CSPAN Live-Broadcasts Don McGahn, Former Vt. Gov. Howard Dean at ABI’s Health Care Program in Washington, D.C.

CSPAN today live-broadcast two key talks during ABI’s Disruption, Consolidation and Innovation in the Health Care Industry program, a special one-day seminar held at Georgetown University Law Center in Washington, D.C. The program kicked off with an introductory talk by Donald F. McGahn, II, who served as counsel to President Trump from 2017 to 2018 and advised the President on all legal issues concerning the President and his administration, including areas such as constitutional and statutory authority, international agreements and national security. He discussed the deregulation that has occurred in the health care and pharma industries thus far during this administration, and addressed Judge Reed O’Connor's ruling this month holding the Affordable Care Act unconstitutional, and what that ruling might mean for the future of health care. CSPAN next broadcast live a presentation on the essentials of real health reform by Howard B. Dean, III, a senior advisor with Dentons in Washington, D.C., and a former Democratic National Committee chairman, presidential candidate, six-term governor of Vermont and physician. His keynote stressed that the biggest obstacle to real health care reform is not political fighting or Washington interest groups, but rather that the system works to spend as much money as possible, and often gets the wrong outcome.

View Don McGahn broadcast here.
View Howard Dean broadcast here.

Analysis: PG&E Needs a Plan to Corral Suits in $30 Billion Bankruptcy

As PG&E Corp.’s executives and lawyers decide how to shield the utility in bankruptcy from billions of dollars in liabilities from wildfires, the playbooks most likely to catch their eyes were written for other companies faced with massive litigation, according to a Bloomberg analysis. California’s largest investor-owned utility could set up a trust like those used by Halliburton Co. and W.R. Grace & Co. to settle lawsuits over cancerous asbestos. The other option is a regular chapter 11 reorganization plan, like the one that American Suzuki Motor Corp. formulated in part to resolve car dealers’ suits when it pulled out of the U.S. market. Either way, PG&E’s goal is to corral — in bankruptcy court — thousands of homeowner suits blaming the utility for wildfires that devastated California in 2017 and 2018, killing more than 100 people, destroying tens of thousands of homes and charring hundreds of thousands of acres. Institutions and companies swamped by litigation often wield bankruptcy filings as a club to force plaintiffs to take smaller settlements than they could get through the regular court process, according to Chuck Tatelbaum, a Fort Lauderdale, Fla.-based bankruptcy lawyer with Tripp Scott PA who has been involved in asbestos trust cases in the past. PG&E said Monday that the company will file for protection from creditors around Jan. 29 to restore financial stability in the face of more than $30 billion in wildfire liabilities. Those claims dwarf the more the $1.5 billion in cash and equivalents on hand as of Jan. 11, the company said. Regardless, PG&E will have to set aside a portion of its assets to cover homeowners’ fire damages while satisfying lenders’ and other creditors’ claims. A bankruptcy judge will make the ultimate call on whether the utility devoted sufficient resources to the claims given its desperate financial state.

Op-ed: California Shouldn’t Waste a PG&E Bankruptcy

It’s rare for a utility to go bankrupt, especially twice. For PG&E Corp., which may enter chapter 11 by the end of the month, there are compelling reasons to do it anyway — and not just for the utility itself, according to a Bloomberg op-ed. PG&E, facing perhaps $30 billion or more of claims and penalties, has started the clock ticking even before the last of its cash runs out. Clearing the uncertainty hanging over the company begins with consolidating the litany of claims against it into a known quantity and dealing with them expeditiously. That was how it worked in 2001, when PG&E’s utility subsidiary went bankrupt, caught between California power-market reform and Enron traders. What makes today’s case different, and far more difficult, is that it isn’t just the liabilities incurred so far that have broken PG&E’s model. The ones to come are just as important. Even if PG&E emerged from a chapter 11 process that dealt with liabilities arising from wildfires in 2017 and 2018, it would remain hobbled in terms of courting investors who would then be worrying about the wildfires of 2019 or 2020 or whenever. On the other side of a chapter 11 trip for PG&E, northern California will need an entity or entities that can credibly manage and finance the grid, including proofing it against climate change. A bankruptcy court doesn’t deal with future liabilities. From the politicians’ point of view, PG&E’s entry into bankruptcy could be seen as risky in the sense that it empowers a new figure in all this: the bankruptcy judge. Indeed, PG&E may have hoped that giving notice of a potential filing would push the state to make a last-minute intervention.

Analysis: How Much Value Was Destroyed by the Lehman Bankruptcy?

