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Puerto Rico Oversight Board Wants Lawsuits to Remain Frozen

Puerto Rico's financial oversight board said that litigation brought by creditors against the U.S. territory should remain on pause while the island works to resolve $70 billion of public debt its government has said that it cannot pay, Reuters reported on Friday. In a brief, the seven-member board said the Puerto Rican rescue law known as PROMESA requires the lawsuits to stay frozen. This would allow the board to fulfill its mandate of overseeing the island's fiscal turnaround plan and facilitating debt restructuring talks with creditors, it said. PROMESA, signed by President Barack Obama on June 30 after earning bipartisan support in Congress, called for creditor lawsuits against Puerto Rico to be put on hold, or "stayed," while the federally appointed oversight board gets up to speed on the fiscal situation. But creditors have filed at least a dozen lawsuits both before and since the law's passage, and in several cases have claimed the stay does not apply to them. The lawsuits generally allege that Puerto Rico violated the U.S. Constitution by imposing a debt moratorium this year, allowing it to forgo certain payments and redirect revenues that had been earmarked for debt to cover other expenses instead. The creditors claim to be exempt from the stay because they are not seeking an actual payment of debt, just a declaration that the moratorium was unlawful. Read more

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage

Analysis: How Zombie Companies Are Killing the Oil Rally

Nearly 70 U.S. oil and gas companies have filed for bankruptcy in 2015 and 2016, and they now produce the equivalent of about 1 million barrels a day. This is about the same as before they declared bankruptcy, according to Wood Mackenzie, representing about 5 percent of U.S. oil-and-gas output, the Wall Street Journal reported today. That resilience has kept energy inventories flush and prices capped. Oil shot to $50 a barrel this summer, but has had trouble making much progress beyond that mark. The long-term decline in prices has led to the bankruptcies, but also to massive cost-cutting that helped producers keep mines and wells profitable. Peabody Energy Corp., Arch Coal Inc. and Alpha Natural Resources Inc. — three of the five largest U.S. coal miners — have all filed for bankruptcy in the past 18 months. They accounted for about 36 percent of U.S. coal supply in the first half of 2015. This year, production declined only in line with the rest of the sector, and their share for the first six months was nearly unchanged at about 33 percent, according to IHS Global Energy. Arch Coal and Alpha Natural Resources recently emerged from bankruptcy. Read more. (Subscription required.) 

Get a better understanding of what happens when an oil, gas or other natural resources company goes bankrupt. Order your copy of ABI's revised and expanded When Gushers Go Dry: The Essentials of Oil & Gas Bankruptcy, Second Edition

Dick's Wins Auction for U.S. Business of Bankrupt Golfsmith

Dick's Sporting Goods Inc., teamed up with liquidators, won a bankruptcy auction for the U.S. business of Golfsmith International Holdings Inc. with a bid of about $70 million, Reuters reported on Friday. Dick's plans to keep open at least 30 Golfsmith stores and wind down the rest with liquidators from Hilco Global and Tiger Capital Group. It plans to keep about 500 of the company's employees. Golfsmith had 109 stores in the U.S. at the time of its bankruptcy filing last month, and has been closing stores since then. With the bid, Dick's, the largest U.S. sporting goods retailer, also won Golfsmith's intellectual property and inventory, though the outcome of the auction still has to be approved by a bankruptcy court judge. Read more.

The trend of liquidation, rather than reorganization, for large retail debtors is likely to continue, according to an article in the October ABI Journal. Click here to read the cover article. 

SunEdison Creditors Seek to Undo Lenders’ “Sweetheart Deal”

SunEdison Inc. hid its “toxic” financial state while granting hundreds of millions of dollars in benefits to its most powerful lenders before its April bankruptcy, its creditors say in a lawsuit that seeks to claw some of the money back, Bloomberg News reported on Friday. The lawsuit comes as SunEdison attempts to sell off assets, including yieldcos TerraForm Power Inc. and TerraForm Global Inc., while in bankruptcy — and more than a year after the developer’s finances began deteriorating. In January, in an effort “to put off the day of reckoning” for alleged financial manipulations and to hide a failed business strategy and mismanagement, SunEdison gave a “sweetheart deal” to its first- and second-lien creditors through a series of transactions,” according to the lawsuit, filed in Manhattan as part of the company’s bankruptcy. 

U.S. Government, MetLife Set for Court Rematch over “Too-Big-to-Fail” Designation

The U.S. government and the country's largest life insurer are set for a rematch in a U.S. appeals court today over how federal regulators decide a company is "too big to fail," one of the most significant reforms to come out of the financial crisis, Reuters reported. The heart of the fight is whether the Financial Stability Oversight Council should have designated MetLife Inc. as a "systemically important financial institution." The label indicates that MetLife's collapse could devastate the financial system, and it triggers tighter oversight. MetLife would also have to set aside capital to ensure that it would not need a government bailout during a crisis. In March, U.S. District Judge Rosemary Collyer struck down the designation, saying that the council used an "arbitrary and capricious" process in assessing MetLife's vulnerabilities. She also said that the government should have analyzed costs and benefits to MetLife, the likelihood that it would fail and possible counterparty losses.

Analysis: A Whistle Was Blown on ITT; 17 Years Later, It Collapsed

As a former employee who had blown the whistle on ITT, an operator of some 140 for-profit schools, Dan Graves was happy that the government had finally taken action to protect students from the company’s aggressive sales tactics, which lured them into debilitating debt and provided little in the way of an education, the New York Times reported on Saturday. Still, he wondered what had taken the government so long. After all, it has been 17 years since Graves and another former ITT employee brought a suit alleging that the company had systematically violated the law governing compensation of sales representatives. The two former employees shared extensive documentation with federal prosecutors and regulators. These officials expressed keen interest, Graves said, and estimated that the government could recover $400 million in damages from the case. But by 2004, the lawsuit was dead and Graves’s effort to provide the government with damning evidence had come to naught. Now that ITT is in bankruptcy, Graves’s whistle-blower experience is instructive: It spotlights a costly regulatory failure that allowed ITT to stay in business far longer than it otherwise might have, Graves said.