The U.S. House of Representatives has approved a bill designed to shore up the bankruptcy courts, just a week before 29 temporary bankruptcy judgeships — more than 8 percent of the nation’s current bankruptcy judges — are set to expire on May 25, Bloomberg BNA reported today. The Bankruptcy Judgeship Act of 2017 (H.R. 2266) passed by a voice vote under a suspension of the rules, a procedure requiring a two-thirds vote for passage and which prohibits floor amendments. Two of the measure’s four co-sponsors spoke from the House floor, championing the bill as a bipartisan effort to protect the bankruptcy courts, according to Rep. Bob Goodlatte (R-Va.), chairman of the House Judiciary Committee. The measure would make 14 of those temporary positions permanent and would provide for another four new bankruptcy judgeships. The judgeships created by the bill would not require funding by taxpayers, Goodlatte stressed. Instead, the positions will be funded by quarterly fees assessed against large chapter 11 debtors — those that have quarterly disbursements of at least $1 million. And those fees won’t be assessed unless the U.S. Trustee’s System Fund dips below $200 million. The judgeships are to be for the districts of Delaware, Maryland, Nevada and Puerto Rico, the Southern District of Florida, the Eastern District of Michigan, the Eastern District of North Carolina and the Eastern District of Virginia.
Commentary: Bankruptcy Should Be a Last Resort for Struggling Hartford, Conn.
Last Tuesday, when Hartford, Conn., Mayor Luke Bronin announced that he had had initial conversations with attorneys who specialize in chapter 9 municipal bankruptcy, the move was a surprise to the municipal bond market, as well as other members of the Hartford city board who were unaware of the mayor's intentions, and many called the move premature, according to a commentary in Seeking Alpha today. For quite some time, it has been publicly known that Hartford is facing financial troubles. In October 2016, Moody's downgraded Hartford's general obligation debt to Ba2, citing the city's inability to run a balanced budget, tax increase constraints and the limited likelihood that the state of Connecticut will step in to assist them, given that the state is in fiscal straits. In fiscal year 2017, Hartford faces a $14 million deficit and expects to face an even greater $65 million deficit in fiscal year 2018. With all this news, and in an effort to be transparent, as recently as April of this year the mayor has said that bankruptcy was not off the table. Transparency was not the mayor's misstep; the wrong move he made was jumping to a last resort while skipping other meaningful steps along the way, according to the commentary. This was something that Hartford’s mayor understood back in June 2016 when he said bankruptcy was on the bottom of a list of solutions the city is pursuing. As other Hartford council members have expressed, Hartford has not exhausted all of the options; they have not even attempted to implement all of their available options. So by doing what the mayor believes is prudent, the city has essentially poisoned its own well, according to the commentary.
Analysis: The Struggle Behind Oil's Ups and Downs
A great struggle is unfolding in the world oil market, according to an analysis in the Wall Street Journal today. On the one side are forces pushing to rebalance supply and demand; on the other are those pulling to recalibrate the business so that it operates at lower cost. That tension explains why the price keeps jumping toward $60 a barrel and then falling back to near $40. Oil prices collapsed at the end of 2014 because supply and demand had gotten out of whack. That year, global supply grew 2.5 times as fast as demand. The shale revolution in the U.S. was a prime cause of the imbalance; American supply grew by 1.4 million barrels a day in 2014 — 60 percent of the entire increase. By the fall of 2016, lower prices had pushed supply down and stimulated demand, moving the two closer to balance. Around the world, spending on exploration and production for 2015-19 is 50 percent lower than what had been expected in 2014, before the price collapse. At the same time, demand grew in 2016 at almost double the 2014 rate. Rebalancing is now colliding with the other force — recalibration of costs to a lower level of oil prices. This massive adjustment is reshaping the way the global oil industry works.
Analysis: The Municipal Bond Ripple Effects of the Puerto Rico Bankruptcy
It's easy to conclude that Puerto Rico filing for Title III bankruptcy will mean nothing to the American economy, municipal bond market or stock market. The effects may be intangible or even obscure. However, the various securities that will be affected and the effect that the bankruptcy will have on macro investment considerations are worth exploring, according to an analysis in Seeking Alpha yesterday. There are far-reaching implications of the bankruptcy, as well as the possible restructurings, and most will affect the muni bond markets. By choosing bankruptcy, the entire economic future for Puerto Rico is placed in further jeopardy. It will make it far more difficult for the commonwealth to obtain capital to get itself out of recession, but there are broader-ranging investment concerns. There are major ripple effects that affect large mutual funds, tax-free bond strategies for many retired investors, and scattered individual bond issues. The holistic concern is that risk is now being added to a sector where traditionally risk was considered to be extremely low. That's because the Puerto Rico default is not only the largest in American history, it comes on the heels of Detroit, Stockton, Calif., and numerous other municipal defaults. Investors should be alarmed, according to the analysis, because the muni bond industry has sold investors on the idea of "safety" when situations like this reveal that is not always the case.
Analysis: Big Banks Can Relax: Trump's Modern Glass-Steagall Isn't Aimed at Breaking Them Up
The Trump administration took the idea of breaking up big banks off the table today, with Treasury Secretary Steven Mnuchin telling a congressional panel that isn’t what officials have in mind in reviewing the line between commercial- and investment-banking activities, according to an analysis in the Wall Street Journal today. “We do not support a separation of banks from investment banks,” Mr. Mnuchin said before the Senate Banking Committee. He said doing so would create problems for the “financial markets, on the economy, and liquidity.” The statement was a strong indication that the Trump administration’s review of U.S. banking regulations will be less onerous than Wall Street’s worst fears. President Trump’s economic team has said it is considering a modern version of the 1933 Glass-Steagall Act — a partially repealed law that would force the largest U.S. banks to break themselves apart if it were still in effect. The issue has created confusion and angst among bankers and analysts, however, and one reason is because Sen. Elizabeth Warren (D-Mass.), a member of the banking committee, has introduced a bill she also calls the “21st Century Glass-Steagall Act.” More details about how the Trump administration wants to tailor rules should come in June, when the Treasury Department is scheduled to report to the President about a broad review of financial regulations.
Experts Discuss SCOTUS Ruling onMidland Funding, LLC v. Johnson
ABI Editor-at-Large Bill Rochelle yesterday discussed the Supreme Court’s ruling last Monday on the Midland Funding, LLC v. Johnson case with litigators Craig Goldblatt of WilmerHale (Washington, D.C.) and Thad O. Bartholow of Kellett & Bartholow PLLC (Dallas). Click here to access the recorded webinar.
In a podcast jointly hosted with the National Creditor Bar Association (NARCA), ABI Resident Scholar Andrew Dawson discussed the Midland ruling with Lauren Burnette of Barron & Neuburger, P.C. (Austin, Texas) and consumer attorney Nick Wooten (Auburn, Ala.). Mr. Wooten represented the debtor in the related case of Crawford v. LVNV Funding, and Ms. Burnette co-authored an amicus brief on behalf of the creditors. Click here to listen to the podcast.
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New on ABI’s Bankruptcy Blog Exchange: Bipartisan Bill Would Raise Stress-Testing Thresholds for Community Banks
Sen. Jon Tester (D-Mont.) and Sen. Jerry Moran (R-Kan.) introduced legislation yesterday that would raise the stress testing threshold for small and community banks to $50 billion of assets, according to a recent blog post.
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