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2017: A Banner Year for Corporate Debt

ABI Bankruptcy Brief
ABI Bankruptcy Brief
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December 28, 2017

ABI Bankruptcy Brief




2017: A Banner Year for Corporate Debt

Yields on corporate debt, which fall as prices rise, began the year at very low levels and ended the year even lower. Investors bought up pretty much every type of debt instrument, from investment-grade bonds to collateralized loan obligations, the Wall Street Journal reported. Many analysts expect more of the same in the early part of 2018. A test could come later in the year, as combined net bond-buying by the Federal Reserve and European Central Bank is expected to turn negative, removing a key support for fixed-income markets. With interest rates low and investor demand high, gross issuance of investment-grade bonds and leveraged loans hit new records. Sales of lower-rated bonds and collateralized debt obligations were also robust.
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Commentary: Stopping a Student Loan Scam

After nationalizing student lending, the Obama Administration sought to reduce the government’s $1.3 trillion loan portfolio by allowing disgruntled borrowers to discharge their debt. Last week Education Secretary Betsy DeVos ended what some critics viewed as a fraud against taxpayers, according to a Wall Street Journal editorial. After driving Corinthian Colleges out of business in 2014, the Education Department implemented a haphazard process to forgive loans of students who claimed to have been ripped off by the defunct for-profit. Tens of thousands of claims poured in, overwhelming department staff. The backlog of claims ballooned after predatory regulators forced the closure of ITT Technical Institute in 2016. Liberal groups urged the Obama Administration to forgive loans of borrowers who had attended other for-profits, spurring the department to initiate “borrower defense” rule-making to allow students who purported misrepresentations by their colleges to discharge their loans. The midnight rule, finalized last November, authorized the Education Department to discharge debts on a class-wide basis — for instance, all borrowers who had attended a certain college within the last five years. Read the full editorial.
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The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

CFPB Releases Report on the State of the Credit Card Market

The Consumer Financial Protection Bureau (CFPB) yesterday released its biennial report on the state of the credit card market, according to a CFPB press release. The report found that the total amount of credit lines, numbers of accounts, average amount of card debt and enrollment in online services have all increased over the past several years. The report found also that cardholders average fewer credit cards than before the recession, and more are signing up for secured cards that require a cash deposit. The CFPB's report — the bureau’s third — found that the cost of card credit in general and across credit score tiers has remained largely stable since the Bureau’s last report in 2015. The composition of overall consumer costs — interest rates and fees — has also proved to be largely stable since the Bureau’s last report. The report also found that delinquency and charge-off rates, which were high during the financial crisis and then fell to historical lows in the years following the recession, have modestly increased over the last two years.
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Decline of Rural Lending Crimps Small-Town Businesses

Even as lending revives around cities, it is drying up in small communities, the Wall Street Journal reported. In-person banking, crucial to many small businesses, is disappearing as banks consolidate and close rural branches. Bigger banks have been swallowing community banks and gravitating toward the business of making larger loans. The decline of community banks has disproportionately affected rural U.S. counties, where relationship banking plays an outsized role. There are now 625 rural counties without a community bank based in the county. The value of small loans to businesses in rural U.S. communities peaked in 2004 and is less than half what it was then in the same communities, when adjusted for inflation, according to a Wall Street Journal analysis of Community Reinvestment Act data. In big cities, small loans to businesses fell only a quarter during the same period, mainly due to large declines in lending activity during the financial crisis. Adjusted for inflation, rural lending is below 1996 levels.
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Congrats Winners of the ABI Podcast Raffle and Caption Contest from ABI's 12 Days of Holiday Gifts!

Congrats to J. Scott Bovitz of Bovitz & Spitzer, the winner of the ABI podcast raffle, and Bonnie Clair of Summers Compton Wells LLC, the winner of the caption contest, from ABI's 12 Days of Holiday Gifts! Hear Bovitz and his colleague Scott Brown talk about the past, present and future of the ABI Journal’s Chapter 8 Humor column in a forthcoming podcast in 2018! Clair is the recipient of a Google Home Mini for her caption of "The secret word is 'indubitable equivalent'" for the humorous picture from the judges’ panel at the 2016 #ABIASM (submitted via LinkedIn). Thanks to all who participated!

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Will Trump regulators trade lighter rulemaking for tougher enforcement?

Was the president’s recent tweet about enforcement measures against Wells Fargo an articulation of the administration’s approach for holding banks and executives accountable? Or is a tweet just a tweet? A recent blog post explores.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

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