EU ticks box on bank capital

Thu Mar 28, 2013 1:43pm EDT

* Final version of bank capital text

* EBA gets sweeping powers

* Certainty could drive deal pipeline

LONDON, March 28 (IFR) - The compromise text of the European Union's new bank regulation, CRD IV, published on Thursday, appears to bring the market for bank capital closer to the end of its long journey to structural certainty, but ducks tough decisions on some aspects.

The compromise text is a harmonisation of Council of Ministers and European Parliament revisions to the European Commission's text implementing Basel III in Europe.

Basel III was published in draft form in December 2010, while the Commission published its CRD IV draft in July 2011.

This final version delegates technical decision-making to the European Banking Authority. The EBA has been working on the details of its capital regime in parallel with the progress of CRD IV, and is expected to publish its technical standards once the final CRD IV hits the statute book in April.

The EBA has to fill in what happens when hybrids are written back up after a temporary write down - once it has absorbed losses, but when an institution returns to health. Details of who gets the benefit of a bank's return to health have been controversial, pitting equity against hybrid debt investors.

Other crucial decisions have been delayed for later regulatory rounds. The definition of "point of non-viability" -where a bank is not a viable institution, but is not strictly insolvent - has been left for the European recovery and resolution regime, expected in 2015. For subordinated debt, this is a crucial point because this can determine when the instruments take losses.

Capital structuring bankers seem divided on how this will impact deal flow. One banker said he expected strong flow in the second quarter, with some banks starting deal marketing even before the rules have been through their final vote, aiming to pull the trigger as soon as details were confirmed.

Another banker though said deals would be later, since banks would wait for confirmation before starting structuring. Deals could come in Q2, but would be more likely further out.

The compromise text leans more heavily on the Capital Requirements Regulation (which must be implemented immediately) than the Directive (where implementation is delegated to local authorities).

But the Regulation, in the latest draft, contains room for national flexibility as well. All Additional Tier 1 (AT1) will need a 5.125% ratio conversion trigger - but national authorities are empowered to set their own triggers as well.

This may be to deal with the UK's desire for a "super-equivalent" capital regime - though the UK was the only country to vote against the Regulation in the Council of Ministers.

The EBA has also been given other sweeping powers, including drafting standards on capital of bank subsidiaries, what qualifies as a liquid asset, results reporting frequency and standards, calculation of mortgage risk weights, rating agencies, which capital modelling should be used, margining, FX, VaR, correlation trading, CVA risk, large exposures.

Many of these technical definitions, fortunately, are already under consultation or drafted. (Reporting by Owen Sanderson, editing by Alex Chambers, Gareth Gore)

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Fisker hires law firm to prepare possible bankruptcy filing -WSJ

DETROIT/NEW YORK, March 28 | Thu Mar 28, 2013 2:40pm EDT

DETROIT/NEW YORK, March 28 (Reuters) - Fisker Automotive, the green-car company that has not built a car since July, hired restructuring lawyers from Kirkland & Ellis to prepare for a possible bankruptcy filing, The Wall Street Journal reported on Thursday, citing people familiar with the matter.

The cash-strapped automaker, which furloughed its more than 200 U.S. workers this week to conserve cash, has been exploring bankruptcy as an option, while it continues to look for a strategic partner, two people briefed on the matter said.

A Fisker spokesman declined to comment on the possibility of a bankruptcy restructuring.

On April 22, Fisker must make a payment on a U.S. Department of Energy loan.

In 2009, Fisker won a $529 million federal loan as part of an Obama administration program to spur advanced vehicle development. Fisker drew down $193 million before the Department of Energy barred the company from accessing further funds, citing delays in the launch of its flagship car, the Karma plug-in hybrid.

Fisker had been in strategic talks with two Chinese automakers, Dongfeng Motor Group and Zhejiang Geely Holding Group, but those talks fell apart. Fisker's chief executive, Tony Posawatz, visited China this week to try to rekindle those deals, sources previously said.

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UPDATE 2-Fisker mulls bankruptcy as investor search persists -sources

Thu Mar 28, 2013 5:55pm EDT

* Fisker executives still searching for strategic investor

* Company furloughed U.S. workforce this week to save cash

* Ray Lane, Leonardo DiCaprio among Fisker's investors

By Nick Brown and Deepa Seetharaman

NEW YORK/DETROIT, March 28 (Reuters) - Fisker Automotive, the U.S.-backed maker of luxury plug-in hybrid sports cars, has hired law firm Kirkland & Ellis to advise it on a possible bankruptcy filing, a source said on Thursday, while executives continue their search for a strategic investor.

The company, based in Anaheim, California, furloughed its U.S. work force this week to preserve cash.

Anup Sathy, a bankruptcy lawyer at Kirkland who handled the Chapter 11 filings of General Growth Properties and Innkeepers USA Trust, is advising Fisker, the source said.

On Wednesday, two sources said the company was considering bankruptcy while it pursued alternatives.

All of the sources declined to be named because the matter is not public.

A Fisker spokesman declined to comment. Neither Kirkland & Ellis nor Sathy were immediately available to comment.

Fisker, which makes the $100,000-plus Karma plug-in hybrid, has not produced a car since July and is seeking a financial backer to help finish the development of a second plug-in hybrid, the Atlantic, and produce it at a Delaware plant.

The company's cash crunch comes less than a month before it must make a payment on a U.S. Department of Energy loan that Fisker received in 2009. Fisker declined to divulge the amount of the payment, which is due April 22.

Fisker has faced many challenges this month, including the abrupt resignation of its founder, Henrik Fisker, over "several major disagreements" with top management.

Its efforts to find an investor in China also stalled. The company had been in talks with Chinese automakers Dongfeng Motor Group and Zhejiang Geely Holding Group to gauge their interest in acquiring a majority stake in Fisker.

Both Geely and Dongfeng balked at the terms of Fisker's loan agreement with the DOE. Fisker's chief executive, Tony Posawatz, visited China this week to try to rekindle those deals, sources said this week.

'OVERLY AMBITIOUS' PLAN

Fisker was founded by Henrik Fisker and his partner Barny Koehler in 2007 shortly before a deep recession in the United States sapped consumer demand for vehicles.

Fisker has raised $1.2 billion since it was founded and has the backing of Ray Lane, a managing partner at venture firm Kleiner Perkins Caufield & Byers who is also a Fisker director.

The Karma quickly won accolades for its styling and cache with celebrities, including pop star Justin Bieber and actor Leonardo DiCaprio, who is also an investor in the company.

In 2009, the DOE awarded Fisker a $529 million loan as part of an Obama administration program to finance advanced vehicle development. Fisker used $193 million of the loan and earmarked the bulk of the funding for the Atlantic.

But the DOE froze its credit line partly due to Fisker's delays in launching the Karma. The last payment from the DOE came in May 2011, government records show.

The resulting cash crunch made it tough for Fisker to meet what Posawatz described last year as an "overly ambitious and aggressive" business plan.

Fisker has been flagging its interest in a strategic partner since at least April 2012, when then-CEO Tom LaSorda unveiled a concept version of the Atlantic at the New York auto show. LaSorda later left the company and was succeeded by Posawatz.

Sources said this week that Fisker now is open to selling off pieces of the company, including intellectual property rights for its plug-in electric hybrid technology.

The Wall Street Journal first reported the hiring of Kirkland & Ellis.

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EU ticks box on bank capital

Thu Mar 28, 2013 1:43pm EDT

* Final version of bank capital text

* EBA gets sweeping powers

* Certainty could drive deal pipeline

LONDON, March 28 (IFR) - The compromise text of the European Union's new bank regulation, CRD IV, published on Thursday, appears to bring the market for bank capital closer to the end of its long journey to structural certainty, but ducks tough decisions on some aspects.

The compromise text is a harmonisation of Council of Ministers and European Parliament revisions to the European Commission's text implementing Basel III in Europe.

Basel III was published in draft form in December 2010, while the Commission published its CRD IV draft in July 2011.

This final version delegates technical decision-making to the European Banking Authority. The EBA has been working on the details of its capital regime in parallel with the progress of CRD IV, and is expected to publish its technical standards once the final CRD IV hits the statute book in April.

The EBA has to fill in what happens when hybrids are written back up after a temporary write down - once it has absorbed losses, but when an institution returns to health. Details of who gets the benefit of a bank's return to health have been controversial, pitting equity against hybrid debt investors.

Other crucial decisions have been delayed for later regulatory rounds. The definition of "point of non-viability" -where a bank is not a viable institution, but is not strictly insolvent - has been left for the European recovery and resolution regime, expected in 2015. For subordinated debt, this is a crucial point because this can determine when the instruments take losses.

Capital structuring bankers seem divided on how this will impact deal flow. One banker said he expected strong flow in the second quarter, with some banks starting deal marketing even before the rules have been through their final vote, aiming to pull the trigger as soon as details were confirmed.

