U.S. Leveraged Loan Defaults Hit 16-Month High of 2.17 Percent
With two issuers defaulting in July — C&J Energy Services and Transtar — the U.S. leveraged loan default rate reached a 16-month high of 2.17 percent, up from 1.97 percent at the end of June, according to the S&P/LSTA Leveraged Loan Index, Forbes reported yesterday. Publicly traded C&J Energy, an oilfield services company, became the sixth loan issuer in the oil-and-gas space to default in 2016. S&P Global Ratings downgraded the company to D after it reached a second forbearance agreement due in part to a missed interest payment (within the month, the company filed for chapter 11). Transtar, an aftermarket transmission parts distributor, had also been operating under a forbearance agreement, though it was downgraded to D by S&P Global Ratings last month after the company skipped interest payments on its term debt.
Puerto Rico Paying Some Escrow Debt as Defaults Continue
Puerto Rico's government made Aug. 1 debt payments only when the money had already been placed in escrow accounts, Bond Buyer reported yesterday. Gov. Alejandro García Padilla earlier this week vetoed a House bill to allot $450 million for debt payments due in this fiscal year, according to his office. The approved budget has no money approved for paying the government's debt. Debt service or debt service reserve accounts were used to pay the Puerto Rico Sales Tax Financing Corp. (COFINA), Employees Retirement System (ERS), Puerto Rico Highways and Transportation Authority (PRHTA), and Puerto Rico Industrial Development Company (PRIDCO) debt. According to Moody's Investors Service, COFINA owed $256 million, ERS $14 million, and PRHTA $600,000 on Aug. 1. Moody's didn't specify that PRIDCO had any debt due. The GDB source said $278 million was paid for COFINA bonds, $14
million for ERS bonds, $1 million for PRIDCO bonds, and $100,000 for PRHTA bonds. In addition, the Puerto Rico Aqueduct and Sewer Authority (PRASA) had $2.5 million due. PRASA said that it made this payment. Puerto Rico’s Government Development Bank, Puerto Rico Infrastructure Finance Authority, Public Finance Corp. and Puerto Rico (general obligation) didn't make their payments. According to Moody's, the GDB owed $28.5 million, Puerto Rico owed $1.3 million for the GO, and PRIFA owed $700,000. Moody's didn't indicate that the PFC had any debt due Monday.
Commentary: Wrong to Compare Puerto Rico’s Debt Crisis to Argentina’s
Before Capitol Hill acted this summer to allow Puerto Rico to restructure its debt, many political and financial analysts assumed that hedge funds and other financial interests would kill any attempts by Washington, D.C., to give the Caribbean island some leverage over their debtors, according to a commentary in The Hill today. They were wrong, and President Barack Obama signed the Puerto Rico Oversight, Management and Economic Stability Act (or PROMESA, which means promise in Spanish). PROMESA isn’t perfect, but it helped remove the likelihood that hedge funds that held much of Puerto Rico’s debt would spend the next several years in court to try and get as much of their money back as possible. This would have been a disaster for Puerto Rico, because it would have created years of additional economic uncertainty and further dragged down the commonwealth, according
to the commentary. Because the Puerto Rico situation is being managed in a responsible way, the media and others who compare that situation to the debt crisis in Argentina – which lasted from 2001 until this year – are completely off-base.
Chicago Seeks Tax Hike to Avert Insolvency for Pension Fund
Chicago Mayor Rahm Emanuel is seeking higher utility taxes to keep the city’s largest pension fund from running out of money and set all four retirement plans on a path to solvency, Bloomberg News reported yesterday. The city wants to raise the levies on water and sewer bills to shore up the Municipal Employees’ Annuity and Benefit Fund of Chicago, the most underfunded of the four pensions, Emanuel said yesterday. Without changes, the pension that serves more than 70,000 workers and retirees is on track to run out of money within a decade. The plan would boost Chicago’s payments to the fund by no less than 30 percent over five years starting with the 2017 contribution. New employees will have to pay 3 percent more to their pensions, and employees hired after Jan. 1, 2011, have the option to retire earlier, but will have to contribute more to their retirement fund. The
proposal projects that the pension will be 90 percent funded in 2057.
Editorial: As Homes and Cars Go, So Goes the Economy
Purchases of homes and cars are the twin pillars of the consumer economy — the starting point for other major economic activity, including taking out loans, buying insurance, paying taxes and spending on goods and services, according to a New York Times editorial on Tuesday. As such, they are key measures of the depth of a recession and the strength of a recovery. Both have rebounded since the recession that began in late 2007 and extended to mid-2009. And each continues to be a relatively bright spot in the economy. But the unexpectedly weak economic report released on Friday for the second quarter of 2016, the third dismal quarterly report in a row, is a reminder that the recovery has never been robust — and may be in danger of petering out before the damage from the recession is fully repaired. Neither the housing market nor the auto industry would have survived
without federal efforts to stabilize and reform them, according to the editorial. The bailouts of General Motors and Chrysler — Ford said it didn’t need one — gave both companies time to get back on their feet. The housing rescue could have been more effective had it not been biased toward helping the banks and not the homeowners, an imbalance that led to more foreclosures and deeper price declines than otherwise would have been the case. Home-buying and car-buying have also been helped by the Federal Reserve policy of prolonged low interest rates. But to effectively bolster a very weak economy, low rates need to be paired with federal spending and other fiscal support, according to the editorial.
Latest ABI Podcast Features Authors Discussing Issues Surrounding Secured Creditor Claims in Bankruptcy
ABI Deputy Executive Director Amy Quackenboss talks with Mark Stingley and Michelle Masoner of Brian Cave LLP (Kansas City, Mo.), both authors on ABI's newest publication, How Secure Are You? Secured Creditors in Commercial and Consumer Bankruptcies. The book was written by members of ABI's Secured Credit Committee to provide practitioners with in-depth analysis of the most common concerns in secured claim disputes, including citation to important case law. Stingley and Masoner, both members of the committee, discuss the book and how it is an indispensable guide for anyone whose work involves secured creditor claims. Click here to
listen.
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New on ABI’s Bankruptcy Blog Exchange: The Time Has Come to Turn the GSEs into Utilities
Returning Fannie Mae and Freddie Mac to their status as privately owned public utilities is consistent with their mandate and makes the most policy sense, according to a recent blog post.
To read more on this blog and all others on the ABI Blog Exchange, please click here.
