Debt Deal in Alabama Will Cost JPMorgan

Under the deal to settle the bankruptcy of Jefferson County, Ala., firms that invested in its distressed debt will have the most to gain, JPMorgan Chase will face a big loss, and residents will be wondering whether there will be any relief for them.

The terms of the agreement, laid out in federal bankruptcy court on Wednesday, are in several ways better for the county than the concessions that creditors were offering in the fall of 2011 as they struggled to keep the county from declaring bankruptcy. If the deal goes forward, original creditors would receive 80 cents on the dollar for the county’s debt, while alternative investment firms like hedge funds that invested later would receive close to 85 cents, saving Jefferson County more than $1 billion over time. The state would not have to back the county’s finances with a so-called moral obligation pledge, as proposed in 2011.

And the new deal would allow the county to keep control of its sewer system â€" the troubled cash cow at the heart of the bankruptcy. Two years ago, creditors tried to transfer the system to an independent authority to shield it from elected officials who some feared might try to manipulate its rates for political gain.

When the dust finally settles, JPMorgan Chase, which many in the county hold responsible for the financial collapse in the first place, will have given up nearly $1.6 billion as a result of its dealings with the county and its ill-fated effort to finance sewer repairs. The new deal calls for the bank to forfeit $842 million on the $1.22 billion of sewer debt that it holds, which comes on top of $647 million it forgave in termination fees on derivatives contracts with the county and a $75 million penalty it paid to settle a complaint by the Securities and Exchange Commission. The county, for its part, will drop a lawsuit against JPMorgan if the new agreement goes through.

Despite the improved terms, some county residents are still so angry about the debacle that the proposed concessions are not enough. Some still think the only fair thing is full-blown debt repudiation.

“The deal will force Jefferson County to return to the scene of the crime that crippled it: the bond market,” John Archibald, a columnist for The Birmingham News, wrote in an article published online Wednesday.

“Lucifer spells his name J. P. Morgan,” he added.

County officials said that a hearing on Wednesday before Judge Thomas B. Bennett of Federal Bankruptcy Court lasted less than an hour and attracted only a handful of protesters, a tiny turnout that one official attributed to a case of “sewer fatigue.” The judge stayed a lawsuit that contended the county’s sewer debt had been incurred unconstitutionally and needed to be written down more than the new deal proposes. That done, county officials said they could now turn to the bigger task of writing a plan of adjustment, the document that the judge must approve for the bankruptcy to be resolved.

“It was clear in the court proceedings today that the parties are beginning to relinquish their litigation posturing,” said Laurence L. Gottlieb, chief executive of Fundamental Advisors, a private equity firm that participated in the negotiations.

With the county headed toward an exit from bankruptcy, hedge funds and private equity firms stand to profit. When Jefferson County declared bankruptcy in November 2011, these alternative investment firms saw opportunity in the defaulted warrants of a county mired in the biggest Chapter 9 bankruptcy case in United States history. Speculative interest in distressed municipal debt is normally extremely limited because while distressed municipalities are not rare, officials willing to walk away from public debts are. When municipalities have defaulted in the past, they have usually been too small for hedge funds to bother with.

But Jefferson County had $3.2 billion of sewer revenue debt alone, and a total of $4.2 billion in debt when it went bankrupt. The scale attracted a number of alternative investment firms that took the unusual step of buying debt for about 60 cents on the dollar. While that would be routine in a Chapter 11 bankruptcy, where investors may buy deeply discounted debt in an attempt to take over a company, a Chapter 9 bankruptcy does not afford such opportunities: municipalities obviously do not issue stock, and it is impossible for a hedge fund to take one over in bankruptcy.

Instead, the alternative investment firms helped to negotiate a refinancing of Jefferson County’s debts. In return, they are being paid extra for bearing some of the risk if the municipal bond market steers clear of Jefferson County after the refinancing. They will receive an additional 4.9 cents on the dollar in exchange for a promise to buy 10 percent of the county’s new debt in the refinancing if other investors will not.

The investment firms, in other words, are providing a market backstop that could let Jefferson County refinance without having to rely on the state, and without raising sewer rates too much. Part of their extra payment will come from the proceeds of the new debt issue, and part from JPMorgan, according to people briefed on the agreement.

“Getting even 80 percent is a huge windfall to them,” said Matt Fabian, a managing director at Municipal Market Advisors, noting that the firms’ purchase cost may have been as low as 60 percent.

The underwriter of the coming debt issue will also have to promise to take 10 percent of the issue if the market will not. Other signatories to the deal appear content with their outcomes. Assured Guaranty, one of the insurers of Jefferson County’s debt, issued a statement Wednesday saying that the size of its loss would be smaller than the amount of reserves it had put in place to cover the loss.

Mr. Fabian said he doubted that the municipal bond market would have much appetite for Jefferson County’s coming issue of new debt, which would pay for the 80 cents on the dollar it will pay to extinguish the old debt.

“Most people expect they cannot sell it,” he said. “It’s going to be bought by very aggressive buyers.” The problem, he said, is that Jefferson County’s problems have been going for years, and investors are now in the habit of expecting things to go wrong.

“There’s a real potential for some kind of litigation, and a workout going forward,” he said. “You have to assume that. If anything goes wrong, they’re not going to do the right thing by investors. So you need a broad enough return that you can afford lawyers and restructuring counsel down the road.”

To show it was bringing its new debt to market in good faith, he predicted Jefferson County would raise sewer rates one more time before the sale.

That’s what Mr. Archibald, the Birmingham columnist, was also predicting, in his column.

“Sewer rates will rise dramatically under this deal,” he wrote.

Debt Deal in Alabama Will Cost JPMorgan

Under the deal to settle the bankruptcy of Jefferson County, Ala., firms that invested in its distressed debt will have the most to gain, JPMorgan Chase will face a big loss, and residents will be wondering whether there will be any relief for them.

