American Bankruptcy Institute Update

November 3, 2005

In This Issue

Highlights

Legislation Update

Latest Plan to Split 9th Circuit Aims to Sidestep Debate

The House Budget Committee today approved, 21-16, a $53.9 billion deficit reduction measure that contains a provision to split in half the 9th U.S. Circuit Court of Appeals based in San Francisco, Calif. and one to add a number of new bankruptcy judges, CongressDaily reported today. Their proposal to split the Ninth Circuit stalled in the U.S. Senate last year, so House Republicans have taken a new approach: attach a split proposal into a provision for new judgeships and tuck it into a $35 billion spending-cut bill, the Recorder reported today.

With the Senate seen as the key stumbling block to splitting the circuit—historically, a cause championed by conservatives worried that California tilts the nine-state court too far to the left—the latest move is seen as a headlong charge toward breaking up the court. Read the full story.

GREENSPAN CALLS HURRICANES’ ECONOMIC EFFECTS “TEMPORARY”

The economic fallout from the recent spate of hurricanes should prove fleeting, Federal Reserve Chairman Alan Greenspan said today in testimony before the Joint Economic Committee, CongressDaily reported today. The hurricanes are likely to "exert a drag" on employment and production in the short term and may aggravate inflation pressures, but Greenspan said that the economy remains sturdy. While the retiring Fed chief sounded optimistic about the economy's prospects, Greenspan made it clear that the Fed is watching energy prices to make sure they do not spark broader inflation. Greenspan also used strong language to warn Congress to get the nation's fiscal house in order. Bloated budget deficits, if not curbed, could pose a danger to the economy's long-term health, he warned. "Unless the situation is reversed, at some point these budget trends will cause serious economic disruptions," Greenspan said.

BIG STAKES IN AILING AIRLINES RAISE QUESTIONS FOR U.S. PENSION AGENCY

The U.S. government is on its way to becoming a big shareholder in the nation's airline industry and possibly in the auto industry, the Wall Street Journal reported today. The Pension Benefit Guaranty Corp. (PBGC) recently was awarded 7 percent of US Airways Group Inc. by a federal bankruptcy court handling the company's chapter 11 reorganization, according to the PBGC's recent filing with the Securities and Exchange Commission. The agency got the shares as compensation for the underfunded pension plans it assumed when the company filed for bankruptcy.

The agency is likely to get an even larger stake—between 15 percent and 35 percent of new shares—of UAL Corp.'s United Airlines when it emerges from chapter 11 in February, after 38 months in court protection, according to a PBGC official. And it's likely to get sizable chunks of Northwest Airlines, Delta Air Lines and Delphi Corp.—if, as expected, the companies ask the bankruptcy courts to dump their pension plans on the insurer.

Read the full story.

ANALYSIS: HUGE FLOOD OF CAPITAL TO INVEST SPURS WORLDWIDE RISK-TAKING

A week after Hurricane Katrina, a defaulted loan backed by aging tugboats and barges in coastal Alabama came up for sale, the Wall Street Journal reported today. Mooring Financial Corp., a firm that buys troubled loans at a discount, was interested, but couldn't determine how well the boats had survived the hurricane, or even whether their cash-starved owner had kept up the insurance on them. So Mooring bid just 50 to 55 cents on the dollar, figuring that was generous for such a dicey deal. Instead, it lost out to a bidder offering about 10 cents more on the dollar, says the Virginia firm's president, John Jacquemin.

It's a sign of a major global investment phenomenon: There's an unprecedented wave of capital flowing around the world, with all of its owners anxiously searching for a better return. The result is that global investors are diving into a wide range of riskier assets: emerging countries' stocks and bonds; real estate and realestate-backed debt; commodity funds; fine art; private-equity funds, which buy stakes in nonpublic companies; and the investment contracts called derivatives, including a kind structured to permit the sophisticated to take huge bond risks. Read the full analysis.

“NORTHSTAR” KEY TO DELPHI REBIRTH?

Delphi Corp. is studying a plan to remake its Electronics & Safety division by shedding U.S. factories, shutting technical centers and possibly buying rival Motorola's automotive unit, the Detroit News reported yesterday. Citing an internal company document outlining a plan code-named "Northstar," Delphi sees the restructuring of its Electronics & Safety unit as a cornerstone of its efforts to reorganize in chapter 11 bankruptcy, the newspaper said. The document lays out a draft of Delphi's plan to grow one of its core divisions even as it abandons several money-losing product lines and closes plants.

