Brazil's Caixa eyes selling pool of distressed loans -source

Wed Jul 2, 2014 4:44pm EDT

SAO PAULO, July 2 (Reuters) - State-run Caixa Econômica Federal, Brazil's largest mortgage lender, is considering selling a pool of distressed consumer loans to investors, the first step in a broader plan to get rid of bad loans and free up capital, a source said on Wednesday.

About 3 billion reais ($1.35 billion) worth of defaulted loans could be sold to funds that specialize in dealing with distressed assets, the source said.

Other steps being considered include the issue of securities backed by some of the bad loans, said the source, who declined to be identified because the matter remains under study.

Such moves allow banks to take defaulted debt off their books, creating room to fund more loans and comply with regulators' capital requirements. Caixa consulted a number of distressed debt funds about doing such a deal, the source said, adding that no timetable for a deal has been set.

Brasilia-based Caixa wants to gain know-how on how to clear defaulted loans from its balance sheet, a common practice among lenders in Latin America's largest economy, the source said. For lenders such as Caixa carrying distressed assets can increase operational costs and be a distraction because of the time and money needed to deal with them.

In May, state development bank BNDES unveiled a plan to sell about 6 billion reais worth of loans in arrears.

Private-sector banks have far more experience. In December 2011, Banco Santander Brasil SA, the largest foreign lender in Brazil, auctioned off 16 billion reais in bad loans, so far, the largest transaction of its kind in the country.

The move comes a couple of years after Caixa aggressively entered the consumer credit market under the instruction of the federal government, the bank's only shareholder. Caixa's loan book was 520 billion reais at the end of March, almost three times the size of outstanding credit at the end of 2010.

At the end of the first quarter, the amount in problem loans on Caixa's books, known in Brazil as E-H loans, totaled 25 billion reais, or the equivalent of 4.8 percent of outstanding credit.

Caixa's loans 90 days or more in arrears rose to the equivalent of 2.6 percent of outstanding loans in the first quarter from 2.3 percent a year earlier. That so-called default ratio is the industry's most widely followed gauge for measuring loan delinquencies.

($1=2.22 Brazilian reais) (Reporting by Guillermo Parra-Bernal and Aluísio Alves; Editing by Peter Galloway)

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UPDATE 1-Brazil's Caixa eyes sale of distressed loans, sources say

Wed Jul 2, 2014 5:57pm EDT

(Recasts to add details from a second source in paragraphs 1-6)

By Guillermo Parra-Bernal and Aluísio Alves

SAO PAULO, July 2 (Reuters) - State-run Caixa Econômica Federa l, Brazil's largest mortgage lender, is considering options to get rid of bad loans and free up capital, including the sale of pools of distressed credit to investors, two sources said on Wednesday.

Up to 3.2 billion reais ($1.4 billion) worth of defaulted loans could be sold to funds that specialize in dealing with distressed assets, the sources said. Alternatives under study include the sale of securities backed by pools of bad loans, according to the first source, who declined to be identified because the matter has yet to be decided.

Such actions allow banks to take defaulted debt off their books, giving them room to fund more loans and comply with regulators' capital requirements. Caixa consulted as many as four distressed debt funds about doing such a deal, the second source noted, adding that no time table for a deal has been set.

Brasilia-based Caixa wants to gain know-how on how to clear defaulted loans from its balance sheet, a common practice among lenders in Latin America's largest economy, the source said. For lenders such as Caixa carrying distressed assets can increase operational costs and be a distraction because of the time and money needed to deal with them.

"From an asset standpoint, the deal makes sense for the parties involved," the second source said. "Still, time tables were non-existing and there are discrepancies on various terms of the deal, including the price of those assets."

Caixa declined to comment. Three funds that trade distressed debt in Brazil declined to confirm their participation in the process.

In May, state development bank BNDES unveiled a plan to sell 6 billion reais worth of loans in arrears.