The New York Fed's Liberty Street Economics blog estimates the value destruction stemming from Lehman's chapter 11 bankruptcy to be on the order of $46 billion to $63 billion, or between 15 percent and 21 percent of Lehman’s pre-bankruptcy consolidated assets. "Our estimate of the value destruction from the Lehman bankruptcy is substantial, although some losses were likely due to economic distress, or represented value transfers to other parties," according to the blog. These estimates exclude fees and expenses from the SIPA proceedings, which are an additional $1.4 billion, and the costs of resolving Lehman’s subsidiaries outside of U.S. legal jurisdictions. The main sources of value destruction, according to the blog, are as follows: $6 billion from fees and expenses in chapter 11 alone, establishing a hard lower bound for our assessment; $15 billion attributable to liquidity costs borne by creditors for having their assets tied up in the bankruptcy proceedings; up to $19 billion in indirect costs; and a further $23 billion from lost relationships between Lehman and its equity underwriting clients.

Latest ABI Podcast Examines Need to Fix Means Test Disparity for Disabled Veterans

ABI Executive Director Sam Gerdano talks with Jay Bender of Bradley Arant Boult Cummings LLP (Birmingham, Ala.), Kristina M. Stanger of Nyemaster Goode, P.C. (Des Moines, Iowa) and John H. Thompson of McGuireWoods LLP (Washington, D.C.) about proposals to equalize the means test treatment for veterans who seek chapter 7 relief. Bender, Stanger and Thompson, who are part of the legislative committee of ABI's Veterans' Task Force, talk about the problem of including VA disability payments as income and efforts to correct this disparity in the Code, such as the HAVEN Act.

Listen here.

Commentary: The Next American Car Recession Has Already Started

Detroit is in the grips of a car recession marked by the collapse of demand for traditional sedans, which accounted for half the market just six years ago, according to a Bloomberg commentary on Friday. Buyers have made a mass exodus out of classic family cars and into sport utility vehicles. Familiar sedan models such as the Honda Accord and the Ford Fusion made up a record low 30 percent of U.S. sales in 2018, and things will only get worse. Sales of the passenger-car body style that’s dominated the industry since the Model T will sink to 21.5 percent of the U.S. market by 2025, according to researchers at LMC Automotive, relegating sedans to fringe products. That leaves automakers with excess factory capacity that can turn out about 3 million more vehicles than buyers want. And overcapacity is precisely what spurred losses the last time a recession wracked the industry. The overcapacity plaguing U.S. automakers is the equivalent of 10 excess plants, which would account for at least 20,000 jobs directly, and thousands more as it ripples through the suppliers and support services to the massive industry. “GM has taken some actions, but they still have some well-underutilized plants,” said Jeff Schuster, senior vice president of forecasting at LMC Automotive. “So we may not be done with this yet.”

Shutdown Squeezes Small Businesses that Do Work for Government

Throughout the contracting industry, the government shutdown has exhausted contingency plans and is prompting companies to consider drastic measures, the Wall Street Journal reported yesterday. The number of people working for the federal government indirectly — either through contracts or subcontracts — has grown in recent decades, fluctuating during recessions and times of war, according to Paul Light, a New York University professor who studies the federal workforce. Meanwhile, the number of federal employees has stayed relatively stable at about 2 million non-military civil servants. Low- and middle-wage employees are looking for other work and applying for unemployment insurance. Small- and medium-size firms have stopped paying employees and may have to fire some people, while the financial institutions that support those companies are assuming greater risk. Even large, publicly funded and multinational firms are weighing the possibility of sending workers home without pay as they face cash-flow shortages. (Subscription required.)

After a Strong 2018 for Retail Sales, Caution Flags Pop Up

After retail sales wrapped up 2018 strongly, U.S. consumers are facing headwinds in maintaining last year’s robust level of spending, the Wall Street Journal reported. The Commerce Department, normally scheduled to publish retail-sales data yesterday, won’t release the figures due to the government shutdown. Still, some private-sector analysts who track the retail sector estimate that Americans stepped up their spending in November and December, crucial months that include Thanksgiving Day, Black Friday and Christmas, but voice caution about 2019. Some retailers are preparing for consumer spending to weaken, even if there is no sign it will happen soon, said Rod Sides, vice chairman of retail at Deloitte. The firm’s clients are looking to cut costs, he said. “Retailers are going to have to spend 2019 figuring out what they do when the tide goes out.” IHS Markit forecasts 5 percent holiday retail sales growth in the November-December period compared with the same time in 2017. This figure, which excludes autos, gas and food services, would be tied with 2014 for the second-best growth period since 2005. (Subscription required.)

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