Wednesday, April 15, 2009

Analyst: GM bankruptcy risk increases

Washington -- The odds of General Motors Corp.'s filing for bankruptcy protection have increased, JPMorgan Chase said in a research report Monday.

One big factor is the government's $13.4 billion in loans to GM, which also may have to be restructured -- along with $28 billion held by GM's bondholders and $20 billion in obligations to the United Auto Workers.

"If the government has now truly realized that it will eventually have to 'restructure' its own loans to GM (similar to Citi or AIG), a bankruptcy may be much more politically necessary (i.e. judge-imposed changes to the government's claims would be politically less painful)," wrote Himanshu Patel, an auto analyst for JPMorgan.



GM has been planning for weeks for a possible bankruptcy filing if it can't meet a June 1 deadline to win tough concessions from its bondholders and the United Auto Workers union demanded by the Obama administration's auto task force.

GM's president and CEO Fritz Henderson said last week that the company is preparing for a bankruptcy filing if necessary but said the company's preference is to win needed concessions outside of bankruptcy court. Earlier this month, Henderson said bankruptcy is now "more probable."

"If it can't be done outside of a bankruptcy process, it will be done within it," Henderson said.

GM's stock was off sharply in early trading Monday.

One big issue is how much GM's creditors and bondholders could delay the company's exit from a quick bankruptcy under Section 363 of the bankruptcy code. That allows for an asset sale that would let the government split the healthy parts off from the rest of the company.

One scenario under consideration would be to split the Detroit automaker into a "good" and "bad" company -- allowing the good part of the automaker -- assets like Chevrolet, Buick and Cadillac -- to emerge within a month, while the rest of the company could remain in bankruptcy for an extended period.

GM plans to unveil a harsher offer to its bondholders this week than the one it proposed last month. This new offer could be as little as 20 percent of GM's equity, versus an offer last month of 8 cents on the dollar, 16 cents of new debt and up to 90 percent of GM's equity.

"This development makes us think that a bankruptcy is more likely," Patel wrote of the new harsher offer.

Patel said he is expecting a harsher offer to the UAW as well. GM had reportedly proposed last month to the UAW it accept $10 billion in preferred stock with a 9 percent interest rate and $10 billion in cash over 20 years.

Ford Motor Co. -- which hasn't accepted government loans -- recently won a deal to restructure its UAW health care trust fund with $6 billion in cash and the remaining $7 billion in Ford stock or cash. But Ford has said if GM or Chrysler get further concessions from the UAW, the Dearborn automaker expects it would receive the same deal.

Source:http://www.detnews.com/article

LIN TV, Belo May Breach Loan Pacts as Cash Declines

April 14 (Bloomberg) -- LIN TV Corp. and Belo Corp., their cash flows declining as ad sales drop, risk breaching loan agreements this year and face higher bank fees and interest to renegotiate the deals.

Broadcasters may violate loan covenants if earnings-to-debt ratios fall below minimum levels set in credit agreements, said Neil Begley, a bond analyst with Moody’s Investors Service. To amend the loans, the broadcasters may be required to pay fees and higher interest, using up more cash, he said.

“They’re going to have to duke it out with the banks,” Begley said in an interview. If earnings for TV broadcasters “keep getting worse, you’ll probably see a lot of restructurings,” he said.

Revenue at independent or non-network-owned chains such as LIN and Belo has plummeted as the global recession chokes consumer spending. Automotive advertising was off as much as 40 percent in the fourth quarter, broadcasters reported. Auto commercials made up as much as a fourth of ad sales for TV companies, said Barry Lucas, an analyst with Gabelli & Co. in Rye, New York.

“Until domestic auto revenue starts improving, it’s hard for these companies to do a lot better,” Lucas said in an interview.

Belo and LIN own or operate 47 TV stations. Belo says its stations reach 14 percent of U.S. households with televisions. LIN says its broadcasts reach 9 percent. Providence, Rhode Island-based LIN’s biggest markets are Dallas-Fort Worth, Indianapolis and San Diego. Dallas-based Belo’s major markets are Dallas-Fort Worth, Houston and Phoenix.

‘Remain Compliant’

LIN “expects to remain compliant” with its covenants, while “preparing to seek an amendment if we deem it necessary,” Chief Financial Officer Richard Schmaeling said in an interview. Belo renegotiated terms in February, with a goal of not having to seek further relief. “We hope that’s the case,” Belo spokesman Paul Fry said in an interview.

Belo’s debt totaled $1.09 billion at the end of 2008, while LIN’s amounted to $743.4 million, according to regulatory filings. Bank loans are a portion of the debt. The totals are used to calculate leverage ratios. The ratio is the company’s debt divided by its earnings before interest, taxes, amortization and depreciation, or Ebitda. The allowable ratio is set in negotiations between the companies and their lenders.

Companies that violate covenants and fail to secure waivers on the bank loans may face default. New York-based Young Broadcasting Inc., owner of 10 stations, filed for bankruptcy protection in February after missing interest payments.

Distressed Debt Exchanges

Broadcasters may turn to what Begley called “distressed debt exchanges” to stay within the leverage ratios of their loan agreements.

One debt exchange is known as PIK, or payment-in-kind, which provides investors with bonds or preferred stock, not cash. Nexstar Broadcasting Group Inc., the Irving, Texas-based owner of 32 stations, exchanged as much as $143.6 million of 7 percent notes for $142.3 million in PIKs, according to a March 30 statement.

“PIKs are a way for companies to save cash during a downturn,” said Shelly Lombard, a high-yield bond analyst with New York-based Gimme Credit.

