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Analysis: Canceling Student Debt Has a Life-Changing Effect on Borrowers — and Raises Their Income by an Average of $4,000

ABI Bankruptcy Brief

May 9, 2019

 
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NEWS AND ANALYSIS

Analysis: Canceling Student Debt Has a Life-Changing Effect on Borrowers — and Raises Their Income by an Average of $4,000

Cancelling student loans frees up borrowers to make decisions that can improve their financial lives, according to a working paper distributed this week by the National Bureau of Economic Research, MarketWatch.com reported yesterday. When roughly 10,000 borrowers had their private student loans cancelled, they were more likely than similar borrowers to move, change jobs or return to school, the paper found. They also saw their incomes increase by $4,000 over a three-year period on average, which equates to roughly two months’ salary on average. In addition, these borrowers were less likely to rely on other forms of credit — reducing their indebtedness by 26 percent — and 12 percent less likely to default on those accounts, the researchers found. “There are quite significant benefits of intervening in the student loan market by forgiving student debt,” said Marco Di Maggio, a professor at Harvard Business School and one of the authors of the paper.



The issue of student loan debt and bankruptcy is the first problem addressed in the Final Report of the ABI Commission on Consumer Bankruptcy. Click here to download your copy.

Sanders, Ocasio-Cortez Want to Cap Credit Card Interest Rates at 15 Percent

Sen. Bernie Sanders (I-Vt.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.) will introduce legislation today to cap credit card interest rates at 15 percent, the Washington Post reported. Sanders, the Vermont senator running for the Democratic nomination for president, said that a decade after taxpayers bailed out big banks, the industry is taking advantage of the public by charging exorbitant rates. “Wall Street today makes tens of billions from people at outrageous interest rates,” he said. Ocasio-Cortez (D-N.Y.) will introduce the House version of the bill. “There is no reason a person should pay more than 15 percent interest in the United States,” she said on Twitter. “It’s a debt trap for working people + it has to end.” In addition to a 15 percent federal cap on interest rates, states could establish their own lower limits under the legislation.

Commentary: Leveraged-Loan Pushback Is Too Little, Too Late

For fund managers, it’s easy to be picky when money is tight, but not so simple when they’re rolling in cash, according to a Bloomberg commentary on Tuesday. Leveraged-loan investors are suddenly willing to push back on the pervasive weakening of covenants, the safeguards in offering documents that are meant to protect creditors. In January, Moody’s Investors Service determined that covenant quality in leveraged loans was the worst on record in the third quarter of 2018. It hasn’t gotten much better since. On Monday, the Federal Reserve echoed that sentiment, further amplifying its warnings about risky corporate debt in a twice-a-year financial stability report. “Credit standards for new leveraged loans appear to have deteriorated further over the past six months,” the Fed said, with its board voting unanimously to approve the document. “The historically high level of business debt and the recent concentration of debt growth among the riskiest firms could pose a risk to those firms and, potentially, their creditors.” It might be too little, too late for investors to get tough on leveraged-loan issuers, according to the commentary. Already, UBS Group AG estimates that loan owners may end up recouping about 40 cents on the dollar in a downturn, potentially less than half what they’d historically expect to get. Moody’s has estimated recovery rates of 61 percent on first-lien loans and 14 percent on second-lien obligations in a recession, down from long-term historical averages of 77 percent and 43 percent, respectively.

Pensions Have Tripled Their Investment in High-Risk Assets, but Research Questions Whether It Is Paying Off

Public pensions are more invested than ever before in high-risk and expensive assets like real estate and hedge funds, yet research continues to show that this tactic is unlikely to improve their earnings, Governing magazine reported yesterday. According to Fitch Ratings, in the span of a decade, pensions tripled their average investment in these so-called alternative investments. In 2007, they averaged 9 percent of state and local public pension investment portfolios. By 2017, that number had risen to 27 percent. During that period, median average returns on overall investments were 6.2 percent, according to Fitch. But during the longer period between 2001 and 2017, reflecting a time of less reliance on alternative investments, they were actually slightly better: 6.4 percent. “If you look at trends and allocation to riskier assets and the returns we see alongside them, you clearly see that you can’t necessarily say you’re getting the bang for the buck over the last 17 years,” says Fitch analyst Olu Sonola, who authored the report. The report adds to the growing body of evidence that alternative investments are not worth the extra cost and risk. In fact, they may be lowering pensions' earnings and costing state and local governments more money. Pensions' average investment returns — overall, not just on alternatives — failed to meet expectations between 2001 and 2017, even though those expectations lowered from 8 percent to 7.5 percent. Plans that don’t meet expectations require state or local governments to put more money in pension systems. Even high-performing pension systems like Colorado, Oklahoma, Utah and Wisconsin have had to increase their payments or give up being fully funded for this reason.

Trump Taking Aim at ‘Surprise Medical Bills’

President Donald Trump will begin a push today to fight health care sticker shock by limiting “surprise medical bills,” the unexpected charges faced by insured patients when a member of a health care team that treated them is not in their insurer’s network, the Associated Press reported. Senior administration officials said that Trump will outline principles he can support as part of legislation to limit such billing practices. Patients being treated for medical emergencies often are in no position to check into whether their insurers have contracted with their surgeons or anesthesiologists to provide medical care. Trump wants to make it clear that patients who receive emergency care should not be hit with charges that exceed the amount paid to in-network providers. “Surprise” bills amounting to tens of thousands of dollars can hit patients and their families when they are most vulnerable — after a medical emergency or following a complex surgical procedure. Often patients are able to negotiate lower charges by working with their insurers and the medical providers. But the process usually takes months, adding stress and anxiety. The officials said that the legislation also should protect patients seeking elective care by ensuring that they are fully informed before scheduling their care about which providers will be considered out of network and what extra costs that will generate.

Small Mortgages Are Getting Harder to Come By

Some low- and middle-income home buyers are having a hard time getting mortgages for an unexpected reason: The loans they’re applying for are too small, the Wall Street Journal reported today. Lenders extended about 106,000 mortgages with balances between $10,000 and $70,000 in the U.S. last year, worth $5.1 billion. That is down 38 percent from almost 171,000 in 2009, according to figures compiled by Attom Data Solutions, a real estate data firm. The drop-off at the bottom end of the market has been far swifter than at the top. Origination was down a more modest 26 percent for mortgages between $70,000 and $150,000, and it rose 65 percent for mortgages above that range. Only about a quarter of homes that sold for less than $70,000 were financed with a mortgage, while almost 80% of sales between $70,000 and $150,000 had one, according to an Urban Institute analysis last year. Low-end borrowers had their applications denied at a higher rate than those taking out bigger mortgages even when comparing borrowers with similar credit quality, according to the think tank.

Latest ABI Podcast Examines the Intersection of Tribal Sovereignty and Bankruptcy

ABI Editor-at-Large Bill Rochelle talks with former ABI Resident Scholar Prof. Jack Williams of Georgia State School of Law (Atlanta) about the intersection of tribal sovereignty and bankruptcy law. Williams, who is of Native American descent and coordinates outreach to Native American tribes on ABI's Veterans Affairs Task Force, analyzes emerging issues regarding tribal sovereign immunity, the collision between state and tribal jurisdiction, and a brewing dispute over the ownership of former tribal lands and mineral rights. Click here to listen.

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New on ABI’s Bankruptcy Blog Exchange: Dear CFPB: Let the QM ‘Patch’ Expire

A GSE exemption in the Consumer Financial Protection Bureau’s “qualified mortgage” rule is set to sunset in 2021, and regulators should not try to extend it as some experts have suggested, according to a recent blog post.

