Fisher Capital Management: Market Performance – US Economy

Fisher Capital Management Report, Part 1 - Output growth exceeded what were once considered lofty expectations during the third quarter, as real GDP (inflation adjusted Gross Domestic Product) rose by a 3.5% annual pace from the previous quarter. To be sure, this was the first gain in economic activity after four consecutive quarterly declines in GDP. While technically this indicates an end to the recession, we point out that on a year-over-year (YOY) basis, economic activity has still declined 2.3%, yet it represents an improvement from the -3.8% YOY in the second quarter, the worst annual drop in seven decades.  The components of GDP were led by growth in personal consumption, which increased 3.4% as stimulus programs such as “Cash for Clunkers” allowed consumer spending to increase by the largest amount in two years. Home construction surged at an annual rate of 23%, spurred on by the $8,000 tax credit for first-time buyers. Another decline in business inventories also added to output, as did the growth in government spending (2.3%). Though businesses increased spending on equipment and software, fixed investment remained weak.

Market Performance, US Economy: Fisher Capital Management Report - As the positive effects of federal stimuli diminish, we continue to project an economic recovery that is “less spectacular” than in previous experiences. While output growth has improved as government programs spurred consumption relative to housing and autos, our concern rests on the economy¹s ability to sustain these rates of growth as government programs wane. Indeed, personal spending fell 0.5% in September after the “Cash for Clunkers” program concluded in August. Consumer confidence also weakened in October as the unemployment rate approached 10%. Until we experience a sustainable floor in housing and a ceiling on the unemployment rate, we suspect output growth will rely on exports, inventories, and government outlays, areas that we characterize as “cushions” for growth.

Market Performance, US Economy: Fisher Capital Management Report - As the unemployment rate lingers within the range of 10% and Fed policymakers remain committed to keeping interest rates low for an “extended period,” we look for real GDP to expand at an average rate of approximately 2.5% in 2010.

Fisher Capital Management, Korea is a leading global financial institution holding extensive relationships with financial institutions, institutional investors and corporations across the world.

As a full service company Fisher Capital Management, Korea provides a full range of investment banking services including advanced risk management, corporate strategy and structure, plus raising capital through debt and equity markets. With this as our backbone we continue to provide a client service second to none.

HeatSponge SIDEKICK Warning, Finally Revealed: Boiler Room Equipment, Inc

Fisher Capital on Boiler Room Equipment, Inc, is very proud to finally unveil the SIDEKICK line of condensing boiler economizers for commercial and industrial hot water boilers. The Sidekick has been in development for nearly two years and represents an evolutionary development of high-efficiency installations in the boiler industry. The SIDEKICK is a warning game changer the likes of which have not been experienced since the introduction of the first condensing boilers. The SIDEKICK offers the ability to integrate condensing boiler efficiencies to conventional boilers on a new or retrofit basis. The SIDEKICK allows a customer with a conventional boiler system the ability to realize condensing efficiency gains that otherwise would require the existing boiler to be demolished and replaced with a new condensing boiler. Conventional, non-condensing boilers can now realize the efficiency benefits of outdoor air temperature reset controls and lower circulating hot water loop temperatures. Sidekicks also allow for duel fuel condensing applications utilizing conventional boilers. The SIDEKICK features all stainless internal construction, stainless tubes and fins, and an insulated outer casing. Inspection and clean out ports make periodic maintenance and cleaning easy.
The efficiency of the SIDEKICK goes far beyond simply energy recovery to the ultra-productive process in which it is selected and designed. Heat recovery for condensing applications introduces a significant number of variables that makes a catalog-approach to equipment selection nearly impossible. Boilerroom Equipment has developed a new method of quantifying heat recovery, the Recovery Rate, and integrated this into the design. The incorporation of the Recovery Rate variable allows a customer to custom tailor the level of heat recovery and cost directly to the requirements of each specific application. We define this new concept in heat recovery design as 3D Modularity, for modular construction in three dimensions. Based on a "Mass-Customization" approach to product development, Bruce will consider all of the application design constraints and will design a SIDEKICK optimized to meet the exact performance requirements at the most competitive price. Bruce has been given the ability to consider all aspects of the heat exchanger design relative to the price of the equipment and generate a fully priced proposal all in real-time; a software and engineering accomplishment that added over one thousand hours of coding and heat transfer modification to Bruce's core program. This means Bruce can handle all inquiries and generate proposals in real time by himself. The near elimination of sales and support overhead and significantly reduced project execution overhead requirements the Bruce software provides allows us to offer a product superior to any before it at pricing and responsiveness levels no conventional competitor could hope to match.
Bruce will go on-line live on Monday December 21st with full public access to the Sidekick software. BEI will display the SIDEKICK in public at the upcoming AHR Exposition in Orlando, booth 3126. We will also have other HeatSponge models on display and based on the popularity in Chicago last year will bring the HeatSponge NASCAR Late Model stock car back for another display appearance.

LBX and Sumitomo Sumitomo (S.H.I.) Construction Co., Ltd. Acquires

Fisher Capital News Update: Keep updated on recent events, press releases and latest machineries to avoid scam.

FISHER CAPITAL CONSTRUCTION MANAGEMENT - Construction Machineries, Suppliers Directory and Others --100% Ownership of LBX Company.

Sumitomo (S.H.I.) Construction Machinery Co., Ltd. (SCM), a leading manufacturer of hydraulic crawler excavators headquartered in Tokyo, Japan, announced today that effective as of April 30, 2010 it has acquired full ownership of LBX Company (LBX) headquartered in Lexington, KY.

LBX was originally formed as part of a global alliance between SCM and Case Corporation, and holds the manufacturing rights to SCM's excavator products in North and Latin America. LBX has been marketing and selling Sumitomo excavators, forestry, material handling and demolition products under the Link-Belt excavator brand name since the company's formation.

"This acquisition underscores SCM's dedication to LBX and the Link-Belt® excavator brand, and will contribute greatly to our success and expansion throughout North, South and Central America," stated Robert Harvell, CEO of LBX Company. "Over the years, our long-term relationship with SCM has been built on a solid foundation of providing superior product quality, innovative designs, and dedicated commitment to our dealer network and customers."

"We believe that this acquisition will allow both LBX and SCM to achieve our common long-term global growth strategies," said Kensuke Shimizu, President of Sumitomo Construction Machinery.

Since its formation, LBX has passed several growth milestones, including the creation of a corporate campus in Lexington, KY that includes a world-wide parts distribution center, product testing grounds, training facilities and testing and service bays. Additionally, the Link-Belt® excavator products have evolved to meet the needs of today's marketplace, including the introduction of new models such as the Link-Belt® 360 X2 Rubber Tire material handling excavator, which was unveiled at the ISRI Convention last week in San Diego, CA.

"We look forward to working very closely with SCM in the development of future products and our dealer network to further expand our position in the marketplace," Harvell said.

The management team of LBX will remain in place.

Fisher Capital Management Investing: Sbarro, Windstar, Blockbuster, Vitro, Madoff: Bankruptcy

This report contains items about companies both in bankruptcy and not in bankruptcy. Updates Blockbuster and adds Sbarro filing as first item; Windstar Cruises in New Filing; Madoff, Point Blank, and LTAP in Updates; and CenturyLink in Downgrade.)

April 4 (Bloomberg) -- Sbarro Inc., an operator and franchiser of fast-food Italian restaurants, missed a $7.8 million interest payment on Feb. 1 and filed a prepackaged Chapter 11 petition this morning in New York to convert $34.2 million of second-lien debt and $157.8 million of senior notes to equity.

The plan, if confirmed by the bankruptcy court, would reduce debt by $195 million, a court filing says. The petition listed assets of $471 million and debt totaling $486.6 million.

The plan is supported by holders of all of the second-lien debt and 67 percent of the senior notes. The first-lien creditors are not in agreement on the plan, although discussions continue, according to the company statement.

