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Aeropostale’s Sycamore Rift Goes to Trial as Vote Proceeds

A judge said that teen clothing chain Aeropostale Inc. can ask creditors to vote on its reorganization plan while also gearing up for a trial over whether a key creditor drove the company into bankruptcy to snap it up on the cheap, Bloomberg reported yesterday. Bankruptcy Judge Sean Lane said that he’s “inclined to approve” the company’s disclosure statement so creditors can vote on whether to approve it. After criticizing the plan’s lack of information about how much some creditors, such as mall landlords, stand to recover, the judge said the timeline should be changed so they can find out the results of an Aug. 22 asset auction before voting. “It’s not perfect,” Judge Lane said. But he called the plan the best the company could do given the deadlines imposed by lenders and Aeropostale’s failure so far to announce a lead bidder for its assets. He asked that the New York-based company file a “supplement” to the plan to let creditors known when they can expect to find out how the auction is going. The retailer has asked Judge Lane to disqualify New York-based private-equity firm Sycamore Partners from using its $150 million debt to bid at the auction. A trial on Aeropostale’s complaint is set for Aug. 15. The case is In re Aeropostale Inc., 16-11275, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Fed Prepares Action Against Goldman Sachs in Leak Case

The Federal Reserve is now preparing an enforcement action of its own against Goldman Sachs and the bank is expected to pay a financial penalty in that case as well, The New York Times reported yesterday. The Fed is also considering an action against a former Goldman executive who worked alongside the more junior banker who received the leaked material. Unlike Goldman, the former executive plans to fight the Fed if it files a case against him, the people briefed on the matter said. The cases would reflect a broader effort at the Fed to address Wall Street misdeeds and ramp up its enforcement efforts against individual bankers. In 2015, the Fed chose to bar six bankers from the industry, twice the number in 2014. The year before that, the Fed did not take any such actions. But for the Fed, the circumstances of the looming Goldman actions are both unlikely and awkward. The leak, after all, originated at the Federal Reserve Bank of New York with one of its own employees. And the junior Goldman banker who received the confidential information was a former New York Fed employee himself, illustrating the perils of the proverbial revolving door between government and Wall Street. The banker came to Goldman with a job reference from a New York Fed official.

Record Bankruptcies Pressure Brazil Banks as Recession Bites

Brazil's harshest recession in eight decades is prompting some of the nation's top banks to reclassify some 90 billion reais (US$27 billion) in problematic corporate loans, eroding profits as banks struggle with a doubling in bankruptcy protection filings, Reuters reported today. Lenders face a deluge of requests to renegotiate existing loans and stretch out guarantees as the economic crisis deprives corporate borrowers of cash. Some companies have been forced to seek court protection from creditors. In June, phone carrier Oi SA filed for Brazil's largest in-court reorganization on 65 billion reais of obligations. That followed a bankruptcy filing by rig leaser Sete Brasil Participações SA as months of tussling with sole client Petróleo Brasileiro SA derailed plans to start repaying 18 billion reais owed to banks this year. As Brazil's largest listed banks start to report second-quarter results this week, bankruptcy filings — which rose 90 percent in the past year — could help trim annual profit for the top four lenders by 18 percent. In addition, about one-third of outstanding corporate loans mature by March, highlighting challenges for companies struggling with fallout from a sweeping corruption probe, the recession and high borrowing costs.

Jumio Estate, Shareholders Reach Deal in Bankruptcy Battle

Jumio Inc.’s former shareholders and the estate the online-identification-verification company left behind in bankruptcy have reached a broad settlement that winds down its bankruptcy, pays legal fees and protects Facebook Inc. co-founder Eduardo Saverin and other investors from future lawsuits stemming from the contentious chapter 11 case, The Wall Street Journal reported yesterday. Jumio’s lawyer disclosed the outline of the complex deal, which took nearly 10 weeks to hammer out, during a bankruptcy court hearing in Wilmington, Del. The settlement is still subject to final approval from Judge Brendan Shannon. Jumio’s bankruptcy and subsequent sale inspired heated rhetoric and courtroom battles with shareholders, who faced being wiped out. Monday’s settlement leaves those shareholders with a trust intended to fund lawsuits against Jumio’s former officers and directors that, if successful, could one day help improve their recovery. The sale of Jumio’s core operating assets left behind a corporate shell with the rights to pursue certain lawsuits against Jumio’s former management and board members, which shareholders say may be the bankruptcy estate’s largest assets. Jumio filed for bankruptcy on March 21 and is under investigation by the Securities and Exchange Commission over stock trades by former executives. The investigation and scrutiny of its financials scared off new investments and left the company with little choice but to seek chapter 11 protection.

Liquidator’s Deadline for Mile High Stadium Naming Rights Passes without a Lead Bidder

The Monday deadline for bids on the Mile High stadium naming rights set by Sports Authority’s national liquidator Hilco Streambank came and went without a lead bidder — although one likely will be identified by the end of the week, The Denver Post reported today. Hilco Streambank executive vice president Jack Hazan said several interested parties have approached his firm, though he declined provide details or discuss how the company has been marketing the naming rights. The liquidator last week extended the bid deadline to July 25, saying that, until recently, it had been too busy selling the retailer’s intellectual property and liquidating stores to focus on selling the naming rights. Englewood, Colo.-based Sports Authority declared bankruptcy in March, which put a large question mark over how much longer the retailer’s name would remain on Mile High, the Denver Broncos home field. Sports Authority is due to make a $3.6 million payment Aug. 1. Missing the deadline starts a 30-day grace period after which the naming rights return to the Metropolitan Football Stadium District and Denver Broncos. Hazan said that potential buyers would receive better financial terms from the liquidator, than if they deal directly with the district. Hilco Streambank has priced the deal at $3 million a year for the remaining five seasons left on Sports Authority’s contract.

Junk-Rated U.S. Municipalities Shine Brighter with Record Low Rates

Record low interest rates so far have failed to spur a wave of new borrowing in the $3.7 trillion U.S. municipal debt market, with one exception: its weakest borrowers are seizing the opportunity to prop up their finances at costs they can afford, Reuters reported today. As of July 19, total municipal debt issuance this year fell 1.6 percent to $227 billion from the same period last year. However, new borrowing rather than refinancing of existing debt is up 12.5 percent at $88.8 billion, with lower-rated debt rising the most. An analysis shows the total amount of municipal junk bonds rated by S&P Global Ratings at BB-plus or below issued this year rose 170 percent to $1.2 billion over the same period in 2015. Many higher-rated issuers are using the rock-bottom rates to refinance old debt, but have been slow in boosting borrowing for new projects because of a lengthy approval process and many communities' reluctance to take on new burdens. Those that struggle financially face similar problems, but some simply need to borrow to keep going and many are able to issue revenue bonds, which do not require voter approval. Some cash-strapped areas can also issue bonds for new spending without taxpayer approval at the ballot box.