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Bankruptcy Headlines

Diocese of Duluth's $40 Million Bankruptcy Settlement Set for Approval

Nearly four years after filing for bankruptcy, the Diocese of Duluth (Minn.) will go before a judge today for final confirmation of a reorganization plan that would provide approximately $40 million in compensation to victims of child sexual abuse, the Duluth News Tribune reported. Bankruptcy Judge Robert Kressel will review the proposed settlement at an 11 a.m. hearing at the federal courthouse in Duluth. If he signs off, up to 125 survivors who filed claims could soon begin receiving payments, and the diocese would finally emerge from bankruptcy protection. The diocese voluntarily filed for chapter 11 protection in December 2015 in the wake of a $4.9 million jury verdict. That award came in the first lawsuit in the state to go to trial under the Minnesota Child Victims Act, which opened a three-year window for victims of decades-old abuse cases to file suit. An onslaught of claims followed in the bankruptcy process. The case, however, was mired in litigation for years as the diocese sued to force coverage from five insurance companies — a matter complicated by the fact that the abuse claims date as far back as the 1940s. All five insurers eventually settled, with contributions ranging from $250,000 to $15 million. Under the reorganization plan announced in May, the diocese itself would provide more than $10 million to a distribution trust, with contributions expected from most or all of its 75 parishes as well as other Catholic entities. Insurers are covering the remaining sum.

Puerto Rico Is at Risk of a $30 Billion Cut in U.S. Aid, Board Says

Puerto Rico may receive less federal disaster money than expected, a potential drag on an island that was counting on post-Hurricane rebuilding to help it recover from a years-long recession, according to a report from the commonwealth’s financial oversight board, Bloomberg News reported. The federally appointed board last month released a multi-year fiscal plan to balance Puerto Rico’s budgets, reduce $35 billion of debt and other liabilities and address a broke pension system. It relies on federal disaster aid from Hurricane Maria to help grow the economy. Yet that plan has risks. Puerto Rico may only receive $39 billion from the Federal Emergency Management Agency and U.S. Department of Housing and Urban Development, rather than the anticipated $69 billion, according to a Sept. 17 report by the board and posted late Thursday night on the Municipal Securities Rulemaking Board’s website. “We are already seeing delays in disaster relief funding and have reason to question the duration of the ‘boost’ these funds are bringing to the economy,” according to the report. The release of the board’s risk report comes as it negotiates in bankruptcy proceedings with creditors on how to reduce $17.8 billion of debt backed by Puerto Rico’s central government. The board has reason to doubt the amount and pace of federal aid money. Acting White House Chief of Staff Mick Mulvaney on Thursday said that the administration was correct in thinking that Puerto Rico was corrupt, which he said figured into decisions about disbursing aid.

Justices Will Hear Major Challenge to Independence of CFPB

The U.S. Supreme Court agreed on Friday to decide the constitutionality of the single-director structure of the Consumer Financial Protection Bureau, an agency long criticized by the business community and Republican leaders on Capitol Hill, Law.com reported. The challenge to the independent federal agency created by Congress in the 2010 Dodd-Frank Wall Street reform law was brought by California-based Seila Law, which provides legal services to consumers, including assistance with the resolution of consumer debt. Seila Law is represented by Kannon Shanmugam, a partner at Paul, Weiss, Rifkind, Wharton & Garrison. The CFPB issued a civil investigative demand seeking information and documents from the law firm in an investigation into whether it violated certain federal laws. Seila objected to the demand, claiming that the agency was unconstitutionally structured. The CFPB petitioned a federal district court for enforcement, which was granted. The U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s ruling that the agency’s structure did not violate the separation of powers. In his petition, Shanmugam argued that the CFPB director alone decides what rules to issue, how to enforce the law and what penalties to impose on those who violate the law.

CFPB Settlements Reach Four-Year High

Consumers harmed by financial firms got back $777 million through actions by the Consumer Financial Protection Bureau during the last fiscal year, the largest amount in four years, the Wall Street Journal reported. The amount included settlements of a few significant long-pending investigations, which were among the 22 enforcement cases the CFPB announced during the fiscal year ended Sept. 30, the agency said. That represented an uptick from 12 cases and $344 million in restitution in the previous fiscal year, during which the Trump administration curbed the activities of the CFPB. The trend came as CFPB Director Kathy Kraninger approached her first year on the job amid criticism from Democrats that the bureau has been too friendly to the financial industry. Kraninger, a career government worker, took over the CFPB in December 2018 from Mick Mulvaney, who now serves as President Trump’s acting chief-of-staff. Many of the large cases settled last year were started by Obama-era officials before President Trump installed Mick Mulvaney as acting director in November 2017. Among them was a July settlement with Equifax Inc. over its 2017 data breach, which resulted in the credit reporting company’s pledge to return $425 million to consumers. The bureau’s settlements with ITT Education Services Inc., a now defunct for-profit college, and CU Connect CUSO LLC, a lender that targeted its students, were a result of an investigation initiated in 2014. The two agreements brought a combined $228 million in loan forgiveness.

Lampert Helps Bankroll Sears as Woes Persist After Bankruptcy

U.S. retailer Sears has borrowed about $150 million from lenders, including its billionaire owner Eddie Lampert, as it racks up losses less than a year after it emerged from bankruptcy protection, Reuters reported. The new financing will help stock Sears’ store shelves for the holiday shopping season, as it struggles to become profitable. Lampert is no stranger to bankrolling Sears, having extended loans through his hedge fund ESL Investments Inc. to the department store chain over the past decade until its financial collapse last year. The new financing is backed by assets that include Sears’ real estate and intellectual property, the sources said. The funds are less than the roughly $200 million Sears originally sought. Sears was unable to borrow as much as it wanted because lenders were concerned about the 126-year-old company’s prospects and financial wherewithal. Among those that provided the financing was hedge fund Cyrus Capital Partners LP, which extended a loan to the retailer while it navigated bankruptcy court last year, one of the sources said. Sears is still hoping to negotiate with lenders and secure the roughly $200 million.

FirstEnergy Subsidiary Wins Bankruptcy Plan Approval

A subsidiary of FirstEnergy Corp. that operates coal and nuclear plants in Ohio, Pennsylvania and West Virginia plans to emerge from bankruptcy protection by the end of the year after getting final approval from a federal judge, the Associated Press reported. But FirstEnergy Solutions also warned last week that it will take steps to close its nuclear plants in Ohio if a proposal to overturn a roughly $1 billion financial rescue for the two plants is allowed on the statewide ballot in 2020. Ohio-based FirstEnergy Solutions, which has said that its coal and nuclear plants are struggling to compete against cheaper energy sources such as natural gas and renewables, filed for bankruptcy last year and intends to separate from Akron-based FirstEnergy Corp. A federal bankruptcy judge in Akron signed off on the company's reorganization plan on Wednesday after it finalized two union labor agreements. FirstEnergy Solutions has sought financial help from both the federal government and officials in states where the company operates. It persuaded Ohio lawmakers this year to tack a surcharge onto every electricity bill in the state and give its two nuclear plants near Toledo and Cleveland $150 million a year through 2026.