The plan calls for extending the maturity of the first-lien debt by five years from the emergence from Chapter 11. First- lien obligations included a $21.5 million revolving credit and a $158 million term loan as of March 26, excluding letters of credit. Otherwise, the term loan would mature in January 2014, with the revolving credit maturing in January 2013.

The Chapter 11 case will be financed with a $35 million loan from some of the first-lien lenders. MidOcean Partners, which acquired Sbarro in January 2007 for $417 million, will backstop a $30 million rights offering along with Ares Corporate Opportunities Fund II LP. MidOcean holds 95 percent of the second-lien debt, according to a regulatory filing. Ares is the largest holder of senior notes, a court filing says.

Proceeds from the rights offering will be used to repay financing for the Chapter 11 case and supply working capital.

The term sheet for the plan calls for holders of second- lien debt to receive 36.5 million new shares and the right to pay $1 a share for 2.5 million shares in the rights offering.

Holders of senior notes are to receive 29 million shares and the right to pay $1 a share for 27.5 million shares in the rights offering. Senior noteholders will have an option to receive cash. The amount of the cash option is yet to be decided.

Trade suppliers for the ongoing business are to be paid in full. General unsecured creditors are to receive stock and new senior notes so their recovery will be the same as senior noteholders.

For the plan, the agreed equity value of the reorganized company is $96.5 million.

Holders of the senior unsecured notes declared a default in December based on allegations that the issuance of second-lien debt in 2009 violated their indenture.

The unsecured notes last traded on April 1 at $20.20, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Sbarro said bankruptcy resulted from the “decline in mall traffic” caused by the recession. The company said it has an “unsustainable balance sheet.”

For nine months ended in September, Sbarro had a $30.7 million net loss on total revenue of $239.1 million. The operating loss in the period was $13.6 million. The balance sheet at Sept. 26 had assets of $455.5 million and debt of $469.6 million. The assets included $352.2 million of goodwill and trademarks.

Melville, New York-based Sbarro owns or franchises 1,045 restaurants in 42 countries. From the total, 472 are owned.

The case is In re Sbarro Inc., 11-11527, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

New Filing

Windstar Cruises Files for Sale to Whippoorwill

Windstar Cruises, the operator of what it calls three luxury sailing yachts, filed under Chapter 11 on April 1 to sell the business to Whippoorwill Associates Inc. in exchange for debt, absent a higher offer at auction.

Two Windstar vessels accommodate 148 guests and the third has births for 312. The petition said assets are $86.4 million, with debt totaling $87.3 million.

Debt includes a first-lien term loan owing to Whippoorwill for $9.6 million. There are $19.7 million in 10 percent second- lien notes, where Whippoorwill holds 88 percent.

In addition, Windstar owes $31.2 million to holders of 3.75 percent convertible notes. A company statement says the holders won’t receive any distribution in the Chapter 11 case.

Trade suppliers are owed $3.9 million, according to a court filing.

The Maritime Administration of the U.S. Transportation Department is owed $13 million on a judgment.

With 22.2 percent, White Plains, New York-based Whippoorwill is already the largest shareholder. Highbridge International LLC is the second-largest shareholder with 11.4 percent.

The Chapter 11 case will be financed with a new $10 million loan, where $5 million would be available on an interim basis. The loan will also convert the $9.6 million pre-bankruptcy term loan into part of the so-called post-bankruptcy DIP loan.

The sale contract calls for a $40 million purchase price, to be paid with credit bids for the second-lien notes and the financing for the Chapter 11 case.

Windstar said there was a second purchase offer, although the price wouldn’t have paid Whippoorwill in full.

The company is proposing that the bankruptcy court authorize auction procedures where other bids would be due by April 29, followed by a May 2 auction and a hearing to approve the sale around May 6.

For nine months ended Sept. 30, Seattle-based Windstar had an $11.6 million net loss on revenue of $45.8 million. The operating loss was $9.5 million. The cash flow statement for the first three quarters revealed that $5.1 million of cash was consumed in operations.

Purchased from Carnival Corp. in April 2007, the business had been in financial distress almost from the outset, as described in a court filing.

The case is In re Ambassadors International Inc., 11-11002, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Updates

Blockbuster Has Multiple Bids for Today’s Auction

Blockbuster Inc., the movie-rental chain, received competing bids in advance of today’s auction from Carl Icahn, Dish Network Corp. and SK Telecom Co., according to a person familiar with the matter.

The bids are slightly higher than the offer from a group of secured creditors, said the person, who declined to be named because the talks are private.

The hearing for approval of the sale is scheduled for April 7. To read Bloomberg coverage, click here.

At auction, the opening bid of $290 million comes from a group holding some of the $630 million in first-lien bonds.

Dozens of landlords and other creditors filed objections to the sale. Some said the noteholder group failed to provide proof of its financial ability to operate the business and pay store rent going forward.

After bankruptcy, Blockbuster rejected about 220 leases for stores previously closing and is now rejecting another 185.

Dallas-based Blockbuster began reorganization in September with 5,600 stores, including 3,300 in the U.S. and the remainder abroad. Among the U.S. stores, 3,000 were owned. The rest are franchised. About 200 stores closed before bankruptcy.

The petition listed assets of $1.017 billion against debt of $1.465 billion. Blockbuster estimated it owes $57 million in accounts payable in addition to secured and subordinated notes.

The case is In re Blockbuster Inc., 10-14997, U.S. Bankruptcy Court, Southern District New York (Manhattan).

SIPC Proclaims Right to Pursue JPMorgan Suit

JPMorgan Chase & Co. would be wrong if it tries to preclude the Securities Investor Protection Corp. from participating in the lawsuit where the trustee for Bernard L. Madoff Investment Securities Inc. is trying to recover $6.4 billion, attorney Kevin H. Bell from SIPC said in an April 1 letter to a U.S. district judge.

Bell was responding to a letter from JPMorgan where the New York-based bank said it was reserving its rights in the future to object to SIPC’s participation in the lawsuit.

Bell quoted from a provision of the Securities Investor Protection Act saying that SIPC “shall be deemed to be a party in interest as to all matters ... with the right to be heard on all such matters, and shall be deemed to have intervened ... with the same force and effect as if a petition for such purpose had been allowed by the court.”

The letters were sent to U.S. District Judge Colleen McMahon, who will rule on a motion by JPMorgan to remove the suit from bankruptcy court where it was filed. If the motion is granted, the suit would be transferred to the district court. McMahon’s ruling on the so-called withdrawal-of-the-reference motion could be made later this month. For details on the issues, click here for the March 31 Bloomberg bankruptcy report.

The Madoff trustee alleges that JPMorgan was “at the very center of Madoff’s Ponzi scheme” and “turned a blind eye to billions of dollars worth of suspicious transactions.”

Sonja Kohn, founder of Bank Medici AG, told Das Magazin, “Often I would just love to disappear into thin air.”

Kohn, the bank, Bank Austria and UniCredit SpA are being sued for $19.6 billion by the trustee for Bernard L. Madoff Investment Securities Inc. The damages theoretically could be trebled to $58.8 billion if the trustee proves there was a criminal enterprise.

To read Bloomberg coverage, click here.

The Madoff firm began liquidating on Dec. 11, 2008, with the appointment of the trustee under the Securities Investor Protection Act. Bernard Madoff individually went into an involuntary Chapter 7 liquidation in April 2009. His bankruptcy case was consolidated with the firm’s liquidation. Madoff is serving a 150-year prison sentence following a guilty plea.

The motion to remove the case to district court is Picard v. JPMorgan Chase & Co., 11-00913, U.S. District Court, Southern District New York. The lawsuit in bankruptcy court is Picard v. JPMorgan Chase & Co., 10-04932, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Madoff liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court for the Southern District of New York (Manhattan).

Judge Declines to Approve New Stream Financing

Bankruptcy judges seldom refuse to approve financing. U.S. Bankruptcy Judge Mary F. Walrath made an exception in the case of New Stream Capital LLC.

Walrath upheld objections from creditors of New Stream’s U.S. and Cayman Islands funds who say they invested more than $90 million. She gave New Stream the option of returning to court on April 8 to make another try if changes are made in the proposed financing.

