Shareholders Sue $CHK Over Proposed Bond Redemption

“NEW YORK (Reuters) – Chesapeake Energy Corp is facing a showdown with investors and a bond trustee over its plan to redeem $1.3 billion of notes early.

The natural gas company, which faces a projected $3 billion cash shortfall this year, is hoping to avoid an extra $400 million of payments on the notes, which carry a 6.775 percent interest rate and mature in 2019.

Chesapeake filed a lawsuit last Friday in U.S. District Court in Manhattan seeking to block bond trustee Bank of New York Mellon Corp from interfering with the proposed redemption of the debt at 100 cents on the dollar, or par.

But in a court filing on Tuesday, investors who own roughly $250 million of the notes contended that the plan would shortchange them, saying the notes are worth more and that the move would violate Chesapeake’s contractual obligations.

Bank of New York Mellon also filed court papers opposing the redemption plan.

Jim Gipson, a Chesapeake spokesman, declined to comment.

Chesapeake believes it has the right to issue a notice of redemption by March 15 to avoid the extra $400 million payment, while the noteholders and Bank of New York Mellon believe that the actual redemption needs to take place by then….”

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“Asian stocks swung between gains and losses amid concern shares have risen too fast following a three-week rally that drove the regional benchmark index to a 19-month high.

Canon Inc., the world’s biggest camera maker, slipped 1.7 percent after the yen strengthened, cutting the outlook for overseas income at Japanese exporters. National Australia Bank Ltd. (NAB) lost 1.8 percent as the country’s largest lender by assets announced plans to cut costs after full-year profit fell for the first time since 2009. Newcrest Mining Ltd., Australia’s No. 1 gold producer, gained 2.4 percent as futures for the precious metal capped the longest rally in six months.

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“Interest rates already have risen from their record lows, and at some point the Federal Reserve will begin to reverse its easing program, pushing them up even higher.

So investors are taking steps now to deal with higher rates later, including big-time players such as BlackRock, TCW Group and Pimco, The Wall Street Journal reports.

Their tactics include purchasing floating-rate debt, whose yields rise along with the overall rate structure; interest-rate swaps; Treasury inflation-protected securities (TIPS); and derivatives betting on losses by Treasurys.

With rates now so low, the concern is that just a slight rise in rates will be devastating to portfolios of Treasurys.

“We don’t subscribe to the view that once the fire starts, we’ll be able to outrun everybody through the door,” Stephen Kane, managing director for U.S. fixed income at TCW, tells The Journal.

“Rates could be up 50 basis points before your traders can get all the sell orders through.”

Rick Rieder, co-head of fixed income for the Americas at BlackRock, agrees.

“For 30 years, interest rates had declined and fixed income was the safe part of the portfolio,” Rieder tells The Journal. “Now fixed income is becoming something you have to be more active in.”

The 10-year Treasury yield stood at 2.06 percent late Monday, up from a record low of 1.38 percent last July….”

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“Homeowners who defaulted on their mortgages during the housing market collapse are back in the market buying again.

They’re called boomerang buyers. And mortgage lenders appear to be welcoming them with open arms.

Since the real estate bubble burst, 4.8 million homeowners lost homes in foreclosure and 2.2 million sold their homes in short sales, according to RealtyTrac data cited by CNNMoney.

Mike Edgar, an Idaho broker, worked with 15 boomerang buyers last year and expects that number to double this year, according to CNNMoney.

After a foreclosure or short sale, former homeowners typically see their credit scores fall 85 to 160 points, Jon Maddux, CEO of YouWalkAway.com, a foreclosure agency advising homeowners, told CNNMoney. Restoring credit may take three to seven years.

Fannie Mae and Freddie Mac, which purchase or guarantee most home loans, require boomerang buyers to wait five years, to have credit score of at least 680 and put 10 percent down, according to CNNMoney. The wait can be cut to three years, if potential buyers show that an extenuating circumstance, like a layoff or illness, prompted their default.

Quantifying the number of boomerang buyers can be difficult.

“It’s more than incremental business, that’s for sure,” Dan Klinger, president of K. Hovnanian American Mortgage, told The Wall Street Journal. “The industry is saying, ‘Pay your dues and then get back into the market.’”

Many of the boomerang buyers purchased homes at or near the peak of the housing bubble using adjustable-rate mortgages that reset to higher monthly payments. When the bubble popped, their home equity vanished, and their mortgage payments exploded….”