Another banker though said deals would be later, since banks would wait for confirmation before starting structuring. Deals could come in Q2, but would be more likely further out.

The compromise text leans more heavily on the Capital Requirements Regulation (which must be implemented immediately) than the Directive (where implementation is delegated to local authorities).

But the Regulation, in the latest draft, contains room for national flexibility as well. All Additional Tier 1 (AT1) will need a 5.125% ratio conversion trigger - but national authorities are empowered to set their own triggers as well.

This may be to deal with the UK's desire for a "super-equivalent" capital regime - though the UK was the only country to vote against the Regulation in the Council of Ministers.

The EBA has also been given other sweeping powers, including drafting standards on capital of bank subsidiaries, what qualifies as a liquid asset, results reporting frequency and standards, calculation of mortgage risk weights, rating agencies, which capital modelling should be used, margining, FX, VaR, correlation trading, CVA risk, large exposures.

Many of these technical definitions, fortunately, are already under consultation or drafted. (Reporting by Owen Sanderson, editing by Alex Chambers, Gareth Gore)

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Fisker hires law firm to prepare possible bankruptcy filing -WSJ

DETROIT/NEW YORK, March 28 | Thu Mar 28, 2013 2:40pm EDT

DETROIT/NEW YORK, March 28 (Reuters) - Fisker Automotive, the green-car company that has not built a car since July, hired restructuring lawyers from Kirkland & Ellis to prepare for a possible bankruptcy filing, The Wall Street Journal reported on Thursday, citing people familiar with the matter.

The cash-strapped automaker, which furloughed its more than 200 U.S. workers this week to conserve cash, has been exploring bankruptcy as an option, while it continues to look for a strategic partner, two people briefed on the matter said.

A Fisker spokesman declined to comment on the possibility of a bankruptcy restructuring.

On April 22, Fisker must make a payment on a U.S. Department of Energy loan.

In 2009, Fisker won a $529 million federal loan as part of an Obama administration program to spur advanced vehicle development. Fisker drew down $193 million before the Department of Energy barred the company from accessing further funds, citing delays in the launch of its flagship car, the Karma plug-in hybrid.

Fisker had been in strategic talks with two Chinese automakers, Dongfeng Motor Group and Zhejiang Geely Holding Group, but those talks fell apart. Fisker's chief executive, Tony Posawatz, visited China this week to try to rekindle those deals, sources previously said.

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UPDATE 2-Fisker mulls bankruptcy as investor search persists -sources

Thu Mar 28, 2013 5:55pm EDT

* Fisker executives still searching for strategic investor

* Company furloughed U.S. workforce this week to save cash

* Ray Lane, Leonardo DiCaprio among Fisker's investors

By Nick Brown and Deepa Seetharaman

NEW YORK/DETROIT, March 28 (Reuters) - Fisker Automotive, the U.S.-backed maker of luxury plug-in hybrid sports cars, has hired law firm Kirkland & Ellis to advise it on a possible bankruptcy filing, a source said on Thursday, while executives continue their search for a strategic investor.

The company, based in Anaheim, California, furloughed its U.S. work force this week to preserve cash.

Anup Sathy, a bankruptcy lawyer at Kirkland who handled the Chapter 11 filings of General Growth Properties and Innkeepers USA Trust, is advising Fisker, the source said.

On Wednesday, two sources said the company was considering bankruptcy while it pursued alternatives.

All of the sources declined to be named because the matter is not public.

A Fisker spokesman declined to comment. Neither Kirkland & Ellis nor Sathy were immediately available to comment.

Fisker, which makes the $100,000-plus Karma plug-in hybrid, has not produced a car since July and is seeking a financial backer to help finish the development of a second plug-in hybrid, the Atlantic, and produce it at a Delaware plant.

The company's cash crunch comes less than a month before it must make a payment on a U.S. Department of Energy loan that Fisker received in 2009. Fisker declined to divulge the amount of the payment, which is due April 22.

Fisker has faced many challenges this month, including the abrupt resignation of its founder, Henrik Fisker, over "several major disagreements" with top management.

Its efforts to find an investor in China also stalled. The company had been in talks with Chinese automakers Dongfeng Motor Group and Zhejiang Geely Holding Group to gauge their interest in acquiring a majority stake in Fisker.

Both Geely and Dongfeng balked at the terms of Fisker's loan agreement with the DOE. Fisker's chief executive, Tony Posawatz, visited China this week to try to rekindle those deals, sources said this week.

'OVERLY AMBITIOUS' PLAN

Fisker was founded by Henrik Fisker and his partner Barny Koehler in 2007 shortly before a deep recession in the United States sapped consumer demand for vehicles.

Fisker has raised $1.2 billion since it was founded and has the backing of Ray Lane, a managing partner at venture firm Kleiner Perkins Caufield & Byers who is also a Fisker director.

The Karma quickly won accolades for its styling and cache with celebrities, including pop star Justin Bieber and actor Leonardo DiCaprio, who is also an investor in the company.

In 2009, the DOE awarded Fisker a $529 million loan as part of an Obama administration program to finance advanced vehicle development. Fisker used $193 million of the loan and earmarked the bulk of the funding for the Atlantic.

But the DOE froze its credit line partly due to Fisker's delays in launching the Karma. The last payment from the DOE came in May 2011, government records show.

The resulting cash crunch made it tough for Fisker to meet what Posawatz described last year as an "overly ambitious and aggressive" business plan.

Fisker has been flagging its interest in a strategic partner since at least April 2012, when then-CEO Tom LaSorda unveiled a concept version of the Atlantic at the New York auto show. LaSorda later left the company and was succeeded by Posawatz.

Sources said this week that Fisker now is open to selling off pieces of the company, including intellectual property rights for its plug-in electric hybrid technology.

The Wall Street Journal first reported the hiring of Kirkland & Ellis.

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UPDATE 2-Ruling on Stockton bankruptcy eligibility likely Monday

Wed Mar 27, 2013 8:44pm EDT

By Jim Christie

SACRAMENTO, Calif., March 27 (Reuters) - A verbal ruling on whether Stockton, California, is eligible for bankruptcy protection will likely come next Monday, a federal judge said on the third and final day of a trial that the U.S. municipal debt market is closely watching.

U.S. Bankruptcy Judge Christopher Klein said he would need more time than anticipated to make a ruling over whether Stockton should be allowed to press on with its bankruptcy case, which could result in bondholders and bond insurers of the city swallowing losses while leaving pensions of city workers and retirees intact.

"I'm pretty confident I will not be in a position to make my findings by Friday," Klein told attorneys for Stockton and its so-called capital markets creditors at the third hearing of the trial that started on Monday.

Stockton aims to aggressively impair its bond debt if found eligible for bankruptcy court protection, a strategy other cash-strapped municipalities could follow, breaking a tradition in the $3.7 trillion municipal bond market, which provides financing for various public capital projects, from school construction to sidewalk repairs.

Since at least the 1930s, bondholders in major municipal bankruptcies have consistently repaid their entire principal. If Stockton establishes it is eligible for bankruptcy protection, other financially troubled municipalities could follow its example and try to adjust debts through bankruptcy.

A city of nearly 300,000 in California's Central Valley, Stockton filed for bankruptcy last year, becoming the biggest U.S. city to declare bankruptcy.

Bond insurers Assured Guaranty Corp, Assured Guaranty Municipal Corp and National Public Finance Guarantee Corp have been joined by Wells Fargo Bank, the Franklin California High Yield Municipal Fund and Franklin High Yield Tax-Free Income Fund in contesting Stockton's bid for bankruptcy eligibility.

The insurers have more than $300 million of exposure to the city's debt and have said that Stockton's decision to keep making payments to its largest creditor, the California Public Employees' Retirement System, showed lack of good faith during the initial stages of the city's bankruptcy plan.

The $254 billion pension fund manages pension accounts for Stockton's current and retired employees.

A lawyer for the capital markets creditors during the trial's closing arguments said Stockton officials gave the creditors a "take-it-or-leave-it" offer instead of negotiating in good faith, adding that the city's decision to exempt Calpers from impairment was "tainted" because city officials involved in the decision had a conflict of interest due to having retirement accounts with the pension fund.

"The process was hopelessly flawed," attorney Matthew Walsh told Klein.

Norman Hile, a lawyer for Stockton, characterized the capital markets creditors as resisting negotiations, adding that most of the city's creditors have already agreed to concessions.

Hile added that Calpers should be viewed as a trustee for Stockton's employees and retirees rather than as a creditor, adding that the city has met the requirements in federal law for eligibility for bankruptcy court protection.

Guy Neal, another lawyer for the capital markets creditors, said Stockton's financial future is bleak unless it tackles its pension obligations and brings the state pension fund into negotiations.

"The evidence demonstrates that Stockton cannot afford these liabilities," Neal said.

