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Analysis: Farm Belt Bankruptcies Are Soaring

ABI Bankruptcy Brief

February 7, 2019

 
ABI Bankruptcy Brief
 
 
 
NEWS AND ANALYSIS

Analysis: Farm Belt Bankruptcies Are Soaring

A wave of bankruptcies is sweeping the U.S. Farm Belt as trade disputes add pain to the low commodity prices that have been grinding down American farmers for years, the Wall Street Journal reported. Throughout much of the Midwest, U.S. farmers are filing for chapter 12 bankruptcy protection at levels not seen for at least a decade, a Wall Street Journal review of federal data shows. Bankruptcies in three regions covering major farm states last year rose to the highest level in at least 10 years. The Seventh Circuit Court of Appeals, which includes Illinois, Indiana and Wisconsin, had double the bankruptcies in 2018 compared with 2008. In the Eighth Circuit, which includes states from North Dakota to Arkansas, bankruptcies swelled 96 percent. The Tenth Circuit, which covers Kansas and other states, last year had 59 percent more bankruptcies than a decade earlier. States in those circuits accounted for nearly half of all sales of U.S. farm products in 2017, according to U.S. Department of Agriculture data. (Subscription required.)

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Puerto Rico's Bankruptcy Leaves $3.8 Trillion Bond Market Unnerved

America’s local governments frequently pledge a slice of their revenue to investors to make their bond deals more attractive by adding an extra layer of security. But Puerto Rico’s record-setting bankruptcy has cast that safety in doubt, Bloomberg News reported. U.S. District Judge Laura Taylor Swain on Monday approved a restructuring of more than $17 billion of sales-tax-backed bonds that will leave owners of the securities with the lowest claims receiving about 56 cents on the dollar. While investors supported the deal because it gives them far more than what the debt was once trading for, it rests on an agreement that steers nearly half of the revenue that was pledged for the securities to the central government instead. That’s left some investors worried that the approach could be used by other distressed governments. "It makes us question everything," said Jonathan Mondillo, head of municipal securities at Aberdeen Standard Investments, which owns insured Puerto Rican debt. Puerto Rico’s bankruptcy is the latest to trigger a reassessment of which bonds are the most iron-clad in the $3.8 trillion state and local government debt market, a haven where bankruptcies are rare enough that each one is closely watched for possible clues as to how creditors will be treated the next time a government goes broke. Detroit’s bankruptcy undermined investors’ faith in general-obligation bonds, which were once seen as the safest, since they are backed by the unlimited ability of a government to raise taxes. That led some to favor bonds backed by dedicated revenues like sales taxes instead — a view that’s now being challenged by what’s happened in Puerto Rico. Last year, S&P Global Ratings began pushing the ratings on priority lien debt closer to those of the underlying governments, reflecting the risk that officials could try to tap the funds if they experience distress.

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U.S. Bankruptcy Court for the Northern District of Georgia Institutes Complex Chapter 11 Procedures

The judges of the U.S. Bankruptcy Court for the Northern District of Georgia adopted procedures for complex chapter 11 cases that apply to cases filed in the district after entry of the order, according to an announcement from the court. The procedures listed in General Order 26-2019, Procedures for Complex Chapter 11 Cases, apply to cases filed in any division in the district for which complex chapter 11 case treatment is requested and may be granted by the court. General Order 27-2019, Designation of Panel for Complex Chapter 11 Cases, applies only to cases filed in the Atlanta Division of the court.

To view General Order 26-2019, please click here.

To view General Order 27-2019, please click here.

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Insurance Company Offers to Trade Employees Vacation Days for Cash to Help Pay Off Student Loans

Starting next year, U.S. employees at insurance company Unum Group will have a choice: The company will put money toward their student loans if the worker gives up five paid vacation days, Bloomberg News reported. Confronted by a tight labor market and ever-more-indebted applicants, about 4 percent of big companies surveyed by the Society for Human Resource Management say they’re helping their employees repay their loans with cash payments of up to $250 a month. The deal for Unum’s 8,500 workers, though, is different: cash for debt in exchange for unused vacation days. Each day is worth an employee’s hourly rate for an eight-hour day. Parents who share responsibility for a child’s loans also qualify to cash in.

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BLOG EXCHANGE

New on ABI’s Bankruptcy Blog Exchange: U.S. Banks Won $21 Billion Tax Windfall, then Cut Staff, Lent Less

Major U.S. banks shaved about $21 billion from their tax bills last year — almost double the IRS’s annual budget — as the industry benefited more than many others from the Republican tax overhaul, according to a recent blog post.

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

 
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