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As Puerto Rico Seeks to Slash Debt, Local Bondholders Await Hit

Puerto Rico Governor Ricardo Rossello faces a tough balancing act as he begins talks with creditors in a bid to reduce the territory’s $70 billion debt, Bloomberg News reported on Friday. The prospect of billions of dollars of losses — on debt that buyers were assured couldn’t even be written off in bankruptcy — has set off a lobbying push by groups including Bonistas del Patio ("Backyard Bondholders" in English), which is trying to shelter Puerto Ricans from deep investment losses they say would deal another blow to the island’s already shrinking economy. Puerto Ricans were big lenders to their government, which borrowed year after year to pay bills as officials sought to avert deep spending cuts. While speculative investment funds became major bondholders as the government’s credit rating was dropped to junk, at least $6 billion was still held by island residents as of last year, according to one government estimate. That’s injected a local political wrinkle into already complex negotiations as Puerto Rico deals with holders of more than a dozen classes of debt backed by various revenue streams and legal protections. The scale of the crisis — and the threat of protracted court fights among creditors — led the U.S. last year to install a federal oversight board with broad powers to review Puerto Rico’s budget and any debt-cutting deal. While former Governor Alejandro García Padilla proposed a restructuring that would keep some interest payments flowing to island residents, it’s unclear if Rossello will follow a similar approach.

Energy Future Bankruptcy Plan Approved, Clearing Way for NextEra

Energy Future Holdings Corp., which owns the largest power network in Texas, received court approval on Friday to confirm its plan to exit bankruptcy and be acquired by NextEra Energy Inc. in a deal valued at around $18 billion, Reuters reported on Friday. Approval from the Public Utility Commission of Texas is required for the purchase of Energy Future's power distribution business, known as Oncor. A decision is expected in the coming months. The commission last year scuttled a proposed acquisition of Oncor by Hunt Consolidated Inc. of Texas. Energy Future said on Feb. 14 that it had resolved the last main disputes to its plan of reorganization, when its noteholders reached an agreement to modify what they were owed. 

Retailer Perfumania Explores Strategic Alternatives

Perfumania Holdings Inc., a U.S. retailer with exclusive distribution rights to several Trump-branded colognes, has hired advisers to explore strategic alternatives, including a debt restructuring, Reuters reported on Friday. The move comes as Perfumania, a major U.S. fragrance retailer, looks to address its debt pile amid declining traffic at malls. The Bellport, N.Y.-based company is working with legal and financial advisers to explore options, including addressing its capital structure, according to the sources. Perfumania recorded debt of approximately $164 million at Oct. 29 and $2.1 million in cash and cash equivalents. The company also plans to negotiate with landlords to exit some of its 313 standalone Perfumania shops in the U.S.

Fantasy Aces Hires Lawyer as Questions Emerge About Players’ Accounts

Daily fantasy-sports site Fantasy Aces LP, which last month filed for bankruptcy while owing players more than $1 million, has hired a new lawyer as questions emerge about the site’s handling of funds in players’ accounts, the Wall Street Journal reported on Friday. Robert J. DeGroot, who describes himself as a criminal defense lawyer, said that he was hired last week by Fantasy Aces to respond to questions from New York’s gaming regulator about the player accounts. Players had an estimated $1.3 million deposited in Fantasy Aces accounts when the company filed for chapter 7 bankruptcy liquidation on Jan. 31 with just $3,539 in cash on hand, according to court documents. The bankruptcy came the same day that the New York State Gaming Commission sent a letter to Fantasy Aces seeking information about the player accounts, which under state law must be kept separate from a fantasy-sports company’s other funds.

Illinois Woman Pleads Guilty to Bankruptcy Fraud

Rietta M. Miller of Harrisburg, Ill., pled guilty to a bankruptcy fraud charge pending against her in federal court in Benton, U.S. Attorney Donald S. Boyce for the Southern District of Illinois announced on Friday. Miller was charged with concealing assets in her bankruptcy case. In pleading guilty today, Miller admitted that she concealed from the bankruptcy court a $47,736.12 worker’s compensation settlement she received approximately one month before she filed bankruptcy. Miller acknowledged that she attempted to conceal this money from the Bankruptcy Court by moving the funds in and out of her bank accounts. Miller also admitted that she lied on the bankruptcy petition and schedules she filed with the bankruptcy court, and again when she was asked questions under oath at a Meeting of Creditors held in her bankruptcy case. Miller’s chapter 7 bankruptcy case was filed and litigated in bankruptcy court.

Theranos Had $200 Million in Cash Left at Year-End

Theranos Inc. had $200 million of cash on hand at the end of 2016, less than a quarter of the funding it raised from investors and partners, the Wall Street Journal reported on Friday. The number was disclosed in a conference call with investors last month. Investors also were told the firm didn’t generate any material revenue in 2015 and 2016 and hasn’t set aside funds for any potential liability that could arise from its pending legal challenges. The firm has yet to receive regulatory approval for a new business line it said it is pursuing. The financial predicament facing Theranos shows how vulnerable it is to any adverse judgments from multiple lawsuits, as well as civil and criminal investigations and pending federal regulatory actions against it. A large, unplanned expense could cripple the firm, which once sought to upend the medical lab business by offering cheap tests done on small samples of blood. Theranos investor Partner Fund Management and the blood-diagnostics company’s former retail partner Walgreen Co., a unit of Walgreens Boots Alliance Inc., have both sued the company. They seek to recover a total of around $240 million from Theranos. Partner Fund alleges that Theranos made misleading statements in connection with its investment and Walgreens alleges it breached a contract.

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