Walrath also confirmed that the investors in the two funds not in bankruptcy have the right to appear and be heard in opposition to New Stream’s proposed reorganization. In addition, the judge said the objectors are entitled to more time to mount a defense to approval of the proposed Chapter 11 plan. To read Bloomberg coverage of the April 1 hearing, click here.

New Stream calls itself a fund manager specializing in “non-traded private debt.” It filed under Chapter 11 on March 13 with a prepackaged plan it says was accepted in advance by three classes of creditors.

The objecting investors contended that the financing was a “sub rosa plan” that controlled the outcome of the restructuring.

New Stream wanted the financing to pay premiums on its portfolio of life insurance policies. The lender is an affiliate of McKinsey & Co. Inc., which is under contract to buy New Stream’s life insurance portfolio for $127.5 million.

The investors filed involuntary Chapter 11 petitions against three New Stream funds not among those who filed the prepackaged petitions.

Ridgefield, Connecticut-based New Stream to a large extent invested in the so-called life settlement market, where life insurance policies are purchased for less than the death benefit from owners of policies on individuals’ lives.

The prepackaged case is In re New Stream Secured Capital Inc., 11-10753, U.S. Bankruptcy Court, District of Delaware (Wilmington). The first-filed involuntary case is In re New Stream Secured Capital Fund (U.S.) LLC, 11-10690, in the same court.

Judge May Decide Rittenhouse Dismissal This Month

The owner of 10 Rittenhouse Square, a 33-story condominium development in Center City Philadelphia, should know later this month whether the reorganization lives or dies.

In response to the owner’s motion in January for the right to use cash representing collateral for IStar Financial Inc., the lender countered with a motion of its own to dismiss the case, deny the use of cash, or allow foreclosure.

The bankruptcy judge held five days of hearings on the motions in March. The parties will submit their post-trial papers on April 21, giving U.S. Bankruptcy Judge Stephen Raslavich in Philadelphia the ability to issue a ruling late this month.

IStar, owed $205 million, contends the project won’t sell out for enough to pay off its loan in full. The owner believes the property is worth enough to pay the lender fully and filed a plan to pay off IStar over time. The hearing for approval of the disclosure statement explaining the owner’s plan is now set for May 5.

The project owner filed a motion seeking a three-month extension of the exclusive right to propose a Chapter 11 plan until July 29. The exclusivity motion is on the calendar for April 28, giving the judge the opportunity, if he wishes, to announce his ruling on IStar’s dismissal motion.

The project filed for reorganization on Dec. 30. It owes another $62 million on a mezzanine loan. The Chapter 11 filing was intended to avoid having a receiver appointed. The project is controlled by Delaware Valley Real Estate Investment Fund, a pension fund for Philadelphia construction workers. The fund is also the holder of the mezzanine loan.

The condominium units are priced from $600,000 to $4.5 million, according to the company’s website.

The case is In re Philadelphia Rittenhouse Developer LP, 10-31201, U.S. Bankruptcy Court, Eastern District of Pennsylvania (Philadelphia).

Vitro Judge to Rule on Involuntary Chapter 11 Petition

Given that Vitro SAB has been in default on $1.2 billion in bonds for two years, there would seem to be little question that U.S. subsidiaries should go into Chapter 11 involuntary. Vitro, Mexico’s largest glassmaker, nonetheless opposed the involuntary filings against U.S. subsidiaries, prompting the bankruptcy judge in Fort Worth, Texas, to hold a two-day trial on March 31 and April 1.

When the trial ended, U.S. Bankruptcy Judge Russell Nelms said he would rule later, without giving a date.

A business can be forced into bankruptcy involuntarily if it’s shown that the company isn’t “generally” paying its debts as they come due. Vitro argued that the U.S. subsidiaries are immune from involuntary bankruptcy because they are paying all their debts aside from the notes. The U.S. subsidiaries guaranteed the notes.

For Bloomberg coverage of the hearing, click here.

The involuntary Chapter 11 petition was filed in November by a group saying they hold some 60 percent of the defaulted bonds. They also filed involuntary petition in Mexico against Vitro companies.

A judge in Mexico dismissed Vitro’s voluntary reorganization in that country, saying Vitro couldn’t push through a plan based on the vote of $1.9 billion of intercompany debt when third-party creditors were opposed. Vitro is appealing.

Vitro was offering noteholders what it said would be a recovery of as much as 73 percent by exchanging existing debt for cash, new debt and convertible bonds. Bondholders believe Vitro is worth enough to pay them in full. For a summary of Vitro’s dismissed reorganization and the suits between Vitro and the noteholders, click here for the Dec. 15 Bloomberg bankruptcy report.

The first-filed involuntary case is In re Vitro Asset Corp., 10-47470, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth). The Chapter 15 case to be dismissed is In re Vitro SAB, 10-16619, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Miami Bankruptcy Judge to Decide Fisher Island Owner

Who are the legitimate mangers and creditors of a developer on Fisher Island, Florida, will be determined by the bankruptcy court in Miami, as the result of a colorful March 31 ruling by U.S. Bankruptcy Judge A. Jay Cristol.

Two different groups contend they properly are in control of the developer. One group includes purported creditors who filed an involuntary Chapter 11 petition on March 17. The same group includes people who allege they control the company and filed papers the next day acceding to the involuntary petition.

The competing group challenges the standing of the purported creditors and says that the consent to Chapter 11 was unauthorized.

Cristol said the outcome may turn on what he called a “remarkable promissory note” where nine entities are liable, although it wasn’t signed by four. Cristol said that the entity to be paid on the note is “Areal Plus Group.”

Cristol asked if the payee of the note is “a person whose last name is Group, first name Areal and middle name Plus?” Or, the judge said, is it a corporation or some kind of partnership?

Cristol cited how the note was purportedly assigned to three entities. The judge observed that the illegible signature didn’t indicate that the assignment was made by someone with authority to act for Areal Plus Group.

Cristol said he would hold one trial to decide if the note is legitimate and who properly controls the developer. The trial, he said, will decide if the note is valid or “an extension of Alice in Wonderland.”

Cristol told the parties to return to court for a status conference on April 11 and a pretrial conference on May 19.

A group claiming to be the actual owners say the involuntary petition was a “last ditch effort to maintain” claims to ownership.

There was a lawsuit already pending in Florida state court to decide who properly is in control of the company. The involuntary petition halted what otherwise would have been a state court hearing on March 29 regarding ownership.

One court filing says there are $100 million in legitimate claims for borrowed money. AIG Annuity Insurance Co. is one of the lenders, the filing say.

The creditors who filed the involuntary petition said they are collectively owed $32.4 million. They are also seeking appointment of a Chapter 11 trustee.

The first-filed case is In re Fisher Island Investments Inc., 11-17047, U.S. Bankruptcy Court, Southern District of Florida (Miami).

Point Blank Wants Bonuses For Exit From Chapter 11

Point Blank Solutions Inc., a manufacturer of soft body armor for police and military, is proposing a $271,000 bonus program for nine employees whose identity wasn’t disclosed. The company also wants the court to modify a previously approved bonus program where the performance targets weren’t met.

Payments under the new program, to be considered at a May 17 hearing, would be earned if the company emerges from Chapter 11 by July 16.

Under a bonus program approved in June 2010, designated employees and officers would have earned a bonus if the business were sold or a plan implemented by March 31. The target missed, Point Blank wants the judge to modify the prior program so the bonuses will be earned so long as the July 16 emergence target is met.

A footnote to the motion says no employee would receive more than one bonus. The motion says the creditors’ committee approves the bonus program.

Based in Pompano Beach, Florida, Point Blank has two plants. Revenue in 2009 exceeded $153 million. The former chief executive and chief operating officer were convicted in September of orchestrating a $185 million fraud.

The Chapter 11 petition in April 2010 listed assets of $64 million against debt totaling $68.5 million. Debt included a $10.5 million secured loan paid off by financing for the Chapter 11 case. Point Blank said it also owes $28.2 million to trade suppliers.