If Klein finds Stockton eligible for protection from creditors under Chapter 9 of the U.S. bankruptcy code, the city could begin drafting a so-called plan of adjustment for its debts.

The process could take some time and creditors can object. Any plan of adjustment would eventually require a court finding it is fair and equitable to all creditors.

Stockton's capital markets creditors will also be able to appeal a finding of eligibility to U.S. District Court or a bankruptcy appellate panel.

If Klein finds Stockton is not eligible for bankruptcy protection, the city could operate under its current spending plan while negotiating concessions with creditors, who could at the same time press their claims against the city in state or federal court.

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PRESS DIGEST-New York Times business news - March 28

March 28 | Thu Mar 28, 2013 3:08am EDT

March 28 (Reuters) - The following are the top stories on the New York Times business pages. Reuters has not verified these stories and does not vouch for their accuracy.

* The largest banks in the United States - including Bank of America Corp, Citigroup Inc and JPMorgan Chase & Co - facing a torrent of lawsuits over shoddy mortgage securities, are pushing to overturn a series of tough rulings in an important case. ()

* AMR Corp's American Airlines won bankruptcy court approval on Wednesday to combine with US Airways Group Inc and form the world's biggest airline. ()

* The Cypriot government on Wednesday announced severe restrictions on access to funds held in the country's banks, hoping to control a rush to withdraw money when the banks open on Thursday for the first time in nearly two weeks. ()

* Two lithium-ion car batteries produced by GS Yuasa Corp , the same Japanese company that supplies batteries for Boeing Co's grounded 787 jetliner fleet, have overheated in recent days. ()

* The U.S. Supreme Court threw out a proposed class-action antitrust lawsuit against cable television company Comcast Corp , in which more than 2 million current and former Comcast subscribers claimed that the company had unfairly eliminated competition and overcharged customers. ()

* The U.S. Food and Drug Administration approved the chemical, dimethyl fumarate, sold by Biogen Idec Inc under the name Tecfidera, the third of a spate of oral drugs that are transforming the treatment of multiple sclerosis. ()

* Covington & Burling, a prominent U.S. law firm, plans to announce on Thursday that Lanny Breuer, who led the U.S. Justice Department's investigation into the financial crisis, will be its vice chairman. ()

* After nearly 30 years of running Hearst Corp, a privately held media company that publishes the Cosmopolitan, Harper's Bazaar and Esquire magazines, Chief Executive Frank Bennack has announced that he is stepping down. ()

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PRESS DIGEST - Wall Street Journal - March 28

March 28 | Thu Mar 28, 2013 3:25am EDT

March 28 (Reuters) - The following are the top stories in the Wall Street Journal. Reuters has not verified these stories and does not vouch for their accuracy.

* Some of the largest global banks lodged an unusual legal protest to overturn rulings that they said could limit their ability to beat back multibillion-dollar lawsuits filed two years ago by the federal regulator for Fannie Mae and Freddie Mac. ()

* A U.S. bankruptcy judge said it would be "inappropriate" to approve a $20 million exit package for the outgoing chief executive of American Airlines parent AMR Corp, calling it his only "hang-up" as he cleared the way for a merger with US Airways Group Inc. ()

* Standard & Poor's Ratings Services wants to merge the 17 lawsuits piled against it - by state attorneys general who claim the firm churned out shoddy ratings before or after the financial crisis - into a single lawsuit in federal court. ()

* Cyprus's government raced on Wednesday to prepare for its banks' scheduled reopening after a two-week hiatus, announcing temporary capital controls to prevent deposits from fleeing the weakened institutions. ()

* A prominent proxy adviser said MetroPCS Communications Inc shareholders should vote against a merger with Deutsche Telekom AG unit T-Mobile USA, saying they would receive an unfair split of the combined company and would do fine owning shares of a standalone carrier. ()

* A divided U.S. Supreme Court on Wednesday put the brakes on a class-action lawsuit against Comcast Corp, the latest example of the court's conservative majority limiting large suits against companies. ()

* Sharp Corp is banking on a proprietary technology with an unproven track record to revive its fortunes after it soon reports what's expected to be the largest annual loss in its 100-year history. ()

* Suncor Energy Inc, Canada's largest oil-sands producer, said it and partner Total SA won't proceed with a plan to build a multibillion-dollar facility designed to refine heavy bitumen into a light, low-sulfur synthetic crude. ()

* Frank Bennack is stepping down as chief executive of Hearst Corp, the media giant said late Wednesday, to be succeeded by company President Steven Swartz. ()

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California watches as small city goes after Calpers

Tue Mar 26, 2013 2:35pm EDT

* City of Pacific Grove says Calpers overcharging

* Wants to lower payments, other cities could follow

* Calpers says it provides detailed calculations each year

By Tim Reid

LOS ANGELES, March 26 (Reuters) - Officials of a tiny California city say they believe overbilling by state pension system Calpers has pushed up municipal debt to unsustainable levels, and they have hired a bankruptcy attorney to explore ways to lower payments to the system.

Municipal bankruptcy experts said other cash-strapped California cities and towns will be watching Pacific Grove, a coastal city of 15,000 south of San Francisco, to see how it resolves its issues with the California Public Employees' Pension Fund (Calpers), the largest U.S. pension system.

Calpers, which manages $254 billion in assets, said it will provide the additional information Pacific Grove has asked for by April 15. But the pension fund also said it has calculated city pension payments carefully and provided Pacific Grove with detailed calculations and accounting methods in yearly reports.

"We can't afford to keep paying Calpers at the current rates - and we can't afford to get out," said Bill Kampe, Pacific Grove's mayor. "Fundamentally, we want to pay less to Calpers."

The Pacific Grove city council last week voted to "fully explore" ways in which it believes Calpers has "artificially inflated the City's liabilities." It hired an actuary as well as

Karol Denniston, a San Francisco lawyer at Schiff Hardin who helped draft California's bankruptcy process law.

"I am aware of many other cities that are taking a hard look at how to manage their pension debt, which is usually the largest liability they have," Denniston said. "And the first port of call is going to be negotiating with Calpers."

Like many cities in the early 2000s, Pacific Grove awarded more-generous pension deals to police, firefighters and other workers. Funding such deals became much more difficult after the 2008 financial crisis and the recession that followed.

Pacific Grove budget chief Tony McFarlane said the city's annual payment to Calpers soared to about $1.5 million last year from just $97,000 in 2002, which at the time was less than 1 percent of its $12.5 million general fund.

On top of the $1.5 million payment last year, Pacific Grove also had to come up with $1.65 million to finance a $19 million pension obligation bond that the city issued in 2004. That bond money was paid to Calpers the same year. Last year's total pension-related payments of $3.15 million were about 20 percent of the annual city budget of $15.6 million.

HARD LOOK AT PENSION DEBT

City officials said, and Calpers has confirmed, that the cost to terminate its obligations to the pension fund would surpass $70 million, a figure the city says it cannot afford.

"We have kept cutting and cutting city services just to keep up our payments to Calpers, and to fund the pension bond," said Thomas Frutchey, the city manager.

Calpers has said it has little leeway to renegotiate debt with member cities, citing its responsibility to keep the pension fund financially sound. A Calpers spokesman said the city could reduce its pension liability through steps such as lowering benefits to new hires and requiring existing workers to pay a bigger share of pension costs.

In August, San Bernardino stopped payments to Calpers when it filed for bankruptcy protection. Kampe said Pacific Grove's finance committee looked at the bankruptcy option four years ago, but dismissed the idea because of the costs involved.

Budget chief McFarlane said rising pension costs have prompted Pacific Grove to cut its workforce to 65 employees from 100 in 2004. Firefighting has been contracted out to nearby Monterey, and the police force has been cut from 22 to 14.

James Spiotto, a municipal bankruptcy specialist and a partner at Chapman & Cutler in Chicago, said it is only a matter of time before other California cities take on Calpers.

"If you keep on forcing people to do something they can't afford, they will strike back," Spiotto said.

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Atlantic City's Revel casino targets quick bankruptcy exit

Tue Mar 26, 2013 3:59pm EDT

* $2.4 bln casino open less than a year prior to bankruptcy

* NJ Gov. Christie provided tax package

By Jonathan Stempel and Tom Hals

March 26 (Reuters) - Revel, a centerpiece of New Jersey Governor Chris Christie's effort to revitalize Atlantic City, said it hopes to complete a pre-packaged restructuring within 60 days after the casino, open less than a year, filed for bankruptcy protection.

With help from $250 million of financing, Revel expects to continue operations during the restructuring after its Chapter 11 filing on Monday night.

Built for $2.4 billion and featuring 1,800 hotel rooms, theaters, nightclubs and 14 restaurants, including several with celebrity chefs, Revel aimed to bring Las Vegas-quality gambling to Atlantic City's declining gaming business.

