ANALYSIS: DESPITE HIGHLY LEVERAGED COMPANIES, BANKRUPTCY FILINGS CONTINUE TO DECLINE
Twenty-five U.S. public companies with a combined $56 billion in assets filed for chapter 7 and chapter 11 bankruptcies up through May 26, compared to 33 companies with $21 billion in assets during the same period last year, the Chicago Tribune reported on Sunday. Skewing the latest numbers was the filing of Dallas-based Energy Future Holdings, which had about $40 billion in assets when it filed, said BankruptcyData.com. It's also the largest default of a leveraged buyout on record and is among 10 LBO-related company defaults nationwide through the first five months of 2014, compared with 11 for all of last year, according to a May 28 report from Fitch Ratings. Overall, U.S. business bankruptcy filings, including chapter 11, are falling, according to the American Bankruptcy Institute, citing numbers from Epiq Systems Inc., which tracks filings. The June issue of the ABI Journal asks whether the steps the federal government took after the economic crisis have "merely delayed the bankruptcy boom that is always a tantalizing 12 to 18 months away." In March and April, a flurry of U.S. publicly traded companies -- 11 with assets of at least $300 million each -- filed for chapter 11 protection. The pace slowed in May, but that month was nearly as busy as January and February combined, leading some to believe that an uptick in filings had begun. "When cheap money goes away and interest rates tick up, some companies will have a hard time" making their debt payments, said ABI President Brian Shaw of Shaw Fishman Glantz & Towbin in Chicago. However, the numbers still reflect a decreasing bankruptcy filing rate. As Shaw said, "We've been hearing that there will be an uptick in the not-too-distant future for five years," adding that the continued availability of alternative financing sources has helped deflate the number of businesses filing for bankruptcy. He agreed that bankruptcies can come in spurts but said that filings are still historically low, even as a sustained rise seems inevitable. Read more.
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STUDENT DEBT TAKES A TOLL ON SOME HOME BUYERS
Homeownership among Americans under age 35 hit its lowest level on record earlier this year just as indebtedness among college grads notched a new high, the Wall Street Journal reported on Saturday. College students who took out loans will graduate this year with an average of $33,000 in student debt, up an inflation-adjusted 32 percent from 2007, new research shows. Debt among those who went to grad school is also up sharply. That, along with a jump in borrowers, has pushed overall student debt to $1.1 trillion, almost double the load in 2007, much of it at relatively high interest rates. The homeownership rate among those under 35, meanwhile, has fallen to 36.2 percent from a high in 2004 of 43.6 percent. "Overly indebted households are not in a position to spend and move forward," said former White House advisor Lawrence Summers. Read more. (Subscription required.)
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TREASURY SECRETARY LEW TO ANNOUNCE NEW EFFORTS TO AID STRUGGLING HOMEOWNERS
U.S. Treasury Secretary Jacob J. Lew will announce expanded programs to help struggling mortgage borrowers on June 26, marking the fifth anniversary of government efforts to aid the real estate market, Bloomberg News reported yesterday. Since 2009, nearly 1.4 million borrowers have received mortgage modifications that lowered their monthly payments through Treasury's Home Affordable Modification Program, which is funded through the 2008 Troubled Asset Relief Program. The modifications are designed to last for five years and many are set to expire soon. Lew will announce additional policies designed to help low-income renters and make it easier for borrowers with less-than-perfect credit scores to obtain home loans, according to the Treasury. A Treasury official yesterday said that banks will likely loosen mortgage credit because regulators have been less concerned about having to repurchase defaulted loans. Read more.
U.S. INCREASES SCRUTINY OF EMPLOYEE STOCK-OWNERSHIP PLANS
The federal government is stepping up its scrutiny of how U.S. companies are valued for employee stock-ownership plans, a vital source of retirement savings for millions of workers, the Wall Street Journal reported yesterday. Some owners are selling stakes in their companies to employee-stock-ownership plans at inflated prices, the government says, jeopardizing those savings. The Labor Department is the plaintiff in 15 lawsuits related to employee stock-ownership plans, with "virtually all" the cases alleging shoddy estimates of what a company's shares are worth, said Timothy Hauser, a deputy assistant secretary at the agency's Employee Benefits Security Administration. "Valuation is the first, second, third and fourth problem," Hauser said. In March, Labor Secretary Thomas Perez told lawmakers that some appraisals "have been deliberately inflated" and compared them to real-estate-bubble-era home appraisals that "masterfully came in at what you needed." Frank Brown, a managing director at valuation firm Willamette Management Associates who testifies for companies and workers in stock-plan-related cases, said the number of lawsuits has "gone up substantially." Since the start of fiscal 2010, the Labor Department has recovered more than $241 million through lawsuits or investigations that were resolved without going to court, nearly all of which involve valuations. Overall, the agency has filed 28 suits tied to employee stock-ownership plans since October 2009, double the total in the previous six years. Read more. (Subscription required.)
NEW CASE SUMMARY ON VOLO: LEWIS BROTHERS BAKERIES INC. V. INTERSTATE BRANDS CORP. (8TH CIR.)
Summarized by Bryan Robinson
The Eighth Circuit Court of Appeals reversed the judgment of a district court and bankruptcy court that held that the material and outstanding obligations of the defendant's licensing agreement had yet to be performed or constituted a continuing and ongoing obligation and as such was an executory contract and subject to assumption under 11 USC § 365. The appellate court reversed the lower courts, which held that the license agreement was part of a larger, integrated agreement that IBC has substantially performed. With no ongoing or outstanding obligation, the contract was not an executory agreement subject to assumption. Three judges from the full panel issued a separate substantial opinion concurring in part and dissenting on the court's reversal based on the finding that the contract was not an executory agreement subject to assumption.
There are more than 1,300 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.
NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: WILL CONGRESS ACT TO REIN IN PROXY ADVISORY FIRMS?
A recent blog post examined the interest of Congress to act if the SEC fails to act to curb investors' reliance on proxy advisory firms. The blog said that Rep. Patrick McHenry (R-N.C.) recently said that the issue of proxy advisory firms is of significant interest to himself and his colleagues, Representative Jeb Hensarling (R-Texas), House Financial Services Chairman, and Representative Scott Garrett (R-N.J.), Chairman of the Subcommittee on Capital Markets and Government Sponsored Enterprises.
Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.
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