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GE, NOK, BAC, VZ, ANR, MCD, AAPL, RIMM, MSFT, DELL, GMCR, CSCO,

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BHI, CHK, CVX, COP, EPD, XOM, KMI, NOV, PSX, SLB, RIG, VLO

BP sees a rise in short interest…..

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AAPL, AMX, BBY, BKD, COH, CVS, DKS, LTM, MOS, P, RSH, RHT, SHW, SFD, TJX, URI, PAY, XOOM,

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In Play ,

On the Wires 

“(Reuters) – Confidence among small businesses rose in February as owners shrugged off a tightening in fiscal policy and raised plans to increase capital spending and restock their warehouses.

The National Federation of Independent Business said on Tuesday its optimism index increased 1.9 percentage points to 90.8 last month, continuing to recover from a 2-1/2 year plunge in November.

The improvement in sentiment came even as small businesses braced for about $85 billion in across the board government spending cuts that started to take hold on March 1.

A two percent payroll tax cut expired on January 1 and tax rates for wealthy Americans went up.

Capital spending plans gained four points, while plans to increase inventories climbed six points last month. The share of owners viewing inventories as too low rose two points….”

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“The increasing amount of personal information that can been gleaned by computer programs that track how people use Facebook has been revealed by an extensive academic study. Such programs can discern undisclosed private information such as Facebook users’ sexuality, drug-use habits and even whether their parents separated when they were young, according to the study by Cambridge University academics.

In one of the biggest studies of its kind, scientists from the university’s psychometrics team and a Microsoft-funded research center analysed data from 58,000 Facebook users to predict traits and other information that were not provided in their profiles.

The algorithms were 88 percent accurate in predicting male sexual orientation, 95 percent for race and 80 percent for religion and political leanings. Personality types and emotional stability were also predicted with accuracy ranging from 62-75 percent.

Facebook declined to comment.

The study highlights growing concerns about social networks and how data trails can be mined for sensitive information, even when people attempt to keep information about themselves private. Less than 5 percent of users predicted to be gay, for example, were connected with explicitly gay groups…”

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“The price of West Texas Intermediate (WTI) crude oil is set to plummet to $75 per barrel as increased use of shale oil in the U.S. blots out demand for the energy source, one expert told CNBC.

Andrew Su, CEO of Sydney-based commodities trading firm Compass Global Markets, gave a bearish forecast for WTI on CNBC’s “Asia Squawk Box” on Tuesday, saying its value would drop around 18 percent in value by the end of the second quarter of 2013 and even further beyond that.

“Shale oil is the reason why oil prices fell last year and the reason why it will continue to fall in the next few years,” said Su.

“Shale oil will reshape the way that the entire oil industry is run and the U.S. will become an exporter of oil in next five to 10 years. That will have a significant impact on the U.S. and the global economy,” he added.

Shale oil – also known as kerogen oil – is an unconventional form of oil extracted from shale rock formations, only made possible in recent years through technological breakthroughs.

The revolution in shale oil and gas production has the potential to give the world’s largest economy energy independence and provides a substantial threat to the competitiveness of oil.

According to a PricewaterhouseCoopers study published in February, shale oil will contribute 14 million barrels per day towards global oil supply by 2035, roughly 12 percent of the global oil supply today….”

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COST, RSH, VER, YUM, RMBS, DMND, HPQ, BBY, DKS, AAPL, RCL, CCL,

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“PHILADELPHIA (AP) — Urban Outfitters Inc.’s fiscal fourth-quarter net income more than doubled on stronger sales but still fell just short of market expectations. Its shares fell in after-hours trading Monday.

The Philadelphia company owns the Anthropologie, BHLDN, Free People, Terrain and Urban Outfitters brands.

Urban earned $82.5 million, or 56 cents per share, for the period that ended Jan. 31. That compares with $39.3 million, or 27 cents per share, in the same quarter a year ago. Its revenue increased to $856.8 million from $730.6 million on stronger revenue from its Free People, Urban Outfitters and Anthropologie brands.

Analysts polled by FactSet expected earnings of 57 cents per share on revenue of $850.5 million.

The company got a boost from a 44 percent increase in sales directly to consumers, which included online and catalog sales. Its total revenue from retail stores increased nearly 9 percent year-over-year…..”

