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Analysis: The Rise of Private Assets Is Built on a Mountain of New Debt

ABI Bankruptcy Brief
ABI Bankruptcy Brief
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February 15, 2018

ABI Bankruptcy Brief

Analysis: The Rise of Private Assets Is Built on a Mountain of New Debt

A major change in financial markets in recent years is that private-equity firms have increasingly got into lending to buyouts, too - and often to their own deals, according to a Wall Street Journal analysis. Their credit businesses are adding to the huge growth in specialist private debt funds and retail money that has taken place in loan markets since the crisis. The flood of money into credit has driven down borrowing costs and cleared out traditional lender protections known as covenants on many loans. The growth of debt operations at firms like Blackstone, KKR and Apollo is an important part of their expansion. They can manage loans in private-credit funds, special vehicles known as collateralized loan obligations (CLOs) and listed business development companies (BDCs). Private-credit funds run by major specialists like Alcentra or Hayfin, as well as the big private-equity firms, had nearly $650 billion in assets under management globally as of last June, three times more than in 2007, according to Preqin, the research firm. Retail loan funds manage about $100 billion. CLOs and BDCs add billions more..
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Inside Massachusetts' Effort to Help Borrowers Erase Student Debt in Bankruptcy

The Massachusetts Bar Association recently launched the Student Loan Bankruptcy Assistance Project, aiming to get more attorneys, even those who don't specialize in bankruptcy or student loan issues, to represent on a pro bono basis borrowers who are trying to have their debt wiped away, reported. The idea for the program came out of a recommendation from a Student Debt Working Group convened by the state's Attorney General, Maura Healey, who has aggressively pursued student loan companies and for-profit colleges during her tenure. Helping struggling borrowers access representation is just one aspect of her office's efforts to curb the state's and nation's student loan problem, Healey said in a recent interview with MarketWatch. "Doing a loan discharge through bankruptcy is complicated, it's hard," she said. "Under current law, the people who are most likely to be eligible for a discharge are the least likely to be able to afford a good lawyer."
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The ABI Consumer Commission's Committee on Case Administration and the Estate is considering the important issue of student loan debt and bankruptcy, and the Commission is reviewing a paper submitted by ABI's Consumer Bankruptcy Committee at its last open meeting.

For more on student loans and bankruptcy, be sure to pick up a copy of the updated and revised Graduating with Debt: Student Loans under the Bankruptcy Code, Second Edition.

Commentary: Should Congress Create a Crypto-Cop?

The cryptocurrency mania has gotten the attention of regulators at the Securities and Exchange Commission and the Commodity Futures Trading Commission, according to a New York Times commentary. Laws adopted decades ago give the two regulators little authority to engage in oversight of the burgeoning market in cryptocurrencies. That may change if Congress can muster the political will to extend the oversight responsibilities of two agencies it has been rather hostile to in recent years, according to the commentary. A better way may be to create a new agency - one that does not carry the baggage that the SEC and CFTC do on Capitol Hill and that does not try to put the square peg of cryptocurrencies in the round holes of securities and commodities trading, according to the commentary.
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As wild fluctuations in cryptocurrency value invite a potential surge in bitcoin-related bankruptcies, a guest on ABI's latest podcast examines how to approach cryptocurrency in fraudulent-transfer litigation. ABI Executive Director Sam Gerdano talks with Alan Rosenberg of Markowitz, Ringel, Trusty + Hartog, PA (Miami), author of the February ABI Journal article "The Cryptocurrency Craze: How to Treat Bitcoins in Fraudulent-Transfer Litigation," about what practitioners should know about bitcoin and potential approaches to fraudulent-transfer litigation involving cryptocurrency. Click here to listen.

Consumer Debt Increased in 4Q 2017

Consumer debt, excluding mortgages and other home loans, rose 5.5 percent in the fourth quarter from a year earlier to $3.82 trillion, the highest amount since the Federal Reserve Bank of New York began tracking the data in 1999, the Wall Street Journal reported. Moreover, consumers' non-housing debts accounted for just over 29 percent of their overall debt load, also the highest amount on record. Many observers say that they aren't worried yet. Their concerns about non-housing credit are nascent since delinquencies are rising from historically low levels. Also, household debt including mortgages, the biggest category, barely edged up from the third quarter and remains well off the crisis-era highs as a percentage of U.S. economic output. However, there are signs that consumers' ability to handle these increased debt levels is getting strained. Student loans, the largest debt category consumers hold after mortgages, continue to have persistently high delinquencies. Overall, households are paying about 5.8 percent of their disposable personal income to stay current on their non-mortgage debts, according to third-quarter Federal Reserve data. This figure, which is at its highest level since the end of 2008, bottomed out at 4.9 percent in 2012.
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Be sure to check out today's ABI Chart of the Day.

Commentary: The Next Wave of In-House Tech Is Already Here

While such "AI-enabled" contract analytic tools have been adopted by relatively few in-house legal departments, there are signs that it may quickly change, according to a commentary on A survey of law departments released last week by HBR Consulting states that 57 percent of in-house teams have not yet started exploring how AI-based tools could help them. A mere 6 percent had implemented one already, while 14 percent said they are aware of a "potential use case" but have yet to test it. But by asking about generic "AI" tools, the survey's tepid response may be a sign that hype around the term has died down, not that GCs are uninterested in new technologies. When asked to narrow down what type of AI-assisted task has the most potential, 40 percent of respondents said contract analytics. That seems to gel with what 71 percent of respondents said they wanted from AI products: increasing productivity without increasing headcount. Bobbi Basile, a managing director at HBR Consulting, predicts a "heavy uptick" in the adoption of contract analytics tools in legal departments within the next two years. She doesn't predict an end to their jobs, but said technology will be like "an exoskeleton" that will help them provide better services to their ultimate client, the business itself.
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A panel at ABI's Annual Spring Meeting will explore why artificial intelligence matters to your future bankruptcy practice. Click here to register.

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New on ABI's Bankruptcy Blog Exchange: Banks Need More Skin in the Housing Finance Game

Lenders should be encouraged to hold more credit risk in the mortgage market rather than having it foisted on Fannie and Freddie, 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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