But the city's first new casino since 2003 never lived up to its financial projections amid growing competition from nearby Pennsylvania, and struggled to meet its obligations after the late October evacuation of Atlantic City during Hurricane Sandy.

Even before that storm, Revel had in the prior quarter the lowest occupancy rate for any Atlantic City casino. The casino opened on April 2, 2012.

Interim Chief Executive Jeffrey Hartmann said he expects Revel's restructuring, which requires court approval, to be complete before the critical summer season.

The restructuring plan calls for debt to be reduced by 82 percent to $272 million from $1.52 billion through a debt-for-equity swap.

Lenders include Canyon Capital Advisors and Chatham Asset Management, which are expected to become owners after the bankruptcy ends.

According to a filing with the U.S. bankruptcy court in Camden, New Jersey, Revel has about $1.1 billion of assets and $1.5 billion of liabilities. It also has $388 million of publicly traded second-lien notes maturing in 2018.

Christie had provided a $261 million tax package to help build Revel after Morgan Stanley, which had begun building the casino, pulled out of the project two years ago and took a $932 million loss.

Spokesmen for the governor did not return requests on Tuesday for comment.

Revel has employed for its reorganization Alvarez & Marsal as its restructuring adviser, Moelis & Co as its investment banker, and the law firm Kirkland & Ellis.

The case is In re: Revel AC Inc, U.S. Bankruptcy Court, District of New Jersey, No. 13-16253.

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Trial over Stockton's bid for bankruptcy nears end in California

By Jim Christie

SACRAMENTO, Calif., March 26 | Tue Mar 26, 2013 8:40pm EDT

SACRAMENTO, Calif., March 26 (Reuters) - A federal court trial set to rule whether Stockton, California, is eligible for bankruptcy is nearing an end with closing arguments scheduled for Wednesday, a day earlier than expected.

Judge Christopher Klein in U.S. bankruptcy court in Sacramento, California, gave no indication on when he would rule. But observers said a decision could come sooner rather than later in a case closely watched for its broad implications for other struggling municipalities considering bankruptcy.

At issue is whether bondholders and bond insurers can be forced to swallow losses while leaving pensions of workers and retirees intact.

Bondholders in major municipal bankruptcies consistently have been repaid their entire principal since at least the 1930s but Stockton is expected - along with Jefferson County in Alabama and San Bernardino in California - to break that streak, said lawyers familiar with the case.

Bondholders and bond insurers, which will have to repay investors for capital losses, argue that Stockton's decision to maintain payments to the California Public Employees' Retirement System shows a lack of good faith - a reason to block its request for eligibility for bankruptcy protection under federal bankruptcy law.

Bond insurers contesting Stockton's eligibility for bankruptcy have more than $300 million of exposure to the city's debt. Assured Guaranty Corp, Assured Guaranty Municipal Corp and National Public Finance Guarantee Corp are joined by Wells Fargo Bank, the Franklin California High Yield Municipal Fund and Franklin High Yield Tax-Free Income Fund in objecting to the city's bid to adjust its debt under bankruptcy court protection.

Stockton pays a yearly contribution of about $30 million to the $254 billion California Public Employees' Retirement System, best known as Calpers. It is the largest U.S. public pension and manages pension accounts for the city's employees and retired employees.

The creditors told Klein that Stockton was not insolvent at the time it filed for bankruptcy last summer, saying the city could have imposed deeper spending cuts or proposed tax measures.

Stockton officials say deeper cuts would endanger public safety, following $90 million in cuts over three years and a sharp decline in payroll, in their crime-plagued city. The officials also say they must keep paying Calpers to be able to retain and recruit employees, especially police officers.

If Klein finds Stockton is eligible for creditor protection under Chapter 9 of the U.S. bankruptcy code, the city could begin drafting a so-called plan of adjustment for its debts right away, said Karol Denniston, an attorney with the Schiff Hardin law firm in San Francisco who helped draft California's law guiding municipal bankruptcies.

Denniston said that the process will require some time. In Alabama, Jefferson County filed in November 2011 and has not yet filed a workout plan for the country's largest municipal bankruptcy. And any plan would eventually require a court finding that it is fair and equitable to all creditors.

Denniston noted that a workout plan could put the matter of impairing payments to Calpers back in play.

Creditors will also be able to appeal a finding of eligibility to U.S. District Court or a bankruptcy appellate panel, Denniston said.

If Klein instead finds Stockton is not eligible for bankruptcy protection, the city could operate under its current spending plan while implementing concessions it has won from its employees and negotiating concessions from other creditors.

Creditors would be able to press their respective claims against the city in state or federal court, Denniston said. But in that case, the creditors would not be able try to impair Stockton's payments to Calpers, Denniston said.

Denniston expects Klein to decide Stockton's eligibility quickly, noting he prides himself on clearing his desk of cases before him by the end of the workweek.

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Atlantic City casino Revel files for bankruptcy

March 25 | Mon Mar 25, 2013 10:35pm EDT

March 25 (Reuters) - Revel, a lavish Atlantic City casino that opened less than one year ago, filed for bankruptcy protection late on Monday, a court filing showed.

The Chapter 11 filing, which was expected, culminates a rapid decline for a complex that cost $2.4 billion to build and had been expected to bringing Las Vegas-style glitz to a city where gambling revenue had fallen for several years.

The case is Revel AC Inc, Case No. 13-16253, U.S. Bankruptcy Court, District of New Jersey.

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UPDATE 1-Atlantic City's Revel casino files for bankruptcy

Mon Mar 25, 2013 11:49pm EDT

* Revel to reduce debt by more than 82 pct

* Co. secures $250 mln in DIP financing

* Expects to emerge from Chapter 11 by early summer

* Expects normal operations to continue

By Tom Hals and Jonathan Stempel

WILMINGTON, Delaware, March 25 (Reuters) - Revel, a lavish Atlantic City casino that opened less than a year ago, filed for bankruptcy protection late on Monday under a plan that would turn over control to lenders and eliminate more than $1 billion of debt.

The Chapter 11 filing, which was expected, culminates a rapid decline for a complex that cost $2.4 billion to build and had been expected to bringing Las Vegas-style glitz to a city where gambling revenue had fallen for several years.

Under the plan, Revel will slash its debt to $272 million from about $1.52 billion through a debt-for-equity conversion. The plan has secured more than the number of lenders' votes required for the court to approve it, Revel added.

"Backed by overwhelming lender support, we remain on track to complete our financial restructuring ahead of the critical summer season," Jeffrey Hartmann, Revel's interim CEO, said in a statement.

Revel expects to continue normal business operations throughout the restructuring. Lenders include Canyon Capital Advisors and Chatham Asset Management, and they are expected to become owners once it emerges from bankruptcy by June or July.

Located near the northern end of Atlantic City's boardwalk, Revel's wave-shaped complex opened on April 2, 2011. It includes a 1,800-room hotel, theaters, nightclubs and 14 restaurants, some helmed by celebrity chefs such as Michel Richard.

Its vast casino has more than 2,400 slot machines and nearly 100 table games.

Morgan Stanley originally owned most of Revel Entertainment Group LLC, which began building the casino, but sold its stake at a $932 million loss in February 2011 to investors led by Kevin DeSanctis. The new owners then obtained a tax package of roughly $261 million from New Jersey and lined up $1.15 billion of financing to help complete the project.

DeSanctis resigned earlier this month as Revel's chief executive. Hartmann, the interim chief executive, is a former chief executive of the Mohegan Sun casino in eastern Connecticut and has more than 20 years of experience in the gaming industry.

Backers had hoped Revel would become the next Borgata, a joint venture between Boyd Gaming Corp and MGM Resorts International that opened in 2003 and became Atlantic City's top-grossing casino.

Atlantic City, however, has lost its appeal and last year, the adjacent state of Pennsylvania overtook it to become the second-largest U.S. gambling market after Las Vegas.

The case is Revel AC Inc, Case No. 13-16253, U.S. Bankruptcy Court, District of New Jersey.

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Singer Dionne Warwick files for bankruptcy

March 26 | Tue Mar 26, 2013 1:11am EDT

March 26 (Reuters) - Grammy Award-winning singer Dionne Warwick has filed for bankruptcy in New Jersey, citing tax liabilities she has attributed to financial mismanagement, her publicist said on Monday.

Warwick, 72, known for "Do You Know the Way to San Jose?" and other popular songs, filed the petition on March 21 in the U.S. Bankruptcy Court in New Jersey, the state where she was born and currently lives. She listed total assets of $25,500 and total liabilities of more than $10.7 million, nearly all tax claims by the Internal Revenue Service and the state of California, according to the filing.

The personal bankruptcy filing was due to "negligent and gross financial mismanagement" in the late 1980s through mid-1990s, Warwick's publicist, Kevin Sasaki, said in a statement.

