Investor Appetite for Subprime Debt Continues to Grow

Investor Appetite for Subprime Debt Continues to Grow

ABI Bankruptcy Brief

July 5, 2018

ABI Bankruptcy Brief

Investor Appetite for Subprime Debt Continues to Grow

Total commercial chapter 11 bankruptcies for the month of June 2018 were 306, representing a 49 percent decrease from the 601 commercial chapter 11 filings in June 2017, according to data provided by Epiq Systems, Inc. Total commercial bankruptcies decreased to 3,020 filings in June 2018 from the 3,492 registered in June 2017. Total bankruptcy filings in June 2018 fell 5 percent to 63,697 from the 66,832 total filings in June 2017. Noncommercial bankruptcies for June 2018 decreased 4 percent to 60,677 from the 63,340 filings in June 2017.
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Personal Loans Surge to a Record High

Data from credit bureau TransUnion showed that personal loans surged to a record this year and are the fastest-growing U.S. consumer-lending category, Bloomberg News reported. Outstanding balances rose about 18 percent in the first quarter to $120 billion. Fintech companies originated 36 percent of total personal loans in 2017 compared with less than 1 percent in 2010, Chicago-based TransUnion said. Web-based firms like LendingClub, Prosper Marketplace Inc. and closely held Social Finance Inc. are driving the expansion of personal loans. Such rapid growth has some analysts concerned about the potential for increased losses in consumer credit as interest rates rise. Total household debt in the U.S. hit a new peak in the first quarter, according to the Federal Reserve Bank of New York. Dean Athanasia, who runs Bank of America Corp.’s consumer banking business, said last month his firm is keeping an eye on consumers “layering” debt by tapping multiple lenders. Wells Fargo & Co. analyst Don Fandetti said consumers have turned to personal loans to consolidate debt and make large one-time purchases amid a reluctance to tap home equity after the credit crisis.
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Analysis: U.S. Towns Face Tough Financial Decisions When Relying on One Corporate Taxpayer

American cities provide tax breaks and other subsidies to lure big companies to set up shop. But one small town in Michigan is discovering the risk that comes with relying too heavily on corporate taxpayers, Bloomberg News reported. Monroe, Mich., a 20,000-resident city 40 miles south of Detroit, could see a quarter of its revenue wiped out if DTE Energy Co. wins a challenge to its property-tax bill for a coal-fired power plant. That could jeopardize funding for crucial services from public safety to special education, Monroe County’s chief financial officer, Michael Bosanac, wrote in an email. An overdependence on one industry has proven a pitfall for other U.S. municipalities. Detroit collapsed into bankruptcy after decades of seeing its population dwindle as auto-industry jobs disappeared. Atlantic City had to be rescued by New Jersey as some casinos shuttered and others appealed their tax bills. Wayne, New Jersey, could be in trouble now that its third-largest taxpayer, Toys ‘R’ Us, is out of business. "A concentrated tax base is a principal credit risk in a small government," said Matt Fabian, managing director and senior analyst at Municipal Market Analytics Inc. "Their reliance on a single industry or company creates potential volatility and that could be hard for a small government to manage."
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Help ABI Learn about Industry Challenges and Trends

ABI recently launched an important study about the state of the insolvency and bankruptcy industry. You should have recently received several emails from McKinley Advisors, our partner in this research initiative, inviting you to participate in a survey. The scope of the survey is to identify trends and challenges in the industry. Your critical input will help us understand the current and future state of the bankruptcy, restructuring and insolvency profession so that we are optimally positioned to serve professionals like you, now and into the future. All respondents who complete the survey will receive a prize and have the opportunity to enter a drawing to win an all-expenses-paid trip to ABI's Winter Leadership Conference this December in Scottsdale, Ariz., or an Apple Watch! In an effort to capture your valued feedback, we have extended the survey deadline to Tuesday, July 10 at 5:00 pm EDT. The survey should take approximately 15 minutes to complete, and individual responses will remain anonymous. Please respond today by clicking here.

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New on ABI's Bankruptcy Blog Exchange: Second Circuit Affirms Sabine: New Focus on Horizontal Privity Requirement May Affect Oil and Gas Gathering Agreement Terms

In re Sabine, 2018 WL 2386902 (2d. Cir. May 25, 2018). has been closely watched by many for guidance on how to structure midstream gathering agreements between upstream producers and midstream gatherers (who gather, transport and process oil and gas after it has been extracted from the land), according to a recent blog post. On May 25, 2018, the U.S. Court of Appeals for the Second Circuit held that the debtor, Sabine, had the right to reject gathering agreements with two midstream companies.

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


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