NEW PAPER PROPOSES ROLLING BACK THE CODE'S REPO SAFE HARBORS
A paper released last week said that the Bankruptcy Code has too aggressively and unwisely inserted itself into federal policy regulating market liquidity, and that the Code's "safe harbors" for repos largely backfired during the financial crisis. The study, titled "Rolling Back the Repo Safe Harbors," is co-authored by Prof. Mark Roe of Harvard Law with Prof. Ed Morrison of Columbia Law and Bankruptcy Judge Christopher Sontchi. All three are members of the ABI Chapter 11 Reform Commission's Advisory Committee on Derivatives, Financial Contracts and Safe Harbors. Roe, Morrison and Judge Sontchi propose in the paper that sounder policy would be to limit the repo safe harbors to U.S. Treasury repos and repos of similarly liquid government securities. Please click here to read the paper.
ARGENTINA'S DEFAULTED BONDS FROM 2001 PLUNGE AS PAYOUT ODDS FALL
Bonds left over from Argentina's $95 billion default in 2001 are falling on speculation that chances are fading for a settlement to compensate holders of the debt that sued for full repayment, Bloomberg News reported today. Bid prices on the untendered dollar-denominated securities have fallen about 23 cents to 100 cents on the dollar since July 30, when the nation defaulted for a second time in 13 years, according to prices from Seaport Group LLC. The securities extended losses after Argentina announced Aug. 19 plans to make payments locally on restructured debt to get around a U.S. judge's order that it pay $1.5 billion to the holdout creditors before servicing restructured debt. Argentina said it will pay the exchanged bonds through a local account, which the judge in the case, Thomas Griesa, has said would violate U.S. law. The proposal, which needs congressional approval, includes a plan to swap holdouts' defaulted bonds on the same terms as the previous restructurings they've twice rejected. Judge Griesa set an emergency hearing for today in New York after lawyers representing hedge fund NML Capital and other holders of untendered bonds called the nation's plan a "grave affront" to his orders and asked him to consider contempt sanctions against the South American nation. Read more.
NATIONAL CREDIT DEFAULT RATES REMAIN AT HISTORIC LOWS
Data through July 2014, released by S&P Dow Jones Indices and Experian for the S&P/Experian Consumer Credit Default Indices, shows a slight decline in consumer credit default rates, ACAInternational.org reported yesterday. The national composite was 1.01 percent in July, down one basis point from last month. The composite's default rate remains the lowest in more than 10 years. After nine consecutive months of declines, the first mortgage default rate fell to 0.88 percent. Auto default rates remain unchanged at 0.96 percent, which is only four basis points above their historical low. The bank card rate has declined 16 basis points to 2.86 percent. Read more.
WALL STREET SHOPPING FOR CMBS RATINGS AS WARNINGS RAISED
Wall Street is increasingly shopping around for good credit ratings in the booming commercial-mortgage bond market as lending standards slip, Bloomberg News reported today. Banks are avoiding Moody's Investors Service grades on new deals as the firm demands extra protection from defaults and instead are favoring raters that take a more optimistic approach. Moody's hasn't rated any of the riskier portions of the 14 CMBS deals issued since April, according to Bank of America Corp. "The selection bias is sowing the seeds for the acceleration in loosening underwriting standards," said Richard Hill, a debt analyst at Morgan Stanley. Risks in the $550 billion market for commercial mortgage-backed securities are growing as investors searching for higher-yielding assets accept bonds backed by loans with looser terms. Landlords are taking on bigger debt loads relative to the values of their properties, making it harder to refinance their mortgages and increasing the chance that defaults will rise if rents or occupancies decline. Read more.