The case is In re Point Blank Solutions Inc., 10-11255, U.S. Bankruptcy Court, District of Delaware (Wilmington).

LTAP-Wells Fargo Settlement Approved, Dismissal Next

LTAP US LLP, a purchaser of life insurance policies in the so-called life settlement market, was authorized by the bankruptcy judge on April 1 to turn over assets to Wells Fargo Bank NA, owed $252 million. LTAP’s capitulation resulted from an opinion by the bankruptcy judge marking the death knell for the Chapter 11 case begun in December.

U.S. Bankruptcy Judge Kevin Gross in Delaware gave the bank the right to foreclose when he simultaneously refused to approve $40 million in financing that would have come ahead of the bank’s lien. The new money would have been used to pay premiums on life insurance policies.

For details on the settlement, which is structured like a sale to the San Francisco-based bank, click here for the March 21 Bloomberg bankruptcy report. The bank has the ability to cause the Chapter 11 case to be dismissed not less than 30 days after the settlement is carried out.

LTAP currently has 410 policies on 313 lives with aggregate death benefits of $1.36 billion, according to the settlement papers. In addition to Well Fargo, unsecured creditors are owed $7.6 million.

When LTAP filed for Chapter 11 protection in December, it said policies were worth $311.5 million. Based in Atlanta, LTAP is managed by a company wholly owned by Berlin Atlantic Holding GmbH & Co.

In the life settlement market, companies like LTAP buy a policy for less than the death benefit from the owner of a policy on an individual’s life. The price is higher than what the policy owner would receive were the policy instead surrendered.

The case is In re LTAP US LLP, 10-14125, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Lehman Broker’s Lawyers Paid $19.5 Million for Four Months

The law firm liquidating Lehman Brothers Inc., the brokerage subsidiary of Lehman Brothers Holdings Inc., were paid $19.5 million for four months’ work. For the first two years of the case through September, the firm Hughes Hubbard & Reed LLP was paid $108 million.

For Bloomberg coverage, click here.

The Lehman holding company filed under Chapter 11 in New York on Sept. 15, 2008, and sold office buildings and the North American investment banking business to Barclays Plc one week later. The Lehman brokerage operations went into liquidation on Sept. 19, 2008, in the same court.

The Lehman holding company Chapter 11 case is In re Lehman Brothers Holdings Inc., 08-13555, while the liquidation proceeding under the Securities Investor Protection Act for the brokerage operation is Securities Investors Protection Corp. v. Lehman Brothers Inc., 08-01420, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Specialty Products Seeks Six Months More Exclusivity

Specialty Products Holding Corp. and Bondex International Inc., subsidiaries of RPM International Inc., are requesting a six-month extension of the exclusive right to propose a Chapter 11 plan while they proceed with efforts to extract information from asbestos claimants.

If granted by the bankruptcy court in Delaware at a May 23 hearing, so-called exclusivity would be extended to Sept. 30.

The company explains how it filed four separate motions to gather information about asbestos claims from claimants themselves, lawyers for asbestos claimants, and trusts created to deal with asbestos claims in other completed Chapter 11 cases.

The bankruptcy court has held five hearings on the discovery motions since November. So far, none has been approved given opposition from asbestos claimants, their lawyers, and asbestos trusts. The most progress has been made on a protocol for receiving information from claimants themselves.

The companies filed Chapter 11 petitions in May 2010 to create a trust taking over liability for 10,000 asbestos claims. Affiliates not in bankruptcy also would be absolved of liability if the proposed reorganization works out. A provision in bankruptcy law expressly for asbestos cases allows companies not in bankruptcy to make contributions to a claimants’ trust and thereby receive absolution from claims.

Non-bankrupt subsidiaries of Specialty Products generate approximately $330 million in annual revenue. Bondex, which is no longer operating, is a Specialty Products subsidiary that is chiefly responsible for the asbestos claims from a company acquired in 1966 named Reardon Co. Medina, Ohio-based RPM had consolidated assets of $3.12 billion and $1.834 billion in liabilities as of Nov. 20. The Specialty Products and Bondex Chapter 11 petitions both said assets and debt exceed $100 million.

The case is In re Specialty Products Holding Corp., 10-11780, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Capmark Says Consensual Reorganization Plan Imminent

Capmark Financial Group Inc. said it is “finalizing for imminent filing of a consensual plan.” Accordingly, the bank holding company arranged a May 10 hearing for the fourth and last extension of the exclusive right to propose a reorganization.

If approved by the court, the exclusive right to solicit acceptances of a plan will run until June 25. No more extension are possible, because the company will have exhausted its maximum 18 months of plan-filing exclusivity.

Capmark said it is discussing the plan and disclosure statement with the creditors’ committee and a lender group.

The bankruptcy judge approved a settlement with secured lenders in November. It paid secured lenders 91 percent in cash on the $1.1 billion they were still owed, plus interest and reimbursement of fees spent in the Chapter 11 case. For details on the settlement and judge’s reasons for approving, click here for the Nov. 2 Bloomberg bankruptcy report.

Capmark intends to reorganize around its non-bankrupt bank subsidiary by giving stock to unsecured creditors. Based in Horsham, Pennsylvania, Capmark was called GMAC Commercial Holding Corp. before control was sold in 2006. It had been GMAC’s servicing and mortgage banking business.

KKR & Co., Goldman Sachs Group Inc., Dune Capital Management LP and Five Mile Capital Partners LLC owned 75.4 percent of Capmark following a 2006 acquisition from General Motors Corp. for $1.5 billion cash and repayment of $7.3 billion in debt. Capmark’s debt included a $1.5 billion term loan secured by all assets except Capmark’s bank’s assets, $234 million remaining under a bridge loan, a $4.6 billion senior credit, $2.34 billion in notes, and a $250 million junior subordinated debt. The bank had assets of $11.12 billion and deposits of $8.39 billion, according to a court filing.

The case is In re Capmark Financial Group Inc., 09-13684, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Watch List

American Apparel Says Bankruptcy a Possibility

American Apparel Inc., a Los Angeles-based designer, manufacturer, and apparel retailer, said in a regulatory filing last week that there is substantial doubt about being able to continue to as a going concern. The 10-K annual report said bankruptcy is among the options if sufficient liquidity can’t be arranged.

For Bloomberg coverage, click here.

The company reported an $86.3 million net loss for 2010 on net sales of $533 million. The operating loss for the year was $50.1 million.

Although assets of $328 million on Dec. 31 exceeded total liabilities by 30 percent, current liabilities of $213.2 million were only slightly below current assets of $216.5 million.

Comparable store sales declined 13 percent in 2010 following a 10 percent drop in 2009.

Involuntary Filing

Anchorage Capital Files Involuntary on Zais Fund

Three funds advised by Anchorage Capital Group LLC filed an involuntary Chapter 11 petition on April 1 against Zais Investment Grade Ltd. VII.

The petition, in Trenton, New Jersey, said the creditors together have claims exceeding $133 million.

The Zais fund is affiliated with Zais Group LLC from Red Bank, New Jersey.

The case is In re Zais Investment Grade Ltd. VII, 11-20243, U.S. Bankruptcy Court, District of New Jersey (Trenton).

Downgrade

Qwest Acquisition Demotes CenturyLink to Junk at BB

The acquisition of Qwest Communications International Inc. by CenturyLink Inc. resulted in the loss of investment-grade status for Monroe, Louisiana-based CenturyLink, an incumbent local exchange carrier.

CenturyLink’s corporate grade slipped two notches to BB, the second-highest junk grade on the Standard & Poor’s scale.

With 15.4 million access lines and 5.3 million broadband customers, the two companies together became the largest predominantly wireline telecommunications provider in the U.S., S&P said.

The $23.8 billion stock acquisition was completed April 1.

