Randomly Noted

Here’s a good one for you – It’s Carl Icahn’s fault that Blockbuster Inc. is in the sad state it is in today. At least that’s the view of disgruntled junior bondholder Lyme Regis Partners, who claim in a lawsuit that Icahn set the video retail chain to fail so that he could take over the company (as reported on Dow Jones Daily Bankruptcy Review).

The lawsuit goes on to allege that because of his insider status, Icahn had a much better view of how bad things were for Blockbuster and there that allowed allowed him to position himself ahead of the other investors because he knew before everyone else that the company was much closer to bankruptcy.

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Blockbuster, the video retail chain that has watched its business become decimated by online video and DVD rentals, has two big problems on its hands. One is its balance sheet. The other its business model. It made a move to fix one of them today.

Blockbuster filed for Chapter 11 bankruptcy protection and with that filing, will wipe out all of the existing debt on its books. Existing senior debt holders will get all of the equity in the new company. Subordinated debt holders, preferred shareholders and common stock holders get nothing – The sub debt holders may kick up a little fuss over that treatment. The senior debtors also agreed to led a new $125 million to the company.

While the Chapter 11 takes a lot of pressure off the balance sheet, it doesn’t do a thing for the company’s broken business model. It has tried to get into the online business, but it is a late comer to the game. NetFlix stole the mail DVD rental business from them. And companies like Apple and NeFlix have figured out the online rental model where movies and TV shows are delivered to your computer. The real question for Blockbuster is what part of the rental space is left for it?

Scotland’s largest airline, Flyglobespan, failed Wednesday, stranding some 5,000 Scots abroad on holiday, mostly in Spain, France, Cyprus and Egypt. The airline billed itself as offering “cheap flights and low-cost holidays.” No one is against cheap flights, but it becomes difficult to sustain a low-margin business model when fuel prices remain high, and oil above $70 a barrel claimed another victim.

Apparently, this isn’t unusual for the U.K. The nation’s Civil Aviation Authority has an Atol plan, which stands for Air Travel Organisers ‘ Licensing. Atol is a means for consumers who’ve booked a vacation to get their money back, or if they’re already on vacation, to get home if their airline goes bust. The service certainly fills a need – Flyglobespan is the 21st travel company listed on the Atol site as having gone belly-up during 2009 alone.

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Somehow, proponents of shareholder rights start to think differently if the shareholder is Uncle Sam.

You start hearing boo-hooing about hemmed-in CEOs. How is Robert Benmosche supposed to turn around American International Group Inc. if he can’t pay a king’s ransom for managers? Imagine the nerve of Edward Whitacre Jr. , the government-appointed chairman of General Motors Co., acting like, well, a chairman.

Just breaking is news that Benmosche is now telling employees he’s committed to staying at AIG after The Wall Street Journal reported Tuesday that he told the board of directors he might quit after just three months.

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It could be another steal of the century for Warren Buffett.

His Berkshire Hathaway and Leucadia National teamed up to buy (kind of) a big chunk Capmark Financial’s commercial mortgage business for a price between $415 million and $490 million. It’s a hard deal to get your arms around because no one is willing to talk about. Questions to Capmark about the potential transaction came back with the reply: “We are declining requests for information beyond that contained in the news release.”

Like the question of how much debt Berkshire and Leucadia might be assuming. (Berkshire hasn’t returned calls, either.) But we do know this – About 80% of the Capmark business as measured by assets is what Berkshire and Leucadia would be buying. In 2006, a KKR-led group bought 78% of Capmark from GMAC for about $1.5 billion and the repayment of $7.6 billion of debt.

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GM has just announced it will give dealers cash advances to cover “cash for clunkers” rebates while dealers wait for the government to process them.  It’s a smart move in support of a dumb government program. As I’ve written before, cash for clunkers amounts to the federal government extending yet another hand to the auto industry to provide a short-term sales fillip at a time when what the sector needs isn’t artificial stimulus but normalcy. The industry needs to regroup after the horrific collapse and government-aided rebirth of General Motors and Chrysler. Now that it’s become clear Washington, D.C., was ill-prepared to administer the clunkers program – and as dealers complain they’re taking clunkers but not getting money owed by Uncle Sam – GM has no choice but to extend its own helping hand, the irony being that GM’s aid-to-dealers in support of the clunkers scheme comes largely from Uncle Sam (GM’s 61% owner)  himself. UPDATE: We’re now reporting Chrysler will also give advances to dealers to cover cash for clunkers rebates. Also just out from DJN’s Josh Mitchell: the government’s cash for clunkers program will end Aug. 24 at 8 p.m.  This, after a taxpayer expenditure of $3 billion.