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Remington's Bankruptcy Draws Spotlight on Private Equity's Financial Engineering

ABI Bankruptcy Brief

May 2, 2019

 
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NEWS AND ANALYSIS

Analysis: Remington's Bankruptcy Draws Spotlight on Private Equity's Financial Engineering

When private-equity firm Cerberus Capital Management bought Remington in 2007, sales were strong and the future bright, according to a New York Times analysis. A decade later, Remington couldn’t escape its debts and had to file for chapter 11 protection. In order to buy Remington, Cerberus created a new entity, a holding company. Instead of Cerberus buying a gun company, it put money into the holding company, and the holding company bought Remington. The entities were related, but each could borrow money independently. In 2010, Cerberus had the holding company borrow $225 million from an undisclosed group of lenders, most likely hedge funds. Because this loan was risky — the lenders would be paid only if Remington made a lot of money or was sold — the holding company offered a generous interest rate of around 11 percent, much higher than a typical corporate loan. When the interest payments were due, the holding company paid them not in cash but with paid-in-kind (PIK) notes. The holding company spent most of the $225 million buying back its own stock, effectively transferring all the borrowed cash to Cerberus. In April 2012, Cerberus had Remington borrow hundreds of millions of dollars and use it to buy the holding company’s debt, effectively transferring responsibility for the principal and the interest payments onto Remington. Because the operating company borrowed the money with a normal loan — and not with PIK notes — interest payments were required in cash. Suddenly Remington was carrying hundreds of millions of dollars in debt that, if it could not be paid, would cause the business to go bankrupt. After the 2016 election, researchers at Cerberus saw an omen in their data. Applications through the National Instant Criminal Background Check System, which are known as “NIC checks,” were dropping by double-digit percentages. A plunge in NIC checks foreshadows a corresponding plunge in gun sales, which is what happened in the months that followed. Remington’s profit slid toward zero. Remington had been loaded with debt; now it couldn’t pay the interest. Banks controlling the debt made a proposal: They would exchange the money they were owed for an ownership stake in Remington via a “debt-for-equity swap” in chapter 11 bankruptcy. This arrangement would allow Remington to stay running, albeit under distant ownership, until a plan could be drawn up for its future, such as a sale or a liquidation of assets.



Puerto Rico Governor Requests Fiscal Board Be Removed as Representative in Restructurings

While Gov. Ricardo Rosselló praised the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) for providing tools to facilitate the island’s debt restructuring, he said that the panel should not meddle in the government’s affairs and should be removed as representative of the debtors in the commonwealth’s bankruptcy process, Caribbean Business reported today. Rosselló testified at a U.S. House Natural Resources Committee hearing today that was analyzing PROMESA and the operations of the oversight board it established. He said a “naïve and problematic” narrative exists that the island’s government is not doing its job, that the government refuses to carry out structural reforms, and that the oversight board is the solution to address said mismanagement. He listed structural reforms the government has implemented such as in education, energy, and an earned income tax credit.



Disputing this view, Puerto Rico Oversight Board Chairman José Carrion said in a New York Post commentary that years of local government fiscal mismanagement created a debt burden of more than $70 billion. That amount, plus $60 billion in unfunded pension liabilities, reflect a culture of government officials making promises they couldn’t afford and a decade of recession combining to engulf the island in a sea of red ink. The oversight board, appointed by Congress, is imposing budgetary discipline and making the case for deep economic reforms, according to Carrion. Thus far, the board has successfully renegotiated some of the island’s debt, and is working on agreements with the other creditors. There are several reforms Puerto Rico could take on, including welfare-to-work measures and making Puerto Rico an employee-at-will state. Unfortunately, the current government isn’t implementing all of these reforms, despite the fact that they could make Puerto Rico much easier to do business in and present a better case for attracting investments.



The House hearing comes a day after the Board filed more than 200 clawback actions targeting payments of more than $4 billion to creditors by the government, made while the commonwealth was in the zone of insolvency. Click here to read the prepared statements from today’s hearing.

Latest ABI Podcast Features New SIPC CEO Discussing Recovery Efforts in Madoff Case

ABI Editor-at-Large Bill Rochelle talks with Josephine Wang, who was named president and CEO of the Securities Investor Protection Corp. (SIPC) on April 1. Wang joined the legal staff of SIPC in 1983 and was promoted to General Counsel in 2004. She supervised the appeal by SIPC in the Second Circuit on the question of whether a trustee can recover fraudulent transfers from subsequent recipients abroad. Ruling that fraudulent transfer claims can reach recipients abroad, the appeals court reversed the district court. The reversal revived 88 lawsuits brought by the trustee in the Madoff case aiming to recover more than $3 billion. Listen to Wang discuss the Second Circuit’s “extraterritoriality” opinion, other key developments in the Madoff liquidation and SIPC's ongoing work to recover funds for victims of the Ponzi scheme.

As Retiree Health Care Bills Mount, Some States Have a Solution: Stop Paying

States across the U.S. are testing how far they can reduce health benefits for their retirees as a way of coping with mounting liabilities and balancing budgets, the Wall Street Journal reported. The cuts are a response to dramatic increases in medical costs, budget shortfalls and the introduction of new accounting rules forcing governments to be more public about how much they owe. Officials also face fewer legal hurdles to cutting retiree health benefits than they face with public pensions, which enjoy ironclad legal protections in many states. North Carolina, which will end future-retiree health care coverage for new workers hired in 2021, is not the only state to take more drastic measures. Kansas is now asking retirees to pay the full cost of their health care, pushing their monthly premiums to as much as $1,000. In Iowa, the state last year capped the contribution its flagship university makes to retirees’ health care, cutting the liability by $465 million. U.S. states as a group have promised hundreds of billions more in retiree health benefits than they have saved up. The gap for so-called post-employment benefits, which mainly consist of retiree health care, amounts to roughly $600 billion, according to government data compiled by Eaton Vance Corp. That is on top of the $1.4 trillion states need to pay for promised pension benefits, according to The Pew Charitable Trusts.

Developers See More Office Spaces in Malls as Retailers Close

As retailers close, developers are converting the space into offices to bring in stable rent and generate foot traffic for remaining stores, the New York Times reported. The biggest beneficiaries of the conversions are co-working enterprises, like WeWork, which provide shared work spaces primarily to entrepreneurs, freelancers and start-ups. The highest concentration of co-working spaces in retail nationally is in malls, according to an August study by global property company Jones Lang LaSalle. The same study predicted that co-working space in retail in general would grow at an annual rate of 25 percent through 2023.

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New on ABI’s Bankruptcy Blog Exchange: Fair-Lending Laws Haven’t Caught Up to AI

Government officials must address the policy questions raised by the use of artificial intelligence in credit decisions, according to a recent blog post.

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U.S. Supreme Court Hears Debt-Collection Dispute; Justices Raise Points Found in ABI Consumer Commission Report

ABI Bankruptcy Brief

April 25, 2019

 
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NEWS AND ANALYSIS

U.S. Supreme Court Hears Debt-Collection Dispute; Justices Raise Points Found in ABI Consumer Commission Report

The nation’s highest court will decide soon whether debt collectors should have more leeway to fight steep fines for pursuing collections even after a consumer used bankruptcy to make that debt disappear, the Wall Street Journal reported. Consumer advocates worry that the case could weaken protections for Americans who file for bankruptcy. U.S. Supreme Court justices yesterday heard oral argument in Taggart v. Lorenzen from lawyers who laid out a patchwork of rulings from judges who disagree on how easy it should be to punish debt collectors who pursue debt even after a person is no longer obligated to pay. Justice Elena Kagan said that she “was totally stunned” that it isn’t clear what standard applies. Roughly 750,000 people got out of bankruptcy with a discharge during the 12-month period ending Sept. 30, 2018, according to ABI researcher Ed Flynn, who analyzed Federal Judicial Center figures. At yesterday's arguments, several justices were concerned about who is responsible for proving that collectors knew about a bankruptcy filing and who would pay for legal disputes over violations. “Since allowing the creditors to proceed on debts that may or may not be dischargeable, it seems to me perfectly reasonable to have them bear the risk [and] have them make a careful choice,” Chief Justice John Roberts said. Several consumer-advocacy nonprofits, law professors and retired bankruptcy judges Gene Wedoff and Leif Clark raised similar questions in legal briefs filed before the arguments began. Lifting the onus from debt collectors and other creditors could encourage aggressive creditors to risk trying to collect a discharged debt, knowing that the bankrupt person needs to prove that a violation occurred, they said. People who have gone through bankruptcy could be too poor to fight in court, and their lawyers have no duty to represent them in such disputes, these people said. (Subscription required.)