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“SAN FRANCISCO (AP) — Snack foods maker Diamond Foods Inc. said Monday that it turned a profit in its fiscal second quarter after taking a loss on one-time charges a year ago.

For the three months ended Jan. 31, net income totaled $10.1 million, or 43 cents per share. A year ago it took a loss of $20.2 million, or 93 cents per share. Excluding one-time items, Diamond earned 5 cents per share. Revenue fell 16 percent, to $220.8 million, as sales of Emerald Nuts decreased.

Analysts expected net income of 6 cents per share on $239.2 million in revenue, according to FactSet.

Diamond reported a gain of $18.6 million in the recent quarter as its share price fell more than 20 percent in late 2012 and early 2013. That decreased its warrant liability. A year ago the company’s results included a $12.1 million charge related to a failed attempt to buy the Pringles brand from Procter & Gamble and $10.7 million related to an audit committee investigation.

Diamond Foods disclosed in early 2012 that it would have to restate two years of earnings because it had not properly accounted for payments to walnut growers. The company replaced its CEO and chief financial officer, and its bid for Pringles collapsed. Procter& Gamble Co. ultimately sold Pringles to Kellogg Co. for $2.7 billion….”

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“The pound dropped to the lowest against the dollar in more than 2 1/2 years and government bonds advanced as a report showed U.K. industrial production unexpectedly declined in January.

Sterling weakened for a second day versus the euro after data showed output fell 1.2 percent from December, according to the Office for National Statistics. The median forecast in a Bloomberg News survey of 29 economists was for a 0.1 percent increase. Manufacturing also unexpectedly contracted, slipping 1.5 percent in January. Gilts gained after the Royal Institution of Chartered Surveyors said house prices decreased for a second month in February.

“Momentum is clearly against the pound and, if anything, that serves as an excuse to carry on the market takes it,” said Derek Halpenny, European head of global-markets research at Bank of Tokyo-Mitsubishi UFJ in London. “The weak data backup renewed quantitative easing and it’s a clear recipe for further pound weakness.”

The pound fell 0.4 percent to $1.4861 at 11:01 a.m. London time after sliding to $1.4832, the lowest level since June 2010. Sterling weakened 0.1 percent to 87.53 pence per euro.

Bank of Tokyo-Mitsubishi forecasts the pound will slide toward $1.40 within 12 months. It could “easily” reach that level within in a couple of months, Halpenny said.

The benchmark 10-year gilt yield decreased six basis points, or 0.06 percentage point, to 1.96 percent. The 1.75 percent bond due in September 2022 rose 0.5, or 5 pounds per 1,000-pound face amount, to 98.215….”

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“Costco Wholesale Corp.’s COST -0.59% quarterly earnings jumped 39% as the wholesale club recorded strong revenue growth and also saw its bottom line buoyed by a one-time tax benefit.

Costco’s sales have mostly topped Wall Street’s expectations in recent quarters, thanks in part to a shaky economy encouraging shoppers to make bulk purchases at its warehouse clubs, which can be less expensive than other outlets. Costco also sells its gasoline for less than area pumps, which has contributed to higher traffic at its clubs. But like many other retailers, Costco has faced rising costs for merchandise, a trend that continued in the latest quarter.

Ahead of the company’s earnings release, analysts at William Blair pointed to the company’s same-store sales gain for February, saying same-store traffic growth continues to be driven by growth in food and consumables. The firm said that unlike large-cap discount peers such as Target Corp. TGT +1.49% and Wal-Mart StoresInc., WMT -0.07% who recently logged weaker sales in February, Costco continues to generate consistent, strong growth across all general merchandise categories, which William Blair said is a reflection of its low e-commerce risk profile.

Tuesday, Costco reported that total same-store sales were up 5% for the period, excluding currency fluctuations and inflation in gasoline price.

For the quarter ended Feb. 17, the company reported a profit of $547 million, or $1.24 a share, versus a year-ago profit of $394 million, or 90 cents a share. The latest quarter included a $62 million, or 14-cents-a-share tax benefit in connection with the portion of a special cash dividend paid by the company in December.

Total revenue jumped 8.3% to $24.87 billion. Analysts polled by Thomson Reuters expected earnings of $1.06 a share on $25.03 billion in revenue.

Revenue from membership fees rose 15% to $528 million. In November of 2011, Costco raised membership fees by 10% in the U.S. and Canada, the first increase in five years.