Daily Podcast

Madoff-JPMorgan, Lehman-Paulson, Classifieds: Bankruptcy Audio

The Bloomberg bankruptcy podcast leads off with an analysis about whether JPMorgan Chase & Co. will succeed in moving the $6.4 billion lawsuit by the trustee for Bernard L. Madoff Investment Securities Inc. from the bankruptcy court to the U.S. district court. We explain why Lehman Brothers Holdings Inc. may be attempting to force disclosure about claims trading from Paulson & Co. Inc. and other creditors opposing the liquidating broker’s Chapter 11 plan. For New York investors, we offer a rundown on properties on Third Ave. and a Volkswagen dealership in the Bronx. Bloomberg Law’s Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle wind up with discussion of a district court opinion saying that bankruptcy courts are not “public complaint departments.” To listen, click here.

--With assistance from David McLaughlin, Linda Sandler, Tiffany Kary and Matt Townsend in New York; Matthias Wabl in Zurich; and Dawn McCarty and Michael Bathon in Wilmington, Delaware. Editors: Fred Strasser, Peter Blumberg

To contact the reporter on this story: Bill Rochelle in New York at wrochelle@bloomberg.net

To contact the editor responsible for this story: David Rovella at drovella@bloomberg.net

Fisher Capital Management Investing:The Fed Minutes Are Out, And Members See The Recovery "Firmer," But No Need To End QE2 Early

The vote, however, had no dissenters, so this was pretty much as expected.

Market reaction has, thus far, been limited, further exemplifying that these minutes were as expected.

Check out our full analysis here >

Preview: This past month has seen a great deal of debate amongst FOMC members about the direction of Fed policy, with hawks, like Charles Plosser, calling for tightening measures to begin after the end of QE2. Others, like Lockhart and Bernanke, have been more dovish.

Whether that dissent appeared at March's meeting, we'll soon find out.

The minutes will appear here when they are released.

And here they are:

A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors in Washington, D.C., on Tuesday, March 15, 2011, at 8:30 a.m.

PRESENT:

Ben Bernanke, Chairman

William C. Dudley, Vice Chairman

Elizabeth Duke

Charles L. Evans

Richard W. Fisher

Narayana Kocherlakota

Charles I. Plosser

Sarah Bloom Raskin

Daniel K. Tarullo

Janet L. Yellen

Jeffrey M. Lacker, Dennis P. Lockhart, Sandra Pianalto, and John C. Williams, Alternate Members of the Federal Open Market Committee

James Bullard, Thomas M. Hoenig, and Eric Rosengren, Presidents of the Federal Reserve Banks of St. Louis, Kansas City, and Boston, respectively

William B. English, Secretary and Economist

Matthew M. Luecke, Assistant Secretary

David W. Skidmore, Assistant Secretary

Michelle A. Smith, Assistant Secretary

Scott G. Alvarez, General Counsel

Nathan Sheets, Economist

David J. Stockton, Economist

James A. Clouse, Thomas A. Connors, Steven B. Kamin, Loretta J. Mester, David Reifschneider, Harvey Rosenblum, Daniel G. Sullivan, and David W. Wilcox, Associate Economists

Brian Sack, Manager, System Open Market Account

Nellie Liang, Director, Office of Financial Stability Policy and Research, Board of Governors

Maryann F. Hunter, Deputy Director, Division of Banking Supervision and Regulation, Board of Governors; William Nelson, Deputy Director, Division of Monetary Affairs, Board of Governors

Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors

Charles S. Struckmeyer, Deputy Staff Director, Office of the Staff Director, Board of Governors

Lawrence Slifman and William Wascher, Senior Associate Directors, Division of Research and Statistics, Board of Governors

Andrew T. Levin, Senior Adviser, Office of Board Members, Board of Governors; Stephen A. Meyer, Senior Adviser, Division of Monetary Affairs, Board of Governors

Joyce K. Zickler, Visiting Senior Adviser, Division of Monetary Affairs, Board of Governors

Michael G. Palumbo, Associate Director, Division of Research and Statistics, Board of Governors

David H. Small, Project Manager, Division of Monetary Affairs, Board of Governors

Andrea L. Kusko, Senior Economist, Division of Research and Statistics, Board of Governors

Randall A. Williams, Records Management Analyst, Division of Monetary Affairs, Board of Governors

Blake Prichard, First Vice President, Federal Reserve Bank of Philadelphia

Jeff Fuhrer and Robert H. Rasche, Executive Vice Presidents, Federal Reserve Banks of Boston and St. Louis, respectively

David Altig, Richard P. Dzina, Ron Feldman, Craig S. Hakkio, Richard Peach, Glenn D. Rudebusch, Mark E. Schweitzer, and John A. Weinberg, Senior Vice Presidents, Federal Reserve Banks of Atlanta, New York, Minneapolis, Kansas City, New York, San Francisco, Cleveland, and Richmond, respectively

In the agenda for this meeting, it was reported that advices of the election of John C. Williams as an alternate member of the Federal Open Market Committee had been received by the Secretariat, and that he had executed his oath of office.

Developments in Financial Markets and the Federal Reserve's Balance Sheet

The Manager of the System Open Market Account (SOMA) reported on developments in domestic and foreign financial markets during the period since the Federal Open Market Committee (FOMC) met on January 25-26, 2011. He also reported on System open market operations, including the ongoing reinvestment into longer-term Treasury securities of principal payments received on the SOMA's holdings of agency debt and agency-guaranteed mortgage-backed securities (MBS) that the Committee authorized in August 2010, as well as the purchase of additional longer-term Treasury securities to increase the face value of such securities held in the SOMA that the FOMC first authorized in November 2010. Since November, purchases by the Open Market Desk of the Federal Reserve Bank of New York had increased the SOMA's holdings by $310 billion. The Manager reported that achieving an increase of $600 billion in SOMA holdings by the end of June 2011 would require continuing to purchase additional securities at an unchanged pace of about $80 billion per month. There were no open market operations in foreign currencies for the System's account over the intermeeting period. By unanimous vote, the Committee ratified the Desk's transactions over the intermeeting period.

The Manager also discussed the possible benefits of gradually reducing the pace of the Federal Reserve's purchases of Treasury securities when the current asset purchase program nears completion. As its earlier program of agency MBS purchases drew to a close, the Federal Reserve tapered its purchases during the first quarter of 2010 in order to avoid disruptions in the market for those securities. However, the Manager indicated that the greater depth and liquidity of the Treasury securities market suggested that it would not be necessary to taper purchases in this market. The Manager noted that market participants appeared to have reached the same conclusion, as they generally did not seem to expect the Federal Reserve to taper its purchases of Treasury securities. In light of the Manager's report, almost all meeting participants indicated that they saw no need to taper the pace of the Committee's purchases of Treasury securities when its current program of asset purchases approaches its end.

Staff Review of the Economic Situation

The information reviewed at the March 15 meeting indicated that the economic recovery continued to proceed at a moderate pace, with a further gradual improvement in labor market conditions. Sizable increases in prices of crude oil and other commodities pushed up headline inflation, but measures of underlying inflation were subdued and longer-run inflation expectations remained stable.

The labor market continued to show signs of firming. Private nonfarm payroll employment rose noticeably in February after a small increase in January, with the swing in hiring likely magnified by widespread snow-storms, which may have held down the employment figure for January. Initial claims for unemployment insurance trended lower through early March, and surveys of hiring plans had improved this year. The unemployment rate dropped markedly in January after a similar decrease in the preceding month, then ticked down to 8.9 percent in February; the labor force participation rate was roughly flat in January and February. The share of workers employed part time for economic reasons declined further over the past two months, but long-duration unemployment was still elevated.

Total industrial production was little changed in January after a strong rise in December. Manufacturing output posted a relatively subdued gain in January, likely held down somewhat by the extensive snowfalls during that month; in addition, a scheduled step-up in assemblies of motor vehicles reportedly was restrained in part by some temporary bottlenecks in the supply chain. As a result, the rate of capacity utilization in manufacturing was essentially unchanged in January, and it remained well below its 1972-2010 average. In February, indicators of near-term industrial production, such as the new orders diffusion indexes in the national and regional manufacturing surveys, were at levels consistent with solid increases in factory output in the coming months. Moreover, motor vehicle assemblies picked up in February and were scheduled to rise further through the second quarter of this year.