To read the responses, you’d think we just published a story that declared Apple Pie isn’t American but instead a creation of that thug in Venezuela.

Motors Liquidation was created after General Motors went into bankruptcy. When the “new” GM emerged, much of the old, crappy assets were thrown into Motors for purposes of liquidation. What usually happens in cases when you have fewer assets than liabilities, the liabilities get paid at a value of less than each dollar that was paid in, and any equity gets wiped out.

And as often is the case with these bankrupt situations, market manipulators have a hay day suckering uneducated investors into their little game of misrepresentation.

Newswires reporter Geoff Rogow did a great job explaining this yesterday. As the chart above shows, Motors Liquidation stock tanked, falling 33% for the day. What Geoff wrote was not only correct and common sense, but repeated something Motors Liquidation, Finra and the Securities and Exchange Commission have all said recently – the stock is valueless. Before his article, the stock was trading around $1.20, giving this worthless company a market cap of about $732 million. It closed at 73 cents, giving this still worthless company a market cap of $445 million.

Geoff got emails declaring him an idiot. Another writer said he didn’t know the purpose of the story beyond making people panic and lose money. One classic came from someone claiming to be a law student who essentially said the spreading of misinformation isn’t all that bad of a thing. I see he went into law for all of the right reasons. The idiots are the people who perpetuate dumb rumors and ideas to draw not-very-smart people into their bad trading schemes. Go make your money on intelligent investments, not by taking advantage of people who don’t know any better.

To read Geoff’s story, go to the next page:

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The housing crisis hasn’t been good to companies that build them or make products that go into them. Like Armstrong World, which produces flooring, ceiling materials and cabinets. In the most recent 2Q, Armstrong said sales were off 20% versus last year and net income was down 50%. And the outlook for the rest of the year remains equally grim.

So why did private equity firm TPG Capital just spend $180 million to buy a big chunk of Armstrong and structure it in such a way that Armstrong doesn’t receive a nickel?

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It’s hard to imagine that as we remain knee-deep in a recession that has just about put the lid on mergers & acquisitions that there can be a way to make money as an investment bank.  Especially if you are a boutique that doesn’t have a big position in numerous other businesses (trading, wealth management, asset management) to offset the drop off in M&A.

The answer – advise companies that get into trouble and need your help to get out of it. That’s exactly what Evercore Partners does.

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Is CIT’s demise an opportunity for the Republican Party to score some quick political points? Not really. Here’s why: The Obama administration’s decision to withhold a federal helping-hand from the lender comes with few political risks. The millions of small and mid-size CIT customers that will have to scramble for new credit lines may well curse the Democratic president and his advisers. But the Republican Party won’t be able to attack Obama for damaging the nation’s precious entrepreneurial fabric by neglecting to bail out CIT. Doing so would put them at odds with the GOP’s “moral hazard” and small government planks.  The principle risk to the Democratic president and party is if a CIT bankruptcy has unforeseen ripple effects by 1)  unexpectedly weakening the U.S.’s financial system due to some presently-unknown interdependence between the lender and other banks or 2) driving too many small firms out of business, thereby aggravating already dismal unemployment levels. One hopes that the Federal Reserves so-called stress test of CIT, conducted earlier this week, was broad enough to include a measure of the damage a CIT collapse would do to apparel firms, retailers, restaurants and others which depend on the lender’s credit to pay their bills. Should the Republicans attack the administration for inconsistency in its handling of failing companies (financial, automotive or otherwise) the criticism could rebound on them. Consider that some of the most haphazard decisions occured in the final months of the Republican Bush administration when then-Treasury Secretary Henry “Hank” Paulson chose to save AIG but let Lehman Bros. die. As DJN colleague Emily Barrett recently wrote: “Consistency is already a problem for officials accused of conducting industrial policy in their allocations of government support. The distribution of congressionally approved funds under former Treasury Secretary Henry Paulson drew heavy criticism for a lack of transparency and potential favoritism. The current Treasury must tread carefully, as the tally of bank failures this year alone climbs above 50.” Conclusion: The politics  of CIT are fairly benign for the Democratic administration and offer few hay-making opportunities for the Republicans.