A recommendation in the Final Report of ABI's Commission on Consumer Bankruptcy on discharge injunction enforcement dovetailed with the oral argument comments by Chief Justice Roberts and Justice Kagan, according to Commissioner Rudy Cerone of McGlinchey Stafford (New Orleans). With respect to Kagan’s analogy to § 362(k), the Commission recommended, at section 1.02(a), that § 524 be amended to provide the same private right of action as is available under 362. Concerning the “safe harbor” cited by the Chief Justice, section 1.02(b) of the Commission Report recommends the adoption of an expedited contested matter procedure under the Bankruptcy Rules to obtain a bankruptcy court order on whether the discharge injunction applies to a particular action. To download a copy of the Commission's Final Report, please click here.

Commentary: Two Bills Being Considered by Congress Can Help Family Businesses in Financial Distress

Our bankruptcy laws may be well provisioned for (1) large businesses with lots of passive owners and (2) consumers, but our bankruptcy laws fall short for struggling family businesses and their owners, according to a blog post by Don Swanson. Two bills currently winding their way through the U.S. Senate are attempts to correct, but they still need a little tweaking, according to Swanson. On the surface, the Small Business Reorganization Act (SBRA) provides much-needed relief for small businesses. Here’s the catch, according to Swanson: To qualify as a small business under the Act, the debtor must have less than $2.6 million of debt. Most successful businesses have more debt than that, according to Swanson. The SBRA is a great piece of legislation that needs to be enacted at once. But its $2.6 million debt limit needs to go away, according to Swanson. Second, the Family Farm Relief Act would expand the debt-eligibility limits for family farmers seeking chapter 12 from $4.4 million to $10 million. The $10 million limit being proposed in the bill is helpful, but Swanson poses the question of why there should be a debt limit at all for family farmers. While he recommends a few tweaks to be made to both bills, Swanson finds the two pieces of legislation to be good vehicles for helping struggling small business owners and family farmers access bankruptcy.



To access the full bill text of the Small Business Reorganization Act (S. 1091) and the Family Farm Relief Act (S. 897), be sure to visit the Legislative News page in the ABI Newsroom.

Sen. Warren’s Student-Debt Deal Would Most Benefit Stronger Earners, Study Finds

A new analysis by the Brookings Institution found that Sen. Elizabeth Warren’s (D) proposal for the government to forgive a huge chunk of student debt would disproportionately help upper-income households, the Wall Street Journal reported. Nearly half of the estimated $640 billion to be forgiven under her plan would go to the top 40 percent of earners, or households making at least $67,847 a year, according to the Brookings Institution, a think tank. The analysis also shows a disproportionate share of the money would go to those in managerial and professional jobs. A quarter of the money would go to people with master’s degrees, and 9 percent would go to households with doctorate and professional degrees, such as lawyers and doctors. About 28 percent of the money would go to households in the bottom 40 percent of earners. A tenth would go to households in the bottom fifth. Lower-income households tend to have less student debt — but are also more likely to default on their loans — because they include higher rates of borrowers who dropped out or attended low-quality schools and have fewer resources to repay.

Study: Gen Z Getting to the Mall More than Previous Generations

An International Council of Shopping Centers (ICSC) study found that nearly 95 percent of those in Generation Z visited a physical shopping center in a three-month period in 2018, as opposed to just 75 percent of millennials and 58 percent of Gen Xers, Bloomberg Businessweek reported. And they genuinely like it; three-quarters of them said that going to a brick-and-mortar store was a better experience than online, ICSC found. “There’s always been this assumption that as you go through the age spectrum, the younger consumer that has grown up with online and digital and is very savvy would shun physical experiences,” said Neil Saunders, an analyst at GlobalData Retail. “But actually that’s not turned out to be the case.” Gen Z — or the group of kids, teens and young adults roughly between the ages of 7 and 22 — still appreciate brick and mortar. But they aren’t just millennials living in a different time. Today’s teens interact differently with stores than their older siblings and Gen X parents before them, and several retailers who didn’t understand the fundamental differences in how they shop have landed themselves in bankruptcy court: Charlotte Russe, Wet Seal and Claire’s were once staples of the teen mall circuit.

Fed Shift Shakes Up World of Speculative Debt

A sharp rally in speculative-grade corporate bonds has pushed the average yield on those bonds below that of comparably rated loans, an unusual market distortion reflecting an improved U.S. economic outlook and the Federal Reserve’s retreat from tightening monetary policy, the Wall Street Journal reported. Bond yields, which move in the opposite direction of prices, typically exceed those of loans because holders of the latter are typically paid first in bankruptcies. This year, yields on both are down amid a broad rally in riskier assets. As of Tuesday, the average yield to maturity of bonds in the Bloomberg Barclays high yield index was 6.51 percent, down from 8 percent at the end of last year, while the average yield of loans in the S&P/LSTA Leveraged Loan index was 6.53 percent, down from 7.23 percent. Loan yields have exceeded bond yields since March 26, the first prolonged stretch where that has been the case since 2007. That year, the Fed also shifted course after years of raising rates.

Commentary: After the Bust, Are Bitcoins More Like Tulip Mania or the Internet?

When you talk to tech industry insiders about where Bitcoin is heading, two vastly different comparisons are inevitable: the tulip bulb and the internet, according to a New York Times commentary. Bitcoin’s critics say that the digital tokens are like the tulip bulbs of 17th-century Holland. They generated a wild, speculative rush that quickly disappeared, leaving behind nothing but pretty flowers and wrecked bank accounts. Bitcoin believers, on the other hand, want us to think about cryptocurrencies as if they were the internet: a broad technology category that took some time to reach its potential, even though expectations got ahead of reality in the early years. If that’s true, last year’s crash in Bitcoin prices was like the dot-com bust — a temporary setback before the big ideas come to fruition. The commentary does not find that either of these comparisons of Bitcoin quite works, however. Bitcoin is neither an irredeemable flop nor an economic miracle. We are still a few years away from any sort of clarity about where this technology will fit in the world. If we want to imagine where it might be going, we need to look beneath the gyrating price to understand how it is being used today and who is using it. At the most basic level, Bitcoin has introduced a new way to hold and send around value online. Anyone can open a Bitcoin wallet and receive money from a friend or a stranger. The system works without any central authority, thanks to a network of computers that is not unlike the network of computers supporting the internet. Even after last year’s bust, Bitcoin users are generally sending somewhere between $400 million and $800 million worth of Bitcoin across the network every day, according to data from the blockchain, the public ledger on which all Bitcoin transactions are recorded.

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New on ABI’s Bankruptcy Blog Exchange: Wisconsin Credit Unions, Banks Get Legal Win in Collections Case

The Wisconsin Supreme Court upheld a "narrow interpretation" of a state-level consumer-protection law that maintains lenders' rights to collect debts without fear of being sued for damages, according to a recent blog post.

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The Student-Debt Crisis Hitting Hardest at Historically Black Colleges

ABI Bankruptcy Brief

April 18, 2019

 
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NEWS AND ANALYSIS

The Student-Debt Crisis Hitting Hardest at Historically Black Colleges

Historically black colleges and universities helped lift generations of African-Americans to economic security. Now, attendance has become a financial drag on many of their young graduates, members of a new generation hit particularly hard by the student-debt crisis, the Wall Street Journal reported today. Students of these institutions, known as HBCUs, are leaving with disproportionately high loans compared with their peers at other schools, a Wall Street Journal analysis of Education Department data found, and are less likely to repay those loans than they were a decade ago. Among key findings of the Journal’s examination of 2017 data, the latest available:

• HBCU alumni have a median federal-debt load of about $29,000 at graduation — 32 percent above graduates of other public and nonprofit four-year schools.

• The majority of HBCU grads haven’t paid down even $1 of their original loan balance in the first few years out of school.

• America’s 82 four-year HBCUs make up 5 percent of four-year institutions, but more than 50 percent of the 100 schools with the lowest three-year student loan repayment rates.

Though HBCUs typically cost less than other public and nonprofit four-year schools, these colleges have long trailed those peers on measures of debt and repayment. Now they are trailing by far greater margins. Many HBCUs see a mandate in giving opportunity to disadvantaged youth, who often start out with fewer financial resources and a diminished ability to pay. Read more. (Subscription required.)