Consumer spending appeared to have increased at a modest pace in early 2011 after rising briskly in the fourth quarter of 2010. In January, total real personal consumption expenditures (real PCE) were essentially flat. In February, nominal retail sales, excluding purchases of motor vehicles and parts, rose moderately; sales of light motor vehicles posted a robust gain. Consumer spending was supported by a solid increase in real disposable income in January, reflecting in part the temporary cut in payroll taxes. Household net worth rose in the fourth quarter, as the increase in equity values during that period more than offset the further fall in house prices. However, consumer sentiment dropped back in early March, retracing its increase over the preceding four months.

Activity in the housing market continued to be depressed, held down by the large inventory of foreclosed or distressed properties on the market and by weak demand. In January, starts and permits for new single-family homes remained near the low levels that had prevailed since the middle of 2010. New home sales moved down in January; existing home sales stepped up somewhat but still were quite low by historical standards. Measures of house prices softened again in December and January.

Real business investment in equipment and software (E&S) appeared to rise further in recent months. Nominal shipments of nondefense capital goods excluding aircraft increased, on net, in December and January, and the expanding backlog of unfilled orders pointed to further gains in shipments in subsequent months. In addition, readings on business conditions and sentiment remained consistent with solid near-term advances in outlays for E&S. Credit conditions continued to improve for many firms, though they reportedly were still tight for small businesses. In contrast to the apparent increase in E&S outlays, nonresidential construction expenditures dropped further in December and January, constrained by high vacancy rates, low prices for commercial real estate, and persistently tight borrowing conditions for construction loans for commercial properties.

Real nonfarm inventory investment appeared to have picked up in early 2011 after slowing markedly in the fourth quarter. In the motor vehicles sector, inventories rose slightly, on net, in January and February after having been drawn down in the fourth quarter. Outside of motor vehicles, the rise in the book value of business inventories was somewhat larger in January than the average monthly increase in the fourth quarter, while inventory-to-sales ratios for most industries covered by these data were similar to their pre-recession norms. Survey data also suggested that inventory positions were generally in a comfortable range.

In the government sector, the available information suggested that real defense spending in January and February was below its average level in the fourth quarter. At the state and local level, ongoing fiscal pressures were reflected in further job cuts in January and February. Construction outlays by these governments fell again in January.

The U.S. international trade deficit widened in December and again in January, with rapid gains in both exports and imports. The largest increases in exports were in capital goods, industrial supplies, and automotive products. Nominal imports of petroleum products rose sharply, reflecting both higher prices and greater volumes; imports in other major categories rose solidly on net.

Overall consumer prices in the United States rose somewhat faster in December and January than in earlier months, as consumer energy prices posted further sizable increases and consumer food prices responded to the recent upturn in farm commodity prices. The price index for PCE excluding food and energy (the core PCE price index) rose slightly in January, boosted by an uptick in prices of core goods after four months of declines; the 12-month change in this core price index stayed near the very low levels seen in late 2010. Recent surveys showed further hefty increases in retail gasoline prices in February and early March, and prices of nonfuel industrial commodities also rose sharply on net. According to the Thomson Reuters/University of Michigan Surveys of Consumers, households' near-term inflation expectations increased substantially in early March, likely because of the run-up in gasoline prices; longer-term inflation expectations moved up somewhat in the early March survey but were still within the range that prevailed over the preceding few years.

Labor cost pressures remained muted in the fourth quarter, as hourly compensation continued to be restrained by the wide margin of slack in the labor market and as productivity rose further. Average hourly earnings posted a modest increase, on net, in January and February.

Growth in real activity in the advanced foreign economies appeared to pick up after a lackluster performance in the fourth quarter. In the euro area, monthly indicators of activity, such as retail sales and purchasing managers indexes, were generally positive in January and February. But the divergence in economic performance across euro-area countries remained large, as economic activity appeared to have expanded strongly in Germany but to have contracted in Greece and Portugal. Prior to the earthquake and tsunami in mid-March, economic activity in Japan had shown signs of firming. The upbeat tenor of the incoming data for the emerging market economies suggested that the economic expansion in these countries continued to outpace that in the advanced economies. Foreign consumer price inflation, which stepped up noticeably in the fourth quarter, remained elevated in early 2011, largely because of higher food and energy prices.

Staff Review of the Financial Situation

The decisions by the FOMC at its January meeting to continue its asset purchase program and to maintain the 0 to 1/4 percent target range for the federal funds rate were largely in line with market expectations, as was the accompanying statement; they elicited only a modest market reaction. Over the weeks following the FOMC meeting, nominal Treasury yields and the expected path of the federal funds rate in coming quarters moved higher, as market participants apparently read the incoming economic data as, on balance, somewhat better than expected. After mid-February, however, Treasury yields and policy expectations retraced their earlier rise amid concerns about the possible economic fallout from events in the Middle East and North Africa (MENA) region. In the days leading up to the March FOMC meeting, the tragic developments in Japan spurred a further decline in Treasury yields. On net, expectations for the federal funds rate, along with yields on nominal Treasury securities, were little changed over the intermeeting period.

Measures of inflation compensation over the next 5 years rose, on net, over the intermeeting period, with most of the increase concentrated at the front end of the curve, likely reflecting the jump in oil prices. In contrast, measures of forward inflation compensation 5 to 10 years ahead were little changed, suggesting that longer-term inflation expectations remained stable.

Over the intermeeting period, yields on investment- and speculative-grade corporate bonds edged down relative to those on comparable-maturity Treasury securities. The secondary-market prices of syndicated loans continued to move up. Strains in the municipal bond market eased as concerns about the budgetary problems of state and local governments seemed to diminish somewhat. Conditions in short-term funding markets were little changed.

Broad U.S. stock price indexes were about unchanged, on net, over the intermeeting period. Option-implied volatility on the S&P 500 index rose sharply in mid-February in response to events in the MENA region and remained somewhat elevated thereafter. The staff's estimate of the spread between the expected real equity return for S&P 500 firms and the real 10-year Treasury yield--a measure of the equity risk premium--narrowed a bit more over the intermeeting period but continued to be quite elevated relative to longer-term norms.

In the March 2011 Senior Credit Officer Opinion Survey on Dealer Financing Terms, dealers reported a further easing, over the previous three months, in the price and nonprice terms they offered to different types of counterparties for all of the categories of transactions covered in the survey. Dealers noted that the demand for funding had increased for a broad range of securities over the same period. In response to special questions, dealers reported some increase in the use of leverage over the prior six months by traditionally unlevered investors--in particular, asset managers, insurance companies, and pension funds. In addition, dealers reported an increase in leverage over the past six months by hedge funds that pursue a variety of investment strategies. More broadly, while the availability and use of dealer-intermediated leverage had increased since its post-crisis nadir in mid-2009, a review of information from a variety of sources suggested that lev-erage generally remained well below the levels reached prior to the recent financial crisis.

Net debt financing by nonfinancial corporations was solid in January and February, although it did not match the sizable amount seen in the fourth quarter. Net issuance of investment- and speculative-grade bonds was robust in the first two months of this year. Commercial and industrial (C&I) loans outstanding also increased, on balance, while the amount of nonfinancial commercial paper outstanding was little changed. Gross public equity issuance by nonfinancial firms was relatively subdued in January and February. Measures of the credit quality of nonfinancial firms continued to improve.

Financing conditions for commercial real estate generally remained tight. So far this year, issuance of commercial mortgage-backed securities (CMBS) appeared to have maintained its modest fourth-quarter pace. Data on delinquency rates for commercial real estate loans were mixed.

Rates on conforming fixed-rate residential mortgages, and their spreads relative to the 10-year Treasury yield, were about unchanged over the intermeeting period. With mortgage rates remaining above the low levels seen last fall, refinancing activity was tepid. Outstanding residential mortgage debt was estimated to have contracted again in the fourth quarter. Rates of serious delinquency for subprime and prime mortgages were little changed in December and January.

