A number of distressed-debt hedge funds are abandoning traditional loan-to-own strategies after years of low interest rates resulted in meager returns for investors, and some are even investing in equities, WSJ Pro Bankruptcy reported. Distressed-debt investing, long the purview of legendary investors like David Tepper of Appaloosa Management and Howard Marks of Oaktree Capital Management, has been a tough way to make money in recent years. A decade of low interest rates have made it much easier for troubled companies to find money and refinance debt. BlueMountain Capital Management LLC and Arrowgrass Capital Partners LLP are some of the bigger funds that have shifted away from this niche-investing strategy.
Bridgeport Health Care Center Inc., a Connecticut nursing home sued by the federal government over allegations it diverted millions of dollars from the company’s retirement plan to itself and to a Brooklyn-based Jewish nonprofit, has filed for chapter 11 bankruptcy protection, WSJ Pro Bankruptcy reported. Bridgeport, which filed for chapter 11 on Wednesday in the U.S. Bankruptcy Court in Bridgeport, Conn., listed Brooklyn-based health-care company Caretech Supplies Inc., with a $4.2 million claim, as its largest unsecured creditor. The Internal Revenue Service, owed $3.3 million, is listed second, followed by People’s United Bank, located in Bridgeport, owed $2.3 million. All the claims are disputed. The Labor Department sued Bridgeport and its chief financial officer in September 2016, claiming they diverted millions of dollars from the company’s retirement plan improperly to a religious corporation and to themselves.
The same day Linn Energy Inc. exited bankruptcy, it awarded Chief Executive Officer Mark Ellis a $60 million compensation package, more than three times the amount Exxon Mobil Corp. paid its CEO, Bloomberg News reported. Ellis’s pay included an equity grant worth $58 million, split between restricted shares and so-called Class B units, which are classified as profit interests for tax purposes, according to a regulatory filing on Wednesday. Both vest in increments over four years, but the units are deliverable only when Linn’s equity value exceeds $2 billion. That condition has already been satisfied, the filing said. aThe Houston-based exploration and production company exited Chapter 11 protection in February of last year. The collapse in oil and gas prices that begun in 2014 sent the firm reeling after 62 transactions over the previous decade had ballooned its debt load to about $4 billion. Ellis, who’s led the company since 2010, also received $900,000 in salary and a $1.04 million bonus. Chief Financial Officer David Rottino and Chief Operating Officer Arden Walker each received awards of $24.7 million.
Wells Fargo & Co. is close to settling claims by federal regulators related to its risk management, involving a fine of as much as $1 billion, the Wall Street Journal reported. The settlement with the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency is expected to be announced as soon as today. It will detail the bank’s failures to catch and prevent problems, including improper charges to consumers in its mortgage and auto-lending businesses. The settlement also could include increased regulatory scrutiny of the bank’s compensation to employees responsible for its sales practices. Wells Fargo disclosed last week that the CFPB and the OCC had offered to the resolve civil investigations for $1 billion. The final terms of the settlement couldn’t be determined.
Federal Reserve Governor Lael Brainard warned against dismantling banking regulations designed after the financial crisis as she identified growing threats to financial stability in the U.S. economy, Bloomberg News reported. While calling recent economic gains “heartening,” she said tax cuts and new spending represented a rare case of pro-cyclical fiscal stimulus that could heighten risks of inflation or financial imbalances. In that environment, she cautioned against rolling back regulatory safeguards. “At a time when cyclical pressures are building, and asset valuations are stretched, we should be calling for large banking organizations to safeguard the capital and liquidity buffers they have built over the past few years,” Brainard said. Her remarks come as Fed Chairman Jerome Powell and Randal Quarles, the central bank’s vice chairman for supervision, are pushing ahead with a fine-tuning of post-crisis regulation that includes some rollbacks.