ABI’s Commission on Consumer Bankruptcy recently released its Final Report of recommendations to improve the consumer bankruptcy system, and student loan debt was one of the issues addressed in the report. To obtain a copy of the report and to watch the special briefing by Commission leadership to discuss the Final Report, please click here.

Sears Sues Lampert, Claiming He Looted Company and Drove It into Bankruptcy

Sears Holdings Corp. sued longtime Chairman Eddie Lampert, his hedge fund ESL Investments, and former directors including Treasury Secretary Steven Mnuchin, accusing them of allowing the retailer to be looted of billions of dollars before its October 2018 bankruptcy filing, Reuters reported today. The lawsuit, made public today, was filed by the restructuring team winding down what remains of the pre-bankruptcy Sears following Lampert’s $5.2 billion purchase in February of most of its assets. Sears accused Lampert of ordering the creation of bogus financial plans showing that the retailer would turn itself around even as it racked up huge losses, enabling the transfer of five major assets including Land’s End and Sears Hometown Outlet for his benefit.

Malls Under Pressure as More Stores Close

Strong retail numbers last year from department stores Macy’s Inc. and Nordstrom Inc. raised hopes that the beleaguered mall industry would finally rebound. But recent developments this year are pointing to more trouble ahead, the Wall Street Journal reported. A number of struggling retailers are closing stores and being more selective about where to open ones, dimming prospects for many mall owners and investors. U.S. retailers have already closed 5,994 stores so far this year, compared with 5,864 closures for all of last year, according to Coresight Research. The net store closings, or the number of closings minus openings this year, stands at 3,353. Payless ShoeSource Inc., Gymboree Group Inc. and Charlotte Russe Holding Inc. are among the retailers to announce plans to close stores after earlier attempts at restructuring failed. An unexpected rebound in brick-and-mortar stores last year suggested that malls might enjoy a bit of a comeback, too. Consumer spending was strong, and shopping centers benefited from the expansion of beauty chains like Sephora and Ulta. Macy’s and Nordstrom made new investments in their stores to create a more appealing experience for shoppers. But retail sales have slipped more recently, falling 0.2 percent in February from a month earlier after gaining 0.7 percent in January. Retail sales fell 1.2 percent in December. The mortgage for Destiny USA, one of the largest malls in the country, was recently moved to a special servicer that deals with defaults or renegotiations of loan terms. The servicer said that it expects the mall owner, Pyramid Management Group, to default when the mortgage is due in June. (Subscription required.)



Occupancy issues are at the heart of many significant retail cases, as detailed in the ABI publication Retail and Office Bankruptcy: Landlord/Tenant Rights, available at the ABI Store.

Commentary: Fed Should Buy Muni Bonds to Fight the Next Recession

U.S. state governments suffered major damage from the last recession 10 years ago. During the second quarter of 2009, the final months of the downturn, personal income taxes tumbled 27 percent from a year earlier. At the same time, expenses grew as enrollment for Medicaid and state unemployment insurance soared, while crumbling asset prices suddenly left public pension systems with massive shortfalls relative to their liabilities. Over the past decade, the slow-but-steady economic expansion has covered up these issues but hasn’t erased them, according to a Bloomberg commentary today. State government employment remains below its pre-financial crisis peak. Public pension plans are still largely in a sea of red ink, with an overall shortfall of $1.4 trillion at the state level, and even those with an acceptable level of assets are just one bear market away from the brink. And it’s no secret that the U.S. has fallen terribly behind in funding its roads, bridges, airports and public transit systems, according to the commentary. As the Federal Reserve contemplates what the next recession might look like, and what tools it has available to combat it, the fiscal health of U.S. states is likely to emerge as a significant roadblock to any economic recovery. The easy answer would be directing more cash from the federal government to the states, according to the commentary. But the 2009 stimulus program already transferred an unprecedented amount of money into state coffers, and the results were middling at best. In the current political climate, and with U.S. deficits already running close to $1 trillion, it’s anyone’s guess whether a similar package could come together. That means it might be up to the Fed to get involved in the $3.8 trillion municipal-bond market to give states a much-needed boost, according to the commentary. The central bank can only do so much during a downturn to get companies and individuals to borrow. But by directly backing states, it will immediately allow them to make payroll, start on new infrastructure projects, or both.

CTreasury Issues Rules on Tax Breaks for Opportunity Zones

The Trump administration released regulations yesterday that could help venture capitalists, Native American tribes and entrepreneurs benefit from a new tax incentive meant to encourage investment in struggling communities, the New York Times reported. Backers of that incentive, known as Opportunity Zones, had complained to the administration in recent weeks that its regulations could end up steering most of that money into real estate development rather than to start-up businesses that are more likely to create well-paying jobs. The rules released yesterday appeared to ease many of those fears. But critics said that the administration had not done enough to make sure that the program achieved its goals. Under the 169-page proposed regulation, the second in a series of rules meant to clarify the 2017 tax law that created the zones, investors can take advantage of the tax breaks in several ways. The new methods are particularly important for investors who hope to fund new coffee shops, grocery stores or possibly, as administration officials conceded yesterday, marijuana dispensaries in states that have legalized the drug.

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New on ABI’s Bankruptcy Blog Exchange: When It Comes to Bank Stress Tests, Less Is More

The Fed is stepping up transparency around its process for testing bank resiliency in a hypothetical crisis, but additional improvements are needed, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

 
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Legal Experts Urge Federal Lawmakers to Fix Consumer Bankruptcy Law

ABI Bankruptcy Brief

April 11, 2019

 
ABI Bankruptcy Brief
 
 
 
NEWS AND ANALYSIS

Legal Experts Urge Federal Lawmakers to Fix Consumer Bankruptcy Law

Parts of the country’s consumer bankruptcy system are badly broken, according to a new report from ABI's Commission on Consumer Bankruptcy, which calls for better protections for homeowners, student loan borrowers and low-income families who can’t afford to file for chapter 7 protection, the Wall Street Journal reported. Bankruptcy courts — the federal court that everyday citizens are most likely to use — have lost their power to help people fix some financial problems stemming from the massive social and economic shifts that have taken place since modern bankruptcy law was passed in 1978, according to the report released today. The commission urged federal lawmakers to pass changes to bankruptcy law that it said would make it easier for financially struggling Americans to get a fresh start. The 218-page report blamed the law’s weakened power on skyrocketing student loan debt, changing finance trends for mortgages, unscrupulous lawyers, and federal lawmakers who passed new rules in 2005 as growing numbers of Americans declared bankruptcy. (Subscription required.)



To obtain a copy of the report, please click here.

To watch the special briefing this morning by Commission leadership to discuss the Final Report, please click here.

Sessions at the Annual Spring Meeting tomorrow and Saturday will feature members of the Commission taking a closer look at the Final Report. Walk-ups welcome!

Senate Legislation Introduced to Help Small Businesses Restructure Debt

Senate Judiciary Committee members Chuck Grassley (R-Iowa), Sheldon Whitehouse (D-R.I.), Thom Tillis (R-N.C.), Amy Klobuchar, Joni Ernst and Richard Blumenthal (D-Conn.) on Tuesday introduced S. 1091, the "Small Business Reorganization Act" (SBRA), according to a press release from Sen. Grassley's office. The bill streamlines existing bankruptcy procedures and provides new tools to improve small businesses’ ability to restructure. Representatives Doug Collins (R-Ga.) and David Cicilline (D-R.I.) are working to introduce companion legislation in the House of Representatives. “Our bankruptcy system is designed to help highly complex businesses reorganize after falling on hard times, but for many small businesses going through bankruptcy, these requirements can create unnecessary burdens that stall recovery," Grassley said. "The Small Business Reorganization Act takes into account the unique needs of small businesses and streamlines existing reorganization processes. The legislation adds a new subchapter V to chapter 11 to streamline the bankruptcy process for small business debtors. By reducing liquidations and increasing recoveries to creditors, the bill will lead to more successful restructurings. Specifically, key provisions of the Small Business Reorganization Act will increase debtors’ ability to negotiate a successful reorganization and retain control of the business, reduce unnecessary procedural burdens and costs, and increases oversight and ensures quick reorganization. The SBRA was crafted in consultation with ABI, the National Bankruptcy Conference and the National Conference of Bankruptcy Judges, and it incorporates input from numerous stakeholders ranging from commercial lenders to U.S. Trustees.



