, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Wall Street’s Toxic Exports

Evil Wall Street Exports Boomed With `Fools’ Born to Buy Debt Tom Bosh lowered the telephone receiver into its cradle, making a decision on the way down. “We’re not buying any more,” he told his traders at Bank of New York Co. “Nothing.”

Lehman’s Toxic Debt Advice Led Leipzig Bank to Ruin Via Dublin Fund Teachers at the Clara Zetkin Middle School in Freiberg, Germany, were counting on a budget surplus to ease staff shortages across the state of Saxony.

Mizuho $7 Billion Loss Turned on Toxic Aardvark Made in America Alexander Rekeda, a 34-year-old Ukrainian-born math whiz, turned in his BlackBerry and security card and sent an e-mail to his bosses at Calyon, the investment- banking unit of Credit Agricole SA. Then, along with ten colleagues from the New York structured-finance team, who fired off similar messages, he walked two blocks down the Avenue of the Americas to Mizuho Financial Group Inc.

Greenspan Slept as Off-Balance-Sheet Toxic Debt Evaded Scrutiny As George Miller welcomed 60 bankers to the chandeliered Charlotte City Club one evening in September, the focus was on more than the recent bankruptcy of Lehman Brothers Holdings Inc. From their 31st-floor perch, members of the American Securitization Forum, which Miller leads, fretted about the future of their $10.7 trillion industry.






The changes proposed on March 16 to fair-value, also known as mark-to-market accounting, would allow companies to use “significant judgment” in valuing assets and reduce the amount of writedowns they must take on so-called impaired investments, including mortgage-backed securities. A final vote on the resolutions, which would apply to first-quarter financial statements, is scheduled for April 2.

FASB’s acquiescence followed lobbying efforts by the U.S. Chamber of Commerce, the American Bankers Association and companies ranging from Bank of New York Mellon Corp., the world’s largest custodian of financial assets, to community lender Brentwood Bank in Pennsylvania. Former regulators and accounting analysts say the new rules would hurt investors who need more transparency, not less, in financial statements.

Officials at Norwalk, Connecticut-based FASB were under “tremendous pressure” and “more or less eviscerated mark-to- market accounting,” said Robert Willens, a former managing director at Lehman Brothers Holdings Inc. who runs his own tax and accounting advisory firm in New York. “I’d say there was a pretty close cause and effect.”

Willens, investor-advocate groups including the CFA Institute in Charlottesville, Virginia, and former U.S. Securities and Exchange Commission Chairman Arthur Levitt oppose changes that would enable banks to put off reporting losses.

Fair-value requires companies to set values on most securities each quarter based on market prices. Banks argue that the rule doesn’t make sense when trading has dried up because it forces them to write down assets to less than they’re worth.

“Mark-to-market is fundamentally not about a quote on a screen,” Richard Kovacevich, chairman of San Francisco-based Wells Fargo & Co., said in a March 13 speech.

Conrad Hewitt, a former chief accountant at the SEC who stepped down in January, said representatives from the ABA, American International Group Inc., Fannie Mae and Freddie Mac all lobbied him over the past two years to suspend the fair- value rule.

Executives “would come to me in the afternoon with the argument, ‘You’ve got to suspend it,’” Hewitt said in a March 25 interview. The SEC, which oversees FASB, would reject their demands, and “the next morning their lobbyists would go to Congress,” he said.

AIG’s near-collapse in September prompted a $182.5 billion government rescue of what was once the world’s largest insurer.
Earlier that month, the Federal Housing Finance Agency put Fannie Mae and Freddie Mac under its control after the worst housing slump since the Great Depression threatened the survival of the mortgage-finance companies.

Banks and insurers wanted to value securities at prices they bought them for, Hewitt said. His response: “If you carry them at 100 percent of what your purchase price was and they are worth 50 percent, is that fair to the investor?”

Hewitt said nothing the SEC and FASB did curtailed the lobbying by financial companies, including issuing guidelines on how to price assets when no market exists and conducting a congressionally mandated study of fair-value accounting.

“I don’t think there was anything that would have pacified them,” short of a suspension, he said.