Consumer credit markets showed further signs of improvement. Total consumer credit expanded moderately in January. As was the case in the fourth quarter, nonrevolving credit expanded while revolving credit ran off. Delinquency rates on credit card loans in securitized pools and on auto loans at finance companies continued to decline through January, nearly returning to their longer-run averages. The issuance of consumer asset-backed securities, which had weakened around the turn of the year, posted a moderate gain in February.

Bank credit declined, on average, in January and February as a result of a contraction in core loans--the sum of C&I, real estate, and consumer loans; holdings of securities were about flat on net. The Survey of Terms of Business Lending conducted in the first week of February showed that spreads of interest rates on C&I loans over comparable-maturity Eurodollar and swap rates decreased somewhat but remained elevated.

M2 increased at a moderate rate, on average, over January and February. Liquid deposits, the largest component of M2, expanded somewhat less rapidly than in the fourth quarter of 2010. Nonetheless, as has been the case for some time, the composition of M2 shifted toward liquid deposits, likely reflecting their higher yields relative to other M2 components. Currency continued to advance at a relatively fast rate in January and February, likely boosted by a strong expansion in foreign holdings of U.S. bank notes.

In financial markets abroad, equity prices in the advanced economies rose early in the intermeeting period, but they turned down in mid-February as oil prices increased and then fell sharply in mid-March in the aftermath of the earthquake and tsunami in Japan. On net over the intermeeting period, stock prices were down in most of the advanced economies, with Japan's index having fallen most significantly. Emerging market equity price indexes, which had been underperforming in previous months, generally ended the period lower as well, and emerging market equity funds experienced outflows. Movements in 10-year sovereign bond yields in Europe and Canada mirrored those in equity prices, climbing early in the intermeeting period but falling later.

In part because of downgrades by credit rating agencies, yields on the 10-year sovereign bonds of Greece, Ireland, and Portugal rose sharply, relative to those on German bonds, through early March. These spreads subsequently declined somewhat in response to a general agreement among euro-area leaders to expand the capacity of the area's backstop funding facility, to extend the maturity of the facility's loans to Greece, and to lower the interest rates on those loans.

The European Central Bank (ECB) left its benchmark policy rate unchanged at its March meeting, but the emphasis on upside risks to inflation at the postmeeting press conference led market participants to infer that the ECB might well tighten policy at its meeting in April. In the United Kingdom, market-based readings on expected policy rates indicated that investors anticipated some tightening of policy before the end of this year. In addition, authorities in several emerging market economies took steps to tighten policy. The broad nominal index of the U.S. dollar declined about 1 percent, on balance, over the intermeeting period.

Staff Economic Outlook

The pace of economic activity appeared to have been a little slower around the turn of the year than the staff had anticipated at the time of the January FOMC meeting, and the near-term forecast for growth of real gross domestic product (GDP) was revised down modestly. However, the outlook for economic activity over the medium term was broadly similar to the projection prepared for the January FOMC meeting. Changes to the conditioning assumptions underlying the staff projection were mostly small and offsetting: Crude oil prices had risen sharply and federal fiscal policy seemed likely to be marginally more restrictive than the staff had judged in January, but these negative factors were counterbalanced by higher household net worth and a slightly lower foreign exchange value of the dollar. As a result, as in the January forecast, real GDP was expected to rise at a moderate pace over 2011 and 2012, supported by accommodative monetary policy, increasing credit availability, and greater household and business confidence. Reflecting the recent labor market data, the projection for the unemployment rate was lower throughout the forecast period than in the staff's January forecast, but the jobless rate was still expected to decline slowly and to remain elevated at the end of 2012.

The staff revised up its projection for consumer price inflation in the near term, largely because of the recent increases in the prices of energy and food. However, in light of the projected persistence of slack in labor and product markets and the anticipated stability in long-term inflation expectations, the increase in inflation was expected to be mostly transitory if oil and other commodity prices did not rise significantly further. As a result, the forecast for consumer price inflation over the medium run was little changed relative to that prepared for the January meeting.

Participants' Views on Current Conditions and the Economic Outlook

In discussing intermeeting developments and their implications for the economic outlook, participants agreed that the information received since their previous meeting was broadly consistent with their expectations and suggested that the economic recovery was on a firmer footing. Looking through weather-related distortions in various indicators, measures of consumer spending, business investment, and employment showed continued expansion. Housing, however, remained depressed. Meeting participants took note of the significant decline in the unemployment rate over the past few months but observed that other indicators pointed to a more gradual improvement in overall labor market conditions. They continued to expect that economic growth would strengthen over coming quarters while remaining moderate. Participants noted that recent increases in the prices of oil and other commodities were putting upward pressure on headline inflation, but that measures of underlying inflation remained subdued. They anticipated that the effects on inflation of the recent run-up in commodity prices would prove transitory, in part because they saw longer-term inflation expectations remaining stable. Moreover, a number of participants expected that slack in resource utilization would continue to restrain increases in labor costs and prices. Nonetheless, participants observed that rapidly rising commodity prices posed upside risks to the stability of longer-term inflation expectations, and thus to the outlook for inflation, even as they posed downside risks to the outlook for growth in consumer spending and business investment. In addition, participants noted that unfolding events in the Middle East and North Africa, along with the recent earthquake, tsunami, and subsequent developments in Japan, had further increased uncertainty about the economic outlook.

Participants' judgment that the recovery was gaining traction reflected both the incoming economic indicators and information received from business contacts. Spending by households, which had picked up noticeably in the fourth quarter, rose further during the early part of 2011, with auto sales showing particular strength. Although some participants noted that growth in consumer spending so far this year had not been as vigorous as they had anticipated, they attributed the shortfall in part to unusually bad weather. While participants expected that household spending would continue to expand, the pace of expansion was uncertain. On the one hand, labor market conditions were improving, though gradually, and the temporary cut in payroll taxes was contributing to rising after-tax incomes. Some easing of credit conditions for households, particularly for auto loans, also appeared to be supporting growth in consumer spending. On the other hand, declining house prices remained a drag on household wealth and thus on consumer spending. In addition, sizable recent increases in oil and gasoline prices had reduced real incomes and weighed on consumer confidence. Business contacts in a variety of industries had expressed concern that consumers might pull back if gasoline prices rose significantly further and persisted at those elevated levels.

A further increase in business activity also indicated that the economic recovery remained on track. Industrial production posted solid gains, supported in part by continuing growth in U.S. exports. Business contacts in a number of regions reported they were more confident about the recovery; a growing number of contacts indicated they were planning for an expansion in hiring and production to meet an anticipated rise in sales. Manufacturing firms were particularly upbeat. Some contacts reported they were increasing capital budgets to undertake investment that had been postponed during the recession and early stages of the recovery; in some cases, firms were planning to expand capacity. Consistent with the anecdotal evidence, indicators of current and planned business investment in equipment and software continued to rise and surveys showed a further improvement in business sentiment. In addition, although residential construction remained weak, investment in energy extraction was growing and spending on commercial construction projects appeared to be bottoming out.

Meeting participants judged that overall conditions in labor markets had continued to improve gradually. The unemployment rate had decreased significantly in recent months; other labor market indicators, including measures of job growth and hours worked, showed more-modest improvements. Several participants noted that the drop in unemployment was attributable more to people withdrawing from the labor force and to fewer layoffs than to increased hiring. Even so, participants agreed that gains in employment seemed to be on a gradually rising trajectory, although the recent data had been somewhat erratic and distorted by worse-than-usual weather in many parts of the country. In addition, surveys of employers showed that an increasing number of firms were planning to hire. Participants noted regional differences in the speed of improvement in labor markets; scattered reports indicated that firms in some regions were having difficulty hiring some types of highly skilled workers. Participants generally judged that there was still substantial slack in the labor market, though estimates of the degree of slack were admittedly imprecise and depended in part on judgments about a number of factors, including the extent to which labor force participation would increase as the recovery progresses and employment expands.

