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Puerto Rico Governor Aims to Present Turnaround Plan in Two Weeks

Puerto Rico's governor said yesterday that he has proposed to the U.S. territory's fiscal oversight board a timeline to present the board with a financial turnaround plan in two weeks, Reuters reported. Governor Alejandro García Padilla announced the timeline as part of a televised address, ahead of the oversight board's first meeting, scheduled for today in New York. The oversight board was appointed by U.S. lawmakers and President Barack Obama to manage Puerto Rico's finances and help stabilize an economy suffering from a decade-long recession, $70 billion in total debt and a poverty rate of 45 percent. Under the federal law that created the board, the island's governor is tasked with presenting a financial turnaround plan, which the board must revise and approve. Read more

Click here to view the agenda of the Puerto Rico Oversight Board meeting scheduled for today. 

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

Pacific Exploration & Production on Track to Emerge from Bankruptcy

Pacific Exploration & Production Corp.’s plan to wipe some $5 billion in debt from its books cleared a final hurdle on Wednesday, putting the company on track to emerge from bankruptcy within two weeks, the Wall Street Journal reported today. Following a hearing in Manhattan, Bankruptcy Judge James Garrity Jr. said that he would sign off on a global restructuring plan, which has already won approval in courts in both Canada and Colombia. Pacific, an oil and natural gas producer, is based in Canada but operates primarily in Colombia, where it is the largest independent oil and natural gas company, court papers showed. Much of the company’s mountain of debt, however, is held in the U.S. Judge Garrity, who is overseeing Pacific’s U.S. bankruptcy proceeding, had already agreed to formally recognize the Canadian court as Pacific’s primary restructuring venue, but he had asked lawyers for the company to return to his courtroom on Wednesday to present the final version of the plan before he would agree to discharge any debt. The restructuring plan, which the company says is one of the largest and most complicated restructurings ever attempted in Latin America, erases $5.3 billion, court papers showed. Pacific, which is continuing normal operations during the bankruptcy, said the strategy not only aims to cut debt but will also save it $253 million in annual interest expenses. 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

Wells Fargo Troubles Mount With Penalty for Soldiers’ Loans

Wells Fargo & Co., reeling from weeks of pummeling over fraudulent customer accounts, was sanctioned by the Justice Department over improperly repossessing cars owned by members of the military, Bloomberg News reported today. Federal authorities are punishing the San Francisco-based lender for as many as 413 alleged violations of the Servicemembers Civil Relief Act, according to a statement yesterday from the Justice Department, which said that the bank agreed to pay more than $4 million to compensate borrowers involved in unlawful repossessions spread over seven years. The bank’s regulator, the Office of the Comptroller of the Currency, also fined the company $20 million for a decade of transgressions, the agency said. “Wells Fargo Bank unlawfully repossessed hundreds of servicemembers’ cars without the proper process, and the bank will now rightfully pay for its violations,” Bill Baer, the Justice Department’s No. 3 official, said in a statement. Wells Fargo, which doesn’t admit or deny the allegations, is accused of engaging in “a pattern of unlawful repossessions” from 2008 to 2015 in the DOJ settlement, which still needs approval in federal court in Los Angeles. In most cases, firms must obtain court orders before seizing vehicles from soldiers, sailors, airmen and Marines who are delinquent on their loans.

BB&T Reaches $83 Million Settlement with Feds Over Mortgage Lending Practices

Branch Banking & Trust Company will pay the federal government $83 million as part of a settlement relating to its lending practices for mortgages insured by the Federal Housing Administration, the Justice Department said yesterday, according to Morningconsult.com reported. The Winston-Salem, N.C.-based BB&T didn’t follow rules for FHA-insured mortgages prescribed by the Department of Housing and Urban Development from 2006 through 2014, according to the Justice Department. The bank doubled its loan volume during that period but did not comply with HUD rules on underwriting and quality control, the Justice Department said. Despite that failure to comply, BB&T still sought FHA insurance for the mortgages and pursued payment from that insurance if the loans defaulted, DOJ said.

Judge Ousts Roscoe’s House of Chicken and Waffles President

The president of Los Angeles’s famed Roscoe’s House of Chicken and Waffles has been ousted by a federal judge who said she doesn’t trust him to run its four bankrupt restaurants “in accordance with the law,” the Wall Street Journal reported today. Bankruptcy Judge Sheri Bluebond said on Wednesday that under the management of President Herbert Hudson, who also founded the chain, Roscoe’s lost a $3.2 million employee discrimination lawsuit, faced immigration law sanctions, underpaid state taxes and kept informal accounting system with missing records. Judge Bluebond said that Hudson also inappropriately transferred money from Roscoe’s operations to his other businesses, returning it only after a court-filed report revealed the transfers to the court. Roscoe’s bankruptcy lawyer Vahe Khojayan didn’t respond to requests for comment on Judge Bluebond’s decision to put new management in charge. At Wednesday’s hearing, he argued that the bankrupt restaurants are profitable — making more than $200,000 a month — diffusing the need for outside leaders. Judge Bluebond rejected that argument.

Commentary: The Ghost of Lehman Brothers Haunts Deutsche Bank

Eight years ago this month, Lehman Brothers failed in large part due to panicked hedge funds pulling their money. With some big hedge funds worried enough to cut their exposure to Deutsche Bank AG, the parallel is obvious — but also deeply misleading, according to a commentary today in the Wall Street Journal. Deutsche Bank’s shares have plummeted in recent weeks after the Wall Street Journal reported that the U.S. Justice Department suggested the bank pay $14 billion from the bank to settle allegations around mortgage securities. The bank expects to agree to a lower figure. Some hedge-fund clients have grown concerned about their exposure to the German lender, prompting them to pull assets and forcing bank executives to step up reassurances about its stability. Hedge funds face the same dilemma all bank customers face. The gains from sticking with Deutsche are very small, while the potential losses if it were to run into trouble are very large. “Everyone is hypersensitive,” said one hedge-fund manager caught out by the Lehman collapse. “Lehman’s taught everyone that there’s very little upside in keeping your exposure.” In principle, the same could happen to any bank, as they never have enough easy-to-sell assets to pay back every depositor immediately. Deutsche is now in focus in part because clients have been spooked by its plummeting shares, down by more than half this year. But Lehman was particularly vulnerable, due to its reliance on the overnight repurchase, or repo, market and on hedge funds to finance itself. Billions of dollars of cash and other assets from its so-called prime brokerage business drained away in its final few days, while repos couldn’t be renewed and banks and other counterparties demanded extra collateral to back derivatives trades.

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