Bankruptcy Headlines

Moody’s: Repeat Debt-Default Rates Increase After Recession

Moody’s Investors Service said that companies that defaulted for a second time in the years following the latest recession accounted for more than twice the proportion of total defaults than the historical average, Bloomberg News reported today. Firms that missed payments on obligations more than once due to debt swaps or bankruptcy reorganizations made up 39 percent of defaults between Sept. 1, 2010, and Sept. 30, 2014, according to a report released today by the ratings firm. That compares with the historical average of 17 percent since 1987, according to Moody’s. Federal Reserve intervention that lowered interest rates and record investments into the credit markets allowed companies having trouble making debt repayments to refinance bonds and loans and extend maturities, helping some to temporarily avoid default. “A fair number of weaker companies used the abundant liquidity in the market to delay additional defaults or even bankruptcy throughout the recession default cycle, only to succumb later,” wrote the authors of the report led by David Keisman. Twenty-eight of the 72 defaults since August 2010 were re-defaults, the authors wrote in the report. Sixteen of the 28 were by companies owned by private-equity firms, including Energy Future Holdings Corp., which completed numerous distressed exchanges before filing for bankruptcy last year, according to Moody’s.

Commentary: The Art of Valuation

Valuations can vary for a number of reasons, including different assumptions and inputs, and sometimes because of the methodology itself, according to a commentary on Credit Slips by Prof. Michelle Harner. But as one of Harner’s students in Corporate Finance recently pointed out, valuations also likely differ because of the legal position (he actually used the term "self-interest") of the party employing the expert and offering the particular valuation into evidence. Harner is a strong proponent of judicial valuation, despite the potential gamesmanship and uncertainty inherent in valuation testimony. She thinks that the process subjects the valuation to greater scrutiny, better protects under-represented parties, and encourages consensual resolutions. The ABI Commission endorsed the continued use of judicial valuation, as well as the ability of judges to appoint valuation experts to perform an independent assessment of the valuation. http://www.creditslips.org/creditslips/2015/01/the-art-of-valuation.html  

To read the Commission’s recommendations on valuation, please click here: https://abiworld.app.box.com/s/rca12wvv3qih6phex1yk  

For more analysis and perspective on valuation, be sure to attend ABI’s VALCON 2015 conference from Feb. 25-27 in Las Vegas. For more information and to register, please click here: http://www.abi.org/events/valcon15-emerging-valuation-issues-bankruptcy-and-beyond 

Caesars Wins Fight for Bankruptcy Case to Continue in Chicago

Caesars Entertainment Corp. scored a victory yesterday in its bid to dig out from under $18.4 billion in debt through the bankruptcy of its main operating unit, when a judge in Delaware said its financial restructuring could proceed in Chicago, Dow Jones Newswires reported yesterday. Bankruptcy Judge Kevin Gross steered the action toward a court where Caesars could have an easier time shaking off accusations it looted the big casino operation before putting it into chapter 11 protection. Judge Gross handed a setback to unhappy creditors, junior bondholders and bank lenders who had allied to keep the chapter 11 proceeding active in Delaware, instead of Chicago, the company's choice for an attempted soft landing for its debt-laden largest unit. In directing the chapter 11 case to proceed in Chicago, Judge Gross said that his overriding consideration was that Caesars was entitled to "just enough deference" for its choice, despite "suspect" conduct by the company in the period before its bankruptcy filing.

Bankruptcy Judge Approves Financing for Trump Entertainment

A federal judge in Delaware approved $20 million in new bankruptcy financing yesterday for Trump Entertainment Resorts from billionaire investor Carl Icahn as the company continues to work to keep the struggling Taj Mahal casino in Atlantic City, N.J., open, the Associated Press reported yesterday. Bankruptcy Judge Kevin Gross approved the debtor-in-possession financing Wednesday over the objection of the company's unsecured creditors committee, which argued that it came with too many strings and would give Icahn more control over Trump Entertainment's fate than he already has. Icahn is Trump's senior secured lender and is owed more than $285 million plus outstanding interest on its collateralized debt. The company's restructuring plan calls for Icahn to exchange his secured debt for 100 percent of the stock in the reorganized company. In addition to approving the financing, Judge Gross approved the disclosure statement explaining Trump Entertainment's reorganization plan and gave permission for the company to begin soliciting votes on the plan from creditors.

GM Rejects U.S. Senators’ Request to Extend Compensation Claim Deadline

General Motors Co. rejected a request by two U.S. senators to extend their ignition switch compensation fund claim deadline for a second time, the Wall Street Journal reported today. “Our goal is to be just and timely in compensating the families who lost loved ones and those who suffered physical injury,” GM said in a statement Wednesday. “We have conducted extensive outreach about the program. We previously extended the deadline until January 31, and we do not plan another extension.” The automaker extended the deadline last month to Saturday from Dec. 31 after it was reported that a potential victim eligible for a payout didn’t have enough time to submit a claim. All claims must be postmarked or submitted electronically through the fund’s website by Jan. 31. U.S. Sens. Richard Blumenthal (D-Conn.) and Edward J. Markey (D-Mass.) sent the letter to GM Chief Executive Mary Barra asking that the deadline be extended until the Justice Department completes its investigation into the recall delay.