Bankruptcy Judge Burton Lifland is keeping two Cayman Islands-based Bear Stearns & Co. Inc. hedge funds’ assets out of creditors’ reach for another 10 days while he weighs whether to grant them chapter 15 protection, Bankruptcy Law360 reported yesterday. Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd. and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leveraged Master Fund Ltd. had requested the protection on July 31, just after filing the necessary liquidation proceedings in a Cayman Islands court, in order to protect themselves from creditors who might try to seize their U.S. assets. Judge Lifland has been uncertain as to whether to grant the funds protection under chapter 15; the two Bear Stearns hedge funds are technically based in the Cayman Islands, he said, adding that they do hold assets in the U.S. and appear to operate out of New York.

TransLand Financial Services Inc., a Florida mortgage brokerage, is the subject of an involuntary chapter 11 petition filed by three banking companies in which it was accused of failing to remit at least $22.9 million of loan payoffs and other payments, Reuters reported on Friday. The petition was filed Thursday with the U.S. District Court for the Middle District of Florida by TierOne Corp., Federal Trust Bank and MidCountry Bank, court records show. TierOne said that it is owed at least $12.9 million, MidCountry at least $7.6 million, and Federal Trust at least $2.4 million. In a U.S. Securities and Exchange Commission filing, Lincoln, Neb.-based TierOne said it replaced TransLand as the servicer of some residential construction loans, and in effecting the transfer, it “uncovered evidence of the alleged fraud.” TierOne said it is insured up to $7.5 million against fraudulent losses by loan servicers, and that its insurance carrier has been notified of a potential claim.

Countrywide Financial Corp Chief Executive Angelo Mozilo said yesterday that the U.S. housing downturn is likely to lead the country into recession, but that the largest U.S. mortgage lender will survive, Reuters reported yesterday. Mozilo also said that to promote liquidity, the U.S. Federal Reserve should cut the rate it charges banks to borrow. Countrywide faced a credit shortage this month as mortgage defaults rose and capital markets tightened. On Aug. 16, it announced an unexpected drawdown of an entire $11.5 billion credit line because it had trouble selling short-term debt. But on Wednesday, Bank of America Corp said it would invest $2 billion in Countrywide, buying preferred securities convertible into common stock.

Money manager Sentinel Management Group Inc., facing lawsuits from clients and the Securities and Exchange Commission, is asking a court to appoint a trustee to oversee operations during its bankruptcy case, the Associated Press reported yesterday. In court papers filed Tuesday, Sentinel said actions taken by the SEC and the National Futures Association, a self-regulating body, have prevented its managers from “conducting normal operations or dealing with the assets under its control.” The appointment of a chapter 11 trustee to oversee operations as Sentinel deals with lawsuits and requests for the production of documents by the NFA and SEC is “necessary to protect the interests of the debtor’s estate, its creditors and other parties-in-interest,” the firm said in court papers. The bankruptcy court in Chicago is scheduled to consider the request at a hearing today.

Expanding rapidly as the nation’s largest home mortgage company, Countrywide Home Loans promised investors who bought its loans that it would repurchase some if homeowners got into financial difficulties, but as the lender finds itself struggling, it may not be able to do so, making it even harder for troubled borrowers to reduce their interest rates or make other changes to their loans to avoid foreclosure, the New York Times reported today. The possibility that Countrywide may have to buy back mortgages that it sold comes on the heels of its announcement last week that the tightening credit markets had forced it to draw on its $11.5 billion line of credit from a consortium of banks, a move that sent the market plummeting.  However, Bank of America agreed to invest $2 billion in Countrywide yesterday by buying preferred shares that carry an interest rate of 7.25 percent and can be converted into common stock at $18 each. Countrywide, with its stock depressed, had been seen as a prospect for a takeover. But any obligation the company has to buy back loans may complicate discussions with potential investors or buyers.

The U.S. Trustee overseeing Dana Corp.’s chapter 11 proceedings joined the bankrupt auto parts company on Friday in opposing an award of fees for lawyers and consultants who worked for the company’s employees, Bankruptcy Law360 reported yesterday. The fee dispute stems from a settlement Dana struck with its nonunion workers early this year. Under the terms of the settlement, Dana agreed to pay for the services needed to set up a fund to compensate its nonunion retirees. In its objections, Dana argued that Stahl Cowen Crowley and Segal have billed it for services involved in maintaining, rather than merely setting up, the fund. The U.S. Trustee’s office said in its motion that 20 percent of the fees should be held back, adding to earlier fee holdbacks in the case.

Bankruptcy Judge Christopher Sontchi refused a bid by Credit Suisse First Boston (CSFB) to immediately wrest control of more than $46 million in loans from American Home Mortgage Investment Corp. (AHM), saying that CSFB had not established irreparable harm entitling them to expedited relief, Bankruptcy Law360 reported on Friday. The ruling comes as bad news for the lender’s other Wall Street investors caught up in the mortgage industry fiasco, including Morgan Stanley, which filed an emergency motion with the court Wednesday to seize more than $519 million in loans and is awaiting a hearing. CSFB filed its motion on August 8 for a temporary restraining order against the lender, claiming it held the rights to $46 million in mortgages serviced by AHM.

Accounting firm BDO Seidman LLP must pay a total of $521 million in damages to a Portuguese bank after it was found guilty of failing to discover a fraud that led to the collapse of a Florida financial services company, Bankruptcy Law360 reported yesterday. A jury handed down the $351 million punitive portion of the award in a state court a day after ordering the firm to pay $170 million in compensatory damages. The jury had earlier found the firm, which audited the books for Miami-based E.S. Bankest, guilty of gross negligence for failing to uncover a fraud by executives that allegedly led to $170 million in losses by the bank. Banco Espirito sued BDO Seidman three years ago, accusing the firm of certifying hundreds of millions of dollars worth of E.S. Bankest assets as real when they did not actually exist.

Coventree Inc., a Canadian financial- services company, said that it failed to sell asset-backed commercial paper to replace maturing debt because of the credit crunch caused by U.S. subprime mortgage losses, Bloomberg News reported yesterday. The company extended maturities on C$250 million ($238 million) of commercial paper after buyers balked at taking on more debt. Toronto-based Coventree specializes in structured finance and has units that sell asset-backed commercial paper. Coventree is among the first companies to delay payments on asset-backed commercial paper in the 12 years since the debt has been sold. The company’s inability to find buyers for its short-term debt shows the extent to which the slump in subprime mortgages has spread to other assets.  Asset-backed commercial paper, which comprises about $1.15 trillion of the $2.16 trillion in commercial paper outstanding, is bought by investors such as money market funds.

Bankrupt New Century Financial Corp. and Deutsche Bank subsidiary DB Structured Products Inc. (DBSP) have taken a step toward settling their breach-of-contract dispute through a deal that would be funded by the sale of some of New Century’s mortgages, Bankruptcy Law360 reported on Friday. In a motion filed Wednesday, New Century asked the bankruptcy court to allow it to sell nearly $59 million worth of residential mortgage loans that the first $14 million of the proceeds would be then paid to DBSP. DB Structured Products Inc. struck two repurchase agreements with New Century, one in September 2005 and one in April 2006, the company said in its complaint, filed on Wednesday. The accords stated that DBSP would purchase mortgage loans from New Century, and that the lender would buy them back for a higher price. The complaint also claimed that New Century told DBSP that about 235 mortgage loans were not properly transferred to their new owner, and refused to hand over documents about the loans while still collecting funds from them.
See Also:  Chapter 7 Bankruptcy