Private-sector banks have far more experience. In December 2011, Banco Santander Brasil SA, the largest foreign lender in Brazil, auctioned off 16 billion reais of bad loans, so far the largest transaction of its kind in the country.

Caixa aggressively entered the consumer credit market several years back under the instruction of the federal government, the bank's only shareholder. Caixa's loan book was 520 billion reais at the end of March, almost three times the size of outstanding credit at the end of 2010.

At the end of the first quarter, the amount of problem loans on Caixa's books, known in Brazil as E-H loans, totaled 25 billion reais, or the equivalent of 4.8 percent of the bank's outstanding credit.

Caixa's loans 90 days or more in arrears rose to the equivalent of 2.6 percent of outstanding loans in the first quarter from 2.3 percent a year earlier. That so-called default ratio is the industry's most widely followed gauge for measuring loan delinquencies.

($1 = 2.22 Brazilian reais) (Reporting by Guillermo Parra-Bernal and Aluísio Alves; Editing by Peter Galloway and Steve Orlofsky)

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Insurers sue asbestos trust for records, say they suspect fraud

By Tom Hals

WILMINGTON, Del., July 3 Thu Jul 3, 2014 12:30pm EDT

WILMINGTON, Del., July 3 (Reuters) - Six insurance companies are suing an asbestos personal injury trust set up by a U.S. unit of Philips that the insurers suspect has been making millions of dollars in fraudulent payments to parties that cannot prove they were harmed by the company's asbestos products.

In the lawsuit, the insurers are seeking access to trust records.

The insurers said the asbestos personal injury or PI trust set up during the 2008 bankruptcy of T H Agriculture & Nutrition LLC, a unit of Philips Electronics North America Corp, had been paying substantially more claims than originally forecast.

"Plaintiffs have a reasonable suspicion that fraudulent claims have been submitted to and paid by the asbestos PI trust," said the lawsuit, which was filed on Wednesday in Delaware's Court of Chancery.

The lawsuit is the latest in a string of legal and legislative actions aimed at shedding light on the trusts, which have been used for decades to compensate people injured by exposure to cancer-causing asbestos.

Dozens of companies have filed for bankruptcy in the wake of thousands of lawsuits and then set up trusts that collectively control tens of billions of dollars.

The six insurers were seeking to conduct an audit of trust records as part of a bankruptcy agreement with T H Agriculture & Nutrition, or THAN, Philips Electronics North America and the asbestos trust.

An attorney who represented THAN as well as the asbestos trust said the lawsuit had no merit because the insurers were offered the opportunity to audit the trust's claims in compliance with the bankruptcy plan.

"They want to conduct a different audit than the one contemplated by the agreement," said Sander Esserman of Stutzman, Bromberg, Esserman & Plifka in Dallas. "I suspect the lawsuit will not receive any traction in the courts."

Philips Electronics did not immediately respond to a request for comment.

THAN filed for bankruptcy in 2008 in the wake of thousands of lawsuits by people alleging they were made sick by the asbestos the company distributed until 1980.

In exchange for setting up the $900 million trust, all future asbestos-related claims against THAN were directed to the trust.

The six insurers agreed to make installment payments to Philips Electronics North America based on the distributions by the asbestos trust. They said in their lawsuit they may have paid $25 million more than they should have due to the suspected fraud.

The insurers are AIU Insurance Co, American Home Assurance Co, Birmingham Fire Insurance Co of Pennsylvania, Granite State Insurance Co, Lexington Insurance Co and National Union Fire Insurance Co of Pittsburgh.

In January, a judge found in the bankruptcy of Garlock Sealing Technologies that personal injury lawyers had repeatedly sought claims from asbestos trusts after their clients told courts they had no exposure to the products the trusts were compensating for.

Federal and state lawmakers have also proposed bills that would increase disclosure from the asbestos trusts.