Click here to read the full bill text.

Moody's Gives Thumbs Up to Detroit's ‘Conservative' Fiscal 2020 Budget

Moody's Investors Service is giving the Detroit City Council's newly minted 2020 fiscal year budget high marks for using "conservative revenue assumptions" and socking away $45 million in surplus revenue to fund post-bankruptcy pension obligations coming due in five years, Crain's Detroit Business reported. The Wall Street credit-rating agency said the $2.1 billion overall spending plan for the fiscal year that begins July 1 that City Council passed Monday is "credit positive" for Michigan's largest city — more than four years after it emerged from the largest municipal bankruptcy in U.S. history. "The credit-positive budget reflects sound financial practices, including conservative revenue assumptions and long-range projections, [and] a significant capital investment and continues to set aside funds for a scheduled pension cost spike in fiscal 2024," Moody's analysts wrote in a note published today. The budget plan adds $45 million to a $123 million trust fund Mayor Mike Duggan's administration created to help the city shoulder its bankruptcy court-ordered resumption of full pension payments in the 2024 fiscal year.

Commentary: Why Privatizing Puerto Rico's Electrical System Will Fail

Current plans to privatize Puerto Rico's electrical system are likely to fail, according to a commentary in The Hill on Monday. Billions of dollars of investment are needed to restore and upgrade Puerto Rico’s electrical system, which continues to run mostly on oil-fired power plants. Further, the system relies heavily on an extensive network of long-distance transmission lines that are vulnerable to severe storms. The Puerto Rico Electric Power Authority’s (PREPA) fiscal plan, approved by the federal Financial Oversight and Management Board, calls for $7 billion over five years in federal investment as a “floor” on funding needed for resilience; other estimates put that floor significantly higher. Without adequate investment, the next major storm in Puerto Rico will cost yet more lives and further delay economic recovery. Congress should take note that the privatization plans currently under consideration are not likely to achieve the island’s declared policy of affordable, resilient and 100 percent renewable energy by 2050, according to the commentary.

Report: Shrinking Middle Class Threatens Global Growth, Stability

The middle class is shrinking and its economic power diminishing in the U.S. and other rich countries, a development that threatens political stability and economic growth, according to a report by the Organization for Economic Cooperation and Development, the Wall Street Journal reported. At the peak of its powers in 1985, the aggregate income of the middle classes was four times that of the richest group. Three decades later, it had fallen to less than three times. And while income growth for the middle classes has been slow over that period, the cost of housing, education and health care has risen much more rapidly. The result of that squeeze is that middle-income households have taken on more debt and feel less secure in their status, while younger generations are less likely to gain membership in a group once seen as accessible to all. The notion that the middle class is under pressure isn’t entirely new, and has become more politically salient since the financial crisis. But the OECD’s report provides evidence to back up that sense of peril. (Subscription required.)

Commentary: What’s at Risk if the Fed Becomes as Partisan as the Rest of Washington, D.C.

Politicians have had strong opinions on what the Federal Reserve should and shouldn’t do throughout its 105-year history, according to a New York Times commentary. They have pushed for lower interest rates and easier money, or for this or that policy on bank regulation or consumer protection. They have summoned Fed leaders to the White House or Congress to persuade and cajole. In that sense, there is nothing new in President Trump’s aggressive approach to the Fed, according to the commentary. This week, he called for lower interest rates and new quantitative easing, and he signaled an intention to appoint two vocal supporters, Stephen Moore and Herman Cain, to the board of governors. What makes Trump’s approach to the Fed so unusual is that he has repeatedly publicly undermined a Fed chief he appointed (Jerome Powell), and, if successful, he would put two officials with a background in partisan politics in the inner sanctum of Fed policymaking. (Moore was founder of the Club for Growth, which supports conservative candidates for office, and Cain ran for president.) “People around the table did have political views, and I did, too,” said Alan Blinder, who was appointed vice chairman of the Fed by President Bill Clinton and is more recently the author of “Advice and Dissent,” about the role of politicians versus technocrats in shaping policy. “But you weren’t supposed to bring them into the room when it was time to make a decision, and people didn’t.”

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New on ABI’s Bankruptcy Blog Exchange: Getting Pot Banking Legislation Right

The House Financial Services Committee recently approved protections for banks financing cannabis companies in states where it’s legal. This a good first step, but improvements are needed, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

 
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Report: Young Americans Faring Less Well in Credit Markets

ABI Bankruptcy Brief

April 4, 2019

 
ABI Bankruptcy Brief
 
 
 
NEWS AND ANALYSIS

Report: Young Americans Faring Less Well in Credit Markets

Young Americans are getting left behind when it comes to credit access, the New York Federal Reserve said in a report released on Tuesday, the Wall Street Journal reported. The central bank’s finding came in a report that detailed the growth of credit access and borrowing levels. The New York Fed said that while overall debt levels have surpassed their prior peak, overall borrowing quality has improved and become more sustainable. “Trends since 2008 have focused debt growth among older, higher credit score, and presumably wealthier, households,” the report said. That is leaving the younger generation behind. “Burdened by increasing amounts of student debt, reduced homeownership and home equity, and relatively high or increasing student and auto loan delinquency rates, their financial situation contrasts sharply with the overall generally improved dynamics in household debt,” the New York Fed report said.



To view the full report, please click here.

Analysis: Risky Company Debt Is Getting Riskier

Protections built into loans and bonds are being steadily eroded, but investors keep buying, according to a Bloomberg News analysis. Private-equity firms such as Apollo Global Management and KKR & Co. have fought to make it easier for the companies they own to take on more debt soon after borrowing, and for debtors to sell off assets and pay the proceeds to shareholders. For a decade they had already chipped away at other provisions in loans known as “maintenance covenants” — requirements that a corporate borrower meet specific performance hurdles or else be forced to renegotiate terms or even repay debt. Private-equity firms “began to select their investment banks based in part on who could get the loosest high-yield covenants,” says Kirk Davenport, a former partner at law firm Latham & Watkins who also worked for Drexel on early junk-bond deals. “And once they figured that out, the race to the bottom was on.” Moody’s Investors Service says covenants for bonds and loans generally are at or near their weakest levels since the ratings firm started tracking them nearly a decade ago. When the economy slows, lenders could suffer much bigger losses than in previous downturns, say strategists at UBS Group AG, who estimate that lenders might recover less than half their money instead of 75 percent to 80 percent because of eroded protections.

ABI Consumer Bankruptcy Commission Report Coming Next Thursday

ABI's Commission on Consumer Bankruptcy next Thursday unveils its Final Report of recommendations to make consumer bankruptcy more accessible for financially struggling Americans. The report will be made available on April 11 at 9 a.m. EDT at consumercommission.abi.org, and you can tap in online to a special briefing at 10 a.m. EDT by Commission leadership. Also, be sure to attend the Annual Spring Meeting next week for sessions providing an in-depth look at the recommendations. Register here.

U.S. Regulators Propose Rule Discouraging Large Banks from Investing in Competitors' Debt

U.S. bank regulators proposed a rule on Tuesday that would discourage large banks from heavily investing in debt issued by other large banks by requiring them to hold additional capital against such investments. The proposal from the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency is aimed at ensuring that banks do not end up holding large amounts of “total loss-absorbing capacity” (TLAC) debt from fellow banks. Banks are required to issue TLAC debt under new rules established after the 2008 financial crisis, which were aimed at ensuring banks can quickly access more equity if pushed to bankruptcy. Banks are required to issue TLAC debt under new rules established after the 2008 financial crisis, which were aimed at ensuring that banks can quickly access more equity if pushed to bankruptcy, lowering the odds that taxpayers would need to bail them out. However, if large banks like JPMorgan Chase, Goldman Sachs and Citigroup simply bought up each other’s debt, regulators worry it could weaken that safeguard should a broad future crisis hit multiple global banks at once. Specifically, the rule would actively discourage larger banks from investing in TLAC debt by requiring banks to put up additional capital against large amounts of such investments. The proposal would also require those banks to publicly report how much of that debt they have outstanding.

