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Delayed Obama-Era Rule on Student Debt Relief Is to Take Effect

A long-delayed federal rule intended to protect student loan borrowers who were defrauded by their schools went into effect yesterday, after a judge rejected an industry challenge and the Education Department ended efforts to stall it any longer, the New York Times reported. The new rule, finalized in the last few months of President Barack Obama’s administration, is intended to strengthen a system called borrower defense that allows forgiveness of federal student loans for borrowers who were cheated by schools that lied about their job placement rates or otherwise broke state consumer protection laws. The new rule could expedite the claims of more than 100,000 borrowers, many of whom attended for-profit schools, including ITT and Corinthian, that went out of business in recent years. The new rule requires the Education Department to create a “clear, fair, and transparent” process for handling borrowers’ loan discharge requests, many of which have sat for years in the department’s backlog. It also orders the department to automatically forgive the loans of some students at schools that closed, without requiring borrowers to apply for that relief.

Elizabeth Warren Takes Aim at Firms That Pulled the Plug on Toys ‘R’ Us

The decision by five investment companies to pull the plug on a Toys “R” Us reorganization earlier this year is coming under fire from Sen. Elizabeth Warren (D-Mass.), the Wall Street Journal reported. In a letter to the companies yesterday, Warren asked why the investment firms had pressed to liquidate the retailer amid viable options to reorganize it and she urged them to contribute to a fund benefiting laid-off employees. The letter went to executives at Solus Alternative Asset Management, Angelo Gordon & Co., Franklin Mutual Advisors, Highland Capital and Oaktree Capital, the five major holders of a crucial stake in Toys “R” Us debt. Warren also sent a letter requesting that Vornado Realty Trust, a former owner of Toys “R” Us, contribute to the former employee fund. Toys “R” Us filed for bankruptcy in September 2017 intending to reorganize. But last March, the five investment funds ended that effort, even though the bankruptcy court heard testimony that there were “real people, credible institutions, engaged in a serious discussion around potentially reorganizing the company.”

David’s Bridal Skips Interest Payment

Wedding dress retailer David’s Bridal has decided not to make an interest payment that was due Oct. 15 and is negotiating with its lenders, WSJ Pro Bankruptcy reported. “We are engaged in discussions with our lenders in order to reach a mutually agreed upon resolution designed to strengthen our balance sheet so we can increase our financial flexibility and further invest in our business,” a David's Bridal spokesman said. The Conshohocken, Pa.-based retailer, which hired restructuring adviser Evercore earlier this year, said that it doesn’t expect day-to-day operations to be affected. It has ample liquidity to meet key business objectives and the discussions with lenders have been constructive, the spokesman said. The company has nearly $900 million in debt, including $270 million in unsecured notes that mature in October 2020, a $497 million term loan that matures in October 2019 and a $125 million asset-based revolving loan due in December 2019, according to FactSet.

Commentary: Sears Faces Tough Foe: An Unforgiving Bankruptcy Code

When Sears Holdings Corp. filed for chapter 11 bankruptcy on Monday, it said that it would close another 142 unprofitable Sears and Kmart locations and seek to reorganize around financially healthier stores. It also triggered a “time bomb” that retailers have had a tough time surviving, according to a Reuters commentary. Over the last dozen or so years, bankrupt retailers have had less time to make major strategic decisions for their survival and landlords and lenders have had more leverage in the process. The change stems from a provision in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that forces companies to find an agreement within seven months on its real-estate leases, or allow landlords to walk away from the agreement. Prior to 2005, companies would spend a year or two working out a viable survival plan. The law intensifies the pressure on Sears and Chairman Eddie Lampert to restructure the company and turn it into a relevant, viable business. “They have less money and a shorter period of time to make decisions,” said ABI President Ted Gavin of the Gavin/Solmonese restructuring advisory firm. “There’s more transactional risk.” Read the full commentary*. 

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Occupancy issues are at the heart of many significant retail cases, as detailed in the ABI publication Retail and Office Bankruptcy: Landlord/Tenant Rights, available at the ABI Store. 

Sears Chief Restructuring Officer Mohsin Meghji Has Long History in Restructuring

Sears Holdings Corp.’s bankruptcy filing on Monday was anticipated by many, but it included some surprises, chief among them the naming of M-III Partners LP’s Mohsin Meghji as the retailer’s new leader, WSJ Pro Bankruptcy reported. As part of Sears’s chapter 11 filing, its long-time leader, and major creditor, Edward Lampert stepped down from his role as chief executive, although he remains chairman. The company said that it instead created an office of the CEO and appointed Meghji, M-III Partners’ founder and managing partner, as chief restructuring officer. New York-based M-III Partners had been working closely with Sears since 2016, and Meghji was appointed CRO earlier this month, according to court papers. Meghji reports directly to an independent committee of Sears’s board of directors and is “responsible for carrying out [Sears’s] restructuring strategy and objectives.”

CFPB to Define ‘Abusive’ Acts by Financial Firms

A federal regulator plans to explain what it considers to be “abusive” practices by companies selling financial services, a move aimed at giving a clearer idea of what behavior would get companies into trouble under relatively new government enforcement powers, the Wall Street Journal reported. Mick Mulvaney, the Consumer Financial Protection Bureau’s acting director, said on Monday that the bureau is working on a regulation defining how it views unfair, deceptive or abusive acts or practices, known as "UDAAP." Most of the CFPB’s enforcement actions involve such claims and the 2010 Dodd-Frank financial law, which created the CFPB and gave it broad enforcement powers. Companies have long complained that the CFPB’s UDAAP approach was overly broad and nuanced, making what would trigger an enforcement action less predictable.

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