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Bankruptcy Headlines

Colleges Can Be Forced to Return Tuition When Parents Go Bankrupt

Colleges can be forced to return tuition payments made for students whose parents can’t cover their own debts, according to a federal appeals court ruling that opens up higher education institutions to more litigation in bankruptcy courts, WSJ Pro Bankruptcy reported. An appeals court in Boston said on Tuesday that tuition payments can be recovered when a student’s parents later declare bankruptcy, the first appellate decision to address squarely whether such expenses can be taken back and redistributed. Lawsuits targeting tuition payments have become popular among bankruptcy trustees tasked with digging up funds after parents file for bankruptcy. The results have been mixed in the nation’s bankruptcy courts, with some judges shielding colleges and sometimes the students themselves from having to return tuition money. Many schools have opted to settle with trustees rather than test the controversial lawsuits in the courts. Tuesday’s ruling sided with a bankruptcy trustee who sued Sacred Heart University of Fairfield, Conn., to claw back tuition paid on behalf of a student whose parents were involved in a multimillion-dollar fraud that sent her father to prison. The decision said that because parents don’t benefit economically for sending adult children to college, the tuition they paid can be unwound. The tuition payments “furnished nothing of direct value” to creditors of the parents, said the U.S. Court of Appeals for the First Circuit.

Sen. Kamala Harris Introduces Bill to Crack Down on PG&E Bonuses

Sen. Kamala Harris (D-Calif.) is introducing legislation that would ban utilities under bankruptcy, like Pacific Gas and Electric Co., from paying bonuses to executives, following a pledge by Democratic state Sen. Scott Wiener of San Francisco to convert PG&E to a government-owned company, the San Francisco Chronicle reported. The two efforts underscore growing frustration with PG&E in the wake of dangerous wildfires sparked by its equipment and preventive power outages in response that have at times left millions in California without electricity. The bill from Harris was set to be introduced yesterday. As justification for her effort to bar executives from bonuses, Harris cited reporting by the Chronicle that revealed PG&E wined and dined gas employees days before planned power outages, and the company’s plan to pay $11 million in performance bonuses to its executives. A federal bankruptcy judge later denied the bonuses plan, though he did approve a payout to 10,000 employees. Harris’ legislation would prohibit a utility company undergoing bankruptcy proceedings from paying its executives bonuses, “golden parachute” severance packages or treating them to trips or other benefits. As penalty, any utility that did so would have to pay 100 percent tax on the compensation.

Dean Foods Bondholders Just Say No to Merger With Dairy Co-op

Dean Foods Co., the biggest U.S. milk processor which filed for chapter 11 bankruptcy protection on Tuesday, has said that it’s in advanced talks to sell assets to milk cooperative giant Dairy Farmers of America. Bondholders, however, aren’t convinced that’s a good deal, Bloomberg News reported. At a first-day motions hearing, an attorney for a third of the company’s bondholders said that while Dean is “focusing exclusively” on a combination with the co-op, that option won’t be “value-maximizing.” The deal may not even be feasible due to antitrust concerns, the attorney said at the hearing in front of Judge David Jones in U.S. Bankruptcy Court for the Southern District of Texas in Houston. “We don’t want a quick sale, a fire sale, without a true market check or opportunity for other potential bidders to put in a real proposal,” said Bob Britton, an attorney at Paul, Weiss, Rifkind, Wharton & Garrison LLP, which represents the group. The bondholder group approached Dean to offer alternatives, including capital to invest in a standalone restructuring plan and alternative financing. But the proposal “made no headway,” Britton said. When asked by the judge if the group had enough capital to buy Dean Foods, Britton’s answer was yes. Brian Resnick, an outside lawyer for Dean Foods, said the company’s looking forward to working with bondholders.

Oil Firms Braces for a Credit Crunch as Lender Patience Wears Thin

Troubled energy companies have had a rough ride this year, but the worst may not be over as a pile of debt starts coming due about a year from now, Bloomberg News reported. North American oil and gas producers have about $93 billion of debt coming due by the end of 2023, according to data compiled by Moody’s Investors Service in October 2018, the most recent available. It’s a refinancing wall not seen since the last energy crisis began in 2014, when oil plunged from record highs and sent dozens of companies toward bankruptcy. “A lot of energy companies were able to refinance debt in 2015 and 2016 for five to seven years, on the expectation that oil would return to $100 a barrel,” said Leo Mariani, an energy analyst with KeyCorp’s capital markets arm. There are signs that the market is getting nervous about the industry’s debt woes. About $83 billion of outstanding debt issued by explorer and producer companies in the U.S. and Canada is yielding at least 10 percent, the typical threshold for distressed debt, according to data compiled by Bloomberg. The list includes Antero Resources Corp., California Resources Corp., Chesapeake Energy Corp., and Denbury Resources Inc.

U.S. Consumer Prices Increase Slightly in October

U.S. consumer prices rebounded more than expected in October and underlying inflation picked up, which together with abating trade tensions and fears of a recession, support the Federal Reserve’s signal for no further interest rate cuts in the near term, Reuters reported. The Labor Department said yesterday that its consumer price index increased 0.4 percent last month as households paid more for energy products, healthcare, food and a range of other goods. That was the largest gain in the CPI since March and followed an unchanged reading in September. In the 12 months through October, the CPI increased 1.8 percent after climbing 1.7 percent in September.  Excluding the volatile food and energy components, the CPI rose 0.2 percent after edging up 0.1 percent in September. The core CPI rose as healthcare costs jumped by the most in more than three years. There were also increases in prices of used cars and trucks and recreation and rents.

Pennsylvania Businessman Gets Prison in Tax, Bankruptcy, Unemployment Schemes

A judge yesterday sent Washington County, Pa., business owner George Retos Jr. to federal prison for a year and a day for conspiracy to defraud the IRS and filing a false bankruptcy declaration in connection with his companies, the Pittsburgh Post-Gazette reported. U.S. District Judge Arthur Schwab also gave Retos a two-year probationary term when he gets out. Retos, owner of Prime Plastics and Plastic Power in Washington, Pa., had pleaded guilty last year. In addition to the IRS and bankruptcy frauds, he had accepted responsibility for a wire fraud charge in another scheme to fleece Pennsylvania's unemployment compensation system. He did not plead to that charge, but in federal court defendants acknowledge the conduct described in additional counts even if they don't plead, which can then be used at sentencing. Retos and a person identified in court records only as N.R., the nominal president of Plastic Power acting solely at Retos' direction, failed to pay the IRS payroll and employer taxes for the two plastics companies.