The IRS and California tax claims total more than $10.2 million, mostly from the 1990s, according to the petition, which listed Warwick's average monthly income as $20,950 and expenses at $20,940.

Sasaki said the actual back taxes owed had already been paid, but the penalties and interest has continued to accrue.

"In light of the magnitude of her tax liabilities, Warwick has repeatedly attempted to offer re-payment plans and proposals to the IRS and the California Franchise Tax Board for taxes owed," Sasaki said. "These plans were not accepted, resulting in escalating interest and penalties."

A five-time Grammy winner, Warwick took her first in 1968 for "Do You Know the Way to San Jose?" and her second two years later for the album "I'll Never Fall in Love Again." (Reporting by David Bailey in Minneapolis; Editing by Lisa Shumaker)

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UPDATE 1-Market Chatter-Corporate finance press digest

Mon Mar 25, 2013 2:11am EDT

March 25 (Reuters) - The following corporate finance-related stories were reported by media on Monday:

* A special committee of Dell Inc's board is evaluating separate takeover proposals from Blackstone Group LP and billionaire investor Carl Icahn to decide whether either or both are likely to trump an existing $24.4 billion take-private deal, a source familiar with the discussions said on Sunday.

* Cyprus's president and the European Union have agreed the outlines of a rescue deal that would see the creation of a "good bank" and a "bad bank" and include the shutting down of Cyprus's second largest lender, EU sources said.

* UBS AG is in talks with the U.S. Securities and Exchange Commission to settle allegations the bank defrauded investors in a mortgage bond deal that soured during the financial crisis, the Wall Street Journal reported, citing people familiar with the matter.

* China Petroleum & Chemical Corp agreed to form a joint venture that will acquire $3 billion in oil and gas assets held by its state-owned parent in countries including Kazakhstan, Colombia and Russia, the Wall Street Journal reported. ()

* Apple Inc has acquired the indoor-GPS company WifiSLAM for about $20 million, a sign that a war over indoor mobile-location services is heating up, the Wall Street Journal reported. ()

* The Spanish government will impose heavy losses on investors at nationalized banks and hire external advisers to help it manage these banks' assets, its latest efforts to overhaul a financial sector battered by the collapse of a decadelong housing boom, the Wall Street Journal reported. ()

* German steelmaker ThyssenKrupp AG was surprised by the low value of bids for its Cia Siderurgica do Atlantico mill in Brazil and is seeking talks with bidders to raise the offer prices, the Agencia Estado news agency reported Saturday.

* Deutsche Bank AG co-Chief Executive Anshu Jain requested a pay cut of almost 2 million euros ($2.60 million) to draw level with the 2012 compensation package of fellow top executive Juergen Fitschen, a German newspaper reported.

* Blockbuster's chain of film and computer game rental shops in Britain has been sold to Gordon Brothers Europe for an undisclosed sum, two months after the struggling retailer went into a form of bankruptcy protection, the Financial Times reported. ()

* Deutsche Bank AG has priced its three-year China yuan bond in Taiwan at a 2.3 percent yield, two sources with close knowledge of the matter said on Monday.

* Brazilian billionaire Eike Batista needs partners to help fund the expansion of his EBX Group, a situation that could lead him to cut his stake in EBX companies by more than half, fellow billionaire Andre Esteves told the Estado de S. Paulo newspaper.

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PRESS DIGEST-New York Times business news - March 25

March 25 | Mon Mar 25, 2013 3:04am EDT

March 25 (Reuters) - The following are the top stories on the New York Times business pages. Reuters has not verified these stories and does not vouch for their accuracy.

* After hours of meetings in Brussels, European officials agreed to a deal to rescue Cyprus that would drastically reduce the size of the country's banking sector and scrap the controversial tax on bank deposits. ()

* Private equity firm Blackstone Group LP and investor Carl Icahn have each separately submitted preliminary takeover proposals for Dell Inc, the embattled computer maker. ()

* News Corp wants the U.S. Federal Communications Commission to waive a ban on consolidation between TV stations and newspapers in local markets, but it is not without setbacks. ()

* At the U.S. Supreme Court on Monday, generic and brand-name drug companies will be arguing against the federal government on whether the maker of a brand-name drug can pay a generic-drug company to keep the generic version off the market. ()

* Bausch & Lomb Inc, the eye-care company, said in an initial public offering registration filing that Warburg Pincus LLC would continue to own a majority of the stock after the offering. ()

* Wall Street is taking America's biggest pension fund Calpers to court this week, for a long-awaited battle over who takes the losses when a city goes bust - workers and retirees, municipal bondholders, or both. ()

* Taking a page from China, the United States is now scouring high schools for hackers with an eye to bringing them along to one day defend the nation from foreign attack. ()

* Web-publisher Spin Media LLC will introduce technological improvements to encourage readers to linger and to track them as they move from one device to another. ()

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PRESS DIGEST - Wall Street Journal - March 25

March 25 | Mon Mar 25, 2013 3:07am EDT

March 25 (Reuters) - The following are the top stories in the Wall Street Journal. Reuters has not verified these stories and does not vouch for their accuracy.

* Cyprus secured a bailout from its international creditors early on Monday, ending a week of financial panic that threatened to see the small island nation become the first government to leave the euro zone. ()

* The euro surged against other major currencies on Monday in Asia trading after Cyprus secured a bailout from its international creditors. ()

* China Petroleum & Chemical Corp agreed to form a joint venture that will acquire $3 billion in oil and gas assets held by its state-owned parent in countries including Kazakhstan, Colombia and Russia. ()

* Apple Inc has acquired the indoor-GPS company WifiSLAM for about $20 million, a sign that a war over indoor mobile-location services is heating up. ()

* The Spanish government will impose heavy losses on investors at nationalized banks and hire external advisers to help it manage these banks' assets, its latest efforts to overhaul a financial sector battered by the collapse of a decadelong housing boom. ()

* JaguarLand Rover, which is owned by India's Tata Motors Ltd, on Sunday strongly denied it is preparing to raise $1 billion from Chinese investors with a bond issue in Beijing or Shanghai later this year. ()

* Private equity firm Gordon Brothers Europe agreed to buy the British arm of DVD-rental firm Blockbuster LLC, which had entered a form of bankruptcy in January. ()

* Some former partners of Howrey LLP have agreed to spend the next several months in settlement talks to avoid litigation over the defunct law firm's 2011 collapse. ()

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COMMENT: Cyprus: too small to care

By Natalie Harrison

Fri Mar 22, 2013 7:28am EDT

LONDON, March 22 (IFR) - Just two months away from the eurozone's first potential sovereign default, and the credit market is, well, amazingly calm.

A EUR1.4bn sovereign bond that Cyprus is due to repay on June 3 is bid at a cash price of 82, hardly distressed levels in the context of the Greek restructuring. And even Cyprus' longer dated issues are no less than 60% of face value.

That suggests there's a fairly good chance that sovereign bond holders will be paid back - potentially in full. So what's there to be worried about?

Not a lot, if you ask bankers, and the broad-based market stability seems to reflect that.

Peripheral sovereign yields have all been relatively steady, as has the second most vulnerable sector - banking.

While the iTraxx Senior and Subordinated indices have borne the brunt of the sell-off in the wake of the announcement of the unprecedented tax on Cypriot bank deposits, the moves in cash have been tame.

That is remarkable if you consider the potential threat to senior bondholders given depositors' treatment.

ITALY'S THE WORRY

So, has the world gone mad? On the face of it, no. Not only is Cyprus not systemically important, but it suffers from the widespread perception that its banks' business model is based on the country being a tax haven propped up by Russian money.

There is no way Germany, Finland and The Netherlands would support shouldering the entire cost of the bailout for such a small, dare we say it, insignificant European country when there is a perfect pool of international investors ready for the taking: rich Russians.

This same trio has also been very vocal that senior bondholders should be bailed-in.

Although Cyprus' bailout has been badly managed, financial market professionals all agree, more or less, that whatever happens to Cyprus, the bubble of the seven-month rally will not burst.

"The market will just work through this," said one senior banker.

"Cyprus? It counts for such a small percentage of eurozone GDP, that it's almost insignificant," said another.

Cyprus accounted for just 0.1% of eurozone output in 2012, according to European Commission data.

"What's more worrying is that the market isn't more nervous about the situation in Italy. It's the third biggest country in the eurozone, and it doesn't have a government," said the second banker.

Precisely. This is where the world does appear mad.

Prolonged political uncertainty would leave Italy, which has around EUR2trn of public debt, exposed to rising bond yields.

A disorderly default for Cyprus is clearly not ideal, but it would not spell disaster. If things get messy in Italy, on the other hand, we're quickly in uncharted territory.

The outlook for the country's banks is particularly dire. If Cyprus can take it upon itself to ignore an EU-wide insurance for depositors under EUR100k, what's to stop others doing something similar? And how can Italian second and third tier banks reassure depositors, and bondholders, that they're not at risk?