The terms of the agreement, laid out in federal bankruptcy court on Wednesday, are in several ways better for the county than the concessions that creditors were offering in the fall of 2011 as they struggled to keep the county from declaring bankruptcy. If the deal goes forward, original creditors would receive 80 cents on the dollar for the county’s debt, while alternative investment firms like hedge funds that invested later would receive close to 85 cents, saving Jefferson County more than $1 billion over time. The state would not have to back the county’s finances with a so-called moral obligation pledge, as proposed in 2011.

And the new deal would allow the county to keep control of its sewer system â€" the troubled cash cow at the heart of the bankruptcy. Two years ago, creditors tried to transfer the system to an independent authority to shield it from elected officials who some feared might try to manipulate its rates for political gain.

When the dust finally settles, JPMorgan Chase, which many in the county hold responsible for the financial collapse in the first place, will have given up nearly $1.6 billion as a result of its dealings with the county and its ill-fated effort to finance sewer repairs. The new deal calls for the bank to forfeit $842 million on the $1.22 billion of sewer debt that it holds, which comes on top of $647 million it forgave in termination fees on derivatives contracts with the county and a $75 million penalty it paid to settle a complaint by the Securities and Exchange Commission. The county, for its part, will drop a lawsuit against JPMorgan if the new agreement goes through.

Despite the improved terms, some county residents are still so angry about the debacle that the proposed concessions are not enough. Some still think the only fair thing is full-blown debt repudiation.

“The deal will force Jefferson County to return to the scene of the crime that crippled it: the bond market,” John Archibald, a columnist for The Birmingham News, wrote in an article published online Wednesday.

“Lucifer spells his name J. P. Morgan,” he added.

County officials said that a hearing on Wednesday before Judge Thomas B. Bennett of Federal Bankruptcy Court lasted less than an hour and attracted only a handful of protesters, a tiny turnout that one official attributed to a case of “sewer fatigue.” The judge stayed a lawsuit that contended the county’s sewer debt had been incurred unconstitutionally and needed to be written down more than the new deal proposes. That done, county officials said they could now turn to the bigger task of writing a plan of adjustment, the document that the judge must approve for the bankruptcy to be resolved.

“It was clear in the court proceedings today that the parties are beginning to relinquish their litigation posturing,” said Laurence L. Gottlieb, chief executive of Fundamental Advisors, a private equity firm that participated in the negotiations.

With the county headed toward an exit from bankruptcy, hedge funds and private equity firms stand to profit. When Jefferson County declared bankruptcy in November 2011, these alternative investment firms saw opportunity in the defaulted warrants of a county mired in the biggest Chapter 9 bankruptcy case in United States history. Speculative interest in distressed municipal debt is normally extremely limited because while distressed municipalities are not rare, officials willing to walk away from public debts are. When municipalities have defaulted in the past, they have usually been too small for hedge funds to bother with.

But Jefferson County had $3.2 billion of sewer revenue debt alone, and a total of $4.2 billion in debt when it went bankrupt. The scale attracted a number of alternative investment firms that took the unusual step of buying debt for about 60 cents on the dollar. While that would be routine in a Chapter 11 bankruptcy, where investors may buy deeply discounted debt in an attempt to take over a company, a Chapter 9 bankruptcy does not afford such opportunities: municipalities obviously do not issue stock, and it is impossible for a hedge fund to take one over in bankruptcy.

Instead, the alternative investment firms helped to negotiate a refinancing of Jefferson County’s debts. In return, they are being paid extra for bearing some of the risk if the municipal bond market steers clear of Jefferson County after the refinancing. They will receive an additional 4.9 cents on the dollar in exchange for a promise to buy 10 percent of the county’s new debt in the refinancing if other investors will not.

The investment firms, in other words, are providing a market backstop that could let Jefferson County refinance without having to rely on the state, and without raising sewer rates too much. Part of their extra payment will come from the proceeds of the new debt issue, and part from JPMorgan, according to people briefed on the agreement.

“Getting even 80 percent is a huge windfall to them,” said Matt Fabian, a managing director at Municipal Market Advisors, noting that the firms’ purchase cost may have been as low as 60 percent.

The underwriter of the coming debt issue will also have to promise to take 10 percent of the issue if the market will not. Other signatories to the deal appear content with their outcomes. Assured Guaranty, one of the insurers of Jefferson County’s debt, issued a statement Wednesday saying that the size of its loss would be smaller than the amount of reserves it had put in place to cover the loss.

Mr. Fabian said he doubted that the municipal bond market would have much appetite for Jefferson County’s coming issue of new debt, which would pay for the 80 cents on the dollar it will pay to extinguish the old debt.

“Most people expect they cannot sell it,” he said. “It’s going to be bought by very aggressive buyers.” The problem, he said, is that Jefferson County’s problems have been going for years, and investors are now in the habit of expecting things to go wrong.

“There’s a real potential for some kind of litigation, and a workout going forward,” he said. “You have to assume that. If anything goes wrong, they’re not going to do the right thing by investors. So you need a broad enough return that you can afford lawyers and restructuring counsel down the road.”

To show it was bringing its new debt to market in good faith, he predicted Jefferson County would raise sewer rates one more time before the sale.

That’s what Mr. Archibald, the Birmingham columnist, was also predicting, in his column.

“Sewer rates will rise dramatically under this deal,” he wrote.

As Investors Bail Out, SAC Shows a Brave Face

SAC Capital Advisors, the besieged hedge fund owned by the billionaire stock picker Steven A. Cohen, has told its employees that it will survive a wave of investor withdrawals during the government’s intensifying investigation into insider trading at the firm.

Investors in SAC have asked to pull a significant amount of money from the fund by a quarterly deadline that expired on Monday, according to an internal e-mail sent by SAC’s president, Thomas J. Conheeney. The amount was not disclosed, but it was said to be more than the $1.7 billion taken out earlier in the year, according to a person briefed on the matter. That would leave SAC with only a fraction of the $6 billion in outside capital with which it began 2013.

