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Commentary: How Bankruptcy Law Could Keep Money — And the Truth — from Weinstein’s Victims

ABI Bankruptcy Brief
ABI Bankruptcy Brief
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May 3, 2018

 
ABI Bankruptcy Brief
 
 
 
 
NEWS AND ANALYSIS

Commentary: How Bankruptcy Law Could Keep Money — And the Truth — from Weinstein’s Victims*

On Monday, New York Attorney General Eric Schneiderman wrote an open letter urging anyone who might bid on the Weinstein Co., the now-bankrupt studio founded by Harvey Weinstein, to include money to compensate the Hollywood mogul’s accusers. On Tuesday, a proposal surfaced that would do just that, from Broadway producer Howard Kagan. But by Tuesday afternoon, the Weinstein Co. had rejected that proposal and announced that its preferred buyer, a Texas private-equity company with no experience in the entertainment industry, was the only entity it would allow to bid for its valuable film library and other assets. Which means the 80-plus women (and at least one man) who say that Weinstein assaulted or abused them are likely to find that there’s little or no money left on the company’s books to compensate them by the time the bankruptcy process is finished, according to a commentary in the Washington Post. Prof. Melissa Jacoby, a bankruptcy scholar who has pushed for protections for creditors in these fast § 363 sales, says that the Weinstein case shows what’s wrong with them. “It’s not fair that a company that has been hiding this atrocious behavior for years can shield itself” in chapter 11 without following basic due process rules, she argues. If the Weinstein Co. and its board hope to head off a close investigation of the firm, its officers or its lenders in connection with Harvey Weinstein’s alleged abuse, a fast § 363 asset sale is the smartest tactical move they could make, according to the commentary. Because once a sale goes through, it’s final and unappealable, and it’s backed by the U.S. Bankruptcy Code and the supremacy clause of the Constitution. Read the full commentary.
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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

 

Analysis: At $1 Trillion, Leveraged Loans Are Closing In on Junk Bonds

The leveraged loan market just achieved something it hasn’t been able to do since 2008 ― move within $100 billion of the U.S. high-yield bond market, according to a Bloomberg analysis. Fueled by demand from collateralized loan obligations and retail investors eager for protection against rising interest rates, the amount of leveraged loans outstanding has doubled since 2010 to more than $1 trillion, according to a note from Bank of America Merrill Lynch that cites S&P Global Market Intelligence data. There’s around $1.1 trillion parked in high-yield bonds, which have increased by less than a quarter in the same period. “While the syndicated loan market has been around since the turn of the century, its popularity has seen an unparalleled surge in this credit cycle,” BAML strategists Neha Khoda and Oleg Melentyev wrote in the note. That’s due to a number of factors, according to the strategists, including the fact that mom-and-pop investors entered the market in droves. From near zero in 2010, the proportion of loans held by retail products climbed to a peak of 25 percent in 2013, they wrote. It’s currently at about 15 percent.
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Commentary: Puerto Rico Shows Why Banks Still Need to Be Under Dodd-Frank*

The arguments to loosen the regulatory reins on banks are the same ones since the Glass-Steagall Act was enacted in response to the Great Depression: Banks need the ability to compete, restrictions slow the growth of the economy, and financial companies have learned and are best positioned to restrain themselves. That last claim is interesting to examine in light of Puerto Rico, according to a recent commentary in Forbes. Fiscal failure made it next to impossible for the island to recover on its own, according to the commentary. Banks stumbled over themselves to lend money, through bond issuances, to Puerto Rico, according to the commentary. Special tax treatments drove companies there, heating the economy. Then Congress phased out the tax breaks, a long recession started, and because people wanted a continuation of services and investment, politicians started taking out loans on behalf of Puerto Rico. Bonds started to crash in 2013 — but there would be one more deal in 2014, a final multi-billion-dollar bond deal. Of the total, $900 million, almost 25 percent, went to pay the banks so they could avoid any risk, according to the commentary.
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*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

GE Warns Its Subprime Mortgage Unit Could File for Bankruptcy

While General Electric (GE) shut down WMC, its mortgage business, in 2007 after the market for lending to risky borrowers collapsed, it still faces legal trouble, including lawsuits from investors and an investigation by the Justice Department, CNNMoney.com reported. GE warned in a filing on Tuesday that WMC could file for bankruptcy if it loses one of those lawsuits. This appears to be the first time GE has said it's exploring bankruptcy for the defunct mortgage business. WMC was reportedly the nation's sixth-biggest subprime lender when it was acquired by GE in 2004 under former CEO Jeff Immelt. Investors lost billions of dollars when subprime loans went bust across the country during the foreclosure crisis. Federal bank regulators ranked WMC as one of the worst subprime mortgage lenders in major metro areas, citing more than 10,000 foreclosures between 2005 and 2007. The investors who are suing claim that WMC misrepresented the quality of the mortgages it sold. The investors are demanding that WMC buy the mortgages back. For instance, TMI Trust Company, a successor to the Law Debenture Trust of New York, has alleged losses of more than $425 million on about $800 million worth of WMC mortgage loans. Closing arguments in the trial are scheduled for June 12, GE said, adding that WMC may file for bankruptcy if it is found liable.
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Columnists Disclose History, Outlook for "Chapter 8" on Latest ABI Podcast

ABI Journal Associate Editor Scott K. Brown of Lewis Roca Rothgerber Christie LLP (Phoenix) and J. Scott Bovitz of Bovitz & Spitzer (Los Angeles), the lead contributors to the "Chapter 8 Humor" column in the Journal, discuss the lighter side of bankruptcy and share their amusing insights on the history of and outlook for the column.
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Be sure to read the "Chapter 8" humor column in the ABI Journal. Not subscribed to the ABI Journal app? Click here.


Nominations Now Being Accepted for the 2018 Class of ABI's “40 Under 40” Program!

Nominations are now open for ABI's “40 Under 40” program. This program recognizes outstanding young insolvency professionals who are driven by success, motivated by challenges and are role models for their peers. If you are, or know of, a dynamic insolvency professional who is committed to growth and excellence both professionally and in your community, this is one opportunity not to be missed! Visit the website for additional details on nominations and applications.

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BLOG EXCHANGE

New on ABI's Bankruptcy Blog Exchange: Lenders to Crowdfunding-Reliant Firms Face Steep Hurdles

For one California bank, the biggest challenge was finding equity investors to participate in deals, according to a recent blog post.

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