Efforts to change accounting rules continued after the election of President Barack Obama. Bank of New York Chief Executive Officer Robert Kelly spoke with Gary Gensler, a Treasury official during the Clinton administration who was asked by the transition team to evaluate the SEC. Kelly said in an interview that while he opposes suspending mark-to-market accounting, he discussed with Gensler ways to lessen its impact. Gensler, who has since been nominated to chair the Commodity Futures Trading Commission, declined to comment.

Bank of New York would be one of the biggest beneficiaries of FASB’s proposed changes, said Jeff Davis, director of research at Chicago-based brokerage Howe Barnes Hoefer & Arnett. The company’s earnings were reduced by $1.6 billion last year from writedowns for mortgage-backed securities, according to its annual report. The bank, which said it expects to ultimately lose about $535 million on the assets, blamed the disparity on “market illiquidity.”

The political action committees of banks including Citigroup, Bank of America, Bank of New York Mellon, Wells Fargo and banking trade groups contributed money to Kanjorski’s re- election campaign last year, according to the Federal Election Commission. Citigroup gave $6,500, Bank of America $7,000, Bank of New York $8,000 and Wells Fargo $13,000.

Three days before the hearing, 31 financial-industry groups sent a letter to committee chairman Barney Frank and Alabama Representative Spencer Bachus, the panel’s ranking Republican, emphasizing “the need to correct the unintended consequences of mark-to-market accounting.” The organizations included the ABA, the National Association of Realtors and the 12 Federal Home Loan banks, the government-chartered cooperatives owned by U.S. financial companies.

Also endorsing the letter was the Pennsylvania Association of Community Bankers. Thomas Bailey, the group’s chairman and CEO of Brentwood Bank in Bethel Park, Pennsylvania, told the subcommittee that using fair-value accounting “in these times, is much like throwing gasoline on a raging inferno.”

Among the banks most negatively affected by unrealized losses are Wells Fargo, PNC Financial Services Group Inc. in Pittsburgh, Minneapolis-based U.S. Bancorp and M&T Bank Corp. in Buffalo, Robert W. Baird & Co. analyst David George wrote in a March 20 note to clients.

To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
Last Updated: March 29, 2009 20:01 EDT



Addressing misconceptions that mark to market is a broadly applied rule, Herz explained that so called mark to market accounting generally only applies to trading accounts and derivatives that don`t qualify as hedges.

Herz clarified that the use of fair value for measurement depends on both the
nature of a financial asset and its intended use by an institution. Herz added
that current financial reporting in the U.S. and elsewhere across the world
included the use of both fair value and historical cost.

[ . . . ]

The fact that fair value measures have been difficult to determine for some illiquid instruments is not a cause of current problems but rather a symptom of the many problems that have contributed to the global crisis– including lax and fraudulent lending, excess leverage, the creation of complex and risky investments through securitization and derivatives, the global distribution of such investments across rapidly growing unregulated and opaque markets lacking a proper infrastructure for clearing mechanisms and price discovery, faulty ratings, and the absence of appropriate risk management and valuation processes at many financial institutions, Herz said.



The funny thing is banks don’t mark most of their balance sheets to market prices.

Still, many want the FASB to allow them to massage the marks they do take.

That would be in keeping with banks’ preference to use prices based on their own views of value, which often overlook the consequences of shoddy lending.

Investors have given up on that approach. A March 24 report from Goldman Sachs Group Inc. analyst Richard Ramsden shows why. He estimated that Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. are all carrying commercial mortgages at 100 percent of face value.

Yet commercial mortgages may be the next shoe to drop for banks. “Commercial credit losses are likely to be quite onerous during 2009,” Friedman Billings Ramsey Group Inc. analyst James Abbott wrote in a report this week. These losses “will be significantly larger than what most are expecting.”


The FASB’s proposal makes it more likely banks will argue these sales don’t represent market values they have to use. In that case, banks may be able to use the Treasury program to cherry-pick values they like while disregarding those that would cause balance-sheet pain.

The FASB’s mission is to craft rules that give investors clear, relevant financial information. Its latest proposals are nothing more than sops to the banks.