Commentary: Corporate Executives Must Face Jail Time for Overseeing Massive Scams

It is time to reform our laws to make sure that corporate executives face jail time for overseeing massive scams, according to a commentary by Sen. Elizabeth Warren (D-Mass.) in the Washington Post on Tuesday. When a criminal on the street steals money from your wallet, they go to jail. When small-business owners cheat their customers, they go to jail. But when corporate executives at big companies oversee huge frauds that hurt tens of thousands of people, they often get to walk away under the current system with multimillion-dollar payouts, according to Warren. Too often, prosecutors don’t even try to hold top executives criminally accountable. Warren calls on Congress to enact the "Ending Too Big To Jail Act," which she introduced last year. That bill would make it easier to hold executives at big banks accountable for scams by requiring them to certify that they conducted a “due diligence” inquiry and found that no illegal conduct was occurring on their watch. Warren said that she also introduced a bill that expands criminal liability to any corporate executive who negligently oversees a giant company causing severe harm to U.S. families.

Big Banks Reach for Small Deals as Merger Boom Slows

Investment bankers across Wall Street are tripping over themselves, and sometimes each other, to win business advising smaller companies on deals — assignments they would have scoffed at a few years ago, the Wall Street Journal reported. They are hiring bankers in cities like Dallas and Atlanta and cozying up to a different set of corporate executives. As the post-crisis deal boom shows signs of slowing, Wall Street firms accustomed to headline-grabbing megadeals are sliding downmarket. Deals between $500 million and a few billion dollars historically have been dominated by regional firms such as Harris Williams & Co. in Richmond, Va., and Minneapolis’s Piper Jaffray Cos. “Every 10 years or so, the big banks get the idea to move in,” said Mark Brady, head of mergers and acquisitions at William Blair & Co., a Chicago-based firm where the average deal is $400 million. “As soon as there’s a down cycle, they disappear.” Bank executives say they are committed this time. Their own investors are demanding growth, and “there are only so many big transactions,” Mr. Brady said. There were 135 deals in the U.S. last year valued at over $2 billion, versus 2,200 under, according to FactSet.

Don't Miss Annual Spring Meeting Next Week in Washington, D.C.!

ABI's Annual Spring Meeting starts next week, featuring 30 sessions with expert speakers analyzing important bankruptcy cases and issues. Legendary journalist and author Bob Woodward will deliver a keynote to provide the pulse of D.C. Additionally, ABI's Consumer Bankruptcy Commission will release its final report of recommendations to improve the consumer bankruptcy system. Don't miss the engaging sessions. Don't miss the ample networking opportunities. Don't miss THE bankruptcy event of the year. Register here.

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New on ABI’s Bankruptcy Blog Exchange: Wells Fargo Offers New Student Card Benefits After Backlash

Wells Fargo said holders of its student cards will see their costs decline by about half as it expands benefits after drawing scrutiny earlier this year for high fees on college campuses, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

 
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Sens. Grassley and Klobuchar Introduce Bipartisan Legislation to Help Family Farms Reorganize

ABI Bankruptcy Brief

March 28, 2019

 
ABI Bankruptcy Brief
 
 
 
 
NEWS AND ANALYSIS

Sens. Grassley and Klobuchar Introduce Bipartisan Legislation to Help Family Farms Reorganize

U.S. Senators Chuck Grassley (R-Iowa), Amy Klobuchar (D-Minn.) and Tina Smith (D-Minn.) reintroduced bipartisan legislation to help family farms reorganize after falling on hard times, according to a press release from Sen. Smith’s office. The legislation is also cosponsored by Senators Ron Johnson (R-Wis.), Patrick Leahy (D-Vt.), Thom Tillis (R-N.C.), Doug Jones (D-Ala.) and Joni Ernst (R-Iowa). As bankruptcy rates among American farmers near record highs, the Family Farmer Relief Act of 2019 would raise the chapter 12 operating debt cap to $10 million, allowing more family farmers to seek relief under the program. Several years of low commodity prices, stringent farm lending regulations and recent retaliatory tariffs have taken a toll on America’s agriculture producers. Farm bankruptcy rates in many farming regions across the country are at their highest point in a decade. In some places in 2018, farm bankruptcies doubled from the previous year. Debts held by farmers are nearing historic levels set in the 1980s, further financially extending farm operations. Sens. Klobuchar, Smith and Grassley first introduced this legislation in December.



Click here for the full text of the bill.

CRS Report Examines Farm Debt and Chapter 12 Bankruptcy Eligibility

As Congress is considering reforms to chapter 12 bankruptcy law to allow more financially distressed family farmers to remain in operation, a recent CRS report found that farm income has declined over multiple years since 2013 and that the number of reported farm bankruptcies has begun to increase. The Federal Reserve Bank of Minneapolis observed that chapter 12 farm bankruptcies increased in 2018 across the Midwest and appear to be higher among dairy farms. The American Farm Bureau Federation has compiled farm bankruptcy data from the U.S. Courts at the national level. According to this data, in 2018, 498 U.S. farms filed for chapter 12 bankruptcy, nearly constant with the 501 farm bankruptcies in 2017 (a rate of about 2.5 per 10,000 farms). The continuing steady number of farm bankruptcies at the national level masks an increase in filings across 19 states, particularly in the upper Midwest, where a 19 percent rise in annual chapter 12 filings has occurred since 2017. Wisconsin had 47 chapter 12 bankruptcies in 2018, one-third more than the next highest state (Nebraska) and 18 percent above the number in Wisconsin in 2016.

Latest Podcast Highlights Women's History Month with ABI Presidents Providing Advice for Next Generation of Professionals Entering the Bankruptcy Industry

ABI Deputy Executive Director Amy Quackenboss talks with a distinguished panel of women ABI Presidents, including ABI's incoming President, about their experiences in the bankruptcy business. Join Deborah Williamson of Dykema Gossett PLLC (San Antonio), ABI President from 1998-99, Melissa S. Kibler of Mackinac Partners LLC (Chicago), ABI President from 2010-11, Patricia A. Redmond of Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, PA (Miami), ABI President from 2013-14, and incoming ABI President Alane A. Becket of Becket & Lee LLP (Malvern, Pa.) as they talk about the challenges they overcame in their practices and provide advice for young professionals considering a career in the bankruptcy field. Click here to listen.

Federal Judge Issues Order Protecting NFL Players’ Concussion Funds in Bankruptcy Proceedings

A new ruling in the Southern District of Florida has set a precedent for the legal classification of monetary awards in the National Football League’s concussion litigation settlement, the Daily Business Review reported. U.S. District Judge Kathleen Williams on Tuesday issued an order affirming a bankruptcy court’s finding that funds from the NFL’s settlement with players who sustained chronic traumatic encephalopathy injuries qualify as disability benefits. The case, Salkin v. Williams, reached the federal court following an appeal from attorney Mark Bonacquisti, who represented the trustee looking to seize settlement money from former NFL player Darryl Williams. Miami-born Williams had played for the Cincinnati Bengals as well as the Seattle Seahawks before retiring in 2001 after 10 seasons. When he filed for chapter 7 bankruptcy in May 2016, he sought to keep his CTE-related funds exempt from seizure. “The crux of appellant’s argument on appeal is that the failure of the NFL settlement to include the magic phrase ‘disability policy’ renders [U.S. Bankruptcy Court] Judge Olson’s reasoned decision overruling the trustee’s objection ‘extreme,’ ‘remarkable’ and clearly erroneous,” the judge wrote in her summary. But in the issue of first impression, the judge found that the settlement is designed to provide financial relief to NFL players suffering from “qualified neuro-cognitive disabilities.” Because recipients of the settlement “must qualify and submit to authorized medical testing from authorized providers,” and any monetary award is subject to the severity of a player’s condition, she concluded that “the settlement only functions as a disability policy.” Lawyer Chad Van Horn, who represented Williams, said that the crux of their argument was that money from the concussion settlement was no different from other disability claims, meaning it’d be exempt property under Florida bankruptcy law.