Despite its rapidly shrinking capital base and the government’s continuing inquiry, SAC is putting up a confident front. The e-mail reiterated that the fund was stable and that there were no plans to significantly reduce its staff of roughly 1,000. The fund can maintain a secure financial position because Mr. Cohen’s fortune accounts for roughly $8 billion of SAC’s $15 billion in assets.

Yet the exodus of investors is a humbling blow to Mr. Cohen and his firm. Until recently, elite investors had clamored to get into the top-performing hedge fund, despite fees that are among the highest in the industry. Now, the investor departures underscore the reputational damage caused by the spate of criminal cases involving former SAC employees â€" as well as the authorities’ push to build a criminal case against the fund, and possibly Mr. Cohen.

A spokesman for SAC, Jonathan Gasthalter, declined to comment. The e-mail, which Mr. Conheeney sent Tuesday, was reported earlier by Bloomberg News.

Investors started heading for the exits in November, when federal authorities arrested Mathew Martoma, a former SAC portfolio manager, in connection with what they described as the most lucrative insider trading scheme ever uncovered.

It was the first time that the government had brought charges stemming from trades in which Mr. Cohen was involved. In addition to Mr. Martoma, who has pleaded not guilty, at least eight other former SAC employees have been tied to insider trading while at the fund. Four have pleaded guilty to criminal charges.

Mr. Cohen has not been charged with any wrongdoing and has said that he at all times behaved appropriately. On Wednesday, a federal judge set a Nov. 4 start date for Mr. Martoma’s criminal trial.

Until last month, SAC had fully cooperated with the government’s investigation, and its investors had mostly remained loyal. But several weeks ago, prosecutors opened a new front in the case, issuing grand jury subpoenas and new requests for information to Mr. Cohen, the firm’s founder, and its senior executives. Mr. Cohen is expected to invoke his constitutional right against self-incrimination.

The government’s latest move infuriated SAC’s top officials and lawyers. They had thought that most of their legal problems were in the rearview mirror after agreeing earlier this year to pay the firm’s primary regulator, the Securities and Exchange Commission, a record $616 million in penalties to resolve two civil insider trading lawsuits.

But not only has the Justice Department continued to pursue its criminal investigation, the S.E.C. is also weighing a civil action against Mr. Cohen for failure to supervise his employees, according to people briefed on the case.

After the prosecutors’ latest requests, SAC told investors that it would no longer fully cooperate with the authorities or update investors on the case.

That decision led to an acceleration of withdrawal requests, said people with direct knowledge of the fund. An ability to monitor and conduct due diligence is paramount in hedge fund investing, and the uncertainty created by the continued investigation made investors uncomfortable, these people said.

Investors that have pulled money from SAC include the Blackstone Group, the world’s largest hedge fund investor; Ironwood Capital Management in San Francisco; and Magnitude Capital in New York.

Notwithstanding the confident tone of Tuesday’s e-mail, many expect that SAC will have to cut back. Unlike many hedge funds controlled by one or two portfolio managers making investment decisions, SAC has about 140 small teams to which Mr. Cohen allocates money. The teams are paid as much as 25 percent of the profits that they make.

Paying for this decentralized model are the high annual fees that SAC charges outside investors â€" a 3 percent annual management fee and 50 percent of the profits. Without the rich fees earned from managing other people’s money, Mr. Cohen would have to pay these teams himself.

Mr. Cohen has remained committed to managing money for clients. He has made several appearances this year at hedge fund conferences, meeting with prospective investors in the hopes of raising money. In January, he showed up at a Morgan Stanley event at the Breakers resort in Palm Beach, Fla. Last month, he attended a Goldman Sachs-sponsored meeting held at Yankee Stadium.

His top marketing officers have also reached out to investors in the hopes of persuading them to keep money with the fund.

The mass withdrawals are not expected to have an immediate effect on the broader stock market, according to brokerage firm executives.

SAC will return the money in three equal installments through the end of the year. Its biggest stock holdings are large companies that can be reduced gradually with little negative effect on their prices, market participants say. Among the fund’s biggest positions, for example, are Amazon.com, Starbucks and Boeing.

Investors are fleeing SAC despite its stupendous track record. Since 1992, the firm has returned an average of nearly 30 percent a year net of fees, far outpacing the broader stock market. So far this year, however, the fund has had tepid results, returning about 7 percent compared with the market’s roughly 14 percent gain.

As the inquiry continues, prosecutors are weighing a number of possibilities, including bringing charges against SAC related to the Martoma case based on a theory of corporate criminal liability, according to people briefed on the case.

Because the trades at the center of the Martoma indictment occurred in July 2008, the government is running up against a five-year deadline to bring charges. During Wednesday’s court hearing, Mr. Martoma’s lawyer said that prosecutors had indicated that they would file a superseding indictment in the case, which adds either details, charges or defendants.

The government rarely brings indictments against companies, out of concern for job losses, but can impute criminal liability to a company based on the benefit it received from its employees’ alleged criminal acts. Justice Department guidelines call for prosecutors to consider a number of factors when deciding to charge a corporate target, including the pervasiveness of wrongdoing and the company’s level of cooperation in the investigation.

SAC recently announced a broad set of changes to bolster the fund’s compliance practices, including clawing back the pay of employees who violate the securities laws.

“We have endured speculation that somehow this conduct is acceptable to the firm, its senior management and to me,” Mr. Cohen wrote in a letter to investors. “It is not, nor has it ever been.”

Container Store Said to Prepare for an I.P.O.

The Container Store has begun to hire advisers to prepare for a potential initial public offering, a person briefed on the matter said on Wednesday, nearly five years after selling itself to the private equity firm Leonard Green & Partners.

Among the firms that the Container Store has hired is JPMorgan Chase, this person added. It isn’t clear whether the retail storage company will go forward with a stock sale or how much it would seek in an offering.

The Container Store, which unsurprisingly focuses on storage products, is one of the latest companies owned by private equity firms that is weighing an initial offering or sale. Favorable stock markets and fantastically cheap debt financing have made the prospects of a successful I.P.O. or merger transaction attractive to owners eager to generate a return on their investment.