If adopted, they will only confirm for investors that markets are now a rigged game.

(David Reilly is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: David Reilly at dreilly14@bloomberg.net
Last Updated: April 1, 2009 00:01 EDT



The commercial real estate market is now in a full-fledged tail spin. According to Real Capital Analytics, U.S. commercial real estate prices are falling at a similar rate to residential, down about 17 percent year over year. The reason is that $1.8 trillion of loans were originated in the U.S. between 2000 and 2007, with the most rapid growth taking place in 2005, 2006 and 2007. Roughly half of that debt was originated during 2004 and 2008, some of the worst years in terms of deterioration in underwriting standards. That debt is starting to come due right now, and there may not be enough new lending capacity to absorb it all.

Many lenders are playing a game of wait and see with maturing loans by automatically granting one-year extensions in the hopes that debt markets will miraculously recover in 12 months. This has been almost standard procedure in the CMBS market, where maturing loans are being extended and placed into special servicing:

Approximately 80% of new 2008 loans were originated simply to refinance existing maturing mortgages, compared with just 35% from 2000 through 2007. This trend will only increase as record numbers of 2005-2007 vintage commercial mortgages begin to mature in 2010.

In 2009 alone, Foresite Analytics estimates that $250 billion of commercial and multifamily mortgages will mature. This is an all-time high for the real estate debt industry, but the record won’t last long. Over the next two years, $594 billion of commercial real estate loans will mature as aggressively underwritten 2006 and 2007 vintage loans come due. That is on top of $220 billion of multifamily mortgages scheduled to mature:

[Excerpted From:]

Tuesday, March 31, 2009
Dead on Arrival: Geithner’s Plan Can’t Stop The Tidal Wave of Commercial Mortgage Maturities



L’indéfendable Sir Fred

“C’est l’affaire du Lyonnais multipliée par cent”, souligne un banquier français de la place à propos de l’effondrement de la Royal Bank of Scotland, sauvée de justesse de la banqueroute en octobre 2008 par une monumentale aide de l’Etat, 46 milliards de livres sterling en aides directes. La comparaison avec le scandale français des années 1990 est, à bien des égards, justifiée. On retrouve les mêmes ingrédients : expansion échevelée au-delà du métier de la banque commerciale, absence de contrôles des administrateurs, laxisme des autorités de tutelle, arrogance et mégalomanie d’un PDG méprisant. Certes, à l’inverse de Jean-Yves Haberer, Fred Goodwin, expert-comptable de profession, n’est pas un haut fonctionnaire égaré dans le monde de la haute finance. Et il n’a pas dissimulé une partie des pertes pour embellir son bilan à la tête de la seule véritable banque écossaise, fondée à Edimbourg en 1727.


Même après sa chute, Sir Fred continue d’inspirer la crainte dans le milieu financier local. Paradoxalement, malgré sa détestable réputation, Fred-le-Maudit a gardé l’estime de ses pairs. “Plus fonceur que tacticien, il a certes commis une grave erreur stratégique, mais il était impossible pour lui de juger des risques systémiques, de la complexité du bilan d’ABN Amro. Si Barclays avait gagné, elle serait également ruinée aujourd’hui”, souligne Gavin Kretzschmar, professeur de finance à la Business School de l’université d’Edimbourg.




Commercial Mortgage Outlook: Growing Pains in Mortgage Maturities

The commercial real estate debt market faces a looming challenge in the form of rising maturities. Rapid growth in the mortgage market during the last eight years has created what will be record volumes of maturing mortgages, at a time when capital has become constrained. Falling valuations and a weaker economy will likely put further pressures on this market.

This report examines our estimates for maturities of commercial and multifamily mortgages, and our outlook for where the market is headed.

To order the report click here.


