No Bankruptcy Aid for Marijuana Businesses, USTP Officials Say in ABI Journal
The U.S. Department of Justice is issuing another reminder that marijuana businesses don't have a right to bankruptcy proceedings, Forbes reported. "Marijuana continues to be regulated by Congress as a dangerous drug, and as the Supreme Court has recognized, the federal prohibition of marijuana takes precedence over state laws to the contrary," Clifford J. White III, director of the Justice Department's Executive Office for U.S. Trustees, and John Sheahan, a trial attorney for the agency, wrote in a December ABI Journal article. The U.S. Trustee Program's position, they say, is that the bankruptcy system cannot aid in liquidating or restructuring any assets associated with cannabis. "The USTP’s response to marijuana-related bankruptcy filings is guided by two straightforward and uncontroversial principles," the two Justice Department officials write. "First, the bankruptcy system may not be used as an instrument in the ongoing commission of a crime and reorganization plans that permit or require continued illegal activity may not be confirmed. Second, bankruptcy trustees and other estate fiduciaries should not be required to administer assets if doing so would cause them to violate federal criminal law." Click here to read the full article from the December ABI Journal.
GOP Power Play in Hurricane-Ravaged Puerto Rico
When the White House released its latest funding request on Nov. 17 — $44 billion in all — only a fraction in direct aid was designated to Puerto Rico, prompting widespread criticism, Roll Call reported. The administration said in its letter to Congress that it is awaiting estimates on damages from both Puerto Rico and the U.S. Virgin Islands before providing additional funding. But in a boon to advocates, it also stated for the first time that Congress should waive restrictions on reconstruction so that Puerto Rico can be rebuilt to a better standard than before. The disaster effort — while expected to pass before lawmakers leave for the December holidays — faces steep competition for political attention and a place on Congress’s packed legislative calendar. The GOP majority’s main focus through the end of the year is its work on a broad overhaul of the tax code and a debate on reshaping the health care system. Indeed, there is a major provision in the House version of the GOP tax overhaul that Puerto Rico strenuously opposes; it would essentially impose a new 20 percent excise tax on U.S. subsidiaries doing business on the island. Governor Ricardo Rosselló wants Puerto Rico exempted from that provision. González-Colón, the island’s delegate, wants alternative tax incentives and believes the only chance to make changes would be when the bills get ironed out in conference committee.
In related news, a Bloomberg Businessweek commentary said that delays in restoring and running power consistently — PREPA’s generation capacity is only around 68 percent — are undermining Puerto Rico’s entrepreneurs. Business conditions have been bad for years, a result of a decade-long recession, which has spurred significant migration away from the island. As many as 470,000 Puerto Ricans may move to the mainland through 2019, according to a report by the Center for Puerto Rican Studies at Hunter College in New York, because of Maria’s destruction. In early December a federal judge canceled plans to bring Puerto Rico’s $74 billion bankruptcy case back to the island because of hotel closures. Nelson Ramírez, president of the Centro Unido de Detallistas (CUD), a small-business advocacy group in San Juan, estimates two-thirds of the island’s roughly 45,000 small and midsize businesses have closed temporarily. “Our conservative estimate was 5,000 businesses wouldn’t ever reopen,” Ramírez says. “But it could easily reach 10,000.” Permanent closures could hit 40 percent, says Arnaldo Cruz, director of research and analytics at the nonprofit Foundation for Puerto Rico.
Student Loan Debt Is Now as Big as the U.S. Junk Market
U.S. student loan debt now equals the size of the $1.3 trillion U.S. high-yield corporate bond market, presenting investors with a whole different range of risks, Bloomberg News reported. “Delinquency rates on student loans are much higher than those on auto loans or mortgages, due to loose student loan underwriting standards, the unsecured nature of student debt, and the inability to charge off non-performing student loans in bankruptcy,” Goldman Sachs Group Inc. analysts Marty Young and Lotfi Karoui wrote in a note on Tuesday. “The substantial majority of student loan default risk is borne by the U.S. Treasury.” While the trend of rising defaults on student loans doesn’t pose “systemic financial risks,” it does impact household behavior, as the debt load itself hurts home ownership rates, Young and Karoui said. The share of student loan debt that is securitized, meaning it’s backed by assets and known as asset-backed securities, is about $190 billion, according to Goldman Sachs. Of that, about $150 billion is linked to loans where the repayment of the principal is guaranteed by the U.S. government.
