New Guidelines Shift Focus for Student Loan Debt Collectors

Under new guidelines the Obama administration proposed yesterday, companies responsible for handling nearly $1 trillion in direct federal student loans would have to shift their focus from collections to helping borrowers manage or discharge their debt, Bloomberg News reported yesterday. The directives, contained in a memorandum from the Department of Education to the department’s Federal Student Aid office, include:

•    Requiring companies to inform delinquent borrowers of their eligibility for income-based repayment plans before demanding they make a payment.
•    Requiring loan contractors to make vigorous efforts to contact borrowers at risk of default and walk them through their options.
•    Creating teams of specially trained customer service representatives within each contractor that would immediately handle inquiries from struggling borrowers who call for help.
•    Setting strict deadlines for loan companies to process borrowers’ applications for various repayment plans.
•    Demanding that companies inform borrowers potentially eligible for loan cancellations about their debt discharge options before discussing repayment.

Credit-Rating Agencies Decline Investment Grade for PREPA Bonds

U.S. credit-rating agencies have declined to give the Puerto Rico Electric Power Authority’s (PREPA) Restructuring Bonds a high credit rating, as was agreed to in the deal to restructure the utility’s $9 billion debt, which may force PREPA to renegotiate the agreement, Caribbean Business reported today. Earlier this year, PREPA and about 70 percent of its bondholders reached a deal in which creditors agreed to a 15 percent cut in repayments in exchange for newer bonds with higher ratings. To ensure those ratings, PREPA agreed to create an extra charge, also known as a transition charge, on customers’ bills to pay for the new bonds. The Puerto Rico Energy Commission recently approved the transition charge and an adjustment mechanism to pay for the new bonds.

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.

Analysis: The Risk Oil Drillers Couldn’t Hedge Away

To provide themselves a cushion against sharp drops in oil prices, drilling companies often buy hedges — financial contracts that pay off when prices fall, Bloomberg News reported today. Now a quirk of bankruptcy law has stripped some shale drillers of that insurance just when they need it most. Houston-based Linn Energy, for example, bought contracts that guaranteed a price of $90 a barrel, even if prices were lower. It paid off: By the end of March, with oil below $45 a barrel, Linn’s hedges were worth $1.5 billion, making them among the company’s most valuable assets. The hedges weren’t enough, however, to keep Linn out of financial trouble after the oil price plunge. This put Linn’s lenders, a syndicate of more than 20 companies, in an odd position. Linn owed them $4 billion and was about to go into bankruptcy. Yet some of those same lenders — it’s not clear which ones — were also on the other side of Linn’s hedges, paying $100 million per month to Linn to settle the contracts as they came due. Put simply, Linn’s bankers had two losing bets at once. Then came the solution: In the weeks leading up to Linn filing for bankruptcy protection in May, its oil and gas hedges were sold off for their market value. The resulting $1.2 billion in cash was applied to paying off its loans. Linn agreed to the sale, but if it hadn’t, bankruptcy law would have allowed the lenders to seize the contracts anyway.

U.S. Existing-Home Sales Climb to Strongest Rate in Nearly a Decade

Sales of previously owned homes rose to their strongest pace in nearly a decade in June, buoyed by low mortgage rates and an improving economy, the Wall Street Journal reported today. The pace of existing home sales increased 1.1 percent last month from May to a seasonally adjusted rate of 5.57 million, the National Association of Realtors said Thursday. That puts them at their highest level since February 2007. Sales for May were revised to 5.51 million from an initially reported 5.53 million.


For more on existing housing sales trends, be sure to check out ABI's Chart of the Day.
 

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