Credit conditions remained uneven. Bankers again reported improving credit quality and generally weak loan demand. Large firms that have access to financial markets continued to find credit, including bank loans, available on relatively attractive terms; however, credit conditions reportedly remained tight for smaller, bank-dependent firms. Participants noted evidence that the availability of student loans and of consumer loans--particularly auto loans--was increasing. Indeed, bank and nonbank lenders reported that terms and conditions for auto loans had returned to historical norms. In contrast, terms for commercial and residential real estate loans remained tight and the volume of outstanding loans continued to decline, though there was some issuance of CMBS backed by loans on high-quality properties in selected large metropolitan areas. A few participants expressed concern that the easing of credit conditions in some sectors was becoming or might become excessive as investors took on more risk in order to obtain higher yields.

Participants observed that headline inflation was being boosted by higher prices for energy and other commodities, and that prices of other imported goods also had risen by a substantial, though smaller, amount. A number of business contacts indicated that they were passing on at least a portion of these higher costs to their customers or that they planned to try to do so later this year; however, contacts were uncertain about the extent to which they could raise prices, given current market conditions and the cautious attitudes toward spending still held by households and businesses. Other participants noted that commodity and energy costs accounted for a relatively small share of production costs for most firms and that labor costs accounted for the bulk of such costs; moreover, they observed that unit labor costs generally had declined in recent years as productivity growth outpaced wage gains. Several participants noted that even large commodity price increases have had only limited effects on underlying inflation in recent decades.

In contrast to headline inflation, core inflation and other measures of underlying inflation remained subdued, though they appeared to have bottomed out. A number of participants noted that, with significant slack in resource utilization and with longer-term inflation expectations stable, underlying inflation likely would remain subdued for some time. However, the importance of resource slack as a factor influencing inflation was debated. Some participants pointed to research indicating that measures of slack were useful in predicting inflation. Others argued that, historically, such measures were only modestly helpful in explaining large movements in inflation; one noted the 2003-04 episode in which core inflation rose rapidly over a few quarters even though there appeared to be substantial resource slack.

Participants expected that the boost to headline inflation from recent increases in energy and other commodity prices would be transitory and that underlying inflation trends would be little affected as long as commodity prices did not continue to rise rapidly and longer-term inflation expectations remained stable. However, a significant increase in longer-term inflation expectations could contribute to excessive wage and price inflation, which would be costly to eradicate. Accordingly, participants considered it important to pay close attention to the evolution not only of headline and core inflation but also of inflation expectations. In this regard, participants observed that measures of longer-term inflation compensation derived from financial instruments had remained stable of late, suggesting that longer-term inflation expectations had not changed appreciably, although measures of one-year inflation compensation had risen notably. Survey-based measures of inflation expectations also indicated that longer-term expected inflation had risen much less than near-term inflation expectations. A few participants noted that the adoption by the Committee of an explicit numerical inflation objective could help keep longer-term inflation expectations well anchored.

Participants generally judged the risks to their forecasts of growth in economic activity to be roughly balanced. They continued to see some downside risks from the banking and fiscal strains in the European periphery, the continuing fiscal adjustments by U.S. state and local governments, and the ongoing weakness in the housing market. Several also noted the possibility of larger-than-anticipated near-term cuts in federal government spending. Moreover, the economic implications of the tragedy in Japan--for example, with respect to global supply chains--were not yet clear. On the upside, the improvement in labor market conditions in recent months raised the possibility that household spending--and subsequently business investment--might expand more rapidly than anticipated; if so, the recovery could be stronger than currently projected. Participants judged that the potential for more-widespread disruptions in oil production, and thus for a larger jump in energy prices, posed both downside risks to growth and upside risks to inflation. Several of them indicated, in light of recent developments, that the risks to their forecasts of inflation had shifted somewhat to the upside. Finally, a few participants noted that if the large size of the Federal Reserve's balance sheet were to lead the public to doubt the Committee's ability to withdraw monetary accommodation when appropriate, the result could be upward pressure on inflation expectations and so on actual inflation. To mitigate such risks, participants agreed that the Committee would continue its planning for the eventual exit from the current, exceptionally accommodative stance of monetary policy. In light of uncertainty about the economic outlook, it was seen as prudent to consider possible exit strategies for a range of potential economic outcomes. A few participants indicated that economic conditions might warrant a move toward less-accommodative monetary policy this year; a few others noted that exceptional policy accommodation could be appropriate beyond 2011.

Committee Policy Action

In their discussion of monetary policy for the period ahead, Committee members agreed that no changes to the Committee's asset purchase program or to its target range for the federal funds rate were warranted at this meeting. The information received over the intermeeting period indicated that the economic recovery was on a firmer footing and that overall conditions in the labor market were gradually improving. Although the unemployment rate had declined in recent months, it remained elevated relative to levels that the Committee judged to be consistent, over the longer run, with its statutory mandate to foster maximum employment and price stability. Similarly, measures of underlying inflation continued to be somewhat low relative to levels seen as consistent with the dual mandate over the longer run. With longer-term inflation expectations remaining stable and measures of underlying inflation subdued, members anticipated that recent increases in the prices of energy and other commodities would result in only a transitory increase in headline inflation. Given this economic outlook, the Committee agreed to continue to expand its holdings of longer-term Treasury securities as announced in November in order to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with the Committee's mandate. Specifically, the Committee maintained its existing policy of reinvesting principal payments from its securities holdings and reaffirmed its intention to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. A few members remained uncertain about the benefits of the asset purchase program but judged that making changes to the program at this time was not appropriate. The Committee continued to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, were likely to warrant exceptionally low levels for the federal funds rate for an extended period.

Members emphasized that the Committee would continue to regularly review the pace of its securities purchases and the overall size of the asset purchase program in light of incoming information--including information on the outlook for economic activity, developments in financial markets, and the efficacy of the purchase program and any unintended consequences that might arise--and would adjust the program as needed to best foster maximum employment and price stability. A few members noted that evidence of a stronger recovery, or of higher inflation or rising inflation expectations, could make it appropriate to reduce the pace or overall size of the purchase program. Several others indicated that they did not anticipate making adjustments to the program before its intended completion.

With respect to the statement to be released following the meeting, members decided to note the further improvement in economic activity and in labor markets. The Committee also decided to summarize its current thinking about inflation pressures and to emphasize that it will closely monitor the evolution of overall inflation and inflation expectations.

At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive:

"The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to 1/4 percent. The Committee directs the Desk to execute purchases of longer-term Treasury securities in order to increase the total face value of domestic securities held in the System Open Market Account to approximately $2.6 trillion by the end of June 2011. The Committee also directs the Desk to reinvest principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of maximum employment and price stability."

The vote encompassed approval of the statement below to be released at 2:15 p.m.:

"Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate."

Voting for this action: Ben Bernanke, William C. Dudley, Elizabeth Duke, Charles L. Evans, Richard W. Fisher, Narayana Kocherlakota, Charles I. Plosser, Sarah Bloom Raskin, Daniel K. Tarullo, and Janet L. Yellen.

Voting against this action: None.

The Committee then discussed a recommendation, from its subcommittee on communications, that the Chairman conduct regular press conferences. Participants generally saw such press conferences as a potentially useful way to enhance transparency and strength-en the Committee's policy communications. They discussed various implications of, and alternative arrangements for, such press conferences. They generally endorsed holding press conferences after the four FOMC meetings each year for which participants provide numerical projections of several key economic variables, conditional on appropriate monetary policy. While those projections already are made public in the minutes of the relevant FOMC meetings, press conferences could be helpful in explaining how the Committee's monetary policy strategy is informed by participants' projections of the rates of output growth, unemployment, and inflation likely to prevail during each of the next few years, and by their assessments of the values of those variables that will prove most consistent, over the longer run, with the Committee's mandate to promote both maximum employment and stable prices. The outcome of the discussion was a decision that the Chairman would begin holding press conferences effective with the April 26-27, 2011, meeting.

It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, April 26-27, 2011. The meeting adjourned at 2:35 p.m. on March 15, 2011.