Among the companies that private equity firms have taken public of late include SeaWorld, the theme park operator controlled by the Blackstone Group, and Quintiles Transnational, a pharmaceutical testing company owned by TPG and Bain Capital. And Warburg Pincus sold Bausch & Lomb to Valeant Pharmaceuticals last week for $8.7 billion.

Last year, the Container Store pulled in $706 million in sales, up 11 percent from the previous year.

A spokeswoman for the Container Store declined to comment.

News of Container Store’s plans was reported earlier by The Wall Street Journal.

Dell’s Board Paints Investors Into a Corner

Dell’s board special committee has neatly painted investors into a corner. In a new presentation, the group evaluating offers for the company has shown persuasively why shareholders should back the $24.4 billion buyout by Silver Lake Partners and Michael S. Dell, and why Carl C. Icahn’s rival bid fell short. But harping on how badly the company is doing creates a difficult bind if investors go the other way and vote the deal down.

Silver Lake and Dell’s founder originally appeared to be grabbing a bargain, even though the offer made public in February came at a chunky premium to where the company’s shares had been trading. But Dell’s miserable financial performance since then makes it look as though shareholders are actually getting a generous price. Analysts’ estimates for Dell’s 2014 earnings have fallen by 40 percent since the deal was announced. And the company has been slow to grasp the situation, with revenue falling short of the board’s plan in seven of the last nine quarters.

A cynical observer might wonder whether the board, having agreed terms with Silver Lake, is eager to show the price in a favorable light by making the company look bad. But it’s harder to shade broader market statistics, and the entire PC business is in meltdown. Researcher IDC’s estimates for global sales in 2016 have dropped 40 percent since a year ago. On top of that, Dell is losing market share.

This gloom helps the special committee undermine the leveraged recapitalization plan put forth by Icahn and Southeastern Asset Management, which would leave Dell publicly traded but with a heavier debt burden, having paid out a big dividend. The offer depends on $5.2 billion of financing, as yet not committed. And the committee says Dell has near-term cash needs that would leave it $3.9 billion short of the proposed $17.3 billion special dividend.

Dell’s shares were trading below $11 a share before the possibility of a buyout leaked to the media. The board’s persuasive argument that Dell’s business has since deteriorated significantly raises the risk its shares would fall much lower than that if the Silver Lake-Michael Dell buyout at $13.65 a share fails. After all, a board that effectively says “we really are that bad” runs the risk of everyone believing it.

Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Ex-SAC Trader Martoma Faces Nov. 4 Insider Trading Trial

Mathew Martoma, the former portfolio manager at SAC Capital Advisors, is set to stand trial on Nov. 4, almost a year after federal authorities charged him in what they call the largest insider trading case ever brought.

The date was scheduled on Wednesday during a pre-trial conference in Federal District Court in Manhattan before Judge Paul G. Gardephe, who will also preside over the trial. Lawyers for the government and Mr. Martoma estimated that the case will take two to three weeks.

Federal prosecutors have accused Mr. Martoma of making more than $276 million in a combination of illegal profits and avoided losses trading in the shares of the pharmaceutical companies Elan and Wyeth. They said that he illegally traded the stocks after obtaining secret information from a doctor about the negative results of clinical trials for an Alzheimer’s drug the companies were developing.

Mr. Martoma’s prosecution represented a watershed moment in its multiyear investigation of insider trading at SAC because for the first time, the government linked Mr. Cohen to the trading activity that it contends was illegal. Mr. Cohen has not been accused of any wrongdoing and has said he behaved appropriately at all times.

The evidence that brings Mr. Cohen into the case centers on the unknown content of a 20-minute telephone conversation between Mr. Martoma and Mr. Cohen the night before SAC began aggressively selling off their large positions in Elan and Wyeth. Prosecutors have not accused Mr. Cohen of knowing that Mr. Martoma had the supposed confidential information about the drug trials when he sold the stocks.

Prosecutors have built their case against Mr. Martoma by securing the cooperation of Dr. Sidney Gilman, a neurology professor who allegedly leaked to him the confidential data about the drug being jointly developed by Elan and Wyeth. The companies hired Dr. Gilman to oversee the clinical trials. SAC paid Dr. Gilman about $108,000 as a consultant.

In an unusual arrangement, prosecutors have reached a non-prosecution agreement with Dr. Gilman that insulates him from any charges related to the case. Dr. Gilman is expected to testify against Mr. Martoma.

Mr. Martoma, 38, left SAC in 2010 after being fired for poor performance. In 2008, the year of the Elan and Wyeth trades, SAC paid him a $9.3 million bonus. A graduate of Duke University and Stanford Business School, he lives in Boca Raton, Fla., with his wife, a physician, and three young children. If convicted, he faces up to 25 years in prison.

Leading Mr. Martoma’s legal team is Richard M. Strassberg of Goodwin Procter. In April, Mr. Martoma changed lawyers, replacing Charles A. Stillman with Mr. Strassberg. The move fueled speculation that Mr. Martoma might plead guilty and cooperate with the government in helping it build a case against Mr. Cohen. But Mr. Strassberg is a seasoned trial lawyer and there has been nothing to suggest that Mr. Martoma won’t be having his case heard by a jury.

For the government, assistant United States attorney Arlo Devlin Brown is leading the prosecution.

November will be a busy month in the federal courthouse for onetime SAC employees. On Nov. 18, the trial of Michael S. Steinberg, another former SAC portfolio manager charged in a separate alleged insider trading scheme related to the trading of technology stocks, is expected to start.

The odds are against both Mr. Martoma and Mr. Steinberg in securing an acquittal. Of the 81 individuals charged by the United States attorney’s office in Manhattan since 2009, 10 have taken their cases to trial, and all have been convicted.

S.E.C. Votes to Take Next Step on Money Market Funds

The Securities and Exchange Commission voted unanimously to move ahead with changes governing the money market fund industry.