If Cyprus has taught us one thing, it's that sovereigns will do whatever they have to in order to keep their heads above water.

The market - given its stability - may well be ignoring that, simply because the billions of cash sloshing around the market is distorting investment decisions and risk judgment.

As one banker warned: "There's so much cash, it's papering over the cracks." (Reporting by Natalie Harrison, IFR Markets; editing by Alex Chambers and Julian Baker)

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Insurers race to fill hybrid capital vacuum

Fri Mar 22, 2013 8:35am EDT

* Insurance pipeline fills as investor demand soars

* Banks to take market reins from Q2

* Tier 1 and 2 issuance to hit EUR350bn in coming years

By Aimee Donnellan

LONDON, March 22 (IFR) - Insurance companies are racing to make the most of firm conditions in the subordinated debt market, ahead of an imminent wave of bank capital deals that will raise competition for investor cash and leave them vulnerable to market volatility.

Prudential, MACIF, Zurich, Swiss Re, AG Insurance and AXA Insurance have sold a mixture of Tier 2 debt and CoCos to ravenous investors in search of yield.

This week Norway's biggest insurance company Storebrand became the latest, selling just EUR300m worth of subordinated debt but attracting a whopping EUR2.5bn order book.

Dutch insurer Achmea is finishing up a roadshow this week and Caplin Insurance is also tipped to make an appearance.

"Insurance hybrids are really the hotspot of the FIG market these days," said Harman Dhami, head of FIG syndicate at RBS.

The only euro supply in the deserted bank capital market this year has been a EUR1.25bn Tier 2 from Nationwide Building Society which came last week on a hefty EUR5.5bn book.

But oversubscribed order books could soon be a thing of the past as banks need to raise as much as EUR200bn of Tier 2 debt and EUR150bn of Additional Tier 1 in the coming years, according to figures from Citi.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For graphic on estimated net issuance of bank capital instruments: link.reuters.com/guk66t ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

"Once there is an agreement on the final details of CRR then banks can go ahead and issue capital. All of this seems quite plausible for the second quarter of 2013," said Simon McGeary, head of new products group at Citigroup.

Banks will be required to hold extra capital to ensure taxpayers aren't saddled with the bill in any future bank bailouts.

Insurers are keen to get ahead of this rush given the threat of oversupply and volatility.

"If markets are constructive they can absorb quite a lot before suffering indigestion, but the worry is that the macro picture will remain volatile causing windows to open and shut," said McGeary.

HEALTHY COMPETITION

It's easy to understand why insurance companies are in such demand. As investors desperately attempt to weigh up the risks of the SNS nationalisation and the potential bail-in of depositors in Cyprus, insurance companies look a relatively safe bet.

Insurance companies' minimal reliance on capital markets has been one of the factors behind their resilience to the financial crisis, analysts say.

That stands in sharp contrast to banks that rely on funding through the senior, covered and subordinated debt markets.

Insurance companies are also enjoying a clear field, with banks sidelined from Tier 1 markets due to unclear regulatory and tax treatment of the capital instruments.

This is set to change in mid April when a European Parliament plenary is planned to discuss the proposed Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD IV).

Once they receive regulatory clarity, bankers say they will start structuring and selling Tier 1.

TAX CLARITY PUSHES ISSUERS TO FRONT OF QUEUE

Investors have proved willing buyers of riskier instruments, including total loss, high-trigger contingent capital issued by Barclays and KBC as well as a remarketed contingent capital instrument from Bank of Ireland.

But this demand has so far been unfulfilled as issuers remain reluctant to issue Tier 1 capital without regulatory clarity.

Tax-deductibility is one of the most important considerations that borrowers take into account in their funding decisions, as it makes debt a more attractive financing option.

Nordic issuers are tipped to be the first out as the region's regulators have already specified that Tier 1 will be tax deductible, as is also the case in Italy.

A number of banks could be early movers, but the first need to be credits that investors are willing to buy easily, bankers say.

Certain countries are waiting for their tax frameworks to be finalised, so while it's unlikely that issuers will pile in on top of each other, issuance is likely to increase over time. (Reporting by Aimee Donnellan; editing by Alex Chambers and Julian Baker)

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Shutterfly sues to shut down Kodak photo app

March 22 | Fri Mar 22, 2013 2:24pm EDT

March 22 (Reuters) - Photo service Shutterfly Inc has sued to shut down an Eastman Kodak Co app that lets users purchase photo albums made from pictures stored on Facebook Inc's social media network, according to court documents.

Shutterfly bought the Kodak Gallery online photo business for $23.8 million last year, and as part of the deal Kodak agreed not to set up a duplicate business, according to court documents.

Shutterfly said in a complaint filed on Friday with the U.S. Bankruptcy Court in Manhattan that the "My Kodak Moments App" violates the sale agreement by setting up a competing business.

The app allows users to choose photos on Facebook to create an album which is then printed and sent to the consumer.

The complaint also alleged it is powered by the same technology that powered the business that Shutterfly purchased.

A Kodak spokesman did not immediately respond to a request for comment.

Kodak filed for bankruptcy early last year.

It said on Friday it had closed on its $848 million finance package that helps prepare it to exit bankruptcy in the middle of this year. The company plans to focus on its commercial imaging business after it reorganizes.

The case is In re: Eastman Kodak Co et al, U.S. Bankruptcy Court, Southern District of New York, No. 12-10202.

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COMMENT: Cyprus: too small to care

By Natalie Harrison

Fri Mar 22, 2013 7:28am EDT

LONDON, March 22 (IFR) - Just two months away from the eurozone's first potential sovereign default, and the credit market is, well, amazingly calm.

A EUR1.4bn sovereign bond that Cyprus is due to repay on June 3 is bid at a cash price of 82, hardly distressed levels in the context of the Greek restructuring. And even Cyprus' longer dated issues are no less than 60% of face value.

That suggests there's a fairly good chance that sovereign bond holders will be paid back - potentially in full. So what's there to be worried about?

Not a lot, if you ask bankers, and the broad-based market stability seems to reflect that.

Peripheral sovereign yields have all been relatively steady, as has the second most vulnerable sector - banking.

While the iTraxx Senior and Subordinated indices have borne the brunt of the sell-off in the wake of the announcement of the unprecedented tax on Cypriot bank deposits, the moves in cash have been tame.

That is remarkable if you consider the potential threat to senior bondholders given depositors' treatment.

ITALY'S THE WORRY

So, has the world gone mad? On the face of it, no. Not only is Cyprus not systemically important, but it suffers from the widespread perception that its banks' business model is based on the country being a tax haven propped up by Russian money.

There is no way Germany, Finland and The Netherlands would support shouldering the entire cost of the bailout for such a small, dare we say it, insignificant European country when there is a perfect pool of international investors ready for the taking: rich Russians.

This same trio has also been very vocal that senior bondholders should be bailed-in.

Although Cyprus' bailout has been badly managed, financial market professionals all agree, more or less, that whatever happens to Cyprus, the bubble of the seven-month rally will not burst.

"The market will just work through this," said one senior banker.

"Cyprus? It counts for such a small percentage of eurozone GDP, that it's almost insignificant," said another.

Cyprus accounted for just 0.1% of eurozone output in 2012, according to European Commission data.

"What's more worrying is that the market isn't more nervous about the situation in Italy. It's the third biggest country in the eurozone, and it doesn't have a government," said the second banker.

Precisely. This is where the world does appear mad.

Prolonged political uncertainty would leave Italy, which has around EUR2trn of public debt, exposed to rising bond yields.

A disorderly default for Cyprus is clearly not ideal, but it would not spell disaster. If things get messy in Italy, on the other hand, we're quickly in uncharted territory.

The outlook for the country's banks is particularly dire. If Cyprus can take it upon itself to ignore an EU-wide insurance for depositors under EUR100k, what's to stop others doing something similar? And how can Italian second and third tier banks reassure depositors, and bondholders, that they're not at risk?

If Cyprus has taught us one thing, it's that sovereigns will do whatever they have to in order to keep their heads above water.

The market - given its stability - may well be ignoring that, simply because the billions of cash sloshing around the market is distorting investment decisions and risk judgment.

As one banker warned: "There's so much cash, it's papering over the cracks." (Reporting by Natalie Harrison, IFR Markets; editing by Alex Chambers and Julian Baker)

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Insurers race to fill hybrid capital vacuum

Fri Mar 22, 2013 8:35am EDT

* Insurance pipeline fills as investor demand soars

* Banks to take market reins from Q2

* Tier 1 and 2 issuance to hit EUR350bn in coming years

By Aimee Donnellan

LONDON, March 22 (IFR) - Insurance companies are racing to make the most of firm conditions in the subordinated debt market, ahead of an imminent wave of bank capital deals that will raise competition for investor cash and leave them vulnerable to market volatility.