Large Bank Failure Could Still Spark a Crisis, Treasury Researcher Says
The failure of a large financial institution could still set off or magnify a crisis, according to a report published Tuesday by an independent arm of the U.S. Treasury Department, the Wall Street Journal reported. Even with post-crisis rules aimed at laying out a plan to deal with the potential collapse of a large institution, the financial system could still be shaken if one or more big banks fail, according to the report. Of particular concern is whether insolvent banks would be able to deal with their derivatives portfolios, an issue that helped exacerbate the 2008 financial crisis. A key risk, the report found, is the simultaneous failure of multiple global systemically important banks, a regulatory classification that includes major firms like Citigroup and JPMorgan Chase & Co. “It is doubtful that more than one G-SIB could be restructured and released from [Federal Deposit Insurance Corp.] oversight — much less be wound down — quickly enough to stabilize the U.S. financial system,” the report said. A bank failure during a market crisis that’s worse than expected could also pose difficulties for banks seeking to raise funds by ditching parts of their businesses. “Market strains could hinder asset disposition strategies,” the report said.
Chicago Sells New Kind of Debt Amid Strong Muni Demand
Strong demand yesterday in the U.S. municipal bond market drove yields lower on a Chicago bond sale under a new debt structure, Reuters reported. The $575 million of tax-exempt and taxable bonds were the first to be sold by the city’s new Sales Tax Securitization Corporation and came to market as U.S. muni bond prices rallied amid a huge surge in supply. Chicago created the corporation earlier this year to refinance up to $3 billion of its sales tax revenue and general obligation bonds and produce an initial $94 million in savings for the city’s fiscal 2018 budget. A chronic structural budget deficit and a huge unfunded pension liability that totaled $35.76 billion at the end of 2016 have led to low credit ratings and increased borrowing costs for the nation’s third-largest city. The corporation pledged Chicago’s state-collected sales tax revenue to pay off the new bonds. Investors get a statutory lien shielding the debt from municipal bankruptcy, which is not allowed under Illinois law. The bonds are rated AAA by Fitch Ratings and AA by S&P Global Ratings, both of which are several notches higher than the city’s GO ratings of BBB-minus by Fitch and BBB-plus by S&P.
Revamped Law.abi.org Site Provides Enhanced Way to Tap into Bankruptcy Code, Rules and Local Rules from Any Device!
The revamped law.abi.org site provides ABI members an enhanced way to access — and annotate — the Bankruptcy Code, Federal Rules of Bankruptcy Procedure and Local Rules from any device. New features on the revamped site allow practitioners to:
• annotate any Bankruptcy Code section for future reference;
• read corresponding pertinent Collier case updates (from LexisNexis), Rochelle’s Daily Wire analyses and cross-references from ABI’s Opinions site;
• bookmark frequently used sections;
• view local rules for all 50 states and territories; and
• quickly search the Code and Rules for relevant terms.
The site also incorporates the amendments to the Federal Rules of Bankruptcy Procedure that became effective December 1.
ABI's Newest Title Helps Businesses Understand What to Expect When a Customer Declares Bankruptcy
ABI’s Business Creditor’s Guide to Distressed Vendors, Debt Collection and Bankruptcy provides strategies for business owners in the event that a major customer files for bankruptcy and leaves behind a large unpaid account receivable. Co-authored by Polsinelli's Christopher A. Ward and Shook Hardy & Bacon, LLP's Ryan G. Foley, the Guide offers options available to help screen a business’s customers, plan for worst-case scenarios, and, if the situation does arrive, efficiently handle the financial fallout. This book offers background and insight into such matters as why businesses fail, the Fair Debt Collection Practices Act, and other statutes that affect a business’s relationship with its vendors, relevant chapters of the Bankruptcy Code that affect debt settlement, out-of-court alternatives to bankruptcy that might come into play, and several other concepts that business owners should be aware of when dealing with distressed vendors. Click here to order.
Sign up Today to Receive Rochelle’s Daily Wire by E-mail!
Have you signed up for Rochelle’s Daily Wire in the ABI Newsroom? Receive Bill Rochelle’s exclusive perspectives and analyses of important case decisions via e-mail!
New on ABI’s Bankruptcy Blog Exchange: Reducing Payments Does More than Reducing Principal, Study Shows
A new study by JPMorgan Chase Institute of post-crisis modifications found that cutting payments helps stave off default, but principal reduction on underwater loans and lower consumer debt levels are less effective, according to a recent blog post.
To read more on this blog and all others on the ABI Blog Exchange, please click here.
