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Former Subprime Lender NovaStar Files for Bankruptcy

The company formerly known as NovaStar Financial Inc., which before the housing crash made billions of dollars in risky mortgage loans, has sought chapter 11 protection, The Wall Street Journal reported on Friday. The company is hoping to continue its operations while it works to develop a plan to restructure its debts and resolve pending litigation related to past mortgage activities. Before the 2008 financial crisis, Novation — then known as NovaStar — originated, purchased, sold, invested in, securitized and sold subprime mortgage loans and mortgage securities. At its peak, NovaStar originated more than $11 billion in mortgage loans a year, which it then bundled together into securities that it sold to investors. When the housing bubble burst, NovaStar stopped making new loans and sold off its servicing portfolio of existing loans. The company later renamed itself Novation and now focuses on investing in various businesses. In January, it sold its majority interest in cloud-based telecommunications platform developer Corvisa Inc. Despite its new name and focus, the company’s old mortgage business continues to be embroiled in litigation tied to the housing market’s collapse. At least three significant lawsuits are pending, although the chapter 11 filing puts an automatic halt to those actions.

Unsecured Creditors Seek Quick End to Sports Authority Bankruptcy

Unsecured creditors of the bankrupt retailer Sports Authority are seeking to convert the case to a quick liquidation, saying that the company should not waste its dwindling funds preparing a plan to end its chapter 11, Reuters reported on Friday. The case has been mired in a protracted fight between lenders and suppliers over the use of the company's cash, and the chain ended up running going-out-of-business sales. The largest U.S. sporting goods retailer, Dick's Sporting Goods Inc., acquired the Sports Authority name and other intellectual property at a June auction. The unsecured creditors argued that the company is "administratively insolvent.” To allow Sports Authority to remain in chapter 11 and spend money preparing the required bankruptcy exit plan would make creditors worse off, according the unsecured creditors. In the filing, the creditors also said that Sports Authority is unfairly prioritizing some administrative costs of the case over others. The creditors said $23 million has been set aside for lawyers and advisers and $2.85 million for bonuses for executives, yet landlords and suppliers are still waiting for their administrative payments.

Brazil’s Banks Ramp Up Bid to Halt Torrent of Bankruptcy Filings

Some of Brazil’s biggest banks are stepping up efforts to stem a surge in bankruptcy filings, Bloomberg reported today. In the past year, Itau Unibanco Holding SA, Banco do Brasil SA and Banco Santander Brasil SA have carved out divisions tasked with helping companies restructure their debts so they can avoid seeking protection from creditors. Banco Bradesco SA also is planning to create a similar unit, according to a company official who asked not to be identified because the information is private. The moves come as high interest rates and Brazil’s longest recession in more than a century make it harder for businesses to repay debt. In the first half of 2016, bankruptcy filings spiked 88 percent to a 10-year high. This means that banks have had to write down the loans they’ve made to those companies and increase the amount of money they set aside to cover losses. Brazilian lenders have ratcheted up their so-called bad-loan provisions for three straight quarters. They were equal to 6.2 percent of banks’ total lending in May, the highest ratio in almost six years.

Regulators Roll Out Proposals for New Dodd-Frank Lending Rules

Three federal agencies have rolled out plans to jointly update the thresholds the government uses to determine if regulators need to vet or appraise lending transactions that are exempt from U.S. laws, the Morning Consult reported on Friday. The two proposals from the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Federal Reserve deal with thresholds that the 2010 Dodd-Frank law established for small loans, consumer lending and leases. Dodd-Frank updated the Truth in Lending Act and the Consumer Leasing Act with changes to how the government adjusts the thresholds related to inflation and the Consumer Price Index for Urban Wage Earners and Clerical Workers. The agencies have not yet published the proposals in the Federal Register for public comment.

Luxury Condos Placed in Bankruptcy After $6.9 Million Foreclosure Lawsuit

Two condos controlled by a Turkish media executive in the Setai Resort & Residences in Miami Beach were placed in chapter 11 reorganization, the South Florida Business Journal reported on Friday. Setai 3509 LLC and Setai 1908 LLC both filed chapter 11 in U.S. Bankruptcy Court, and both companies are managed by Nafia Sevin Ergun Sefada, the chair of Satis Ofisi, a large media representation group in Turkey. They hope to reorganize and come out of bankruptcy with their debt resolved. In addition, they are considering the options to either sell or retain the properties. Setai 3509 owns a three-bedroom, 2,521-square-foot unit in the condo and paid $10.95 million for it in 2014. Setai 1908 owns a two-bedroom, 1,279-square-foot condo that it acquired for $3.75 million in 2013. On June 2, Coral Gables-based BAC Florida Bank filed a foreclosure lawsuit against Setai 3509, Setai 1908 and Sefada over the two condos. The complaint claimed that the defendants defaulted on the mortgages, owing $5.35 million on unit 3509 and $1.57 million on unit 1908. Both condos have been listed for sale. The asking prices for units 3509 and 1908 are $10.95 million and $4.75 million, respectively.

Goldman Sachs Raising Private-Equity Fund of $5 Billion to $8 Billion

In 2007, Goldman Sachs Group Inc. raised one of the biggest private-equity funds ever and nine years later, it is readying a sequel more tailored for the times, The Wall Street Journal reported on Thursday. Goldman soon will begin marketing a new corporate-buyout fund of between $5 billion and $8 billion, its first such fund since the financial crisis. It is aiming for an initial close by the end of the year. The effort shows Goldman’s commitment to a corner of Wall Street that many rivals have abandoned. But it also looks very different than Goldman’s past funds, and reflects the impact of regulators, who have tried to discourage banks from risky investing. For one thing, the new buyout fund is smaller than prior ones, less than half the $20 billion Goldman raised in 2007 for GS Capital Partners VI. And Goldman will contribute just a tiny slice of its own capital this time, the people said, to comply with post-crisis rules meant to make banks safer.
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