Analysis: Company Debt Distress Level at Highest Since Recession

The Federal Reserve this month took interest rates up for the first time in nearly a decade, and while it might take a few years for higher rates to hit companies, there are many companies that aren't prepared to eat the higher costs, USA Today reported on Monday. The number of companies with the lowest credit ratings and most negative outlooks jumped to 195 in December, the highest level since March 2010, says Standard & Poor's. The biggest culprit for the jump in these so-called "weakest links" is the oil and gas sector, which accounts for 34 of them. But financial companies are close behind, representing 33 of the weakest links, says S&P.

Jobless Claims in U.S. Increase to Highest Level Since July

The number of Americans filing applications for unemployment benefits rose more than projected during Christmas week, reaching the highest level in almost six months, Bloomberg News reported today. Jobless claims jumped by 20,000 to 287,000 in the week ended Dec. 26, according to a report released today from the Labor Department. Average weekly unemployment claims in 2015 were the lowest in over 40 years (when the workforce was much smaller), according to the CalculatedRISK blog today.

Commentary: Fannie and Freddie Forever

Instead of telling Freddie Mac and Fannie Mae to stop buying and guaranteeing so many mortgages, the Federal Housing Finance Agency has been encouraging the use of ever more complex financial instruments to keep the institutions at the center of this multi-trillion-dollar market, according to a Wall Street Journal editorial today. Prior to the financial crisis of 2008, Fannie Mae and Freddie Mac owned or guaranteed more than $5 trillion in mortgage debt. When the housing boom went bust, taxpayers were forced to provide a $188 billion bailout to the toxic twins -- and endure an historic financial crisis, according to the editorial. One Fannie Mae and Freddie Mac innovation is the use of synthetic collateralized debt obligations (CDOs) to offload some of the mortgage risk they are holding, according to the editorial. These new instruments are essentially a way for the mortgage giants to buy insurance against the possibility that lots of mortgage borrowers won't repay the money they owe. But how about simply not holding such risks in the first place? Then taxpayers would have no need for insurance, the editorial suggests. (Subscription required.)

Municipal Market Contracts at Record Pace as Refunding Dominates

For an unprecedented fifth-straight year investors saw more bonds leaving the municipal market than being sold by states and localities, Bloomberg News reported today. Net issuance is ending the year at about negative $15 billion, according to data compiled by Bloomberg. Though some analysts predicted a pickup in bond sales for infrastructure projects, nearly two-thirds of the almost $400 billion in debt offered in 2015 refinanced higher-cost debt, suppressing market growth, Bank of America Merrill Lynch data show. More than six years after the recession ended, state and local governments remain in an age of austerity as they grapple with pension obligations and other expenses.

States' Pension Woes Create Political Tensions

A $1 trillion U.S. pension gap, the Wall Street Journal reported yesterday, is dividing two longtime allies: Democrats and unions. Left-leaning politicians from Rhode Island to California are increasingly supporting more aggressive overhauls of government pension benefits despite opposition from labor officials, traditionally one of the Democratic Party's biggest policy and electoral supporters. The erosion of Democratic backing for the conventional retirement benefits prized by teachers, firefighters and police officers is a sign of how strained government budgets are as obligations for 24 million public workers and retirees continue to mount. Since 2009, 25 out of 34 states that had Democratic governors in office have rolled back retirement benefits for public workers, a result that is proportionally in line with states run by Republicans, according to a Wall Street Journal analysis of National Association of State Retirement Administrators data. Most of those governors have also survived attempts by union interests to remove them from office. At present, 17 states have Democratic governors. (Subscription required.)

USTP Announces Notice of Public Hearing and Reopened Comment Period for Proposed Procedures for Completing Uniform Periodic Reports in Non-Small Business Cases Filed Under Chapter 11 of Title 11

The U.S. Trustee Program (USTP) on Nov. 10 published in the Federal Register a notice of proposed rulemaking (NPRM) seeking public comment on the proposed rules requiring uniform periodic reports by debtors-in-possession or trustees in non-small business cases under chapter 11 and the proposed periodic report forms. After analyzing the comments to the NPRM and proposed forms, and because certain public commenters asked to meet with representatives of the USTP to discuss the NPRM and proposed forms, the USTP has decided to hold a public hearing on Feb. 17, 2016, from 10:00 a.m. to 1:00 p.m. ET in the Executive Conference Center in the Executive Office for U.S. Trustees in Washington, D.C. The hearing on the NPRM will provide an opportunity for interested parties to express their views directly to USTP officials. The USTP has also reopened the comment period and will accept new and supplemental comments from the public on or before Feb. 22, 2016, via www.regulations.gov. Those who register to attend and make a presentation at the public hearing must have either a written comment or statement on file by the registration deadline of Jan. 6, 2016. For more information, please click here.