Prudential, MACIF, Zurich, Swiss Re, AG Insurance and AXA Insurance have sold a mixture of Tier 2 debt and CoCos to ravenous investors in search of yield.

This week Norway's biggest insurance company Storebrand became the latest, selling just EUR300m worth of subordinated debt but attracting a whopping EUR2.5bn order book.

Dutch insurer Achmea is finishing up a roadshow this week and Caplin Insurance is also tipped to make an appearance.

"Insurance hybrids are really the hotspot of the FIG market these days," said Harman Dhami, head of FIG syndicate at RBS.

The only euro supply in the deserted bank capital market this year has been a EUR1.25bn Tier 2 from Nationwide Building Society which came last week on a hefty EUR5.5bn book.

But oversubscribed order books could soon be a thing of the past as banks need to raise as much as EUR200bn of Tier 2 debt and EUR150bn of Additional Tier 1 in the coming years, according to figures from Citi.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For graphic on estimated net issuance of bank capital instruments: link.reuters.com/guk66t ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

"Once there is an agreement on the final details of CRR then banks can go ahead and issue capital. All of this seems quite plausible for the second quarter of 2013," said Simon McGeary, head of new products group at Citigroup.

Banks will be required to hold extra capital to ensure taxpayers aren't saddled with the bill in any future bank bailouts.

Insurers are keen to get ahead of this rush given the threat of oversupply and volatility.

"If markets are constructive they can absorb quite a lot before suffering indigestion, but the worry is that the macro picture will remain volatile causing windows to open and shut," said McGeary.

HEALTHY COMPETITION

It's easy to understand why insurance companies are in such demand. As investors desperately attempt to weigh up the risks of the SNS nationalisation and the potential bail-in of depositors in Cyprus, insurance companies look a relatively safe bet.

Insurance companies' minimal reliance on capital markets has been one of the factors behind their resilience to the financial crisis, analysts say.

That stands in sharp contrast to banks that rely on funding through the senior, covered and subordinated debt markets.

Insurance companies are also enjoying a clear field, with banks sidelined from Tier 1 markets due to unclear regulatory and tax treatment of the capital instruments.

This is set to change in mid April when a European Parliament plenary is planned to discuss the proposed Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD IV).

Once they receive regulatory clarity, bankers say they will start structuring and selling Tier 1.

TAX CLARITY PUSHES ISSUERS TO FRONT OF QUEUE

Investors have proved willing buyers of riskier instruments, including total loss, high-trigger contingent capital issued by Barclays and KBC as well as a remarketed contingent capital instrument from Bank of Ireland.

But this demand has so far been unfulfilled as issuers remain reluctant to issue Tier 1 capital without regulatory clarity.

Tax-deductibility is one of the most important considerations that borrowers take into account in their funding decisions, as it makes debt a more attractive financing option.

Nordic issuers are tipped to be the first out as the region's regulators have already specified that Tier 1 will be tax deductible, as is also the case in Italy.

A number of banks could be early movers, but the first need to be credits that investors are willing to buy easily, bankers say.

Certain countries are waiting for their tax frameworks to be finalised, so while it's unlikely that issuers will pile in on top of each other, issuance is likely to increase over time. (Reporting by Aimee Donnellan; editing by Alex Chambers and Julian Baker)

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Shutterfly sues to shut down Kodak photo app

March 22 | Fri Mar 22, 2013 2:24pm EDT

March 22 (Reuters) - Photo service Shutterfly Inc has sued to shut down an Eastman Kodak Co app that lets users purchase photo albums made from pictures stored on Facebook Inc's social media network, according to court documents.

Shutterfly bought the Kodak Gallery online photo business for $23.8 million last year, and as part of the deal Kodak agreed not to set up a duplicate business, according to court documents.

Shutterfly said in a complaint filed on Friday with the U.S. Bankruptcy Court in Manhattan that the "My Kodak Moments App" violates the sale agreement by setting up a competing business.

The app allows users to choose photos on Facebook to create an album which is then printed and sent to the consumer.

The complaint also alleged it is powered by the same technology that powered the business that Shutterfly purchased.

A Kodak spokesman did not immediately respond to a request for comment.

Kodak filed for bankruptcy early last year.

It said on Friday it had closed on its $848 million finance package that helps prepare it to exit bankruptcy in the middle of this year. The company plans to focus on its commercial imaging business after it reorganizes.

The case is In re: Eastman Kodak Co et al, U.S. Bankruptcy Court, Southern District of New York, No. 12-10202.

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BRIEF-CEDC gets restructuring plan from A1-led consortium

March 21 | Thu Mar 21, 2013 4:29pm EDT

March 21 (Reuters) - Central European Distribution Corp : * Sent new restructuring proposal from a1-spi-kaufman consortium - a1 statement * A1-led consortium offers $280 million in cash, $650 million in new debt to

restructure Central European Distribution Corp * A1-led consortium would receive 100 percent of reorganized equity in Central

European Distribution Corp * A1 consortium restructuring plan for Central European Distribution Corp

would be implemented through ch. 11 bankruptcy

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Poland's CEDC gets new restructuring proposal from A1-led group

March 21 | Thu Mar 21, 2013 5:19pm EDT

March 21 (Reuters) - Central European Distribution Corp , a leading vodka producer that missed a debt payment last week, received a restructuring plan offering $280 million in cash, which would turn the equity over to a group led by a Russian investor.

A1, a unit of Russia's Alfa Group, was also offering investors that hold notes issued by CEDC $650 million in new debt, according to a letter that was sent to the board of CEDC on Thursday.

Warsaw-based CEDC, which makes Absolwent and Parliament vodka and has a leading market share in Russia, Hungary and Poland, is trying to reduce its debt with an exchange offer aimed at holders of 2016 notes, which have a face value of more than $500 million.

A company owned by CEDC's chairman is simultaneously offering to buy CEDC notes that matured last week. CEDC did not make the scheduled payment on those maturing notes, which total about $258 million.

A1's plan was jointly proposed with SPI Group, which owns Stolichnaya Vodka, and Mark Kaufman of Monaco, who is a large investor in CEDC.

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UPDATE 1-Canada to set higher capital requirements for key banks

Thu Mar 21, 2013 5:47pm EDT

* Budget announcement does not name the banks

* Would affect "domestic systemically important banks"

* Will move on federal law if common regulator idea dies

* Will promote entry of new, smaller banks

By Randall Palmer

OTTAWA, March 21 (Reuters) - Canada's federal budget laid out plans on Thursday to impose higher capital requirements on banks whose failure could disrupt the Canadian financial system and economy.

Finance Minister Jim Flaherty also said the federal government would go ahead with its own capital markets regulatory framework if it cannot agree with the provinces on creating a common securities regulator.

And he said the government would review how it regulates financial institutions to ensure it promotes the entry and growth of smaller financial institutions in order to foster competition that helps consumers and businesses.

The new rules for "domestic systemically important banks" will parallel measures agreed by the Financial Stability Board, the financial watchdog of the Group of 20 leading economies, in response to the 2008 crisis.

Canada's superintendent of financial institutions will determine the higher capital requirement. The document did not name any particular bank.

The government will also implement a "bail-in" regime for these banks to ensure that, if a bank depletes its capital, it can be recapitalized through the very rapid conversion of certain liabilities into regulatory capital.

"This risk management framework will limit the unfair advantage that could be gained by Canada's systemically important banks through the mistaken belief by investors and other market participants that these institutions are 'too big to fail'," the budget document said.

Canada's biggest banks are Royal Bank of Canada, Bank of Nova Scotia, Toronto-Dominion Bank, Bank of Montreal and Canadian Imperial Bank of Commerce .

On the question of trying to come up with a common securities regulator to replace the patchwork of provincial regulators, Flaherty said he was coming to the end of his patience.

"The government's preferred approach is to improve the regulation of Canada's capital markets through a cooperatively established common securities regulator," the budget said.

"If a timely agreement cannot be reached, the government will propose legislation to ensure that it can carry out its regulatory responsibilities for capital markets consistent with the decision of the Supreme Court of Canada."

This referred to a December 2011 ruling that Flaherty's initial plans for a national securities regulator stepped too far into areas of provincial jurisdiction. He has been trying to come up with a replacement agreeable to the provinces ever since.

The budget also announced plans to help Canadian financial institutions expand internationally, partnering with them in promoting the Canadian brand. And it said it would allow financial institutions more flexibility regarding the residency of members of board committees.

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In Suntech's China home, high hopes for a bailout

By Charlie Zhu and Umesh Desai

WUXI, China/HONG KONG, March 21 | Thu Mar 21, 2013 2:24am EDT

WUXI, China/HONG KONG, March 21 (Reuters) - The local government in Suntech Power Holdings Co Ltd's home town is seeking to bail out the Chinese solar panel maker to avoid an embarrassing corporate collapse, a person with knowledge of the matter told Reuters on Thursday.

