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Puerto Rico’s Pensions: $2 Billion in Assets, $45 Billion in Liabilities

One of the thorniest tasks awaiting a seven-member board charged by Washington, D.C., with cleaning up Puerto Rico’s debt crisis is deciding how to balance a $70 billion debt load with nearly $43 billion in unfunded pension liabilities, according to a Wall Street Journal analysis today. The issue is coming to a head now because the White House is set to name as soon as next week the members of that oversight board, drawn from lists of candidates submitted by congressional leaders in both parties. Puerto Rico’s constitution calls for the island to pay its general-obligation bonds ahead of public services or pensions, but a law signed by President Barack Obama in June clouds that hierarchy by directing the new board to ensure pensions are adequately funded. For the oversight board, “there are no good options here,” said Matt Fabian, a partner at research firm Municipal Market Analytics. Cutting payouts to debtholders ahead of pensions will inflame creditors, but cutting pension payments to plan members could accelerate the migration and economic decline that the oversight board is tasked with stemming. Creditors fired a pre-emptive volley last month when they sued the island’s government in federal court after it passed a budget that increases funding for pensions without setting aside money for debt payment. The budget diverts “vast resources to purposes that apparently enjoy political favor but are indisputably junior to constitutional debt,” the complaint said. Read more. (Subscription required.) 

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

Caesars Judge Questions Need to Halt Suits Until Bankruptcy Ends

Bankruptcy Judge A. Benjamin Goldgar said yesterday that Caesars Entertainment Corp. is unlikely to get protection from bondholder lawsuits that would last as long as its insolvent operating company is in bankruptcy, Bloomberg News reported. Judge Goldgar today will decide whether to extend a halt on lawsuits in New York and Delaware, and if so, for how long. Goldgar made it clear yesterday that he would not give Caesars a lawsuit shield that lasts until after Caesars Entertainment Operating Co. wins approval of its reorganization plan, which can’t happen until next year at the earliest. “I’ve said that isn’t going to happen,” Goldgar said yesterday near the end of a three-day hearing on possibly halting bondholder lawsuits that could impose $11.4 billion in judgments on the parent company. The lawsuits are the biggest obstacle left to getting Caesars’ main operating unit out of bankruptcy. Bondholders want to use the suits, which a court examiner found have a good chance of succeeding, to boost their recoveries to more than the 34 percent offered by CEOC.

Long Beach Pastor Admits to Running $3 Million Mortgage Scam

A Long Beach, Calif., pastor admitted this week to running a mortgage scam that collected nearly $3 million from distressed property owners who paid him fees while he delayed foreclosures on their homes, according to federal prosecutors, the Long Beach Press-Telegram today. Karl Robinson pleaded guilty on Tuesday in federal court to one count of bankruptcy fraud related to the scheme, the U.S. Attorney’s Office in Los Angeles announced Thursday. Robinson’s attorney could not immediately be reached for comment. He faces up to five years in prison at his sentencing scheduled for Nov. 28. Prosecutors said Robinson’s scheme targeted homeowners who had defaulted on their mortgages. If the homeowners paid Robinson, he would stall their evictions by filing fake documents related to the foreclosure proceedings, according to the U.S. Attorney’s office. Robinson would start by filing paperwork that appeared to show a third party owned a stake in the property that was being foreclosed on, according to prosecutors. Authorities said Robinson would then file a bankruptcy petition in the fake third party’s name.

Government Orders First National to Pay More Than $35 Million

First National Bank of Omaha will pay more than $35 million in restitution and fines for deceptive marketing practices and illegal billing of add-on products, the Lincoln (Neb.) Journal Star reported today. The bank, the largest in Nebraska with $18.4 billion in assets, agreed to consent orders levied by the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, which were made public yesterday. The bank will pay a $3 million civil penalty to the OCC, a $4.5 million civil penalty to the CFPB and nearly $27.8 million in restitution to roughly 257,000 customers. The orders stem from First National's use of debt cancellation add-on products and credit-monitoring services between 1997 and 2012. According to the CFPB, First National disguised its sales tactics, failed to make it clear customers were purchasing a product, made it hard to cancel debt cancellation products and billed them for credit protection services they never received.

SEC Rule to Limit Derivatives Alarms Industry with Liquidity Concerns

A Securities and Exchange Commission proposal to place caps on registered investment firms’ exposures to derivatives is shaping up to be a contentious fight as industry representatives and advocacy groups’ are squaring off in a lobbying battle, reported yesterday. Although the SEC hasn’t announced its plans, lobbyists who have been watching the derivatives rule expect the agency to move forward in the coming months. Watchdog groups like Better Markets and Americans for Financial Reform have championed the proposal, but it has come under fire from the financial industry, which says it could harm the manner in which funds safely manage assets. The proposal has been the subject of public discussions since formal stakeholder comments came out in March, and it has continued to be scrutinized by lawmakers such as Sen. Sherrod Brown (D-Ohio), who weighed in on the debate last month. The SEC’s proposal would limit the derivatives exposures of mutual funds and exchange-traded funds to 150 percent of their total net assets. Funds would also have the option of a 300 percent ratio if they meet the criteria of a risk test.

Hulk Hogan Wins Another Round Against Nick Denton

Former professional wrestler Hulk Hogan, whose real name is Terry G. Bollea, helped to put a stop to Gawker Media LLC founder Nick Denton’s bid to lease his downtown Manhattan loft, the Wall Street Journal reported today. Bollea had taken issue with Denton’s bid to rent the loft for $12,500 a month for at least a year, saying that wouldn’t be enough to cover condominium expenses. A bankruptcy judge on Wednesday sided with Bollea and denied Denton’s request to lease the condominium, which is valued at $4.25 million. In objecting to the Gawker founder’s request, a lawyer for Bollea said in a court filing “it is quite understandable that [Mr. Denton] does not want to sell his former home,” but the Gawker founder hasn’t offered up justification for leasing the property. A monthly rental of $12,500 would leave Denton in the red by $97,000 a year, court papers say. The Gawker founder and his spouse have since relocated to a cheaper apartment, according to court papers.