The case is AIU Insurance Co et al v Philips Electronics North America Corp et al, Delaware Court of Chancery, No. 9852. (Reporting by Tom Hals in Wilmington, Delaware; Editing by David Gregorio)

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UPDATE 1-JPMorgan, funds to own LightSquared under bankruptcy exit plan

Tue Jul 1, 2014 1:18pm EDT

(Adds liquidity details, background and quotes throughout from Tuesday's court hearing)

By Nick Brown

NEW YORK, July 1 (Reuters) - Bankrupt wireless venture LightSquared on Tuesday revealed a new restructuring proposal that would cede 74 percent of its equity to a new investor group that includes JPMorgan Chase & Co, Cerberus Capital Management and Fortress Investment Group.

Phil Falcone's Harbinger Capital Partners, which now controls LightSquared, would retain about 12.5 percent of the new equity, according to Joshua Sussberg, a lawyer for a committee overseeing LightSquared's restructuring efforts. Sussberg was speaking at a hearing in U.S. Bankruptcy Court in Manhattan.

JPMorgan, Cerberus and Fortress would supply $1.45 billion in new liquidity, with other investors in the group chipping in another $300 million. Existing lenders with around $1 billion in debt would be repaid in cash.

LightSquared's largest creditor, Dish Network Corp Chairman Charles Ergen, would be paid back with $470 million in cash and an unsecured note worth at least $492 million, said Sussberg, who is with Kirkland & Ellis.

Ergen has not agreed to the plan, and while his lawyer, Rachel Strickland, said she is willing to keep discussing a possible compromise, she is also preparing for a fight. On Tuesday, Strickland called for a full-fledged trial on the plan's fairness.

LightSquared and Ergen have been bitter rivals throughout the bankruptcy. LightSquared has accused Ergen of surreptitiously buying up its debt in violation of a credit agreement that bars competitors like Dish from owning company debt. Ergen insisted the investment was personal.

LightSquared went bankrupt in 2012 after the Federal Communications Commission revoked its spectrum license because of fears that its planned wireless network could interfere with GPS systems.

ANOTHER TRIAL?

The patience of Judge Shelley Chapman, overseeing the case, has worn thin as the bankruptcy reaches its 26th month and gears up for what could be a second major trial, tentatively scheduled for late August.

In the first weeks-long trial over whether Ergen used underhanded means to acquire his LightSquared debt, the judge found no heroes. In her May ruling, she rejected LightSquared's proposed restructuring but blamed both sides for their inability to compromise.

Chapman sent both sides to mediation under fellow U.S. Bankruptcy Judge Robert Drain. In a report last week, Drain said Ergen "wasted the parties'...time," refusing to negotiate in good faith and leaving one of the sessions without Drain's permission.

LightSquared and its other creditors now have a new plan they like. But on Tuesday, Ergen's camp demanded another lengthy two-phase trial that examines both the plan's overall legality and the appropriateness of how it treats Ergen's debt.

Chapman chided Strickland, Ergen's lawyer, over perceived delay tactics, saying "delay is not this case's friend, but delay is something that can be utilized by your client at this point."

Ergen "is not looking for delay," Strickland said. "My client is looking for his day in court." (Reporting by Nick Brown in New York; Editing by Tom Hals, Phil Berlowitz and Jan Paschal)

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WRAPUP 4-Puerto Rico makes bond payments, but muni market remains on edge

Tue Jul 1, 2014 7:28pm EDT

(Adds statement from Puerto Rico confirming payment and amount)

By Lisa Lambert

WASHINGTON, July 1 (Reuters) - Creditors to Puerto Rico's electricity provider were given a slight respite on Tuesday when the bonds' trustee made a scheduled payment, but the U.S. municipal bond market remained worried the Puerto Rico Electric Power Authority (PREPA) will soon use a new bankruptcy-like process to restructure its debts.

The law establishing the process has rattled the $3.7 trillion municipal market since it was passed last week and on Tuesday it prompted Moody's Investors Service to push ratings on Puerto Rico debt deeper into junk territory.