The proposal voted on Wednesday could force some kinds of money market funds to do away with the fixed $1 a share value that has made them so popular with many investors. Only so-called prime money funds, that invest in corporate debt, and that are available to big institutional investors would likely have to make the change, leaving funds used by ordinary investors largely untouched.

Money funds are supposed to be one of the safest investments. But during the financial crisis, there was a run on the industry after one of the largest funds fell below $1 a share. The market recovered only after winning unusual government guarantees.

The new rules still face a final vote, which will come after an open comment period of at least three months. In the proposal voted on Wednesday, the S.E.C. staff suggested that prime funds move to a so-called floating share value, or institute penalties for investors who pull their investments out of money funds in times of crisis. The five S.E.C. commissioners could also choose to combine the rules or choose from other options laid out in the report.

The proposal is already attracting criticism for not going far enough.

All the rules are aimed to avoid the situation money funds faced in 2008 when the declining value of one of the largest money market funds caused a run on the entire industry.

An earlier attempt to move ahead with similar proposals was foiled last summer after three commissioners stated their opposition. After a council of regulators pushed the S.E.C. to move ahead with changes, the commissioners unified behind the current set of proposed rules. The rules are more limited than the broad changes that a number of other regulators have called for in the past.

Another Senator Urges Caution on Smithfield’s Sale to Chinese Company

Another prominent lawmaker is publicly urging regulators to carefully review Smithfield Foods‘ planned $4.7 billion sale to Shuanghui International, one of China’s biggest meat producers.

Senator Debbie Stabenow, Democrat of Michigan and the chairwoman of the Senate Agriculture Committee, said on Wednesday that she still had concerns about any potential effect that the deal may have on food safety in the United States. Like other critics, she pointed to possible lapses in food quality, citing incidents of Chinese companies that illegally added chemicals like clenbuterol to their meat and the images of thousands of dead hogs floating down the Huangpu River in Shanghai.

“The agencies responsible for approving this possible merger must take China’s and Shuanghui’s troubling track record on food safety into account and do everything in their power to ensure our national security and the health of our families is not jeopardized,” she said in a statement.

Ms. Stabenow also noted that, if completed, the deal with Shuanghui would be the biggest ever acquisition of an American company by a Chinese concern.

Smithfield and Shuanghui have both insisted that there is no danger that Smithfield’s food safety procedures would be compromised. The intent behind the transaction is to increase exports of United States pork to China, and not the reverse.

“This is an export deal, and they are very interested in exporting products out of the U.S.,” C. Larry Pope, Smithfield’s chief executive, previously told DealBook.

Many experts on the national-security process have said that they expect the deal to pose few issues for the government panel reviewing the deal, formally known as the Committee on Foreign Investment in the United States, or Cfius.

But Ms. Stabenow’s criticisms mesh with cautionary comments by other lawmakers. Senator Charles Grassley, Republican of Iowa, issued a long statement when the deal was announced, urging a close review by the Justice Department and Cfius.

“No one can deny the unsafe tactics used by some Chinese food companies,” Mr. Grassley said. “And to have a Chinese food company controlling a major U.S. meat supplier, without shareholder accountability, is a bit concerning.”

Representative Rosa DeLauro, Democrat of Connecticut, took a more skeptical tone in raising the food-safety issue.

“This merger may only make it more difficult to protect the food supply,” she said in a statement. “I have deep doubts about whether this merger best serves American consumers and urge federal regulators to put their concerns first.”

And Representative Randy Forbes, the Republican who represents Smithfield’s home district in Virginia, has adopted a stern outlook as well.

“I’ve been concerned for a long time that we could wake up one day and be as dependent on foreign food as we are today on foreign oil, and we should never be in that position,” Mr. Forbes told reporters recently, according to The Daily Beast. “I’ve seen that as a national-security issue for some time.”

Other Virginia lawmakers have been quiet on the issue. Asked about the Smithfield deal, an aide to one politician responded to a reporter’s inquiry only with “没有评论,” which translates roughly to “no comment.”

Treasury to Sell 30 Million G.M. Shares

The Treasury Department said on Wednesday that it planned to sell 30 million shares of General Motors in an offering tied to the company’s reinsertion into the Standard & Poor’s 500-stock index.

The sale is part of Treasury’s previously announced plans to sell its remaining 300 million shares, or nearly 18 percent, of the automaker by early next year. It has said it will sell those shares through pre-defined written trading plans.

The shares came to the government as a result of the $49.5 billion bailout of General Motors in 2009 in the wake of the financial crisis. In December, the Treasury sold 200 million shares back to the company for $5.5 billion, leaving it with 300 million shares.

The United Automobile Workers union’s Retiree Medical Benefits Trust will also participate in the latest offering, selling 20 million shares.

On Monday, Standard & Poor’s announced that G.M. would replace H.J. Heinz â€" which is being taken private by Warren E. Buffett‘s Berkshire Hathaway and the Brazilian-backed investment firm 3G Capital â€" in the benchmark stock index after the market close on Thursday. The automaker had been a member of the original S.&P. 500, established in 1957, until the company’s bankruptcy in 2009.

The company’s inclusion in the index is expected to buoy the stock price, as investment funds that mimic the composition of the S.&P. 500 buy up shares of its newest components. In early trading on Wednesday, shares of G.M. were up slightly, at $35. The stock went public in November 2010 at an offering price of $33.

Citigroup, JPMorgan Chase and Morgan Stanley are acting as the joint book-running managers of the proposed offering.

Dell’s Mathematical Argument Against the Southeastern-Icahn Plan

As Dell Inc. prepares to defend its $24.4 billion sale to its founder, the computer company took a big swipe at two of its biggest investors who oppose the leveraged buyout.

In a presentation filed with regulators on Wednesday, Dell argued that an alternative plan by Southeastern Asset Management and the billionaire Carl C. Icahn would leave shareholders stuck with the worst of two worlds: trapped in a still-public Dell whose coffers and performance continue to decline.

