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Airbag Maker Takata Files for Bankruptcy

Embattled airbag maker Takata Corp. filed for bankruptcy protection in Japan and said that it would seek $1.588 billion in financial aid from U.S.-based auto parts supplier Key Safety Systems, Reuters reported yesterday. The KSS deal would help it deal with the fallout from its defective airbag inflators at the centre of the global auto industry's biggest ever recall, the two companies said in a joint statement. The filing at the Tokyo District Court followed a Chapter 11 bankruptcy protection filing in the United States. As part of the bankruptcy protection plans, KSS would acquire all of Takata's assets barring certain assets and operations related to the airbag inflators involved in the global recall in the planned deal worth $1.59 billion. Takata would keep operations of its affected inflators for now to continue supplying recall replacement parts, and would eventually wind down those operations, the two companies said in a statement.

Ninth Circuit to Rehear PACA Case on Loophole Hurting Farmers

The Ninth Circuit granted rehearing en banc on a case that could eliminate a circuit split on a major issue involving the federal Perishable Agricultural Commodities Act, or PACA (7 U.S.C. § 499a et seq.).

The issue is important in California, a major agricultural producer. In Boulder Fruit Express & Heger Organic Farm Sales v. Transportation Factoring, Inc., 251 F.3d 1268 (9th Cir. 2001), the Ninth Circuit created a loophole in 2001 where a wholesaler’s lender could easily preclude farmers from being protected by PACA. Bound by Boulder, a panel ruled against the farmer in a per curiam decision in February. S&H Packing & Sales Co. v. Tanimura Distributing Inc., 850 F.3d 446 (9th Cir. Feb. 27, 2017).

However, two judges on the panel wrote a 19-page concurrence arguing that Boulder Fruit was “wrongly decided” and urging the circuit to sit en banc to bring “the Ninth Circuit into line with the other circuits that have considered the issue.” The Ninth Circuit granted rehearing en banc on June 23 and tentatively scheduled oral argument during the week of Sept. 18.

PACA creates a statutory trust protecting growers from not being paid for their fresh produce and gives them protection ahead of accounts receivable financing. However, farmers do not have recourse under PACA against purchasers of the receivables. Before putting farmers behind purchasers of receivables, the Second, Fourth and Fifth Circuits require the court first to decide if a true sale actually occurred and, second, to examine whether the sale was commercially reasonable. 

In Boulder Fruit, the Ninth Circuit split with its sister circuits by holding, in the case of documentation labeled as a sale of accounts receivable, that the court need only decide whether the transaction was commercially reasonable before cutting off PACA protection. There has been no threshold test in the Ninth Circuit to determine whether the transaction qualifies as a true sale.

S&H Packing, the case to be reheard en banc, appears to be a test case involving a transaction labeled as a sale of receivables that might not have been a true sale because the purchaser had the right to force the seller to repurchase accounts not paid within 90 days.

To read ABI’s discussion of the per curiam opinion in February, click here.

The case is S&H Packing & Sales Co. v. Tanimura Distributing Inc., 14-56059 (9th Cir.).

Puerto Rico Seeks More Private Companies to Run Ports, Airports and More

Puerto Rico is preparing to seek bids in coming months from private companies willing to operate or improve seaports, regional airports, water meters, student housing, traffic-fine collections, parking spaces and a passenger ferry, according to a government presentation reviewed by The Wall Street Journal. The goal is to attract more than $500 million in investment starting this summer, according to a spokesman for the Puerto Rico Public-Private Partnerships Authority. Future possibilities include the island’s power utility, water and sewer system and waste management, according to presentations made in April to private investors. Potential deals are a cornerstone of a new plan to revitalize the territory, which in May was placed under court protection, the largest-ever U.S. municipal bankruptcy. Gov. Ricardo Rosselló predicts public-private partnerships launched over the next three years will bring $5 billion in new investment and 100,000 jobs to Puerto Rico. Economic projections in the commonwealth’s revitalization plan are based in part on the completion of public-private partnership deals. Read more. (Subscription required.) 

For updated news and analysis of Puerto Rico's debt crisis, along with current docket filings in Puerto Rico's case, be sure to visit ABI's "Puerto Rico in Distress" webpage.

Commentary: A Restructuring Deal That Helps Investors, Not Puerto Rico

While it’s not clear if there are sharks in the waters surrounding Puerto Rico, the island does have sharks of a different kind — ones that hail from mainland hedge funds, municipal bond funds and insurance companies that insure against bond defaults, according to a commentary in the New York Times on Saturday. Some investors have been holding the island’s debt for years, but others have more recently snatched up Puerto Rico-related bonds for significantly less than 100 cents on the dollar. They want a debt restructuring that gives them a big fat profit. The fighting is particularly fierce at the moment over what will happen to $9 billion worth of bonds that were issued by the Puerto Rico Electric Power Authority (PREPA). After several years of difficult negotiations, the authority, known as PREPA, reached an agreement in April with its creditors, which include the hedge fund Blue Mountain Capital, bond funds managed by Oppenheimer and Franklin Templeton and insurance companies like MBIA and Assured Guaranty, which are obligated to make up the difference between the negotiated recovery of the bonds and 100 cents on the dollar.

After Puerto Rico’s Debt Crisis, Worries Shift to Virgin Islands

Government officials in the U.S. Virgin Islands are scrambling to stave off the same kind of fiscal collapse that has already engulfed its neighbor Puerto Rico, the New York Times reported yesterday. The public debts of the Virgin Islands are much smaller than those of Puerto Rico, which effectively declared bankruptcy in May. But so is its population, and therefore its ability to pay. This tropical territory of roughly 100,000 people owes some $6.5 billion to pensioners and creditors. Now, a combination of factors — insufficient tax revenue, a weak pension system, the loss of a major employer and a new reluctance in the markets to lend the Virgin Islands any more money — has made it almost impossible for the government to meet its obligations. In January, the Virgin Islands found itself unable to borrow and nearly out of funds for basic government operations.

Outside Collectors for IRS Are Accused of Illegal Practices

Pioneer Credit Recovery suggested financially risky strategies to people struggling to pay overdue federal tax debt, the New York Times reported on Saturday. The company is one of four debt collection agencies hired by the Internal Revenue Service to chase down late payments on 140,000 accounts with balances of up to $50,000. Some of Pioneer's strategies to consumers included raiding their 401(k), asking their boss for a loan, loading up credit cards, or putting up their house as collateral by taking out a second mortgage. The call scripts those agencies are using — obtained by a group of Democratic senators and reviewed by The New York Times — shed light on how the tax agency’s new fleet of private debt collectors extract payments from debtors. On Friday, those senators sent a letter to Pioneer, the I.R.S. and the Treasury Department accusing Pioneer of acting in “clear violation” of the tax code.