REPORT: CONSUMERS WITH LOW STUDENT DEBT HAVE THE MOST TROUBLE PAYING IT BACK
A new report from the Federal Reserve Bank of New York shows that Americans who carry college debt are increasingly struggling to repay it, and the people most likely to fall behind on payments are, surprisingly, the ones without much debt relative to their peers, Bloomberg News reported today. In a blog post published today, the New York Fed focused on the group of borrowers who are in the most desperate situations -- the ones in default, meaning they are at least 270 days late on loan payments. College students whose loans became due in 2009 -- which means they likely left school around that time – were more likely to be in default than those with earlier loans. Twenty-six percent of this group ended up in default five years out of school. "The highest default rates, at nearly 34 percent, are among the borrowers who owe less than $5,000," the report said. People with balances of less than $10,000 were the next most likely to default. What’s more, those who owe relatively little account for a large chunk of student debtors: 43 percent of Americans with loans due in 2009 owed less than $10,000. The researchers suggested that one reason smaller scale borrowers may be in worse shape is that they "may not have completed their schooling, or may have earned credentials with lower payoffs than a four-year college degree." Read more.
Take a closer look at the latest trends in student loans and bankruptcy on the March 18 ABI Live Webinar. For more information or to register, please click here.
LENDERS STEP UP FINANCING TO SUBPRIME BORROWERS
Loans to consumers with low credit scores have reached their highest level since the start of the financial crisis, driven by a boom in car lending and a new crop of companies extending credit, the Wall Street Journal reported yesterday. Almost four of every 10 loans for autos, credit cards and personal borrowing in the U.S. went to subprime customers during the first 11 months of 2014, according to data compiled for the Wall Street Journal by credit reporting firm Equifax. This has amounted to more than 50 million consumer loans and credit cards totaling more than $189 billion, the highest levels since 2007, when subprime loans represented 41 percent of consumer lending outside of home mortgages. Additionally, a Federal Reserve Bank of New York report released on Tuesday showed that total household debt increased $306 billion, or 2.7 percent, in the fourth quarter of 2014 from the year-ago period, to its highest level since the third quarter of 2010. One potential check on the growth of subprime lending could come from the U.S. government. Out of concern that some are being saddled with loans they can’t afford, the Consumer Financial Protection Bureau is working on a requirement for some short-term lenders to consider borrowers' ability to repay loans. Such requirements already exist for credit cards and home loans. Read more. (Subscription required.)
HOUSE JUDICIARY SUBCOMMITTEE HEARING NEXT WEEK TO EXAMINE THE "PUERTO RICO CHAPTER 9 UNIFORMITY ACT OF 2015"
The House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law will hold a hearing on Feb. 26 at 11:30 a.m. to examine H.R. 870, the "Puerto Rico Chapter 9 Uniformity Act of 2015." The legislation was introduced on Feb. 11 by Resident Commissioner of Puerto Rico Pedro Pierluisi to amend the Bankruptcy Code to include Puerto Rico as a "State" for purposes of who may be a debtor under chapter 9 of the Bankruptcy Code. This would allow for the restructuring of public debt by insolvent government-owned corporations in Puerto Rico. State governments are not eligible to adjust their debts under chapter 9 of the Bankruptcy Code, but a "political subdivision or public agency or instrumentality of a State" can adjust its debts under chapter 9 if authorized by state law. Pierluisi had introduced the "Puerto Rico Chapter 9 Uniformity Act of 2014" during the 113th Congress on July 31, 2014. That measure was referred to the Subcommittee on Regulatory Reform, Commercial and Antitrust Law, but it did not advance. A recent court opinion invalidating Puerto Rico’s restructuring law as pre-empted by federal law gives the new bill some momentum. To read the full analysis, please click here.
To read the full text of H.R. 870, please click here.