Southeastern and Mr. Icahn, who together own over 12 percent of Dell, have called for a dividend payout of $12 a share, either in cash or in additional stock. That would leave the computer maker publicly traded, but with dramatically fewer shares outstanding, in what financiers commonly call a stub.

In presenting their proposal last month, Southeastern and Mr. Icahn derisively called the $13.65-a-share offer from Michael S. Dell and the investment firm Silver Lake “the great giveaway.”

But Dell reiterated in its presentation that a special committee of its board had considered and discarded alternative ideas, including a special dividend. And it contended that the Southeastern-Icahn plan would lard too much debt onto Dell while sapping its cash flow and making its stock more thinly traded.

In one page in particular, Dell calculated that the debt required to carry out the alternative plan did not accurately account for debt payments the company must make, as well as cash needed for operations and other requirements. Instead of $17.3 billion in cash available to Southeastern and Icahn, the company contended, only $13.4 billion would be usable.

That would leave Dell with a potential $3.9 billion hole in its balance sheet if the special dividend plan were enacted.

Dell also pointed to the example of Clear Channel, where two private equity firms agreed to leave a stub as part of their leveraged buyout. That stock, which has been harder to trade because of fewer outstanding shares, has fallen 69 percent since August of 2008.

In its presentation, Dell argued that the alternative plan presented a “dramatically elevated risk profile and uncertainty for existing Dell shareholders.”

Still, Southeastern and Mr. Icahn are betting that enough shareholders will agree that the take-private bid by Mr. Dell and Silver Lake is too low.

One factor they are counting on is the high support required for the leveraged buyout to pass. Mr. Dell cannot vote his roughly 16 percent stake in favor of the deal, meaning that a “majority of the minority” of shares outstanding must vote affirmatively for the deal to succeed.

Jefferson County’s Bankruptcy Deal

Jefferson County, Ala., reached an agreement to refinance most of the debt at the heart of its financial breakdown, taking a big step toward resolving its bankruptcy, Mary Williams Walsh reports in DealBook. “The deal, according to the people briefed on the negotiations, covers about $2.4 billion of Jefferson County’s total $3.078 billion in sewer debt, which was issued to pay for significant repairs needed to bring the county into compliance with federal clean water laws.”

The refinancing would position the county, which includes Birmingham, to emerge from bankruptcy in a matter of months, according to people briefed on the negotiations, though the terms must still be approved by a federal judge. The county must also clear other hurdles. The county’s bankruptcy, which came in 2011 after the interest due on the sewer debt shot up as a result of the financial turmoil of 2008, is the biggest municipal bankruptcy in United States history.

“The refinancing agreement covers debt held by creditors that include JPMorgan Chase, which holds about $1.22 billion of the sewer debt, the biggest block; three bond insurers; and seven hedge funds, according to a term sheet circulated in a meeting of the county commission on Tuesday. The terms call for these creditors to receive about $1.84 billion for the $2.4 billion of debt they now hold. The concessions were weighted most heavily toward JPMorgan, the term sheet said, ‘to increase the recovery of other sewer creditors.’ The bank is giving up $842 million, or about 70 percent, of the face value of its debt, according to people briefed on the negotiations.” Some former officials of JPMorgan were found to have been involved in improprieties in connection with a county debt refinancing in 2002 and 2003.

S.E.C. TO VOTE ON MONEY FUND PROPOSAL  |  After a long effort to revamp the money market fund industry, regulators are preparing for an important vote on Wednesday morning. The five members of the Securities and Exchange Commission are scheduled to vote on a proposal that could eventually do away with the stable dollar-a-share value that has long defined money market funds, according to people briefed on the proposal, Nathaniel Popper reports in DealBook. “The proposal suggests that it may be necessary to eliminate the fixed share value only on money funds used by big institutional investors, not those used by small investors, and only on so-called prime money funds that invest in corporate debt, not on money funds that invest in government and municipal debt. The affected funds are the ones that were hit the hardest during the financial crisisin 2008.”

F.B.I. NOMINEE COULD OFFER PEEK AT BRIDGEWATER  | 
It is not unusual for a government official to come from a hedge fund. But in the case of President Obama’s planned F.B.I. nominee, James B. Comey, the hedge fund in question, Bridgewater Associates, may raise some eyebrows, Steven M. Davidoff writes in the Deal Professor column. Bridgewater, the largest hedge fund in the world, is known for a 123-page manifesto by its founder, Ray Dalio, containing principles that could easily be seen as a “latter-day model of EST or another 1970s personal discovery group,” Mr. Davidoff writes. At the same time, Mr. Dalio is often hailed as a genius.

“Mr. Comey’s reasons for going to Bridgewater and what he thought of the culture there are only speculation at this point. If he is nominated, though, Mr. Comey may want to go before the Senate and let the public know what he thinks of the hedge fund and why he worked there.”

ON THE AGENDA  |  The Federal Reserve’s so-called beige book about the economy is out at 2 p.m. Rue21, which agreed to sell itself to Apax Partners, reports earnings after the market closes. Simon Johnson, a professor at the M.I.T. Sloan School of Management, is on Bloomberg TV at 7 a.m. Matthew Layton, the global head of mergers and acquisitions at Clifford Chance, is on CNBC at 4:30 p.m.

AN EXCHANGE FOR PATENT RIGHTS  |  Patent rights, which are usually bought and sold in private transactions, are set to be publicly traded on a new exchange that plans to announce its first offering on Wednesday. The Intellectual Property Exchange International, which is based in Chicago and says it is the first of its kind, has attracted a handful of blue-chip companies and prominent universities as its initial members. One of those companies, Royal Philips Electronics, is set to begin marketing the rights to a portfolio of more than 600 patent assets.

Separately, President Obama took direct aim on Tuesday at shell companies known as patent trolls, which exist to pursue patent infringement claims, Edward Wyatt reports in The New York Times. The president announced several executive orders “to protect innovators from frivolous litigation” by patent trolls.

