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Treasury Recommends Keeping Dodd-Frank Liquidation Power

The Trump administration recommended retaining the government’s power to seize and unwind a failing financial firm in a crisis, departing from some conservative Republican lawmakers and endorsing a plank of the 2010 Dodd-Frank financial law, the Wall Street Journal reported. The Treasury Department, in a report yesterday, called for changes to correct what it described as “serious defects” around how and when orderly liquidation authority (OLA) would be used. As expected, it said that the authority should be retained as a tool for the government if a huge financial firm were on the brink of failure. “Treasury shares many of the concerns raised by critics of OLA,” the report said, adding the authority is “a far preferable alternative to destabilizing financial contagion or ad hoc government bailouts.” The report also recommended changes to the bankruptcy code to make it easier for such a failure to be resolved in bankruptcy court, without the government taking over the failing firm. Read more. (Subscription required.) 

Join thought leaders from academia and the bench, representatives from U.S. and European governmental agencies and private organizations on April 19 for a symposium to examine the policies, strategies & proposals erected in the 10 years since the Financial Crisis. Click here for more information and to register.

Toys “R” Us Plans to Close Another 200 Stores

Toys “R” Us Inc. plans to close another 200 stores and lay off a significant portion of its corporate staff following a disappointing holiday sales season, the Wall Street Journal reported. The Wayne, N.J.-based retailer recently had announced plans to close about 180 stores, affecting approximately 4,500 workers. The latest wave of closings would cut nearly in half the number of U.S. stores it had before its bankruptcy filing. The company has also walked back from a promise to offer severance to all affected employees. Managers were recently instructed to tell hourly workers that “there are no severance benefits being provided for the store-closing process.” In January, store managers were instructed to tell employees that the company would provide severance to all affected employees, including hourly workers. Read more. (Subscription required.) 

In related news, Toys “R” Us is at risk of breaching a covenant on one of its loans, intensifying concerns about its ability to emerge from bankruptcy protection, CNBC reported. The toy retailer secured a $3.1 billion loan from a group of lenders led by JPMorgan Chase prior to filing for bankruptcy protection. After a dismal holiday season, Toys “R” Us is now at risk of having too little cash to satisfy the terms of the loan. The retailer is currently in compliance with its loan terms, and has a number of options afforded to it before it does breach the covenant, the sources said. These options include getting financing elsewhere so its cash balance does not breach the loan terms, or renegotiating the debt terms with its lenders. If Toys “R” Us does breach the covenant, its DIP lenders have the option to force it to immediately pay them back, which could in turn force the retailer into liquidation. Read more

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

Tops Markets Files for Chapter 11 Protection

Supermarket chain Tops Markets LLC filed for bankruptcy protection Wednesday, the latest regional grocery chain to look to restructure its balance sheet as consumers move to nontraditional food retailers, WSJ Pro Bankruptcy reported. The Williamsville, N.Y., company, which operates about 170 supermarkets in New York, Pennsylvania, Vermont under the Tops name, said it plans to stay open during bankruptcy. It employs more than 14,000 people — most of whom belong to unions — and has lined up $265 million in loans to fund its business during the chapter 11 case. Tops officials said that the chain’s financial troubles come from the competitive industry and the record run in falling food prices last year that has hurt supermarket chains across the U.S. The company lost about $80 million on about $2.5 billion in revenue last year, according to documents filed in U.S. Bankruptcy Court in White Plains, N.Y.

Contractor Winds Down Work on Puerto Rico Grid as Restoration Continues

Fluor Corp.’s work repairing hurricane damage to Puerto Rico’s still-hobbled electrical grid is winding down as its federal funding runs out, the U.S. Army Corps of Engineers said yesterday, WSJ Pro Bankruptcy reported. The Army Corps had tapped Fluor to repair electric lines damaged in Hurricane Maria under an $840 million contract. Now the multinational company, based in Irving, Texas, has told its subcontractors to demobilize as the federal deal reaches its dollar limit and electricity comes back online across parts of Puerto Rico. Fluor’s drawdown comes as power-restoration efforts on the island are far from complete: Roughly 15 percent of customers remain offline five months after Maria struck, according to Puerto Rican government data. Read more

In related news, a U.S. House of Representatives subcommittee plans to hold a hearing next week to discuss efforts to restore Puerto Rico’s electrical infrastructure in the wake of last year’s devastating storms, the panel said yesterday. The House Energy and Commerce Committee’s oversight panel chairman, Rep. Gregg Harper (R-Miss.), said that the Feb. 28 hearing would allow lawmakers “the opportunity to closely examine recent efforts to repair Puerto Rico’s damaged electric grid.” Read more

Senior Lenders to iHeartMedia Plan Bid to Unify Creditors

Senior lenders to iHeartMedia Inc. are preparing to pitch a new term sheet to junior bondholders in an attempt to unite all the creditor groups behind a common proposal as time runs out for the radio giant’s debt restructuring, Bloomberg News reported. The senior group, led by Franklin Resources and advised by PJT Partners and Jones Day, held a call Tuesday to finalize terms of the proposal, according to one of the people. The group plans to pitch it this week to holders of iHeart’s 14 percent notes due 2021 and legacy notes, said the people, who asked not to be identified because the talks are private. The proposal is the latest step in a series of recent conversations between the different groups. IHeart, the biggest U.S. radio broadcaster, is teetering ever closer to a default on its $20 billion debt load. The company skipped a $106 million interest payment due Feb. 1 on its 14 percent notes, kicking off a 30-day countdown to an official default. Creditors expect the company to file for bankruptcy by the end of the grace period, and are negotiating with each other and the San Antonio, Texas-based company to reach a pre-arranged plan before time runs out. The senior group is betting that a shared desire to deny current equity owners any stake in a restructured company will get junior creditors on board with their latest proposal. Cleansing documents filed by the company on Feb. 9 showed that iHeart’s insistence on retaining equity stakes for its current owners remains the main obstacle to a consensual deal.

Senator Urges Biofuels Policy Revamp at Rally for Bankrupt U.S. Refiner

Sen. Ted Cruz (R-Texas) yesterday urged the Trump administration to push for an overhaul of the nation’s biofuels policy, during a rally at a Pennsylvania oil refinery that blames its bankruptcy on the controversial regulation, Reuters reported. “We need a federal government that stands up for workers, not against them,” Cruz, whose state is home to numerous oil refining companies, told a cheering crowd of 1,200 people gathered in a tent on the grounds of the Philadelphia Energy Solutions plant. The oil industry and the corn lobby have been at odds over the causes of the Philadelphia-area refiner’s insolvency, which has become a touchstone in the debate over whether the U.S. Renewable Fuel Standard (RFS) needs to be rewritten. The decade-old regulation requires U.S. refiners to blend biofuels like corn-based ethanol into their fuel, or buy credits from those who do. While it has created a lucrative market for corn states like Iowa and Nebraska, refiners like Philadelphia Energy Solutions (PES) that have no blending facilities say it is unfair and costly.

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