G20 GETS READY FOR NEW BOUT OF RULEMAKING FOR FINANCIAL INDUSTRY
Leaders of the Group of 20 economies (G20) aim to draw a line under the 2007-09 financial crisis before the end of this year with the completion of reforms aimed at preventing taxpayers from having to rescue banks again in a future crisis, Reuters reported today. The G20 has already approved rules forcing lenders to hold more capital. Finance ministers in the group will meet in September ahead of a summit of G20 leaders to be held in November, to determine many of the remaining elements:
- Bail-in bonds: Aim is for a deal in November to require the world's 29 top banks to supplement their capital cushion with the issue of special bonds providing "gone concern loss absorption capacity" (GLAC).
- Financial derivatives: G20 regulators want powers to briefly suspend the closing out of contracts at a failed bank to win time for an orderly wind-down of the bank.
- Shadow banking: This refers to a vast, hitherto lightly regulated $70 trillion credit market that includes participants in debt instrument repurchase (repo) agreements, securities lending, and money market funds. The aim is to impose the world's first common minimum "haircut" or discount on the value of the collateral needed to back repo and securities lending transactions between banks and 'shadow banking' participants. There may be a public consultation on whether to apply such haircuts market-wide.
Responding to customers' complaints, some states are putting a spotlight on how financial advisers sell variable annuities -- and the results aren't pretty, the Wall Street Journal reported today. Advisers are paid hefty commissions for selling annuities, and too often, they are tripped up by the details of the complicated product. Some firms have beefed up policies and procedures to try to ensure proper use, and some advisers are skirting those rules, regulators say. One particularly troublesome area involves advisers persuading clients to liquidate one variable annuity to buy another, say regulators in Illinois, Florida and Massachusetts. Investors may think that they are getting a better product with better terms, but they can be hit with large surrender fees and tax bills. In June, Illinois ordered LPL Financial Holdings Inc., the country's largest independent broker network, to pay nearly $3 million for lax record-keeping on annuity switches. While some violations of sales practices may be deliberate, many aren't, says Pam Epting, director of the Division of Securities in Florida's Office of Financial Regulation. They happen because advisers fail to grasp all of the complexities of selling, buying and using variable annuities, she says. Read more. (Subscription required.)
NEW TO THE LAW PROFESSION? LAW FIRM RECENTLY ADD NEW ASSOCIATES TO THE RANKS? BE SURE TO PRE-ORDER ABI'S SURVIVAL GUIDE FOR THE NEW LAWYER!
Available now for pre-order in ABI's Bookstore is the Survival Guide for the New Lawyer: What They Didn't Teach You in Law School. The Survival Guide provides real-world guidance on the everyday aspects of practicing law, with a special emphasis on bankruptcy law. Full of anecdotal examples and hard-earned advice, this Guide is perfect for the aspiring lawyer fresh out of law school, or for any firm that wants to give its associates a leg up on the competition. Click here to pre-order, and be sure to log in first to obtain the ABI member discount!
NEW CASE SUMMARY ON VOLO: NEW CASE SUMMARY ON VOLO: BEHRENS V. U.S. BANK NATL ASSOC. (IN RE BEHRENS; 8TH CIR.)
Summarized by Bryan Robinson
In a series of unpublished per curiam opinions, the Eighth Circuit Court of Appeals affirmed the bankruptcy appellate panel's (BAP's) ruling upholding the bankruptcy court's order terminating the automatic stay under §362(d)(4) and permitting the completion of the foreclosure proceeding on the debtor/appellants property. The Eighth Circuit also affirmed the BAP's dismissal of the debtor/appellant's appeal from a bankruptcy court order because it was an unappealable interlocutory order. The Eighth Circuit denied the debtor/appellants motion to the BAP for stay pending appeal as moot and denied all pending motions filed by debtor/appellant as moot.
There are more than 1,400 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: ARGENTINA AND THE SWAP PUZZLE
A recent post looks at Argentinian President Cristina Fernandez de Kirchner's proposed law authorizing the executive to reroute payments on the restructured bonds out of New York, and to offer all bondholders local-law bonds on 2010 exchange terms. All the buzz has been about the swap. But there is no swap on the table, no capacity to execute a swap, and no more details about the swap than there have been in the press for months.
Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.
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