Mergers & Acquisitions »

Glass Lewis Recommends Sprint Shareholders Abstain From Vote  |  The proxy advisory firm Glass Lewis recommended that shareholders of Sprint Nextel not vote on the bid from SoftBank, as it was still reviewing a rival offer from Dish Network, Reuters reports. REUTERS

I.B.M. Buys Cloud Computing Firm  |  I.B.M. announced on Tuesday that it had agreed to buy SoftLayer Technologies, a cloud computing company, in a deal said to be worth $2 billion. DealBook »

Salesforce to Acquire ExactTarget for $2.5 Billion  |  The acquisition of ExactTarget, a provider of marketing software services, for about $2.5 billion will bolster Salesforce.com’s social marketing offerings. DealBook »

INVESTMENT BANKING »

Former Barclays Executive Turns to Car Dealerships  |  Roger Jenkins, a former executive chairman of Barclays’ investment banking business in the Middle East, “is buying up a string of luxury car dealerships” on the west coast of the United States, with plans to list the company in New York, The Telegraph reports. TELEGRAPH

After JPMorgan, Staley Sizes Up Banks for Hedge Funds  |  James E. Staley, who left JPMorgan Chase this year to join the hedge fund BlueMountain Capital Management, said on a panel at the Bloomberg Hedge Funds Summit that the regulatory changes being developed could present an investment opportunity. DealBook »

Gleacher to Shut Its Investment Bank  |  Gleacher & Company, the troubled boutique bank, is shutting down its investment banking business and has named a restructuring expert as its chief executive. DealBook »

Return of the Synthetic C.D.O.  |  “Investors are once again clamoring for a risky investment blamed for helping unleash the financial crisis,” The Wall Street Journal writes. WALL STREET JOURNAL

Better Late Than Never on Deeming Nonbanks Too Big to Fail  |  Still, in designating A.I.G. and GE Capital systemically important, regulators show they are stuck for the most part in the last crisis rather than looking out for the next one, Agnes T. Crane of Reuters Breakingviews writes. REUTERS BREAKINGVIEWS

The Hurdles to Reviving an Investment Bank Partnership  |  The activist investor Knight Vinke says UBS could adopt something like a partnership structure as part of its plan to split wealth management from investment banking. That is overambitious at the moment, Dominic Elliott of Reuters Breakingviews writes. REUTERS BREAKINGVIEWS

PRIVATE EQUITY »

Arinc, Owned by Carlyle, Is Said to Attract Interest  |  Arinc, an aerospace communications firm owned by the Carlyle Group, “has drawn early takeover interest from industry conglomerates and private equity firms in an auction that may fetch between $1.3 billion and $1.4 billion, several people familiar with the matter said,” Reuters reports. REUTERS

Indonesian Billionaire Said to Be Buying Stake in Pay-TV Firm  |  Reuters reports: “The Indonesian billionaire Chairul Tanjung has agreed to buy an 80 percent stake in the country’s second-biggest pay-TV operator, Telkomvision, heating up competition in the emerging pay television market currently controlled by another tycoon, Harry Tanoesoedibjo.” REUTERS

HEDGE FUNDS »

Quantitative Hedge Funds Hit With Losses on Bonds  |  Big hedge funds that use computer models to trade on trends have experienced significant losses in the last two weeks after a sell-off in bonds, The Financial Times reports. AHL, part of the Man Group, lost more than 10 percent of its net asset value in the last two weeks, the newspaper reports, citing an investor. FINANCIAL TIMES

Hedge Fund Focused on Credit Turns to Equities  |  The Financial Times reports: “CQS, Europe’s biggest credit hedge fund by assets under management, is planning to branch into equities, in a sign that top managers are diversifying in response to the high levels of capital flowing into the industry.” FINANCIAL TIMES

I.P.O./OFFERINGS »

Empire State Building Nears I.P.O., But Risks Remain  |  “As fine print goes, there are some pretty big risks, including the possibility that the whole public offering could be undone,” Julie Creswell writes in The New York Times. NEW YORK TIMES

VENTURE CAPITAL »

Bloomberg L.P. Begins Fund to Invest in Start-Ups  |  Bloomberg L.P., the parent of Bloomberg News, is creating Bloomberg Beta, a $75 million venture capital fund that has already begun using Bloomberg L.P.’s money to place bets on high-tech start-ups. DealBook »

A Tech Empire Built by Aping Apple  |  “China is notorious for its knockoffs. But now comes a knockoff of one of the gods of American ingenuity: Steven P. Jobs,” David Barboza writes in The New York Times. NEW YORK TIMES

How to Foster Competition in Wireless Spectrum  |  “As the government prepares to sell perhaps the last big chunk of valuable low-frequency spectrum that will be made available for wireless communications and mobile computing, pressure from Congress to raise as much money as possible threatens to get in the way of this objective,” Eduardo Porter writes in the Economic Scene column in The New York Times. NEW YORK TIMES

LEGAL/REGULATORY »

New York Sues HSBC Over Foreclosures  |  The New York attorney general has sued HSBC, accusing it of ignoring a law intended to protect struggling homeowners from being thrown into foreclosure without getting a chance to renegotiate their mortgages. DealBook »

Brazil Cuts Financial Transactions Tax  |  Brazil on Tuesday cut a tax on overseas investment in domestic bonds to zero from 6 percent, “in a move that signals its concern that Brazil’s currency, the real, is weakening too quickly against the dollar,” The Financial Times reports. FINANCIAL TIMES

Former Goldman Executive Loses Effort to Narrow Fraud Case  |  Fabrice Tourre, a former Goldman Sachs vice president, lost an effort to limit the Securities and Exchange Commission’s fraud case. REUTERS

Apple Is Found to Violate Samsung Patent  |  “A trade commission on Tuesday determined that the company had violated one of Samsung’s patents, and it ordered a ban on some older Apple devices,” The New York Times reports. “But the ban is unlikely to have an immediate impact on sales of those devices in the United States.” NEW YORK TIMES