Puerto Rico bonds are widely held due to their tax exemption in every state and their high yields, making them a tempting asset despite the U.S. commonwealth's struggles to cope with a shrinking economy, chronic budget deficits and a $73 billion debt load.

PREPA could be the first corporation to test the law, as it faces increasing demands for its limited funds, including payments on expiring lines of credit and fuel purchases. Prices of its junk-rated bonds plummeted to the record low of 36.815 cents on the dollar, or a yield 14.887 percent.

The flight to Puerto Rico's $3.5 billion junk general obligation bonds ended as well - with prices falling to a record low of 84.5 cents or a 9.748 percent yield.

On Tuesday evening, the Chairman of the Government Development Bank for Puerto Rico David Chafey confirmed all bond payments maturing on Tuesday had been made, including $721.97 million paid to service general obligation bonds and $417.56 million for the PREPA bonds.

For most of the day, rumors whipped through the municipal market that bondholders may not receive any money.

The bond trustee is allowed to hold onto funds if it foresees large expenses looming, and Puerto Rico's new law allowing public corporations to restructure already threatens to rack up costs for PREPA. The authority is considered the most likely corporation to restructure, which could generate legal bills, and on Sunday mutual funds sued saying the law was unconstitutional.

U.S. Bancorp spokeswoman Teri Charest said the bank cannot comment on clients' accounts.

The fear is that PREPA is the first domino toward the restructuring of Puerto Rico's debts, a move akin to filing for bankruptcy, which the territory cannot do. The law passed last week excludes Puerto Rico and the Government Development Bank.

Puerto Rico has been fighting hard this year to pull its finances together, after years of population and economic declines led its revenues to shrink. Late on Monday, it passed a scaled-down budget for the fiscal year starting on Tuesday, but recent measures may not be enough to fix its economy.

Meanwhile, Moody's Investors Service cut the island's general obligation bonds to B2 from Ba2. Citing the restructuring law, it broadly swung its axe at the ratings of the Government Development Bank, PREPA, the aqueduct and sewer authority, the highway authority and even the sales-tax financing corporation known as COFINA, which is generally considered the safest Puerto Rico issuer.

The law "signals a depleted capacity for revenue increases and austerity measures, and a new preference for shifting fiscal pressures to creditors, which, in our view, has implications for all of Puerto Rico's debt, including that of the central government," Moody's said.

PREPA's $250 million line of credit from Citibank has already expired. On July 3, PREPA is required to pay the bank $10 million. It must turn over $146 million to the bank through the end of August. Likewise its $550 million line of credit from ScotiaBank de Puerto Rico expires next month, putting it on the hook for $525 million.

In response to the Moody's downgrade, GDB's Chafey said the bank was "proceeding with focus and determination to continue strengthening the Commonwealth's financial position and build a solid foundation for economic prosperity and development."

PREPA is currently negotiating extensions of the lines. Still, it also must find cash to pay a recent internal loan for buying fuel and then cover future fuel purchases.

In the past the GDB has stepped in to prop up the perennially struggling PREPA but now, dealing with its own liquidity worries, it is staying away. Meanwhile, Governor Alejandro Garcia Padilla has repeatedly said public corporations must become self-reliant.

"They're a cash-poor entity and have been for a long time," said Shawn O'Leary, senior vice president at Nuveen Asset Management, which holds $80.6 million of bonds that could be subject to the legislation. "The difference now is that the central government and the GDB said, 'We're no longer floating you loans'." (Additional reporting by Edward Krudy in New York, Reuters in San Juan and the Bangalore newsroom, Robin Respaut in San Francisco; Editing by Tom Brown, Bernard Orr)

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UPDATE 1-Coal miner NWR agrees revised capital restructuring terms

Wed Jul 2, 2014 3:36am EDT

(Adds detail on revisions, shares, background)

PRAGUE, July 2 (Reuters) - Lossmaking Czech coal miner New World Resources (NWR) has revised the terms of a proposed capital restructuring and will put its main business up for sale if the plan does not win enough support from share and bond holders.