Texas Bill Targets Collectors of “Zombie Debt”

Texas State Rep. Nicole Collier (D) filed a bill to stop debt collectors from tricking Texans into reviving so-called “zombie debts” — debts that are so old they no longer legally need to be paid, the Fort Worth Star-Telegram reported. Many businesses write off old debts and sell them, generally for pennies on the dollar. The companies that buy them then try to collect on those debts. But many of those collectors never tell debtors that they no longer are required to pay the money owed. They generally target elderly or low-income residents who might not remember the debt — or might not owe it at all but are on the hook for it because they have the same name as the person who does. Currently, if a third-party debt collector convinces someone to admit it’s their debt or to make even a small payment on it, then the statute of limitations restarts — even if the debt had been dead. Collier’s House Bill 996, known as the Fair Consumer Debt Collection Act, would put an end to that. The act says that debt collectors can’t sue consumers for debt after the four-year statute of limitations has passed, and that any paperwork given to debtors after the statute of limitations expires must include this message in at least 12-point type that is boldfaced, capitalized or underlined: “The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it.”

Cash-Strapped Illinois, Chicago Seek Billions from Investors

Illinois and its biggest city kicked off hundreds of millions of dollars in borrowings this week, a test of investors’ willingness to lend to stressed governments prone to spending more money than they bring in, the Wall Street Journal reported. The state launched borrowings with about a $440 million bond deal on Tuesday, followed by a sale topping $700 million by Chicago. Analysts expect what could be billions more, especially from the state as it puts together funds to do everything from paying retirees’ pensions to launching capital projects. Before buying bonds from the nation’s lowest-rated state and its biggest city, investors have to assess their continuing mismatches between expenses and revenues along with pension burdens, which are slated to eat up a growing share of both budgets in the coming years. Municipalities nationwide are grappling with how to pay bondholders while also meeting the rising costs of retirement benefits, but few are as financially strained as the nation’s third-largest city and the state. Illinois leaders have floated borrowing at least $4.5 billion more through next year, according to its financials. Rather than using most funds to build bridges or improve infrastructure, the Prairie State plans to use many of its bonds to pay off outstanding debts or put money toward pension benefits that have already been earned. For example, a proposed $1.5 billion borrowing tentatively scheduled for June would help pay for a pile of unpaid bills the state still owes. Lawmakers failed to pass a budget for two years under the former governor, worsening this backlog. (Subscription required.)

Commentary: Can Detroit's Turnaround Go Beyond Downtown?

Since Detroit entered into the nation’s largest municipal bankruptcy back in 2013, the city has been heralded as an unexpected comeback story, attracting billions of dollars worth of investment. But nearly all of that money and development has been concentrated in and around downtown. That’s left residents who occupy more than 100 square miles in the rest of the city wondering when it will be their turn for a comeback, according to a Governing Magazine commentary. Mayor Mike Duggan (D) says that day is near. Last year, he pledged to spend $130 million over the next five years on parks, streetscapes and development in 60 different neighborhoods. He got a big boost in December, when seven companies pledged $5 million each to the city’s strategic neighborhood fund. “We’re starting to see development through the corridor of all these different areas,” Duggan said. The city’s neighborhoods can use a lot of help, according to the commentary. Detroit’s median income remains half that of Michigan as a whole. More than a third of the city’s residents — and more than half of its children — live in poverty. It’s been estimated that Detroit is pocked by 30,000 abandoned homes and as many as 90,000 vacant lots, according to the commentary.

U.S. Consumer Prices Rose 0.2 Percent in February

U.S. consumer prices rose 0.2 percent in February, pushed up slightly by higher gasoline and housing costs even as the prices for autos and clothing slumped, the Associated Press reported. The Labor Department said this week that the consumer price index rose a modest 1.5 percent last month from a year ago. Inflation has been muted despite the solid job market, causing average hourly earnings — after being adjusted for consumer prices — to climb 1.9 percent in the past year. This marks the strongest inflation-adjusted wage growth since November 2015, an increase that would likely help consumer spending and economic growth. The low level of inflation also gives the Federal Reserve more flexibility in holding off on further increases to a key short-term interest rate, enabling the U.S. central bank to provide support for economic growth. Some economists expect inflation to pick up as the benefits of higher wages flow through the economy. Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the consumer price index could breach 2.5 percent by the end of the year, which could create a problem for the Fed if it holds rates at their current level for 2019.

Annual Spring Meeting Spotlight: Release of ABI's Commission on Consumer Bankruptcy Recommendations to Make Personal Bankruptcy More Accessible

Forthcoming recommendations by ABI's Commission on Consumer Bankruptcy aim to make personal bankruptcy more accessible for financially struggling Americans. Don’t miss the Annual Spring Meeting, when the recommendations will be released, and attend the sessions in which they will be discussed. Watch here:



ABI's ASM this April features 30 sessions with expert speakers analyzing important bankruptcy cases and issues. A special “Eye on Bankruptcy” episode will feature a national security expert will discuss the growing — and alarming — phenomenon of countries with adverse interests to the U.S. using U.S. bankruptcy courts and investment in venture capital firms to secure access to sensitive American technology. In addition, legendary journalist and author Bob Woodward will provide the keynote. These are just some of the many reasons to join the more than 700 already registered for ASM. Register here. Register here.

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Commentary: The Bond Market’s Blind Faith in a Do-Nothing Fed

ABI Bankruptcy Brief

March 21, 2019

 
ABI Bankruptcy Brief
 
 
 
 
NEWS AND ANALYSIS

Commentary: The Bond Market’s Blind Faith in a Do-Nothing Fed

Just three months after an embarrassing policy reversal by the Federal Reserve, investors are now sure they understand both what the central bank has planned and what will happen to inflation and the economy. In short: nothing much, according to a commentary in the Wall Street Journal. There are legitimate questions to be asked about whether widespread pay raises might translate into inflation, whether the first-quarter slowdown could be an early warning of a recession and whether the Fed really will stay on hold all year. But the market isn’t asking any of them. Instead, complacency is setting in around views of the Fed, showing up in record-low Treasury volatility and an unusual degree of agreement among economic forecasters. In one way, the market’s broad view was shown to be right on Wednesday, when the Fed abandoned plans to raise rates this year and cut its growth forecast, while saying quantitative tightening would finish earlier than planned. The Fed also dropped its forecast that the economy would overheat and it would need to push interest rates temporarily above their long-run sustainable level. But investors are going much further. The new low in implied volatility for bonds shows that investors are confident enough to forgo insurance, via derivatives designed to profit when there are big price moves. Not only will there be no surprises from the Fed, there will be no surprises from the economy, either. The calm is expected to last, too, with Merrill Lynch’s measures of implied one-month, three-month and six-month volatility for Treasurys all lower than in the tranquil period before the 2008 financial crisis. Investors think that, after the Fed’s screaming reversal in January, it would be embarrassing for it to change course again, so it would take a truly monumental economic or inflation surprise to make it act. The Fed’s new reaction function is that it won’t react, according to the commentary.

read more

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Banks Sink the Most in Two Months, Bearing the Brunt of Fed's Dovish Turn

The Federal Reserve delivered yet another dovish surprise for financial markets: The dollar sank the most in nearly two months, Treasuries posted their biggest gain in over a year and stocks … didn’t do much of anything, Bloomberg reported. Financial firms in the S&P 500 sank the most in more than two months after Jerome Powell’s central bank held rates steady and signaled it intends to keep them there through at least the end of the year. The group of lenders and insurers, which account for 13 percent of the benchmark index, swooned as the 10-year Treasury yield plunged to the lowest in more than a year and the difference between yields on short- and longer maturity debt flattened. The pain was most severe for regional lenders that rely more heavily on interest income than diversified banks. The KBW Bank Index sank 3 percent, the most since Dec. 4, with all 24 members down at least 1.7 percent. Goldman Sachs Group Inc. slid 3.4 percent for the biggest drop in the Dow Jones Industrial Average, while all 22 insurers in the S&P 500 finished in the red. More than 200 firms in the S&P 500 are now expected to earn less than they did a year ago, data compiled by Bloomberg show, more than were in the same boat three years ago during a stretch generally viewed as the worst profit recession of the bull market.

