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Assured Guaranty Again Sues Puerto Rico, Oversight Board over Fiscal Plan

Bond insurer Assured Guaranty sued Puerto Rico and its federally-appointed oversight board yesterday, saying their plan to resuscitate the storm-ravaged, bankrupt U.S. territory violates the U.S. Constitution by stripping creditors of property rights, Reuters reported. Assured, which insures $5 billion of bonds issued by Puerto Rico and its public agencies, wants a federal court in Puerto Rico to declare invalid a fiscal turnaround plan that sets future economic projections for Puerto Rico. The projections are meant to form the basis for debt restructuring talks between Puerto Rico and holders of $71.5 billion in debt the island cannot pay. Assured expressed frustration over the plan last week, telling the board in a letter the projections had been reached without creditor input.

Elements Behavioral Health Files for Bankruptcy Protection

Elements Behavioral Health Inc., which operates the addiction-rehabilitation center where actress Lindsay Lohan and singer Britney Spears sought treatment, filed for chapter 11 bankruptcy protection yesterday with a deal to a group that includes hedge fund BlueMountain Capital and Platinum Health Care founder Ben Klein for $65 million, WSJ Pro Bankruptcy reported. The privately owned company, based in Long Beach, Calif., was exploring a sale earlier this year. The company had previously considered a sale in 2014 when it was projected to produce $25 million in earnings before interest, taxes, depreciation and amortization.

Eddie Bauer, Pacific Sunwear Explore Merger Amid Retail Downturn

Eddie Bauer LLC and Pacific Sunwear of California LLC are exploring a merger to consolidate their store footprint and weather a prolonged downturn in the U.S. brick-and-mortar retail sector, Reuters reported. The two sporty retailers have previously succumbed to bankruptcy and are searching for growth. In a merger, the companies could whittle down their store counts from their current total of nearly 700 together. Eddie Bauer and Pacific Sunwear are controlled by a common owner, private equity firm Golden Gate Capital. Eddie Bauer, which sells outdoor gear and apparel, is at risk of not keeping up with fashion changes, according to credit ratings agency Moody’s Investors Service Inc. It has a $218 million term loan and a $200 million revolving credit line. Anaheim, Calif.-based Pacific Sunwear emerged from bankruptcy in 2016 under the ownership of Golden Gate after the buyout firm converted its debt into equity in the restructuring. It emerged with a $100 million revolving line of credit from Wells Fargo.

JPMorgan, Citi Lobby GOP Lawmakers to Relax Swap Rules

On the heels of a legislative victory this week for small and midsize banks, bigger banks including JPMorgan Chase & Co. and Citigroup Inc. are lobbying congressional Republicans in an effort to ensure a victory of their own, the Wall Street Journal reported. Large banks are pushing Congress to redefine swap transactions made between different affiliates of the same company so that they aren’t subject to certain rules stemming from the 2010 Dodd-Frank Act. The move would prevent regulators from forcing banks to post collateral for those transactions, potentially saving banks hundreds of millions of dollars in compliance costs. Legislation that would legally change the definitions of those transactions — exempting them from Dodd-Frank collateral rules — has passed the House, but has died in the Senate due to Democratic opposition. Now, House Republicans have taken a harder-line approach to push the legislation through.

Fed to Consider Proposal to Modify "Volcker Rule" at May 30 Meeting

The Federal Reserve will consider a proposal to modify the “Volcker Rule” banning proprietary trading by banks at a May 30 meeting of its board, Reuters reported. Federal regulators are expected to announce changes easing some of the rule’s requirements, amid complaints from banks they are too onerous and confusing. The rule, created as part of the 2010 Dodd-Frank financial reform law, bars banks from using funds protected by deposit insurance to make profit-seeking trades if not directed by clients. The meeting announcement is the first formal step taken by regulators in what is likely to be a lengthy process to rework the rule, which was a central part Dodd-Frank. Five separate federal agencies share responsibility for writing and enforcing it.

U.S. Bank Regulator Encourages Banks to Reconsider Small-Dollar Lending

A leading U.S. bank regulator yesterday said banks should consider offering more short-term, small-dollar loans, inviting the industry to engage in lending it had once actively discouraged, Reuters reported. The new guidance from the Office of the Comptroller of the Currency (OCC) makes explicit that the regulator would be open to banks offering such short-term loans, inviting banks to compete with alternative financial products like payday loans. The three-page bulletin from the OCC does not alter any existing regulations, but makes clear an about-face at the national bank regulator. Under the Obama administration, the OCC had actively discouraged short-term lending by banks, issuing rules in 2013 that effectively drove banks away from that type of lending by imposing strict limitations on what customers could be extended that type of credit and on what terms. The OCC rescinded those rules in 2017, and Otting said that the purpose of yesterday’s bulletin was to make clear where the regulator now stands.
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