European Tariff on Chinese Solar Panels Is Less Than Expected  |  The New York Times reports: “The European Union’s trade chief on Tuesday carried out his threat to impose tariffs on solar panels from China. But in a significant concession to Chinese lobbying and after opposition from some European leaders and industry executives, he significantly watered down the penalties.” NEW YORK TIMES

KPMG Internal Review Finds Safeguards ‘Sound and Effective’  | 
WALL STREET JOURNAL

Calculating Apple’s True U.S. Tax Rate  |  Apple’s chief has said that the company paid about 30.5 percent in taxes on its profits. In the Standard Deduction column, Victor Fleischer examines cash tax payments to the Treasury Department and estimates that it is probably closer to 8.2 percent. DealBook »

Crunchtime for China’s High School Seniors  |  Friday and Saturday will be momentous days for millions of Chinese families, but not because of the upcoming California summit meeting between President Obama and China’s new leader, Xi Jinping, writes Bill Bishop in the China Insider column. DealBook »

Bloomberg Begins Fund to Invest in Start-Ups

SAN FRANCISCO â€" In the increasingly clubby world of Silicon Valley, some might say it was almost inevitable that Bloomberg L.P., the parent of Bloomberg News, would start its own venture capital firm to invest in start-ups, including some that its technology reporters write about.

Tom Secunda

Daniel L. Doctoroff

On Wednesday, Bloomberg will announce the formation of Bloomberg Beta, a $75 million venture capital fund, which has already begun using Bloomberg L.P.’s money to place bets on young start-ups like Codecademy, a Web site that provides online coding tutorials, and Newsle, a Web service that alerts users to news about friends.

It is not the first time that Bloomberg L.P. has put its money in technology companies. It is a limited partner in Andreessen Horowitz, a venture capital firm with investments in technology companies like Facebook and Twitter. And until shutting it down recently, Bloomberg also ran its own incubator, Bloomberg Ventures, which helped build new businesses that could later be folded into Bloomberg products.

But Bloomberg Beta is the first time that Bloomberg L.P. will reap profits from direct investments in some of the technology companies that its news operation covers.

It is already an awkward time for the company, which is under fire because its reporters used Bloomberg’s financial terminals to snoop on companies they covered, including Goldman Sachs, and the fund raises questions on journalism ethics.

“This puts Bloomberg News’s credibility at issue,” said Edward Wasserman, dean of the Graduate School of Journalism at the University of California, Berkeley. “Reporters will not only be held to standards of accuracy and the like, but scrutinized for evidence of self-dealing and self-interest, which can be toxic to a news organization.”

Bloomberg Beta’s partners say they will operate as a separate legal entity from their parent company, which is Bloomberg Beta’s sole investor. The firm will be based out of Bloomberg’s offices in San Francisco, where many of its technology reporters are also based.

Bloomberg has been aggressively expanding its technology news coverage in recent years, hiring technology reporters and editors from The Wall Street Journal and The New York Times, and last month it doubled programming hours for Bloomberg West, a television news show on tech that regularly hosts executives and start-up founders like Jack Dorsey, a co-founder of Twitter and the payment service Square, and Elon Musk, the co-founder of PayPal and Tesla.

A Bloomberg News official said the company would follow existing rules on conflicts of interest, which forbid the company to cover itself. In cases where reporters cover companies or investment firms in which Bloomberg has interests, investments will be disclosed in disclaimers.

The New York Times Company has invested in some technology start-ups, lists them online and discloses the stakes in related coverage.

Mr. Wasserman questioned whether Bloomberg Beta’s access to technology executives might give Bloomberg News a competitive advantage in its reporting, and whether those executives might be willing to accept an investment from the firm, over others, with the hope that they might get more positive coverage in exchange.

Similar concerns were raised after Michael Arrington, the founder of TechCrunch, a popular technology blog now owned by AOL, announced the formation of Crunchfund, a venture capital firm. Mr. Arrington subsequently resigned from TechCrunch (though he recently surfaced as a columnist).

Such worries also came up when a former TechCrunch writer, Sarah Lacy, announced that she was beginning a new blog, called PandoDaily, to cover start-ups using money from prominent start-up founders including Peter Thiel of PayPal and  Tony Hsieh of Zappos and venture funds including Accel Partners’ Seed Fund and SV Angel, a prolific investor in early stage start-ups.

Roy Bahat, the head of Bloomberg Beta, said the firm was set up as a separate legal entity in part to anticipate such fears.

“If an entrepreneur wants Bloomberg Beta’s money because they think they’ll have a higher chance of getting covered by a Bloomberg journalist, then they shouldn’t take our money,” Mr. Bahat said on Tuesday. “We were set up to have confidentiality protections, and we will only share when appropriate.”

“The way Bloomberg reporters look at me should be the same way they look at any other outside investor or entrepreneur,” he added. Mr. Bahat said he was first approached by Tom Secunda, Bloomberg L.P.’s co-founder, and Daniel L. Doctoroff, its chief executive, who, he said, “wanted a window into the world of start-ups.”

Mr. Bahat, who previously ran IGN Entertainment, an online media company previously owned by News Corporation, quickly began putting together a team of investors. He brought on Karin Klein, head of Bloomberg’s new initiatives, to run Bloomberg Beta’s East Coast operations, and James Cham, a former principal at Trinity Ventures, a Sand Hill Road venture capital firm.

Together, the three have already invested in Nodejitsu, a provider of cloud computing; Errplane, which monitors app performance, and ProsperWorks, which makes employee management software. It has also invested in MkII Ventures, a small venture capital firm run by Ron Palmeri, an early investor in the technology behind Google Voice.

“This would have been crazy a decade ago,” Mr. Bahat said. “But as companies try to figure out how to buy innovation, this is one experiment in which a company is trying to figure out a new way.”

A version of this article appeared in print on June 5, 2013, on page B1 of the New York edition with the headline: Bloomberg Begins Fund To Invest In Start-Ups.