One proposal under consideration is allowing Wuxi Guolian, the local government's investment arm, to take over Suntech's Wuxi business through a restructuring, and test a bankruptcy law introduced in 2007.

"Production has to continue," said the source in the city of Wuxi, where Suntech's headquarters are located. "The Wuxi government is still seeking to bail out Suntech in one form or another. It has no intention to let it collapse as, if that happens, it would damage its reputation."

A Wuxi government spokesman said he had no information on the matter. But the spokesman added: "If there is any news regarding the restructuring, it will be released through Wuxi Guolian."

What happens to Suntech and to the offshore holders of its debt will be an important test of how China deals with foreign investors.

Suntech defaulted on $541 million of its U.S. listed bonds due on Friday, triggering cross-defaults on loans from International Finance Corp (IFC) and Chinese lenders.

At the end of March 2012, Suntech had total debt of $2.2 billion - including loans from China Development Bank, and a $50 million convertible loan from the IFC, the private sector arm of the World Bank.

Nine banks, including Industrial and Commercial Bank of China , Agricultural Bank of China and Bank of China had outstanding loans of 7.1 billion yuan ($1.1 billion) to Suntech at the end of February, according to state news agency Xinhua.

Eight Chinese banks that have lent money to Suntech want the company's main unit, Wuxi Suntech Power Holdings Co Ltd, declared insolvent.

BIG PROMOTER

The Wuxi government has been a big promoter and supporter of the company, which in its heyday was a $16 billion symbol of China's green technology ambitions.

Spurred by government incentives and credit, China's solar manufacturing industry grew rapidly to become the world's largest in just a few years. But even as hundreds of factories popped up across China, European nations began to curb generous solar incentives, leading to a massive global oversupply of panels that has crippled the industry.

At Suntech's big solar panel factory in Wuxi, 120 km (75 miles) west of Shanghai, employees reported for work as usual on a chilly morning on Thursday.

The company's headquarters office is nearby, with one side of its facade entirely made up of solar panels that supply 85 percent of the energy it uses.

Asked whether he was aware of the news that lenders were pushing for bankruptcy of Wuxi Suntech, one Suntech employee taking a smoking break at the factory gate said, "No I don't know. Actually I don't read newspapers."

The man, who declined to give his name, snuffed out his cigarette and headed into the factory.

China has a history of bailing out companies on the brink of failure, and investors had assumed Suntech would be no exception. But the move by domestic creditors on Wednesday introduced some doubt. Where foreign creditors stand is also uncertain.

"We think Beijing has sent a message to all the Chinese solar companies - improve your balance sheets or you could go this way," said Nitin Kumar, a Singapore-based Nomura analyst.

Suntech's complicated business structure adds another element of uncertainty. The company's shares are listed on the New York Stock Exchange, but it is registered in the Cayman Islands and its assets are in China.

China passed a new bankruptcy law in 2007 that is rarely tested because local officials generally mediate between creditors behind closed doors. Beijing has used the law cautiously, fearing the failure of large companies and widespread layoffs could lead to social unrest.

Suntech employs around 20,000 people worldwide, with about half of that number in Wuxi, Chinese media and the company's web site say.

GOOD LUCK WITH THAT

The main question is whether any bailout is forthcoming and how it will affect foreign investors holding Suntech's bonds.

"Obviously if the U.S. convertible bond holders are not paid back and they are not even part of the restructuring deals, then it does raise questions about investor rights," said Kumar.

While the insolvency proceedings have not hit the domestic bond market, they may become a factor over time, another analyst said.

"Most investors think it's an offshore bond, so it's not a problem for the onshore market," said Ethan Mou, China credit strategist at Bank of America-Merrill Lynch in Hong Kong.

"But going forward, (onshore) investors will take note of the government's stance towards this default. It takes time, but I think the market will digest the significance behind this default and realize that the implicit backstop of local governments may not appear every time."

Analysts say the widespread assumption of an implicit government guarantee against default prevents China's onshore yuan bond market from pricing risk effectively. A comparison of yields on bonds from companies that have issued both onshore and offshore shows that companies considered risky, high-yield plays offshore trade at much tighter spreads onshore.

Foreign debt holders are however in a more difficult situation.

"Offshore debt holders are on shaky legal ground (their claims are to a piece of paper in the Caymans, whereas STP's operating assets are effectively all in China)," said Charles Yonts at CLSA in Hong Kong.

"And even if not, they would have the rather daunting task of fighting to the front of the queue of Chinese creditors  in China. Good luck with that."

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PRESS DIGEST-New York Times business news - March 21

March 21 | Thu Mar 21, 2013 2:56am EDT

March 21 (Reuters) - The following are the top stories on the New York Times business pages. Reuters has not verified these stories and does not vouch for their accuracy.

* Despite a healthy increase in U.S. employment in the last few months, the Federal Reserve on Wednesday said it would continue its stimulus efforts by holding down short-term interest rates and buying $85 billion a month in treasuries and mortgage-backed securities. ()

* Banks, including JPMorgan Chase & Co, Goldman Sachs Group Inc and Morgan Stanley, all have provisions that allow acceleration of payments owed to senior executives if they take government jobs, a new study found, creating a debate on Wall Street over whether that is a conflict of interest. ()

* The Cyprus crisis shows that, for all the faults with the financial crisis rescues in the United States, the European Union still finds ways to show us how poorly a bailout could be handled. ()

* With the Federal Home Loan Mortgage Corp suit, banks face billions more in Libor claims. Unlike other plaintiffs, Freddie Mac looks to have a strong case because it dealt directly with many of the banks accused of manipulating the London interbank offered rate. ()

* Some of the United States' largest banks continue to offer payday loans, pitched as advances on direct-deposit paychecks, despite growing regulatory scrutiny and mounting criticism about the short-term, high-cost loans, found a report by the Center for Responsible Lending to be released on Thursday. ()

* Despite Barclays Plc's weak profit and legal woes, top executives at the bank have been richly rewarded in the years since the financial crisis. The bank disclosed on Wednesday that its investment banking head, Rich Ricci, had cashed in $26 million of deferred shares he was awarded as part of his bonus from 2009 to 2011. ()

* Suntech Power Holdings Co Ltd, which became the world's largest producer of solar panels, has been pushed into bankruptcy in a remarkable reversal for what had been part of a huge Chinese government effort to dominate renewable energy industries. ()

* FedEx Corp on Wednesday cut its outlook for the year after its profits slumped by 31 percent in the latest quarter as its customers were increasingly using its cheaper shipping options, even if that meant slower deliveries. In an effort to reduce costs, FedEx said it would retire some older and less efficient airplanes. ()

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PRESS DIGEST - Wall Street Journal - March 21

March 21 | Thu Mar 21, 2013 3:36am EDT

March 21 (Reuters) - The following are the top stories in the Wall Street Journal. Reuters has not verified these stories and does not vouch for their accuracy.

* The U.S. Federal Reserve maintained its easy-money policies, but is developing a strategy for winding down its bond-buying program when conditions warrant. ()

* Cyprus was left with narrowing options to rescue its financial-services sector from collapse after lenders rejected an alternative plan to secure a bailout and Russian officials remained cool to a gas-for-cash deal. ()

* Dell Inc CEO Michael Dell needs to persuade it's investors that the prospects for the company he founded in 1984 are anything but rosy if he is to succeed with his plan to take the computer maker private as a Friday deadline for rival bids to buy his firm approaches. ()

* FedEx Corp reported that its quarterly profit plunged 31 percent as its international customers and shippers flocked to slower, cheaper delivery options instead of its premium-priced express service. ()

* Oracle Corp's growth stalled in its latest quarter, as the big technology company sold fewer software licenses and its business in server systems continued to shrink. ()

* Hewlett-Packard Co's board chairman and two outside directors narrowly survived a re-election challenge, a rebuke reflecting shareholder dissatisfaction with a controversial acquisition. ()

* Solar-panel maker Suntech Power Holdings Co Ltd has been forced into Chinese bankruptcy proceedings, sparking questions about how U.S. investors will fare in the decline of one of China's most prominent companies. ()

* As Boeing Co tests fixes to the batteries of its 787 Dreamliners, it now faces the challenge of persuading passengers that the jetliner will be safe to fly when it resumes commercial service. The efforts include sending surveys to frequent fliers, aviation enthusiasts and others to gauge attitudes toward the Dreamliner. ()

* Silicon Valley company Intertrust Technologies Corp, a pioneer in digital copyright protection, on Wednesday sued Apple Inc alleging that Apple infringed 15 of Intertrust's patents. ()

* Container Store CEO Kip Tindell, in an interview with the Wall Street Journal, discussed his vision for the retailer's continued growth, and said it is considering an initial public offering, a move that might put equity into employees' hands. ()

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