Commercial and Multifamily Mortgages Coming Due 2009 - Federal Reserve - Foresight Analytics

Commercial and Multifamily Mortgages Coming Due 2009 - Federal Reserve - Foresight Analytics

Press Release

Title: $171 Billion of Non-bank Commercial/Multifamily Mortgages Maturing in 2009; Significant Differences by Investor Group
Source: MBA
Date: 2/9/2009

San Diego, CA (February 9, 2009) – The Mortgage Bankers Association (MBA) today released the results of its new Commercial Real Estate/Multifamily Survey of Loan Maturity Volumes that reports $171 billion of commercial/multifamily mortgages held by non-bank lenders and investors will mature in 2009. According to the survey, the volume of loans maturing varies considerably by the type of investor holding the loan.Short-term floating-rate mortgages in commercial mortgage-backed securities (CMBS) and mortgages held by credit companies, warehouse facilities and other investors are more likely to mature in 2009 and 2010 than are fixed-rate CMBS mortgages, mortgages held by life insurance companies or multifamily mortgages held or guaranteed by Fannie Mae, Freddie Mac or FHA. $120 billion of non-bank commercial/multifamily mortgages are scheduled to mature 2010.

“Substantial concerns have been raised about the volume of mortgages maturing in the face of the current credit crunch,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “This study shows that while the dollar volume of maturing non-bank mortgages represents only one-tenth of the total outstanding balance, it is not evenly spread across investor and lender groups. While some parts of that system – such as floating-rate CMBS and credit companies, warehouse facilities and other investors – face a significant volume of near-term loan maturities, others – including fixed-rate conduit CMBS, life insurance companies, Fannie Mae, Freddie Mac and FHA – do not.”

“Across all these investor groups, commercial/multifamily lenders and servicers have a wide variety of tools to help them deal with maturing mortgages, which should mitigate – but not eliminate – the impact of maturities in 2009,” added Woodwell. “To the degree mortgages are extended into out years, however, there is an increased consequence should the markets not be functioning in 2010, 2011 or beyond.”

MBA’s survey on commercial/multifamily loan maturities collected information on the maturity dates of more than $1.7 trillion in outstanding mortgages, including $1.55 trillion of non-bank commercial/multifamily holdings.

Investor groups’ maturity schedules are generally designed to match their liabilities, and most investor groups have considerable discretion in how they deal with loans that may not be able to immediately refinance at maturity. Of the total non-bank holdings of commercial/multifamily mortgages coming due in 2009, 52.8 percent is in CMBS, CDOs or other ABS, and an additional 33.6 percent is held by credit companies, warehouse facilities or other investors. Only 9.8 percent of the non-bank mortgages maturing in 2009 are held by life insurance companies, and 3.8 percent are held or guaranteed by Fannie Mae, Freddie Mac or FHA.

Even within an individual investor group there are significant variations. It is important to note that a significant share of CMBS loans maturing in the next two years are floating-rate loans, which tend to have larger balances and to be shorter-term in nature. According to data from RBS Greenwich Capital, $31 billion of the current balance of CMBS loans maturing in 2009 is in floating rate loans. These floating-rate loans tend to have extension options built into them, and according to RBS, only $1.9 billion of the floating rate loans maturing in 2009 have exhausted these options. An additional $19 billion of the balance is fixed-rate loans in conduit/fusion CMBS deals. The CMBS, CDO and other ABS loans categorized in the MBA report also includes B-notes, privately-issued CMBS, mezzanine and other loans that are related to the CMBS market but may not be a part of a publicly issued commercial mortgage-backed security.

For members of the media, to review the report, please contact jvasquez@mortgagebankers.org.

To purchase a copy of the report, please visit http://store.mortgagebankers.org/ProductDetail.aspx?product_code=EC6-300016-RP-P.


The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry, an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in Washington, D.C., the association works to ensure the continued strength of the nation’s residential and commercial real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees through a wide range of educational programs and a variety of publications. Its membership of over 2,400 companies includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit MBA’s Web site: www.mortgagebankers.org.


New Crunch Ahead— $171B of Non-Bank Commercial and Multifamily Loans Mature This Year

Posted by Alex Finkelstein 02/10/09 12:47 PM EST

Author Bio | Archives

(SAN DIEGO, CA)–A new crisis is imminent for the commercial real estate industry, reports the Mortgage Bankers Association.

A ton of new mortgage loans is maturing this year—$171 billion of non-bank commercial and multifamily loans, to be exact.