The new terms have the backing of 62 percent of its senior secured noteholders, 37 percent of senior unsecured noteholders and by majority shareholder BXR, NWR said in a stock exchange filing on Wednesday.

NWR, owner of the Czech Republic's only hard coal mines, is struggling to adjust to a sharp drop in global prices in recent years and tepid demand from its steel industry customers.

The company said that, as part of contingency planning in case it does not get enough support for the revised restructuring plan, it was starting a sale process for mining subsidiary OKD and Polish business NWR Karbonia.

"The board of directors believes that it is prudent to continue contingency planning in parallel with the implementation of the revised consensual transaction," NWR said in the filing.

NWR shares were down more than 8 percent in early trading in Prague.

The deal must be approved by a majority in number and 75 percent by value of each class of creditor voting in person or by proxy. NWR announced a conditional deal in June as it tries to cut its debt by almost a half and secure new capital to stave off insolvency.

The company had offered a consent fee to holders who would agree to the proposed terms by June 25. It said 77 percent of the senior secured noteholders and 40 percent of the senior unsecured noteholders had signed up by the deadline.

But those bondholders will have to enter the lock-up again under the revised terms by a July 11 deadline, NWR said.

Under the revised terms, NWR said a 30 million euro senior unsecured notes tender shall be at a fixed price of 25 percent of par. Other terms of the proposed capital restructuring remain unchanged, it said. (Reporting by Robert Muller; editing by Jason Neely and Tom Pfeiffer)

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Judge urged to reject Energy Future's $2 bln bankruptcy loan plan

By Tom Hals

WILMINGTON, Del, June 30 Mon Jun 30, 2014 2:13pm EDT

WILMINGTON, Del, June 30 (Reuters) - Creditors of bankrupt Energy Future Holdings, Texas' biggest power company, urged a judge to slow its Chapter 11 case and warned if a key refinancing proposal was approved it might block better deals from being considered.

In the past week, the company's majority stake in a powerlines business known as Oncor has sparked a flurry of activity comparable to a merger-type bidding war as creditors scramble to get their hands on the unit's steady cash flow.

The company wants Judge Christopher Sontchi to allow its EFIH unit, which owns Oncor, to borrow around $2 billion to fund a settlement that will redeem high-yield debt, saving $11 million a month in interest payments. The loan is backed by the company's unsecured bondholders.

Creditors not involved in financing the DIP, or debtor-in-possession, loan have called it "unprecedented" because it will convert into a stake of about 60 percent of Energy Future when the company exits bankruptcy.

The potential to gain control over the power company has sparked competing DIP loan proposals, including one with $1.6 billion of backing by NextEra Energy Inc, a Florida company that also has a large Texas presence.

"This is a hot auction," said Thomas Mayer, an attorney who represents creditors who have teamed up with NextEra. "Unless you approve the settlement and the DIP, then it's game over."

Mayer is with the Kramer Levin Naftalis & Frankel law firm.

Objectors to the loan and settlement said it will lock the company into a deal that will mainly benefit the bondholders backing the loan because it vastly undervalues Energy Future and its crown jewel, the stake in Oncor.

"For those who can participate, this is unquestionably a sweetheart deal," said James Peck, a lawyer for the official committee of unsecured creditors.

"This is a highly unusual financing," said Peck, a former U.S. Bankruptcy judge in Manhattan now with the Morrison & Foerster law firm. "Please slow down the process."

The hearing regarding the loan is expected to run through Tuesday.

Energy Future filed for bankruptcy in April, after years of lower-than-forecast power prices and burdened by more than $40 billion in debt. Much of that debt was taken on in the 2007 record leveraged buyout of the former TXU Corp, led by KKR & Co , TPG Capital Management and the private equity arm of Goldman Sachs.

