|NEWS AND ANALYSIS
LOOKING UNDER THE HOOD OF THE COMMISSION'S RECOMMENDATIONS ON SMES: SIMPLE, SPEEDY AND EFFECTIVE
by Prof. Anne Lawton, ABI Resident Scholar
On December 8, 2014, the ABI Commission to Study the Reform of Chapter 11 ("Commission") released its Final Report and Recommendations ("Report"). Part VII of the Report contains the Commission’s recommendations for small or medium-sized enterprise cases (SMEs). In this article, the first of several comparing the Commission's recommendations for SMEs with the Bankruptcy Code's small business provisions, I contrast the Commission’s fairly straightforward definition of an SME with the Code’s more complicated small business debtor definition. Click here to read Prof. Lawton's full article.
RISKINESS OF U.S. HOME LOANS CONTINUED TO RISE IN Q4 2014
U.S. home loans got riskier at the end of last year, according to the American Enterprise Institute's (AEI's) International Center on Housing Risk, as the federal government encouraged looser credit and nonbanks continued their rise in the mortgage lending business, ScotsmanGuide.com reported today. AEI’s National Mortgage Index increased to 11.97 percent in January, up 0.4 percent for the quarter and 0.8 percent from a year ago. Meanwhile, the index that tracks Federal Housing Administration-backed loans jumped to 24.41 percent, up 1.5 percent year over year. This means that AEI estimates that nearly 12 percent of all loans that it tracks and nearly a quarter of FHA-backed loans would fail in a severe recession similar to the financial crisis of 2007-2008. "We continue to find that the QM [Qualified Mortgage] regulation has not been reducing the volume of loans of high debt-to-income ratio," AEI's Stephen Oliner said. "Over the past three months, nearly a quarter of loans had a debt-to-income ratio above the nominal QM limit of 43 percent, which is a few percentage [points] above the share of new loans in the half year before the QM regulation went into play." Read more.
To listen to the AEI presentation, please click here.
TRANSUNION: CREDIT CARD BALANCES REACH HIGHEST LEVELS SINCE 2008
TransUnion reported yesterday that the credit card delinquency rate remained steady in the fourth quarter of 2014 relative to the same period in 2013, and that total outstanding credit card balances increased 5 percent on a yearly basis, ACAInternational.org reported yesterday. On a quarterly basis, total outstanding credit card balances grew 3.4 percent from the third quarter of 2014, which was expected as the country entered the holiday season. Significant growth rates in the total number of consumers with a balance in the subprime (8 percent) and near prime (5.1 percent) credit tiers contributed to the growth of balances from a year-over-year perspective, according to TransUnion. The report found that the national credit card delinquency rate (the ratio of borrowers 90 days or more delinquent with their general-purpose credit cards) remained steady in the last year, hitting 1.47 percent in the fourth quarter of 2014 compared to 1.48 percent in the fourth quarter of 2013. Read more.
LONGER LIVES HIT COMPANIES WITH PENSION PLANS HARD
When General Motors Co.'s pension plan took a big hit earlier this month, it joined hundreds of companies facing growing pension shortfalls as Americans keep living longer, the Wall Street Journal reported today. Longevity has a downside for those paying the bills, and the higher costs now have to be reflected on corporate balance sheets because of new mortality estimates released in October. In its first revision of mortality assumptions since 2000, the Society of Actuaries estimated that the average 65-year-old man today will live 86.6 years, up from the 84.6 it estimated a decade and a half ago. The average 65-year-old woman will live 88.8 years, up from 86.4. The new estimates won't affect many U.S. companies, which long ago shifted their employees to defined-contribution plans like 401(k)s, which leave workers on their own after retirement. But they are hitting other big companies with defined-benefit plans that have to make payments to some former employees for as long as they live. The changes may also prompt more companies to take steps to reduce the risks associated with their pension plans, experts say. Read more. (Subscription required.)
THURSDAY: ABI LIVE WEBINAR TO EXAMINE “PENSION TENSION” IN RESTRUCTURING
Make sure to save the date for "Pension Tension: Dealing with Plans in the Restructuring World," the new ABI Live Webinar scheduled for Feb. 26 from noon - 1:15 p.m. EST! This webinar, presented by ABI's Labor and Employment Committee, will address current employee- and labor-related issues in chapter 11 and out-of-court restructurings, including, among other things: (a) whether private equity sponsors may be subject to pension fund withdrawal liability under ERISA in light of the First Circuit's Sun Capital decision; (b) whether pension plan withdrawal liability is entitled to administrative claim status; and (c) the status of the Pension Benefit Guaranty Corp.'s moratorium on 4062(e) enforcement. Attorneys and other restructuring professionals dealing with the PBGC will learn about current developments in this dynamic and changing area of law that plays an important role in many reorganizations today.