Another $120 billion is scheduled to mature in 2010.



House Committee on Financial Services

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The House Committee on Financial Services (or House Banking Committee) oversees the financial services industry, including the securities, insurance, banking, and housing industries. The Committee also oversees the work of the Federal Reserve, the United States Department of the Treasury, the U.S. Securities and Exchange Commission, and other financial services regulators. It is chaired by Barney Frank (D-MA) and the ranking Republican is Spencer Bachus (R-AL).

Member ↓ Party ↓ State ↓
Barney Frank D MA
Paul Kanjorski D PA
Maxine Waters D CA
Carolyn Maloney D NY
Luis Gutierrez D IL
Nydia Velazquez D NY
Melvin Watt D NC
Gary Ackerman D NY
Brad Sherman D CA
Gregory Meeks D NY
Dennis Moore D KS
Michael Capuano D MA
Ruben Hinojosa D TX
William Lacy Clay D MO
Carolyn McCarthy D NY
Joe Baca D CA
Stephen Lynch D MA
Brad Miller D NC
David Scott D GA
Al Green D TX
Emanuel Cleaver D MO
Melissa Bean D IL
Gwen Moore D WI
Paul Hodes D NH
Keith Ellison D MN
Ron Klein D FL
Charles Wilson D OH
Ed Perlmutter D CO
Joe Donnelly D IN
Bill Foster D IL
Andre Carson D IN
Jackie Speier D CA
Travis Childers D MS
Walt Minnick D ID
John Adler D NJ
Mary Jo Kilroy D OH
Steven Driehaus D OH
Suzanne Kosmas D FL
Alan Grayson D FL
Jim Himes D CT
Gary Peters D MI
Dan Maffei D NY
Spencer Bachus R AL
Mike Castle R DE
Peter King R NY
Edward Royce R CA
Frank Lucas R OK
Ron Paul R TX
Donald Manzullo R IL
Walter Jones R NC
Judy Biggert R IL
Gary Miller R CA
Shelley Moore Capito R WV
Jeb Hensarling R TX
Scott Garrett R NJ
Gresham Barrett R SC
Jim Gerlach R PA
Randy Neugebauer R TX
Tom Price R GA
Patrick McHenry R NC
John Campbell R CA
Adam Putnam R FL
Michele Bachmann R MN
Kenny Marchant R TX
Thaddeus McCotter R MI
Kevin McCarthy R CA
Bill Posey R FL
Lynn Jenkins R KS
Chris Lee R NY
Erik Paulsen R MN
Leonard Lance R NJ



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Previous committee membership

110th Congress (2007-2008)

Members of the
House Committee on Financial Services,
110th Congress
Democrats: Republicans:


Subcommittee on Domestic and International Monetary Policy, Trade, and Technology

Members of the
Subcommittee on Domestic and International Monetary Policy, Trade and Technology,
110th Congress
Democrats: Republicans:

109th Congress (2005-2006)

Members of the
House Committee on Financial Services,
109th Congress
Democrats: Republicans:

Articles and Resources

Wikipedia also has an article on House Committee on Financial Services. This article may use content from the Wikipedia article under the terms of the GFDL.




House Committee on Finacial Services
2129 Rayburn HOB
Wasshington DC 20515
phone: (202) 225 7502

Committee Web site

  • Majority staff director – (202) 225-7502
  • Minority staff director – (202) 225-4247

“There’s a certain self-consciousness now that we may be part of the problem,” Lataif said. “There’s a lot more to education than learning how to read balance sheets. Maybe a piece of what’s missing is not another course in ethics but the ability to think beyond the data and take action based on good instincts.”

Harvard business degrees are now “scarlet letters of shame,” wrote Philip Delves Broughton, a 2006 graduate of the school, in a March 1 column in the Sunday Times of London. “Time after time and scandal after scandal, it seems that a school that graduates just 900 students a year finds itself in the thick of it.”

Harvard Business School, founded 101 years ago, has more than 200 faculty members and almost 1,800 students seeking master’s degrees in business administration.

Errors in Judgment

Many of the graduates involved in failures attended the school 20 or 30 years ago, before classes on risk management, macroeconomics and leadership were required, Kester said.


