H&R Block Inc. said today that its first-quarter loss ballooned as it struggled with its mortgage lending arm and said that it is trying to renegotiate the sale of the unit, the Associated Press reported today. The company said that if negotiations are successful, it would stop selling new loans through Option One Mortgage Corp., have several closing requirements waived and try to get the buyer, a subsidiary of Cerberus Capital Management, to close before the current deadline of Dec. 31. The company, which makes the bulk of its revenue and profits during the annual income tax season, typically loses money during the first and second quarters. Those losses have been exacerbated by Option One, which has been caught up in the collapse of the subprime mortgage market. The company said that Option One and two small non-mortgage businesses that are being dismantled lost $192.8 million during the quarter.

The Office of Thrift Supervision reported yesterday that troubled assets — loans that were 90 days or more past due or had been repossessed — at federally regulated savings-and-loan associations in the second quarter rose 49 percent from a year earlier to the highest level in 14 years, the Wall Street Journal reported today. The agency also said that the number of “problem thrifts,” or companies rated poorly by regulatory standards, had risen to 10, up from four in the second quarter of 2006. Still, officials said that while the 836 regulated thrifts continue to feel stress from housing and liquidity markets, their overall health remains strong, based on earnings and capital. The thrifts make one of every four mortgages, specializing in prime or jumbo loans. Stress in their loan portfolios suggests that more types of loans — not just subprime mortgages — are under pressure. Officials also said that the thrift industry had $14.2 billion in troubled loans, up from $9.5 billion a year earlier.

Sentinel Management Group Inc., a cash-management firm which froze client withdrawals three days ago, filed for bankruptcy after a judge sought to block it from selling assets to hedge fund company Citadel Investment Group LLC, Bloomberg News reported on Friday Sentinel, a Northbrook, Ill.-based firm that oversees $1.6 billion, stopped the withdrawals Aug. 14, causing brokers Farr Financial Inc. and Velocity Futures LP to sue. Farr claimed the freeze blocked access to client funds. Velocity, joining the suit today, sought to keep its own clients’ assets from being sold to Citadel because the assets are being sold at a 15 percent discount. The assets may have already been sold, lawyers for both sides told U.S. District Judge Ronald Guzman today in Chicago federal court. Sentinel froze withdrawals after saying turmoil in the credit markets made it impossible to trade without incurring losses.

A bankruptcy judge has approved a controversial backstop rights purchase agreement for bankrupt Dura Automotive Systems Inc., a move that brings the company closer to its goal of emerging from bankruptcy protection by the end of the year, Bankruptcy Law360 reported yesterday. Dura filed an amended backstop rights purchase agreement earlier this week. Dura creditor Pacificor LLC will back the company’s rights offering with a commitment between $140 and $160 million. Dura said that the agreement will allow the company to exit bankruptcy protection as a privately held company with a range of minority shareholder protections.

Solutia Inc.’s noteholders’ committee asked Bankruptcy Judge Prudence Carter Beatty to reject Solutia’s disclosure statement, saying it doesn’t contain “adequate information” and the committee’s concerns have been ignored, Bankruptcy Law360 reported yesterday. The noteholders are also seeking a hearing as soon as possible to consider the disclosure statement’s approval. On Aug. 1, Judge Carter said she could not approve Solutia Inc.’s disclosure statement without first viewing its settlement with former parent Monsanto Co., which, along with a retiree settlement, is supposed to propel the company out of bankruptcy. The court charged Solutia with resolving outstanding objections to the disclosure statement in a consensual manner before submitting a revised version for the court’s approval, the noteholders’ motion said.

Chapter 7 Bankruptcy

A Florida jury ruled that accounting firm BDO Seidman LLP must pay $170 million in damages for its gross negligence in failing to spot a fraud that led to the bankruptcy of a Miami financial-services company, theWall Street Journal reported today. The jury’s decision followed on its ruling in June that BDO was grossly negligent in audits of E.S. Bankest LLC, a Miami financial-services firm that was forced into bankruptcy because of a fraud perpetrated by top executives. Portuguese bank Banco Espirito Santo SA sued BDO in state court, contending the firm should have turned up the problems in its audits of the private company. The award raises a question mark over the financial future of BDO, which last year argued in court papers that such a decision could undermine its standing as a national accounting firm and lead to the layoff of thousands of employees.

After less than two months under chapter 11 protection, MediCor Ltd., one of the world’s largest breast implant makers, has asked a bankruptcy court for permission to sell most of its assets, Bankruptcy Law360 reported on Friday. Las Vegas-based MediCor Ltd. filed for bankruptcy on June 29 in the U.S. Bankruptcy Court for the District of Delaware, listing assets of $120,354,097 and debts of $121,439,609. MediCor wants an auction sale scheduled for Sept. 18 in Santa Barbara, Calif., and a hearing before the Delaware bankruptcy court scheduled for Sept. 24. MediCor asks the court to conduct an initial hearing to approve the bid procedures and schedule the auction, and then conduct a second hearing to approve whatever sale transactions the debtors select.
Chapter 7

Chrysler LLC’s new boss, Robert Nardelli, has been installed as chief executive by the carmaker’s 80%-owners, Cerberus Capital Management LP, which is sending a strong signal that there will be no more business as usual at the Michigan-based company.  Mr. Nardelli is an outsider, coming from retailer Home Depot Inc., where he came under criticism for his strategic decisions and fat pay package, but he is expected to play a key part in negotiations with union workers as the firm continues trying to reduce expenses.  But Mr. Nardelli will have more freedom at Cerberus than he did at Home Depot, which is publicly-held, since Chrysler has been taken private by Cerberus and won’t be under quarter-to-quarter public scrutiny.  Further, his pay will be directly connected to Chrysler’s performance and, in fact, he won’t be paid if Chrysler’s results don’t improve. Chrysler, which lost $1.5 billion last year, earlier announced a restructuring plan that calls for slashing 13,000 jobs and investing $3 billion in technology to improve fuel efficiency.

See Also:  Chicago Bankruptcy

Germany, which last week became the first European country to be infected by the woes in the American mortgage market, suffered another blow on Monday when an asset-management firm in Frankfurt closed a fund to temporarily halt withdrawals by rattled investors, the New York Times reported today. The management firm, Frankfurt-Trust, said that withdrawals from the fund, FT ABS-Plus, reflected jitters about the subprime lending market in the United States, even though the fund had only minor exposure to that market. Investors have become nervous in recent weeks as worries about credit problems that started in subprime mortgages in the United States have spread to Europe and Asia.  Last week, German bank IKB Deutsche Industriebank roiled the markets when it disclosed deteriorating subprime investments. A government-backed group agreed to bail out the bank, providing 3.5 billion euros ($4.8 billion) to cover IKB’s potential losses on its $24 billion investment in the market.

See Also:  Chicago Bankruptcy

Hollinger Inc., the Canadian company that Conrad M. Black used to control his newspaper empire, filed for bankruptcy yesterday and said it would explore options for the Sun-Times Media Group while facing payments on debt and shareholder suits, Bloomberg News reported yesterday. Hollinger, with a majority voting interest in Sun-Times, named six directors to the Sun-Times board to gain a majority and filed for bankruptcy protection in Canada and the United States. Hollinger owns about 70 percent of the voting shares and 20 percent of the equity in Sun-Times, publisher of the Chicago Sun-Times and community newspapers in the region. Sun-Times, based in Chicago, had sued Hollinger and Black to recover $542 million it says Black and the holding company looted. A federal court jury in Chicago convicted Black on July 13 on three counts of mail fraud and one count of obstruction of justice. He is free on $21 million bail and awaiting sentencing on Nov. 30.