The euro-zone debt crisis has mutated into Europe's longest slump of the postwar era, with no recovery in sight for a broad swath of the continent, The Wall Street Journal reported. Continuing government austerity, banks that can't or won't lend and heavy household debts are weighing on many countries. Weak business surveys are challenging official predictions, including from the European Central Bank, that growth will return this year. The euro zone's output of goods and services, or gross domestic product, fell in the first three months of the year at an annualized rate of 0.9%, data out Wednesday showed. That was the sixth-straight quarter of a recession that began in late 2011, and puts the region in contrast with other recovering economies. U.S. GDP grew at a 2.5% pace in the first quarter. Japan was expected Thursday to report first-quarter growth. U.K. output rose last quarter as well. Depression-like conditions in Southern Europe, combined with slowing global growth, are dragging down the core economies: Germany is barely growing and France is steadily contracting. The 17-nation euro zone, which accounts for 17% of world GDP, remains the weakest link in the global economy, mired well below its level of economic activity before the 2008 financial crisis. Social strains, political paralysis and rising debt burdens are reigniting doubts about its economic future. Read more. (Subscription required.)
Daily Insolvency News Headlines
Thu., May 16, 2013
Arcapita Bank BSC, an Islamic-compliant fund manager, won court permission to borrow $350 million from Goldman Sachs International (GS) to finance its exit from bankruptcy, Bloomberg reported. U.S. Bankruptcy Judge Sean Lane in Manhattan approved the financing today after Goldman Sachs and Fortress Credit Corp. revised their loan offers in an auction held in a conference room outside of Lane’s court. Goldman Sachs made the best proposal, Michael Rosenthal, a lawyer for Arcapita, told Lane. “We appreciate that both of these bidders submitted revised proposals and we think both of them have contributed significant value to the estate,” Rosenthal said in court. The interest rate and other provisions of Goldman Sachs’s loan may be better for Arcapita and its creditors, he said. Arcapita had gone before Lane today planning to weigh a revised offer from Fortress against an existing one from Goldman Sachs, which requested more time to confer. The companies then negotiated for more than an hour. Arcapita, based in Manama, Bahrain, filed for Chapter 11 protection in March 2012 after being unable to complete an out-of-court restructuring of $1.1 billion in unsecured debt. It listed assets of $3.06 billion and debt of $2.55 billion. Read more.
Having trouble borrowing from the banks? Or trusts? Or pawn shops, underground lenders, wealth management products, corporate finance companies, or small-loan companies? Don’t worry. China’s securities companies are also in the loan game, The Wall Street Journal China Real Time blog reported. It would seem that there is no shortage of avenues through which to tap credit these days in China. If anything, mounting debt levels, fueled by the shadowing banking sector, is raising concerns that credit is being dispensed too freely. Into this step China’s brokerages. According to local media, as of February, 75 of them were allowed to make loans that are backed with shares as collateral – a practice akin to margin lending. The scope of activities that securities companies are allowed to engage in has been greatly expanded over the last 18 months. Traditionally their business has been dominated by underwriting initial public offerings and providing brokerage services for people trading shares. But public interest in stocks hasn’t rebounded since the market collapsed in 2008, and the regulator has suspended IPOs since late last year. But recent changes in regulations have allowed them to move into wealth management, margin trading and securities lending – and securities-backed lending. Read more. (Subscription required.)
Suntech Power Holdings Co. reached a new forbearance agreement with the majority of holders of the company's 3% convertible notes, giving the solar-panel maker more time to work on its restructuring plans, Dow Jones Newswires reported. A principal payment of $541 million was due on March 15, but the signing bondholders agreed not to exercise their rights under the notes and the related indenture until June 28, subject to certain criteria. "This new forbearance agreement demonstrates bondholders' continued support for Suntech. The agreement will enable Suntech to continue to work with bondholders towards achieving a consensual restructuring," Suntech Chief Executive David King said. The company has been exploring its options as it tries to restructure some of its debt. Suntech and the broader solar industry have been struggling amid a global oversupply of solar panels and a drop in prices. Read more. (Subscription required.)
The International Monetary Fund's executive board approved a $1.3 billion (853.7 million pounds), three-year loan to Cyprus on Wednesday, part of a larger international bailout to help the Mediterranean country avoid defaulting on its debt, Reuters reported. But IMF Managing Director Christine Lagarde said Cyprus's bailout was subject to "substantial risks," as the economy is likely to contract for the next two years. "The macroeconomic outlook is subject to high uncertainty and risks to the program are substantial," Lagarde said in a statement. "There is no room for implementation slippages. Full and timely implementation of the program is critical to maintain credibility and achieve the program's objectives." Cyprus had to comply with certain conditions - including winding down its second-largest bank and imposing losses on large depositors - in order to receive the bailout from the IMF and the European Union, which totals 10 billion euros (8.5 billion pounds). The approval of the IMF's board means Cyprus immediately gets $110.7 million. Read more.
Mexican home builders and their creditors have been hiring U.S. bankruptcy lawyers and other advisers, as the companies struggle with mounting debt obligations, The Wall Street Journal reported. Two of the country's leading builders—Urbi Desarrollos Urbanos SAB and Corporación Geo SAB—missed debt payments in April and have reported dismal earnings. Urbi is considering a bankruptcy filing in Mexico as one option, some people familiar with the matter said. The two builders have tapped a combination of U.S. financial advisers and law firms, according to people familiar with the hirings. The professionals bring expertise with Mexican law based on prior matters as well as familiarity with the European and U.S. investors involved in these companies, the people said. Some are working in tandem with local Mexican firms, these people said. A root cause of the housing sector's woes is a shift in government priorities last year that led the builders to construct more apartments, which require larger amounts of working capital upfront than the free-standing homes they had been building. That transition has been complicated by the arrival of a new government under President Enrique Peña Nieto in December, leading to slowed disbursements of government subsidies and uncertainty about the extent of future government support for the industry. Read more. (Subscription required.)