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Puerto Rico’s Credibility Deficit Lingers

Billions in federal dollars are pouring into Puerto Rico to address damage wrought by Hurricane Maria last year, rekindling concerns about the U.S. territory’s credibility as a fiscal steward, WSJ Pro Bankruptcy reported. Soon after the hurricane hit the island last September, Puerto Rico’s bankrupt power monopoly, PREPA, signed a $300 million contract with little-known Montana firm Whitefish Energy Holdings LLC to repair the damaged electrical grid. Irregularities quickly emerged in how the deal was awarded and priced, sparking inquiries from local and federal authorities and eroding the Puerto Rico government’s image. Sen. Maria Cantwell (D.-Wash.), called the deal “a great injustice to the U.S. taxpayer,” citing the “potentially inflated costs of time and material” and the “opaque and limited nature of PREPA’s bidding process.” Similar concerns are now resurfacing as federal funding flows in to repair damaged houses, roads and other infrastructure, including the power grid.

New York Lawsuit Targets Student Loan Debt Relief Fraud

New York’s attorney general yesterday sued 10 companies and two executives over their alleged roles in a scam to induce thousands of struggling borrowers into buying student loan debt-relief services that they could have received for free, Reuters reported. Barbara Underwood, the attorney general, said defendants typically charged more than $1,000 for their services, which often came with usurious interest rates, after luring borrowers with false claims such as being affiliated with the government, or that their help was needed. “It strikes me that the lawsuit has merit,” Mark Kantrowitz, publisher of Savingforcollege.com, said in an interview. “There are companies that can take advantage of borrowers’ lack of awareness of what they can do.” The defendants include Debt Resolve Inc. of Hawthorne, N.Y., Chief Executive Bruce Bellmare and his predecessor Stanley Freimuth. Hutton Ventures LLC, a Santa Ana, Calif.-based business partner of Debt Resolve, and Equitable Acceptance Corp, a Minnetonka, Minn.-based financing company, are also among the defendants.

Steinhoff Seeks Extra Funding to Aid Mattress Firm Revival

Steinhoff International Holdings NV is assessing ways to attract extra funding for Mattress Firm to execute a turnaround of the troubled U.S. bedding retailer, Bloomberg News reported. Bought for $3.8 billion two years ago, Mattress Firm has emerged as a headache for Steinhoff as it strives to shore up liquidity following an accounting scandal. The 3,300-store chain expanded too aggressively, suffered from ineffective marketing and has been embroiled in a dispute with suppliers, Steinhoff said in a presentation to creditors in London yesterday. Steinhoff bought Mattress Firm toward the end of an acquisition spree that preceded the uncovering of accounting irregularities in December, which wiped almost 95 percent off the share price. The South African company secured an agreement with lenders over the restructuring of almost 10 billion euros ($11.7 billion) of debt in July, buying it time to stabilize an empire that also includes Conforama in France and Pepkor Europe. Mattress Firm needs “incremental liquidity” for its recovery to be secured, and management, led by Chief Executive Officer Steve Stagner, is considering ways to access capital, Steinhoff said.

Murray Energy Gets $90 Million Loan From Great American Capital

Great American Capital Partners LLC is providing a $90 million loan to Murray Energy Corp., part of a debt restructuring the privately owned coal miner negotiated in June, WSJ Pro Bankruptcy reported. The deal will bolster the company’s liquidity. Murray Energy has grappled with its debt load as power companies in the U.S. close coal-fired plants. The $90 million loan is part of a restructuring of about $2.7 billion in loans and bonds the company wrapped up in June. The move extended Murray’s debt maturities and cut its annual interest expenses. The Ohio-based company, controlled by Robert Murray, a proponent of cutting coal regulations, told the Wall Street Journal in April that surging export demand in Asia would help keep it afloat at a time when domestic demand for coal is declining. Murray Energy has projected a 50 percent increase in export sales in 2018, according to a bondholder familiar with the company’s earnings guidance. The restructuring Murray negotiated in June extended the maturity of about $2.4 billion in loans and bonds to 2022 and beyond, and lowered interest payments on about $700 million of its bonds. Murray also extended the maturity on an existing $225 million revolver loan to 2021 from December 2018. The company still faces the maturity of $300 million in bonds in 2021 that it chose to leave outstanding when negotiating the restructuring.

Small Businesses Say New Tariffs Will Make It Even Harder to Compete

Small businesses around the country say that they are bracing for the latest round of tariffs, which could cut into already-thin profits and leave them with little recourse but to pass on additional costs to consumers beginning this holiday season, the Washington Post reported. And while larger retailers such as Walmart, JC Penney and Amazon say they have already locked in low-priced inventory for the holidays, independent retailers tend to rely on third-party suppliers to import products for them, giving them little control over where their goods come from, or how much they cost. “Larger retailers may be able to find alternative sources or be able to absorb a price increase without passing the cost on to their customers,” said David French, senior vice president of government relations for the National Retail Federation. "But the smaller you are, the more vulnerable you are to the impact.” Analysts say the tariffs — which begin Monday at 10 percent and will rise to 25 percent on Jan. 1 — are likely to trickle down to retailers and consumers in the coming weeks and months, raising the prices of everyday household goods. Read more. 

In related news, U.S. Customs and Border Protection on Wednesday said that it had assessed $2.2 billion in tariffs on imported steel and $625.4 million on aluminum, as well as $1.2 billion in duties on Chinese imports, Bloomberg News reported. The amount represents additional federal income from levies imposed on foreign imports of the metals and Chinese products this year. Actual collections and deposits into the U.S. Treasury may be lower because importers and companies can file for refunds, returns and drawbacks, a process that can take as long as six months, the agency said. Read more. 

SEC Says Don’t Judge Its Enforcement Strength Solely on Volume of Cases, Fines

Wall Street shouldn’t relax its standards just because its regulator looks less muscular these days, according to a top federal official, the Wall Street Journal reported. The Securities and Exchange Commission is still policing wrongdoers, even if the volume of its enforcement actions and dollar amount of its fines drop this year, Stephanie Avakian said yesterday. The SEC rejects the premise “that numbers—standing alone —can adequately measure the success or impact of an enforcement program,” said Avakian, the SEC’s co-director of enforcement. “Any assessment that suggests our effectiveness should be measured solely based on the number of cases we bring over any particular period of time is misguided,” Avakian said. The SEC hasn’t revealed its enforcement statistics for fiscal year 2018, which ends on Sept. 30. Total fines ordered through SEC enforcement activity fell 7.2 percent in 2017 to about $3.8 billion, the lowest total since 2013, according to SEC figures.
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