Commentary: Chicago's Mounting Fiscal Challenges

Commentary: Chicago's Mounting Fiscal Challenges

ABI Bankruptcy Brief


ABI Bankruptcy Brief
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October 1, 2015

ABI Bankruptcy Brief


Commentary: Chicago's Mounting Fiscal Challenges

With so much civic and commercial activity, it is difficult to reconcile Chicago’s seeming vitality with news reports that the city is more financially distressed than Detroit, according to a City Journal commentary. In May, the Illinois Supreme Court’s unanimous rejection of state legislators' attempt to enact pension reform, along with Moody's downgrade of the city's debt to junk status, triggered a cascade of problems requiring painful decisions. First is a 1 percentage-point increase in the Cook County sales tax, bringing Chicago’s combined state, county and city sales tax to the highest in the nation at 10.25 percent. Mayor Rahm Emanuel is also hiking property taxes, proposing a $600 million increase to help the city start making required pension payments. In addition, the city's public school system has a $500 million budget hole and may run out of money this year. Read the full commentary.

Hear more about Chicago's current fiscal challenges and proposals to fix them as Chicago Treasurer Kurt Summers provides the keynote at ABI's 7th Annual Mid-Level Professional Development Program on Oct. 28 in Chicago. Register here.

Puerto Rico's Government Development Bank Requests Court Order for Deposits of Property Tax Collections

Puerto Rico's financing arm, the Government Development Bank (GDB), said yesterday that it had filed papers asking a court to order the U.S. territory's Municipal Revenue Collections Center (CRIM) to deposit transfers of property tax collections at the bank, Reuters reported yesterday. CRIM's board suspended all deposits of property tax collections at the GDB as of June 30, according to a statement from the GDB's chief operating officer, Karolee Garcia Figueroa. The GDB said that CRIM had admitted to withholding approximately $400 million in revenues that should have been deposited at the GDB. The papers were filed with the court of first instance, San Juan Superior Court, the GDB said. Puerto Rico, in recession for nearly a decade, has seen its debt grow to $72 billion while the number of taxpayers shouldering the burden has dwindled, with thousands moving to the U.S. mainland each year. Read more.

For more on Puerto Rico's financial crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.

Fitch: U.S. Leveraged Loan Default Rate Could Approach 2 Percent in 2015

An accumulation of defaults in the institutional leveraged loan market in August 2015, along with the potential for several more in the coming months, could propel the trailing 12-month default rate to nearly 2 percent, according to a Fitch Ratings press release yesterday. August 2015 saw five defaults, the most since March 2014, totaling $1.4 billion. These included distressed-debt exchanges from American Seafoods Group LLC, Wilton Holdings Inc. and NYDJ Apparel LLC, and filings from Univita Health Inc. and Alpha Natural Resources. Millennium Laboratories, a health care company, is currently working with lenders to restructure $1.8 billion of outstanding leveraged loans, which could lead to a future filing. Other potential candidates include Arch Coal Inc. and Peabody Energy Inc.

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Commentary: The Perils of Forcing a Sale of Illiquid Assets

Saba Capital hedge fund manager Boaz Weinstein is being sued by the Public Sector Pension Investment Board of Canada after the pension fund sought to liquidate its investment in Weinstein's fund earlier this year after he piled up a string of losses over the last two years, according to a post on Tuesday in the New York Times DealBook blog. The pension fund estimated that it was owed $500 million and gave Weinstein less than two months to refund the money. Weinstein then set about conducting an auction for the corporate bonds, but only three of nine dealers made bids. The valuations ascribed to the bonds were significantly less than their original value, and now the pension fund is claiming in a lawsuit that it got about $12 million less than it should have for those illiquid assets, contending that Weinstein "improperly manipulated the values of certain of the funds' assets with the objective of artificially depressing the price paid" to the fund. Read more.

For more information on valuation, be sure to pick up a copy of ABI's A Practical Guide to Bankruptcy Valuation.

As Online Data Theft Escalates, Banks Look to Retailers to Bear the Losses

The size, scope and losses stemming from online data theft at retailers has grown, and now some small banks and others want Home Depot and those companies that suffer data breaches to pay, the New York Times reported on Tuesday. One front of the battle is a federal lawsuit winding through the courts, filed by a number of small community banks and credit unions that contend that Home Depot long ignored internal and external warnings from security experts that its systems were vulnerable to attack. A similar lawsuit against Target claims that its security protocols were "so deficient that the breach continued for nearly three weeks while Target failed to even notice it." That lawsuit was given class-action status this month by a federal judge in Minnesota.

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New on ABI's Bankruptcy Blog Exchange: Global Regulators Reach Agreement on Bail-In Bonds Plan for Top Banks

A recent blog post said that global regulators have reached a draft agreement on a rule on stopping banks from being "too big to fail" by requiring them to hold enough equity capital and bonds to avoid taxpayers being called upon in a crisis.

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

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