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California Rejects Environmental Deal with Bankrupt Lead-Acid Battery Maker Exide

California has rejected a proposed settlement with Exide Technologies LLC, roiling the lead-acid battery maker’s push to walk away from a legacy of toxic contamination by way of bankruptcy court, em>WSJ Pro Bankruptcy reported. Exide, in bankruptcy court for the third time in 16 years, failed to make good on the promises it made to California on its last trip through chapter 11, Daniel Cantor , a lawyer for the state’s Department of Toxic Substances Control, said at a hearing yesterday in the U.S. Bankruptcy Court in Wilmington, Del. According to Cantor, Exide was supposed to pay $50 million to clean up a battery-recycling plant, located about 5 miles south of downtown Los Angeles in Vernon, Calif., and make sure it isn’t a danger to the surrounding community. It hasn’t done so, he said. The Vernon plant has been closed since 2015 as part of a deal to avoid criminal prosecution. Exide, based in Milton, Ga., has disputed allegations of danger and failure to make good on its nonprosecution deal. “For decades, the Vernon site, your honor, recycled batteries and released thousands of pounds of lead, which is a powerful neurotoxin,” Cantor told Judge Christopher Sontchi. The plant requires daily maintenance to ensure that toxic lead dust isn’t blown into the surrounding communities, he said. Exide has called off a planned Friday hearing on its chapter 11 exit plan, which would hand lenders ownership of its non-U.S. businesses and get them off the hook for contamination.

U.S. Junk Bonds Set $329.8 Billion Sales Record Amid Yield Hunt

U.S. high-yield bond sales reached an annual record of $329.8 billion yesterday as companies reap the benefits of the Federal Reserve’s liquidity-boosting policies and investors grasp for yield, Bloomberg News reported. The crush of debt offerings accelerated in April after the U.S. central bank began purchasing some high-yield bonds as part of its efforts to support the corporate credit markets. Since then, issuance has eclipsed the prior annual sales record of $329.6 billion set in 2012, according to data compiled by Bloomberg. Companies staring at sharp, pandemic-induced revenue declines were emboldened to borrow billions of dollars to help ride out the pandemic. Some of the most virus-battered borrowers, including airlines, hotels and even cruise operators, were able to tap investors for financing, sometimes paying double-digit coupons. “A lot of the issuance was to get as much liquidity as you can, because things were looking like they were going to be stalled out for a while,” said Douglas Lopez, senior partner and portfolio manager at Aristotle Credit Partners. “This was the prudent move, but some companies may be building the liquidity bridge to nowhere.” The junk market’s record year follows the U.S. investment-grade bond market, which reached a new annual issuance high in mid-August. Europe’s high-yield bond sales surged in July, the busiest for that month since 2009. The Fed’s near zero-interest rate policy, now expected to last through 2023, has paved the way for billions of dollars to flow into funds that invest in high-yield debt as investors search for yield. The support has effectively turned high-yield into a borrower’s market, and all-in yields for U.S. junk bonds have dropped to 5.81 percent, near pre-pandemic levels, according to Bloomberg Barclays index data. Since July, some 65 percent of new high-yield bonds have come with sub-6 percent coupons, according to research by Barclays Plc strategists. 

Virgin Islands Eyes End to Bond-Market Exile in $1 Billion Sale

The U.S. Virgin Islands has been locked out of America’s bond market for years as it wrestles with the same economic forces that drove its bigger neighbor, Puerto Rico, into financial ruin, Bloomberg News reported. Now, with a credit rating cut deeply into junk and under pressure to raise cash as a tourism drought stings its economy, the U.S. territory is seeking to sell nearly $1 billion in debt this month by extending an unusual promise to investors: the bonds will be repaid even if it goes bankrupt. The step, pitched to the island by investment bank Ramirez & Co. and a New York advisory firm, is similar to a tactic used by Puerto Rico and Chicago to pledge a big chunk of tax collections directly to public corporations that pay off debt backed by the revenue. That was intended to assure investors that the funds wouldn’t be diverted even if the financial strains worsened, reducing the risk to bondholders and driving down their borrowing costs. In the case of the Virgin Islands, it’s pledging the nearly $250 million a year it receives each year from the U.S. government, the territory’s cut of the excise taxes on rum it ships to the mainland. The bond offering, set to be priced as soon as Thursday, will provide a major test of the $3.9 trillion municipal bond market, where investors have continued to snap up riskier securities as benchmark yields hold near the lowest in decades. That’s allowed some borrowers hard hit by the nation’s economic collapse to easily raise cash. The Virgin Islands’ bonds are using a so-called bankruptcy remote structure. That involves steering the money to a newly created corporation and providing a legal pledge that the cash won’t be siphoned off even if the government is forced to restructure its debts in federal bankruptcy court. Bondholders have reason for skepticism. Lisa Washburn, a managing director for Municipal Market Analytics, said such a structure is not necessarily “bankruptcy proof,” though it would likely give investors a better negotiating position. Even though Puerto Rico’s bonds securitized by its sales taxes weren’t walled off from bankruptcy, owners recouped as much as 93 cents on the dollar, more than other creditors stand to receive.

Hertz Backs New $400 Million ABS Deal to Restock Vehicle Fleet

Hertz Global Holdings Inc. is backing a new effort to raise $400 million that would allow it to keep its rental car fleet stocked with new vehicles for a return to business once the coronavirus pandemic eases, WSJ Pro Bankruptcy reported. The nation’s largest car-rental company filed for bankruptcy protection in May, its revenues hammered by restrictions imposed to suppress the spread of COVID-19, which has claimed more than 200,000 lives in the U.S. The new securitization deal between Donlen Corp., which supplies Hertz with cars, and Barclays Bank PLC is separate from Hertz’s search for chapter 11 financing in the form of a $1.5 billion loan that will preserve the company until business returns to normal levels. Multiple lenders are offering to provide the bankruptcy loan, Hertz lawyer Thomas Lauria of White & Case LLP said yesterday. Some potential financiers already have money riding on Hertz, but others don’t, and there are offers from potential backers willing to settle all the company’s debts, as part of the bankruptcy financing. The proposed $400 million asset-backed securitization deal might reduce Hertz’s need to draw down on a bankruptcy loan, but it won’t reduce the size of the chapter 11 financing, Lauria said.

Garrett Motion Creditors Seek Honeywell Support for Rival Loan

Oaktree Capital Management and Centerbridge Partners are seeking the support of Honeywell International Inc. for their proposed Garrett Motion Inc. bankruptcy loan as they consider making a bid for the assets of the bankrupt auto supplier, Bloomberg News reported. The two investment firms would aim to cut a deal with Honeywell to resolve Garrett’s $1.3 billion in disputed asbestos liabilities and win the conglomerate’s approval for their bid, according to people familiar with the plans. Honeywell hasn’t yet indicated its position, and other creditors may pitch additional proposals. Garrett looks attractive to many potential buyers or investors as its finances are largely stable apart from the asbestos liability overhang. Garrett filed bankruptcy this week, in part because of asbestos reimbursements owed to Honeywell, its former parent. Honeywell objected to a proposed bid from KPS Capital Partners at a court hearing on Monday, saying that the deal would relieve Garrett of its responsibility for the asbestos payments. Garrett said at that hearing that it would consider Oaktree and Centerbridge’s competing loan proposal, which could put them in prime position to ultimately own Garrett. Auto-parts maker Garrett was part of Honeywell until its 2018 spinoff, and blames the firm’s asbestos-related liabilities for helping put it into bankruptcy this week. Making a deal with Honeywell to resolve those claims would provide a potential bidder with an upper hand in the company’s bankruptcy auction process.