In its drive for global dominance of the auto electronics and safety markets, Delphi will pursue "aggressive cost reduction via product exits, site consolidation and legacy labor cost reduction," the document said. The auto parts giant also is committed to "execute ruthless portfolio management" by focusing on "more winners, more exits," the newspaper said, quoting from the memo.

Key components of the plan include the "exits" of five manufacturing plants in Michigan, Indiana, Wisconsin, Ohio and Arizona, and the "potential exits" of product lines ranging from anti-lock brakes to ignition systems. The document also identifies Motorola's automotive activities as an acquisition target, the newspaper said. The cell phone manufacturer has reportedly been trying to sell its auto electronics operations, which generated $1.7 billion in sales last year. Read more.

HOT OFF THE PRESSES: THE CONSUMER BANKRUPTCY MANUAL (SECOND EDITION)

Written by ABI Consumer Bankruptcy Committee Co-chair Thomas Yerbich, the Consumer Bankruptcy: Fundamentals of Chapter 7 and Chapter 13 of the U.S. Bankruptcy Code (Second Edition) provides both new and experienced practitioners with the fundamentals of consumer bankruptcy proceedings under chapter 7 or 13 of the Code. The second edition covers changes made by the new law. Topics covered include how the two statutory schemes work, their differences, the duties of the debtor in the bankruptcy process, the rights and procedures applicable to creditors, dischargeability/discharge, the automatic stay, commonly asked questions and much more. Softbound, 170 pages.

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ABI COMMITTEE PRESENTATIONS AT WINTER LEADERSHIP CONFERENCE

The 17th Annual Winter Leadership Conference, December 1–3, 2005, in beautiful Indian Wells, California, at the Hyatt Grand Champions Resort & Spa, will feature presentations and sessions from ABI’s committees.

Commercial Fraud Task Force

The panel will address the changing surroundings in the detection of commercial bankruptcy fraud. Learn how a panel trustee successfully converted a chapter 11 corporate debtor. Discover how to reduce electronic discovery costs. Learn how the trustee obtains the digital books and records along with essential information that is often hidden from view. Discover how to protect confidential information and privileged communication.

Young and New Members  

The committee will present a discussion on evidentiary issues that have come to the forefront during the new millennium. A program designed to help professionals adjust to ever-changing technology issues will include the use of electronic evidence; privilege and admissibility issues regarding e-mail, text messages and other wireless and electronic and wireless e-communications; and other high-tech issues.

Watch this space for other ABI Committee presentation descriptions in upcoming ABI Update editions.

Register here!

ABI’S SECOND CARIBBEAN INSOLVENCY SYMPOSIUM COMING IN FEBRUARY

Join ABI in Miami for the Second Caribbean Insolvency Symposium, February 9-10, 2006, at the Eden Roc Resort & Spa in Miami.

This year’s program brings together top international speakers to discuss the issues of the moment in international insolvency and restructuring. The Eden Roc Resort & Spa, right in the heart of Miami Beach, provides a memorable venue for the conference.

The program of 7.25 CLE credit hours features a faculty of outstanding scholars, judges and practitioners from across the United States, the Caribbean and South America. Timely topics include:

  • CAFTA and new Chapter 15: Forum-shopping in the Caribbean
  • Introduction to the New Bankruptcy and Restructuring Law in Brazil 
  • Small Business and Individual Chapter 11 under BAPCPA 
  • Tough Ethical Dilemmas after BAPCPA 
  • Dealing with Disasters: The New Bankruptcy Law after a Natural Disaster
  • Views from the Bench

Be among the first to register for this important program in a tropical location.

2005-06 ABI MEMBERSHIP DIRECTORY PRINT EDITION AVAILABLE FOR SALE

The print edition of the 2005-06 ABI Annual Membership Directory is now available. This 1,000-page edition lists more than 11,000 insolvency professionals, and is a reflection of ABI’s sustained membership growth. The Directory is one of the many benefits of ABI membership and is available exclusively to members. An online version of the Directory is available at the ABI World Web site (www.abiworld.org), which is continually updated. All members will receive a complimentary CD-ROM version of the Directory with their November ABI Journal this week.

The $55 cost of the printed version includes shipping and handling. Visit the ABI bookstore to order.

NEW FAQ ON “DO YOU KNOW THE ABI WORLD WEB SITE?”

Do You Know? ABI's official Web site, ABIWorld.org, provides thousands of bankruptcy-related documents and numerous other services for ABI members. The tutorials for negotiating ABIWorld now include an FAQ section, which will help you to focus your search for information on the site. Check it out today!

GET INVOLVED!

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