ANALYSIS: LEVERAGED LOANS NEED TO RESHAPE THEIR PITCH AS INDIVIDUALS FLEE
Mutual funds that buy loans saw $4 billion yanked away from them last month, bringing total outflows for the 12 months ended Jan. 31 to $28.7 billion, according to Morningstar Inc. data, representing the biggest withdrawal for any U.S. debt asset class in the period, Bloomberg News reported today. The trend is a reversal from 2013, when individuals poured unprecedented amounts into the funds to protect themselves from losses tied to rising government-bond yields. The outflows have continued into this year, even though the Fed is forecast to finally raise overnight interest rates from about zero, where they've been since 2008. The change in sentiment doesn't make it any easier for companies and private-equity firms that rely on this market for cash. There's no one clear-cut reason why these funds have become so distasteful to individuals. Part of it may be that loans have gotten a bad name from regulators. The Fed has been telling banks to improve their underwriting standards, and the Financial Industry Regulatory Authority has been questioning the antiquated mechanics of how the debt actually trades -- and whether that will make it difficult for mutual-fund investors to get out. Read more.
LATEST ABI PODCAST EXAMINES ORAL ARGUMENT IN WELLNESS CASE
ABI Resident Scholar Prof. Anne Lawton is joined by Jonathan Landers of Scarola Malone & Zubatov LLP (New York), Brady Williamson of Godfrey & Kahn, S.C. (Madison, Wis.) and Prof. S. Elizabeth Gibson, the Burton Craige Professor of Law at the University of North Carolina (Chapel Hill, N.C.), to discuss the oral argument in Wellness International Ltd. v. Sharif currently being considered by the Supreme Court. All three guests are conferees of the National Bankruptcy Conference and authored a report titled, "Wellness International Ltd. v. Sharif: Stern and State Law Claims and The Constitutional Validity of Consent." Click here to listen to the podcast.
To read the report by Landers, Williamson and Brady, please click here.
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 275-page guide (plus over 500 sample pages from liquidation and litigation cases).
SOUTHERN FLORIDA ABI MEMBERS INVITED TO ATTEND DISTRESSED INVESTING SUMMIT IN PALM BEACH
ABI members in Southern Florida are invited to attend the 2015 Distressed Investing Summit on Feb. 22 and 23 at The Colony Hotel in Palm Beach. The program will feature a symposium bringing together 200 of the industry’s most active dealmakers and other key market experts: academics, media, government and policymakers. Symposium delegates will engage in interactive sessions led by a faculty of more than 35 industry leaders on the key issues facing the distressed investing and restructuring markets today. The program will conclude with the Ninth Annual M&A Advisor Turnaround Awards, which recognize the leading distressed M&A transactions, restructuring, refinancing, products and services, firms and professionals in the U.S. and international markets. ABI members can attend the afternoon symposium sessions on Feb. 23 as guests of ABI and the M&A Advisor! For more information and to register, please click here.
NEW 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)
NEW CASE SUMMARY ON VOLO: DAVIS V. U.S. BANK, N.A. (IN RE DAVIS; 9TH CIR.)
Summarized by Lars Fuller of BakerHostetler
The Ninth Circuit affirmed the ruling of the BAP, which had affirmed the ruling of the bankruptcy court dismissing the debtor's chapter 12 bankruptcy because the debtor's debts exceeded the statutory limit. The Ninth Circuit agreed that even though the debtor had discharged her personal liability on secured claims in a chapter 7 bankruptcy filed less than a year before, the amount of the "claims" for purposes of the statutory limit was the total amount of the secured claims, even though the real property that secured the claims was worth less than half of the statutory limit. Thus, even though the secured creditors' liens might be limited to the value of the collateral, and even though the debtor did not have any personal liability for any deficiency to the secured creditors, for purposes of the statutory limit, the bankruptcy court correctly counted the total amount of the secured creditors' claims without reduction to the value of the collateral.
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: EXAMINING POST-PETITION FINANCING IN THE FINAL REPORT OF THE ABI CHAPTER 11 REFORM COMMISSION
A recent blog post examined the post-petition financing recommendations in the Final Report of ABI's Commission to Study the Reform of Chapter 11.
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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NEXT WEEK: Distressed Investing Summit
Feb. 22-23, 2015 Palm Beach, Fla. ABI members can attend the afternoon symposium sessions on Feb. 23 as guests of ABI and the M&A Advisor!