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Puerto Rico Bonds Jump as Board Sees More Ability to Pay

Puerto Rico bonds rallied yesterday after the commonwealth’s federal oversight board published an updated fiscal plan that apparently acknowledged a greater ability to repay its debt than had been previously estimated, Bloomberg News reported. The latest projections suggest the island would have surpluses after contractual debt service through fiscal 2023, after accounting for a program of planned reforms, whereas previous plans had projected deficits. Without the reforms, the island is still projected to run deficits from fiscal 2021 onward, as federal disaster aid runs out. Puerto Rico general-obligation debt with an 8 percent coupon and maturing in 2035 traded at an average of 59.3 cents on the dollar yesterday, up more than 8 percent from its average of 54.6 cents on the dollar on Oct. 18. Still, Puerto Rico has challenges ahead. The new plan calls for the commonwealth to trim financial support to municipalities and the University of Puerto Rico. It also says the island’s government should cut the number of agencies to no more than 35 from the current 114. "Overall, this is just a plan that lays out a scenario if Puerto Rico were to implement significant reforms and cost cutting measures," said Dora Lee, vice president at Belle Haven Investments, which oversees $7.5 billion in municipal debt. "So far the Puerto Rico government has not shown a willingness to do that."

Sears Chairman Lampert Seeks a Partner for Bankruptcy Financing

Sears Holdings Chairman Eddie Lampert is in discussions with at least one potential partner to contribute to a $300 million bankruptcy loan the U.S. retailer is seeking, Reuters reported. Lampert's hedge fund, ESL Investments, has held discussions with Cyrus Capital Partners, an investment firm that holds some of Sears' existing debt, about sharing the burden of funding portions of the $300 million loan, which would be separate from another $300 million bankruptcy loan that Sears' banks have offered to provide. Through his hedge fund, Lampert has invested billions of dollars in Sears since he created it in its current form in 2005 through a merger with peer Kmart. As a result, he is the department store operator's largest shareholder and creditor. The bankruptcy loan from the banks, including Bank of America, Wells Fargo, and Citigroup, falls first in line for repayment in the Sears bankruptcy case, while the $300 million loan that Sears is seeking from lenders including ESL would be repaid afterwards.

American Tire Distributors Outlines Debt-Slashing Plan

American Tire Distributors Inc. is moving ahead with a balance sheet reshaping that will swap out $1.1 billion in bond debt for control of the operation, which is the largest tire distributor in the U.S., WSJ Pro Bankruptcy reported. Court papers filed on Friday outline the latest version of a chapter 11 exit plan that grew out of talks between lenders, American Tire and private equity owners TPG Capital LP and Ares Capital Management LP. On Oct. 4, the North Carolina-based company filed for protection, having lined up support for a turnaround plan that will chop into its $2.5 billion debt load. TPG and Ares will hang on to a small stake in American Tire, assuming the plan is confirmed at a hearing set for Dec. 19 in the U.S. Bankruptcy Court in Wilmington, Del. Trade creditors and other general unsecured creditors will be paid in full, an estimated $616 million, court papers say. An official committee representing American Tire’s unsecured creditors was named on Friday, composed largely of tire manufacturers.

Payment Dispute Pushes Pipeline Contractor into Chapter 11

Pipeline contractor Welded Construction LP filed for chapter 11 protection on Monday armed with $20 million in chapter 11 financing and intending to renegotiate construction deals with key customers, WSJ Pro Bankruptcy reported. Welded Construction was forced to file for bankruptcy after a unit of energy major Williams Co. withheld payment on $23.6 million in invoices arising from work on a natural gas transmission pipeline, according to a sworn declaration filed in Wilmington, Del., by Chief Restructuring Officer Frank Pometti. The falling-out with Williams Co. has sparked a lawsuit in Oklahoma accusing Welded Construction of overbilling and failing to properly account for certain charges. The Perrysburg, Ohio-based contractor is jointly owned by Bechtel Oil, Gas and Chemicals Inc. and McCaig US Holdings Inc., which have teamed up to provide bankruptcy financing through a vehicle called American Pipeline Equipment Co. to keep Welded Construction operating through the restructuring process, Pometti said.

Wells Fargo Pays $65 million to Settle 'Cross-Sell' Fraud Claims with New York

Wells Fargo & Co. will pay $65 million to settle claims that it misled investors about its “cross-selling” business strategy, the New York Attorney General’s office said yesterday, Reuters reported. A push by Wells Fargo to get existing customers to buy more of the bank’s products, known as “cross-selling,” was at the center of a fake customer accounts scandal that has dogged the bank for two years. Wells Fargo failed to disclose to investors that the success of its cross-selling was built on sales practice misconduct, Underwood’s office said. “The misconduct at Wells Fargo was widespread across the bank and at every level of management — impacting both customers and investors who were misled,” New York Attorney General Barbara Underwood said in a statement. The bank, which has paid hundreds of millions of dollars in regulatory fines and settlements related to the scandal, said in a statement it had previously accrued the penalty costs.

Moody’s Warns of Weak LBO Credit Quality

Moody’s Investors Service said that companies owned by the 16 largest private equity firms have lower credit quality than those of similar, non-private equity owned companies, WSJ Pro Bankruptcy reported. In a recent report, the ratings agency said that weakening credit worthiness and loose safeguards could mean trouble for private equity firms when economic conditions change. The report says 92 percent of companies owned by the top 16 private equity firms are rated B2 or below, compared to 40 percent of companies without private equity backing. Driving the disparity is private equity’s appetite for shareholder returns and risky debt, according to Moody’s analyst Julia Chursin. Since 2009, Moody’s say it has rated 308 companies owned by the top 16 private equity firms, 99 of which have paid debt-funded dividends to private equity shareholders.
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