- David R. Seligman (Kirkland & Ellis LLP, Chicago)
- Gregory F. Pesce (Kirkland & Ellis LLP, Chicago)
- James J. Mazza Jr. (Skadden, Arps, Slate, Meagher & Flom LLP, Chicago)
- Craig T. Fessenden (Pension Benefit Guaranty Corp., Washington, D.C.)
- Theresa Anderson (Pension Benefit Guaranty Corp., Washington, D.C.)
Click here to register.
OBAMA BACKS NEW RULES FOR BROKERS ON RETIREMENT ACCOUNTS
President Barack Obama endorsed stricter standards for brokers and others who recommend retirement-account investments, backing new rules requiring advisers to put their clients' interests ahead of personal gain, the Wall Street Journal reported yesterday. The proposed rules, drafted by the Labor Department and endorsed by President Obama yesterday, are expected to chip away at lucrative sources of income for brokers. Wall Street groups have been fighting moves being made to ratchet up industry standards, maintaining that they already operate under strict rules and warning that the new standards could remove an incentive for brokers to serve accounts with smaller balances. At present, brokers' recommendations for 401(k) plans and other retirement accounts generally must be "suitable" for an investor. But they are not required to be in an investors' best interest, a standard known as fiduciary. This results in a weaker standard that critics say permits high fees that eat into investors' returns. Read more. (Subscription required.)
PRE-ORDER NOW: ABI’S NEWEST PUBLICATION EXAMINES ISSUES SURROUNDING LITIGATION AND LIQUIDATION TRUSTS IN BANKRUPTCY
ABI's newest publication, A Practitioner's Guide to Liquidation and Litigation Trusts, tackles issues surrounding litigation and liquidation trusts established in an insolvent company’s bankruptcy proceedings. Such cases as General Motors, ASARCO, Tronox, Enron and Bernard L. Madoff Investment Securities LLC have established these types of trusts as vehicles that can be separated from the insolvent company's business operations to administer assets that have uncertain recoveries or that may require significant time to handle (such as environmental claims). A Practitioner's Guide to Liquidation and Litigation Trusts is designed to give bankruptcy and other professionals an overview of how and when trusts can be used to handle significant large-scale litigation matters and the liquidation of other assets for the purpose of accumulating recoveries and distributing them across multiple claimants. The book offers guidance on the most common issues faced in establishing, managing, monitoring and ultimately concluding a liquidation trust or litigation trust. Convenient checklists, relevant case citations and references to bankruptcy-related issues, as well as recommended forms of trust agreements and suggested provisions for bankruptcy plans and disclosure statements, are also provided in this 300-page guide (which includes a separate thumbdrive containing more than 500 sample pages from liquidation and litigation cases).
A Practitioner's Guide to Liquidation and Litigation Trusts is currently available for pre-order (make sure to log in to receive the ABI member price of $85).
NEW CASE SUMMARY ON VOLO: LTF REAL ESTATE CO. V. EXPERT SOUTH TULSA LLC (10TH CIR.)
Summarized by Brandon Bickle of GableGotwals
The Tenth Circuit BAP held that the bankruptcy court did not abuse its discretion in granting summary judgment prior to the commencement of discovery, and that EST failed to comply with the requirements of Fed. R. Civ. P. 56(d) in opposing the motion. EST had merely stated in its affidavit opposing the motion that it had not conducted any discovery but intended to do so. The BAP held that the affidavit should have explained what facts needed to be developed, why they were not available, and how additional time would enable EST to rebut LTF's allegations.
There are more than 1,500 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.
NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: LIEN-STRIPPING SAGA CONTINUES IN CHAPTER 7 BANKRUPTCY CASES
A recent blog post examined the case of In re Bodensiek in which Bankruptcy Judge Erik P. Kimball (S.D. Fla.) recently grappled with the issue of whether a debtor can strip a completely unsecured junior mortgage on abandoned property.
To read more on this blog and all others on the ABI Blog Exchange, please click here.
ORDER YOUR PRINTED COPY OF THE FINAL REPORT OF ABI'S COMMISSION TO STUDY THE REFORM OF CHAPTER 11!
Order your printed copy of the Final Report of ABI's Commission to Study the Reform of Chapter 11! The 402-page Final Report contains more than 200 discrete recommendations of chapter 11 policy reforms. ABI's Commission to Study the Reform of Chapter 11 was established in 2012 with a mission to study and propose reforms to Chapter 11 of the Bankruptcy Code and related statutory provisions. After months of deliberations, the Commission unanimously adopted this report to provide to Congress. For the special price of $40, you will have all the testimony, studies and figures that went into compiling the recommendations at your fingertips! Click here to order.
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