Thain Ousted

Under O’Neal, who graduated in 1978, Merrill Lynch lost more than $30 billion before its takeover by Charlotte, North Carolina-based Bank of America Corp. Thain, O’Neal’s successor who graduated in 1979, was ousted after spending $1.2 million to renovate his office. General Motors Corp., based in Detroit, has fallen more than 90 percent in New York trading from its peak during the tenure of Wagoner, a 1977 Harvard Business School graduate who was resigned on March 29 under pressure from U.S. President Barack Obama.

Cox headed the SEC from 2005 until January this year, as the agency failed under his watch to investigate Bernard Madoff’s fraud. Cox graduated from Harvard Business School in 1977.

While the school may bear a measure of responsibility for the graduates’ decisions, “there’s plenty of blame to spread around,” said W. Carl Kester, the deputy dean of academic affairs.

To contact the reporter on this story: Oliver Staley in New York at ostaley@bloomberg.net.
Last Updated: April 2, 2009 00:00 EDT



 In response to the current challenging market conditions and feedback from a
wide array of investors and constituents-including the SEC-- the FASB recently
announced projects intended to improve the application guidance used to
determine fair values as well as improving disclosures in financial reports.
(http://www.fasb.org/news/nr021809.shtml ). Earlier in the crisis, the FASB and
SEC jointly issued new guidance on the application of fair value in illiquid
markets. (http://www.fasb.org/news/2008-FairValue.pdf ) 


Bailed-out banks eye toxic asset buys

Purchases would test public opinion

Bailed-out banks eye toxic asset buys

By Francesco Guerrera in New York and Krishna Guha in Washington

Published: April 2 2009 23:20 | Last updated: April 2 2009 23:57

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.

The plans proved controversial, with critics charging that the government’s public-private partnership – which provide generous loans to investors – are intended to help banks sell, rather than acquire, troubled securities and loans.



Station Casinos: Bankruptcy date depends on bondholders
In court filing, company fights injunction sought by bondholder

Station Casinos is the dominant locals gaming company with properties such as Red Rock Resort, Green Valley Ranch Resort, two Fiestas and the Sunset, Boulder, Palace, Santa Fe and Texas Station properties. Aliante Station is shown here.

Published Wed, Mar 18, 2009 (2 a.m.)

Updated Wed, Mar 18, 2009 (6:58 p.m.)

Station Casinos Inc. executives moved Wednesday to clarify when the company may file for bankruptcy protection, saying there’s no assurance the filing will be made on or before April 15 as suggested in a court filing.

Scott Nielson, executive vice president and chief development officer, said the plan for Station to file for bankruptcy on or before April 15 mentioned in court papers would only kick in if Station reaches agreement with major bondholders on a plan for Station to file a prepackaged bankruptcy petition.

He said that if an agreement is not reached with the bondholders by an April 10 deadline, a forbearance agreement now in affect through April 15 could be extended so negotiations could continue. If the forbearance agreement is extended, Station has sufficient cash and cash flows to maintain operations after April 15, he said.

Another option, one not favored by Station, is for the company to make a regular Chapter 11 filing. That could happen if an agreement with bondholders is not reached.

One of the reasons the prepackaged bankruptcy is being sought by Station is because it would leave Station’s operations running normally with little or no affect on customers, employees and vendors, Nielson said.

In the meantime, he said, Station executives and employees continue working “to provide the best guest experience possible.”

As first reported by the Sun, the April 15 date was mentioned in court papers filed Monday by Station opposing a motion for a court injunction sought by a bondholder who is seeking to block the debt-exchange, a key part of the pre-packaged bankruptcy petition that includes a cash infusion of $244 million by Station owners the Fertitta family and Colony Capital.

Boyd Gaming Corp., in the meantime, has been taking its case to buy all or part of Station directly to bondholders after it was rebuffed by Station.

With its revenue and cash flow hurt by the recession, Station has proposed the prepackaged Chapter 11 bankruptcy reorganization because of its inability to keep up with debt payments. In all, it’s trying to restructure more than $5 billion of debt.