Nexstar’s debt exchange provided “immediate covenant relief,” Moody’s said in a report April 2. The company still needs to secure an amendment to its loan agreements or risk a breach, according to Moody’s, citing the decline in ad spending. Nexstar had no comment, according to Joe Jaffoni, an outside spokesman for Nexstar at Jaffoni & Collins Inc.

‘Relief’ at Gray

Gray Television Inc., the Atlanta-based operator of 36 stations, won “relief” from pressure on its debt covenant this year when it amended its credit facility at the end of March, Moody’s said in a report April 1.

Gray, which has suspended cash dividends, was required to pay higher fees and accepted restrictions on borrowing and capital spending in exchange for an increase in the leverage ratio from its banks, according to a March 31 regulatory filing.

LIN has “an increased likelihood of bumping against its covenants” in the second half of 2009, said Jonathan Levine, a Stamford, Connecticut-based analyst with Jefferies & Co. “They would probably go to their banks to get a waiver and amendment to give them some flexibility.”

The banks might require an increase of two to four percentage points in the interest rate on LIN’s debt if they grant a waiver, Levine estimated in a report.

LIN’s Ebitda fell 11 percent in the fourth quarter to $32.9 million. Cash and short-term investments tumbled by half to $20.1 million from a year earlier.

‘Terms Aren’t Cheap’

“We have been consulting with our financial advisers,” LIN CFO Schmaeling said in an interview. “When you look at the amendments that are getting done in the marketplace now in our space, those revised terms aren’t cheap.”

At the end of 2008, the company had $135 million outstanding on its revolving credit facility and $78 million outstanding on its term loan, Schmaeling said.

“If things don’t improve, we have further cost-reduction actions we can put in place,” Schmaeling said. He declined to give details.

‘More Prolonged’ Downturn

Moody’s cited the possibility of a Belo default when it lowered ratings on $642 million in debt on March 4. A “more prolonged advertising downturn than anticipated” may prevent Belo from meeting covenants by the end of 2009, Moody’s said.

Belo’s Ebitda dropped 13 percent in the fourth quarter to $73.1 million. Cash and short-term investments fell 48 percent.

“In our current round of negotiations with the banks, we tried to get terms that will prevent us from going back to them,” Belo spokesman Fry said.

Belo won an increase in its maximum leverage ratio to 6.25- to-1 from 5.75-to-1 in February, according to a regulatory filing. The window narrows to 6-to-1 in July 2010, 5.75-to-1 on Sept. 30 and 5-to-1 on Dec. 31, Belo said in the March 2 filing. The company reported $437 million in a revolving credit facility at the end of 2008, according to the filing.

Ad sales may rebound next year from the 2010 Winter Olympics and political spending for U.S. congressional, state and local elections, said James Goss, an analyst with Barrington Research in Chicago.

“The question is, can they make it through 2009 so they can get the bump in earnings from political advertising revenue in 2010?” said Jefferies & Co.’s Levine.

Belo, whose shares plunged 91 percent in the past 12 months, climbed 9 cents, or 11 percent, to 90 cents at 4 p.m. in New York Stock Exchange composite trading. LIN declined 14 cents, or 8.6 percent, to $1.49. LIN shares lost 85 percent in the past year.

source:
http://www.bloomberg.com/apps/news

Wednesday, April 1, 2009

Predatory payday lenders target Black and Latino communities

Original source: southernstudies.org

As the misdeeds of major financial institutions continue to make the headlines, it should be no surprise to find out the many ways people have been cheated by financial institutions at the community level. The controversial practice known as "payday lending" is one of the most egregious examples. The process gives cash-strapped consumers an advance -- with exorbitant interest rates -- on their paychecks. For years consumer advocates have pushed for more regulations on the payday loan industry, arguing that these firms are in fact predatory lenders that trap the working poor in a cycle of debt.

Now a new study released today by the North Carolina-based research nonprofit Center for Responsible Lending found that race and ethnicity is the leading factor in determining payday lender locations. In essence that means minority communities are the largest targets of these predatory lending operations.

Payday loan stores are nearly eight times more concentrated in California's African-American and Latino neighborhoods as compared to white neighborhoods, draining these communities of some $250 million in payday loan fees annually, according to the new CRL study. Even after accounting for factors like income, education and poverty rates, CRL still found that these lenders are 2.4 times more concentrated in African-American and Latino neighborhoods.

Putting a cap on the industry

The payday lending firms claim they are providing a needed, short-term service to the working poor. But studies have shown that every year payday lenders strip $4.2 billion in excessive fees from Americans who think they're getting a two-week loan and end up trapped in debt. Borrowers end up paying more in interest - at annual rates of 400 percent (about 20 times the highest credit card rates) - which is much more than the amount of the loan they originally borrowed.

The good news is that state legislatures across the country are taking steps to regulate payday loans; hundreds of bills pertaining to such lenders have been introduced in more than 30 states in the past two years. In all, fifteen states and the District of Columbia have either capped rates leading to payday lenders shutting their doors or banned them outright.

In fact the South has led the charge in cracking down on the $28-billion industry. Georgia and North Carolina have already banned the practice. States like Virginia have passed reforms that help borrowers. This week Kentucky Governor Steve Beshear signed into law a ten-year moratorium on new payday lenders in the state. State legislatures in Texas have filed legislation that would mean greater transparency in the lending industry, cap interest rates at 36 percent, and close loopholes in state law that allow lenders to bypass tighter regulation. An intense battle is currently taking place in the South Carolina over reform legislation.

One long-term solution, consumer advocates like CRL argue, is for stronger federal legislation that would put a 36 percent cap on interest rates, which is the same cap that Congress already has in place for military families. A bill with a 36 percent cap has been introduced in the U.S. Senate (S500) and House (H.R. 1608), and would not prohibit states from instituting their own caps.

Source:http://www.pww.org/article/articleview/15042/