Separately, the company is planning to spin off to senior creditors its unregulated power generation unit known as Luminant and its TXU Energy retail utility. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Bernard Orr)

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Conviction overturned for woman who aided 'squawk-box' prosecutors

By Joseph Ax

NEW YORK, June 30 Mon Jun 30, 2014 6:14pm EDT

NEW YORK, June 30 (Reuters) - A U.S. judge has vacated the conviction of a former Merrill Lynch administrative assistant who lied to a grand jury under pressure from her boss but then helped convict six former brokers and traders of generating illegal profits with information they overheard on a "squawk box."

Judge Leo Glasser of U.S. District Court in Brooklyn took the extraordinarily rare step of vacating the guilty plea of Irene Santiago, who admitted in 2005 to testifying falsely before a grand jury and agreed to cooperate with government investigators.

Santiago's testimony helped convict the six men but their convictions were overturned on appeal. Prosecutors later agreed to drop the charges against them if they met certain conditions.

In a ruling released on Friday, Glasser said it would be an injustice to leave Santiago with a conviction after the six defendants had their records scrubbed clean and their rights restored.

In 2009, thanks in part to Santiago's assistance, prosecutors convicted six former brokers and traders accused of listening in on pending orders from customers over squawk boxes between 2002 and 2004. Prosecutors said the six used the information to trade ahead of those transactions, a practice known as "front running."

The defendants were Kenneth Mahaffy, formerly of Merrill, now part of Bank of America Corp ; David Ghysels, formerly of Lehman Brothers Holdings Inc; Timothy O'Connell, formerly of Merrill; and Keevin Leonard, Robert Malin and Linus Nwaigwe, all formerly of the now-defunct broker-dealer A.B. Watley Inc.

Santiago primarily worked as an assistant to O'Connell. When government investigators sought to interview her as part of their probe, O'Connell persuaded her to lie to the grand jury, telling her he would "lose everything" and that he might "do something stupid," Glasser said in Friday's ruling.

In 2010, Glasser sentenced Santiago to a $10 fine, wondering aloud why prosecutors had indicted her given the pressure O'Connell put on her and the cooperation she provided.

Two years later, the 2nd Circuit U.S. Court of Appeals vacated the six men's convictions, ruling that prosecutors withheld key evidence and that jurors had been inadequately instructed.

Last year, prosecutors said they had reached deferred prosecution agreements with the six defendants, permitting the charges to be dropped if they stayed out of legal trouble for a period of time. Lawyers for several of the defendants said at the time they were pleased to put the case behind them.

In vacating the conviction, Glasser said it would be unfair to make Santiago a "real-life Hester Prynne, condemned to wear her scarlet letter of conviction for life."

A spokesman for Brooklyn U.S. Attorney Loretta Lynch said the office was "reviewing Judge Glasser's decision."

In an interview, Santiago's lawyer, Marjorie Preece, said, "Irene Santiago is pleased to have her name back and not be labeled a felon. The past nine years have been very difficult for her." (Reporting by Joseph Ax; Editing by Noeleen Walder)

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BRIEF-Protech Khuthele says discontinuing business rescue proceedings

July 1 Tue Jul 1, 2014 3:31am EDT

* Gavin Gainsford, appointed business rescue practitioner has concluded that there is no reasonable prospects of rescuing Protech

* Applying to court for business rescue proceedings of these companies to be discontinued and for companies to be placed under liquidation

* Gavin Gainsford also concluded that there is no reasonable prospects of rescuing protech khuthele and protech readymix Source text for Eikon: Further company coverage:

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BRIEF-Lightsquared reaches restructuring deal, lacks Charles Ergen's support - mediator

June 27 Fri Jun 27, 2014 5:34pm EDT

June 27 (Reuters) - LightSquared LP : * Reaches restructuring supported by all creditors except charles ergen's

investment vehicle - court mediator * Mediator says restructuring "should be confirmable" without ergen's support -

court documents * Mediator says ergen did not participate in Lightsquared mediation in good

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