Operating margin narrowed a hair to 97% from 97.1%. Merchandise costs increased 8.1%, while selling, general and administrative expenses rose 8.4%….”

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“American International Group Inc. (AIG) had more than $600 million in impairments since the end of 2010 on death-benefits bets as the company was stuck paying insurance premiums for people who lived longer than the firm expected.

The insurer recorded $309 million of impairments in 2012 and $312 million in 2011, AIG said in its annual report last month. So-called life-settlement contracts let investors buy insurance policies from individuals and pay the premiums until those people die. The arrangement is less profitable for AIG the longer a person survives, the opposite of traditional life coverage sold by the firm, in which early deaths hurt results.

Chief Executive Officer Robert Benmosche has more recently added bets on home loans as he refocuses the investment portfolio. He said in 2011 that New York-based AIG reviewed the life contracts and that “this is not an area we’re going to be emphasizing.” It can be difficult to sell the holdings, said Gary Brown, CEO of CMG Life Services Inc.

“It’s truly almost always a buyer’s market,” Brown, whose firm oversees contracts with a face value of more than $5 billion for institutional clients, said yesterday at an industry conference inNew York. “You’ve got to hold to maturity. You can’t plan on this being freely tradable.”

AIG had 5,673 policies with a carrying value of about $4.2 billion at the end of 2012, compared with 5,901 policies carried at $4 billion a year earlier, and 2,632 policies worth about $1.6 billion at the end of 2007

Investors like AIG gain if the death benefit exceeds the purchase price and cost of maintaining a policy. The value of the contracts is reduced when AIG determines that a person will live longer than expected. The insurer doesn’t restate the value higher if it expects the contract to be more profitable,Peter Hancock, head of AIG’s property-casualty business, said on a 2011 conference call….”

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“(Reuters) – Two groups of American International Group Inc shareholders won class-action status from a federal judge on Monday in a $25 billion lawsuit by former Chief Executive Maurice “Hank” Greenberg over alleged losses caused by the U.S. government’s bailout of the insurer.

U.S. Court of Federal Claims Judge Thomas Wheeler also appointed Greenberg’s lawyer, David Boies, of Boies, Schiller & Flexner LLP, as lead counsel for the classes.

Greenberg’s Starr International Co, once AIG’s largest shareholder with a 12 percent stake, sued the United States in 2011 over what eventually became a $182.3 billion bailout for the New York-based insurer.

It said that by taking a 79.9 percent AIG stake and then conducting a reverse stock split without letting existing shareholders vote, the government conducted an illegal taking that violated the 5th Amendment of the U.S. Constitution.

Citing Boies’ estimate that “tens of thousands” of shareholders might be affected, Wheeler said “class certification is by far the most efficient method of adjudicating these claims.”

He distinguished the case from the U.S. Supreme Court’s 2011 rejection of class status for more than 1 million Wal-Mart Stores Inc workers alleging gender bias, saying the AIG claims are “based on the same exact government action” rather than “literally millions” of separate actions.

One class includes AIG shareholders as of September 22, 2008, when a credit agreement awarding the 79.9 percent stake took effect. The other class includes shareholders as of June 30, 2009 who were denied a chance to vote on the reverse split….”

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“WASHINGTON (Reuters) – The Securities and Exchange Commission is experimenting with punishments that more closely fit the wrongdoing at issue in a bid to give its enforcement cases more bite.

Criticized for its traditional practice of a broad ban on wrongdoers breaking securities law again, theSEC is testing injunctions that specifically bar certain behavior, such as giving advice to pension funds or profiting from presenting investment seminars.

Critics of the SEC’s typical broad prohibitions say they are ineffective and not well enforced. Customized injunctions could also be a more precise tool than the blunt instrument of barring an individual from being a company officer or director.

“We want to use all of the tools available to us to specifically discourage repeat misconduct and go beyond the injunctions we traditionally obtain,” George Canellos, the SEC’s acting enforcement director, told Reuters in an interview.

In the past year SEC lawyers have slowly started seeking injunctions that bar defendants from specific types of conduct, even if that conduct is itself legal.

They are relying on authority derived from the 2002 Sarbanes-Oxley investor protection law that makes explicit courts’ authority to follow through on the SEC’s recommended injunctions.

“We are actively exploring ways to invoke that authority more creatively toward the goal of creating remedies tailored to the misconduct at issue,” he said….”

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