competition by discounters and online booksellers, as well as the growth in popularity of electronic books. It currently operates about 400 stores, down from its peak in 2003 of 1,249 Borders and Waldenbooks, and has about 11,000 employees.

Copyright 2011 The Associated Press.