Bankruptcy

SAN FRANCISCO - California Gov. Arnold Schwarzenegger and legislative leaders reached a budget deal yesterday to close the state's massive two-year, $41.6 billion budget deficit through spending cuts, borrowing, and temporary tax increases.

WASHINGTON - The Municipal Securities Rulemaking Board is urging Congress to give it the authority to regulate independent financial advisers, investment brokers, and other market participants that are currently unregulated but provide key services to state and local issuers.

WASHINGTON - Treasury Department officials yesterday appeared to close the door on providing direct assistance to monoline bond insurers as part of their economic recovery programs.

In a move that will close a case in New York federal court, Pennsylvania's Erie School District has decided not amend its complaint against JPMorgan that accused the company of charging more than $1 million in excess fees on a swaps transaction, according to a letter from the district's attorney filed yesterday.

CHICAGO - A local teachers union has asked Wisconsin's congressional delegation to press federal authorities to bail out five school districts struggling to cope with losses stemming from a $200 million investment involving collateralized debt obligations.

Linda Chatman Thomsen will step down from her position as head of the Securities and Exchange Commission's enforcement division to return to the private sector, the SEC announced yesterday.

CHICAGO - Investors who hold $98 million of St. Louis convention center hotel bonds took ownership of the hotel complex yesterday following foreclosure proceedings launched last month by bondholders after the obligated group defaulted on its December debt service payment.

BRADENTON, Fla. - A circuit judge Friday set aside three days next month to continue hearing challenges to the South Florida Water Management District's petition to validate $2.2 billion of certificates of participation.

The troubled Sports Museum of America in lower Manhattan is seeking bondholder approval to allow $57 million of debt initially sold to finance its development to be purchased at less than 19 cents on the dollar to stave off the museum's closure.

The Montana Facility Finance Authority is appealing an Internal Revenue Service proposed adverse determination that concluded the interest earned from $14.15 million of variable-rate demand revenue bonds it issued to finance an expansion of a nursing home would be taxable.

CHICAGO - Moody's Investors Service on Friday lowered the ratings of two of five Wisconsin school districts that last year were placed on watch for a possible downgrade over their financial exposures from an investment scheme involving collateralized debt obligations and a credit default swap.

WASHINGTON - Securities and Exchange Commission chairman Mary Schapiro says she is taking several steps to bolster the SEC's enforcement program and wants to address the inherent conflicts of interest inherent in the issuer-pays model at rating agencies. Meanwhile, a deputy director is pledging the agency will bring more muni cases this year.

BRADENTON, Fla. - The South Florida Water Management District is in court today arguing that a judge should validate $2.2 billion of certificates of participation, but at least four petitions opposing the validation have been filed.

BRADENTON, Fla. - A Jefferson County, Ala., circuit court judge Wednesday afternoon dismissed eight of nine defendants from a lawsuit that sought to use a novel approach to invalidate $2.2 billion of sewer auction-rate securities issued by the county and $4.2 billion of related swaps.

WASHINGTON - Members of a National League of Cities-led commission are optimistic about the possibility of moving forward with the creation of a nonprofit, national mutual credit-enhancement company after meeting this week with rating analysts and the staff of the New York State insurance superintendent.

Unless Congress and the Obama administration reform entitlement programs and take other steps to curb federal spending, the country will be faced with an economic crisis that is exponentially worse than the current recession, congressional appropriations and budget committee members warned yesterday.

SACRAMENTO - Vallejo, Calif., and its unions continued to negotiate in earnest this week, even as they fought over the city's bankruptcy court motion to reject its collective bargaining agreement in a federal court here.

President Obama yesterday signed into law an extension and expansion of the State Children's Health Insurance Program that increases the tax on cigarettes by 62 cents to $1.01 per pack. The action puts into question new tobacco bond deals that states want to back with consumption-based settlement payments from tobacco companies.

Two industry groups warned yesterday that a draft bill that would regulate over-the-counter derivatives would hurt interest rate swaps and destroy the credit default swap market. Meanwhile, a group representing state lawmakers called for CDS broker-dealers to be regulated like monoline bond insurers.

BRADENTON, Fla. - When Palm Beach County, Fla., commissioner Mary McCarty was charged last month with using her influence to steer municipal bond business to her underwriter husband Kevin McCarty, the county's elected clerk and comptroller launched an investigation of bond issuance practices in the triple-A rated county.