In U.S. District Court in Las Vegas, bondholder S. Blake Murchison is represented by class-action securities lawyers who are seeking an injunction to block the exchange offer in which Station would reduce its debt by exchanging $2.3 billion in bonds for cash and notes at exchange rates of 10 cents to 50 cents on the dollar, depending on the class of bond held. The deal is aimed at saving the company some $100 million per year in interest costs.

The bottom line, Murchison argues, is that the exchange offer will improperly subordinate existing bonds during a Station bankruptcy and that only certain classes of bondholders are allowed to vote on the deal.

Station, however, argues Murchison’s case is without merit because all note holders will receive the same payment for their classes of bonds, regardless of whether they are allowed to vote on the exchange offer.

In court papers, Station called Murchsion a “gadfly” who is represented by securities lawyers in also suing Harrah’s Entertainment Inc. over a Harrah’s debt-exchange deal.

Station said the debt-exchange and reorganization plan should move forward for the good of the Las Vegas community, where Station is the dominant locals gaming company with properties such as Red Rock Resort, Green Valley Ranch Resort, two Fiestas and the Sunset, Boulder, Palace, Santa Fe, Texas and Aliante Station properties.

“To the extent that plaintiff believes there is something improper about the prepackaged bankruptcy plan that Station is pursuing, he may pursue his rights with all other creditors in the bankruptcy case (which Station expects to file on or before April 15),” Station said in court papers opposing the injunction.

“Plaintiff’s motion is an attempt by a single bondholder (represented by a prominent class action law firm) to gain leverage by acting as the ‘fly in the ointment’ and seeking to halt the efforts of Station to restructure its business in a manner designed to minimize the costs and business interruption that would be caused by a lengthy bankruptcy case,” Station argued, adding a prepackaged bankruptcy is a more efficient way for it to restructure its debt.

Station said it “will be irreparably harmed if the injunction is granted.”

“Station will, in effect, be stripped of the ability to pursue a prepackaged bankruptcy plan and will be forced to commence its Chapter 11 case immediately. Station will lose the ability to streamline the restructuring proceedings. And Station’s creditors, employees and the local community will suffer immensely as a result,” Station said in its motion opposing the injunction.

“The public interest is particularly compelling here. In this economic environment, which has hit Las Vegas particularly hard, the public interest strongly favors an expeditious restructuring,” said Station’s motion.

“Station employs over 13,000 people and plays an important social and economic role in the local community. There is no reason to needlessly jeopardize the economic health of this company and its various constituencies so that a single bondholder can pursue spurious claims outside of the established restructuring process.”

Station also filed a declaration by General Counsel Richard Haskins saying that the institutional holders of bonds that are voting on the Chapter 11 reorganization plan represent, among the note holders, a super-majority in interest and a majority in number.

Station is represented in the suit by attorneys Todd Bice and Debra Spinelli of the Las Vegas law firm Brownstein Hyatt Farber Schreck; and by Jerry Marks and Daniel Perry of the Los Angeles firm Milbank, Tweed, Hadley & McCloy.

Steve Green can be reached at 990-7714 or steve.green@hbcpub.com.





CityCenter contingency plan emerges; investor shows interest
Wed, Apr 1, 2009 (4:23 p.m.)
The drama surrounding the financially troubled CityCenter project has thickened, with a major investor interested in the $8.7 billion project and MGM Mirage disclosing a contingency plan should CityCenter seek bankruptcy protection.



My note –

Where did the idea come about that if businesses and banks can simply price assets in an arbitrary fashion on their balance sheets or keep them off their balance sheets altogether, that the actual risk wouldn’t exist?

That is the core of the “fantasmagorical” thinking that has resulted in MBAs that aren’t analyzing  and responding to reality appropriately. How do you fix that?

It seems that they’ve been led to believe that as long as everyone believes it is so – then there is no problem and it is so. Who taught them that?

Why didn’t they ever realize the faultiness of that thinking and what the results would naturally be as a consequence, foolishly or smartly applied?

What will it take to convince our decision-makers in the business and political arenas that reality is what it is whether they believe it or not?

– cricketdiane, 04-03-09