Analysis: Souped-Up Debt Vehicle Pushes the Envelope

Average investors have found a turbocharged way to bet on the growing leverage in corporate America: business development companies, according to a Bloomberg analysis. The question is how the wager will do when the economy hits the brakes. That nervousness was clear on Wednesday, when shares of some of the best-performing BDCs, which are publicly traded vehicles that invest in highly indebted companies, fell slightly on the news that the Federal Reserve was unlikely to raise interest rates further this year. Even with that dip, BDCs have been a sleek vehicle for investors to profit from growth in corporate debt. The Wells Fargo BDC Total Return Index is up 14.3 percent this year, nearly double the 7.2 percent return of the iShares iBoxx High-Yield Corporate Bond ETF. Leveraged loans, too, are up just 4.3 percent in 2019. All but one of the 42 BDCs tracked by the Wells Fargo index are up this year. While BDCs are public companies, they are essentially investment funds. They take the money they raise from shareholders and buy loans, typically corporate ones, and often use debt to fund leveraged buyouts or other transactions. So this may seem like an odd time for the shares of BDCs to be soaring. Corporate debt has essentially doubled since the financial crisis. Buyout leverage ratios are higher than they have been in a while. And more and more people are warning that a growing number of companies could have trouble paying back their loans.

Opinion: Dems’ Spending Plans Add Up — to Edge of Bankruptcy
Although Democrats complained that $5.7 billion for a border wall was too expensive, that’s chump change compared to what many of the congressional Democrats and many of the declared presidential candidates are rallying behind, according to an opinion in the <em>Boston Herald</em>. The price tag isn’t in the billions but in the tens of trillions. President Trump was attacked for a budget blueprint that would run fiscal deficits of 5 percent of GDP. That’s too high, but count up the spending plans of Democrats, and deficits could easily hit 20 to 30 percent of GDP and tilt the nation toward Greek- and Puerto Rican-style bankruptcy, according to the opinion. “Medicare for All” is being touted as a way to make medical services “free” for everyone. The cost to taxpayers? By some estimates, $32 trillion over the next decade. Medicare is already projected to run deficits in the tens of trillions of dollars over the next four decades. The Democrat-backed welfare programs in the Green New Deal are even more daunting. According to the study, “guaranteed jobs” and “universal health care” would together cost each American family as much as $582,000 or $80.6 trillion in total. Then there is the loss of as many as 10 million jobs in the oil, gas and coal industries, which would add to welfare and unemployment benefit costs, let alone the severe financial hardship this would impose on millions of middle-class families. Added together, these preliminary Democratic proposals are projected to cost about $92 trillion over 10 years.



*The views expressed in this opinion are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Annual Spring Meeting Spotlight: National Security Expert Provides Insights on How Bankruptcy Courts Can Protect Against Countries Targeting Sensitive American Technology

Countries with adverse interests to the U.S. are increasingly using bankruptcy courts and investment in venture capital firms to secure access to sensitive American technology. National security expert Harvey Rishikof, Chair, Advisory Committee for ABA Standing Committee on Law and National Security, joins host Prof. Charles Tabb on a special "Eye on Bankruptcy" episode at ABI's Annual Spring Meeting to talk about what bankruptcy courts can do. Have you registered for this important program? Watch more:



ABI's ASM this April features 30 sessions with expert speakers analyzing important bankruptcy cases and issues. ABI's Commission on Consumer Bankruptcy will release their final report of recommendations to improve the consumer bankruptcy system. Legendary journalist and author Bob Woodward will provide the keynote. These are just some of the many reasons to join the 700 already registered for ASM. Register here.

Sign up Today to Receive Rochelle’s Daily Wire by E-mail!
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New on ABI’s Bankruptcy Blog Exchange: Fed 'Independence' Is a Slippery Slope

The role of the central bank has changed over the decades, but presidential pressure on the Fed has been a constant, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

 
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Real Estate Startups Try Their Hand at Private-Equity Investing

ABI Bankruptcy Brief

March 14, 2019

 
ABI Bankruptcy Brief
 
 
 
 
NEWS AND ANALYSIS

Real Estate Startups Try Their Hand at Private-Equity Investing

Bond Collective is one of several real estate startups that has tweaked its original business model in hopes of boosting revenue and creating new opportunities, the Wall Street Journal reported. For their main business, these firms sign long-term leases or management agreements, turn the space into furnished offices, apartments or hotel rooms, then rent it out to tenants under flexible terms. Now, several of these property companies are also raising money to launch real estate investment funds. That includes the co-working giant WeWork Cos., which recently rebranded as the We Company. It has one of the biggest of these funds, having raised $745.4 million from investors as of March 8, securities filings show. The startups tend to rely primarily — or even entirely — on outside investors to put up the cash for the funds. But the property firms usually follow a private-equity model of collecting a management fee or getting a stake in the buildings they acquire. The strategy could boost profits and growth. When buying property, these firms may also get access to buildings they wouldn’t be able to access otherwise. And because these firms invest little if any of their own money, the financial exposure is minimal. (Subscription required.)

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Commentary: Should the World Worry About America’s Corporate-Debt Mountain?*

American household debt set off the global financial crisis in 2007. But for much of the subsequent recovery, America has looked like a paragon of creditworthiness, according to a commentary in The Economist. Its households have rebuilt their balance sheets; its firms have made bumper profits; and its government goes on providing the world’s favorite safe assets. If people wanted to look for dodgy debt over the past decade, they had to look elsewhere: to Europe, where the sovereign debt crisis dragged on; to China, where local governments and state-owned firms have gorged themselves on credit; and to emerging markets, where dollar-denominated debts are a perennial source of vulnerability. The commentary questions whether they should look again at America; household debt here has been shrinking relative to the economy ever since it scuppered the financial system. But since 2012, corporate debt has been doing the opposite. According to the Federal Reserve, the ratio of non-financial business debt to GDP has grown by eight percentage points in the past seven years, about the same amount as household debt has shrunk.



*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

 

Trump's Push to Ease Wall Street Rules Hindered by Missteps

President Donald Trump has repeatedly vowed to loosen Wall Street’s leash, but some of regulators’ most meaningful efforts to revamp post-crisis constraints on big banks are running into problems, Bloomberg News reported. Take the Volcker Rule, which restricts banks from making risky market bets with their own money. Under Trump, federal agencies sprinted to rewrite it, issuing an overhaul plan last May. Yet instead of showering regulators with praise, industry lobbyists blasted Volcker 2.0, arguing that it might be even more confining than the version already on the books. Now watchdogs are going back to the drawing board to rethink a controversial method they came up with for determining which trades are banned by Volcker. That will probably require re-proposing the whole thing, a step that experts say could push banks’ timeline for getting relief into next year. Another key proposal from Trump-appointed regulators that’s hit a stumbling block would revise what’s known as the leverage-ratio rule: a requirement that lenders maintain a minimum level of capital against their assets so they can withstand losses. A rewrite released last year could let Wall Street firms re-deploy a whopping $121 billion now locked up in their banking subsidiaries. In their rush to get something out, the Federal Reserve and Office of the Comptroller of the Currency issued their plan for changing the leverage ratio last April without the participation of another agency that must be involved: the Federal Deposit Insurance Corp. At the time, the decision made some sense. The FDIC was being run by a holdover from the Obama administration because the Senate hadn’t yet confirmed Jelena McWilliams, the banking lawyer whom Trump picked to lead the regulator. But McWilliams raised a caution flag last month, saying it could be legally questionable for her agency to just sign off on the Fed and OCC’s proposal after the fact. She said the rule may need “some kind of re-proposal.” If that happens, it would restart a months-long bureaucratic process.

Latest ABI Podcast: Experts Examine Why Chapter 7 Is Less Accessible for Low-Income Debtors, Potential Solutions

Elaborating on their ABI Journal article "Too Broke for a Fresh Start" about chapter 7 being too expensive for those in need, Bankruptcy Judge Henry Callaway (S.D. Ala.; Mobile) and Jonathan Petts of Upsolve (New York) talk with former ABI Resident Scholar Prof. Drew Dawson of the University of Miami School of Law about why chapter 7 is out of reach for those in need. They also discuss potential technological, policy and administrative solutions that could help make chapter 7 more accessible to low-income debtors. Click here to listen.

Click here to read their article "Too Broke for a Fresh Start" from the February 2019 ABI Journal.

ABI’s Commission on Consumer Bankruptcy is preparing to release its final report of recommendations at ABI’s 2019 Annual Spring Meeting, set for April 11-14 in Washington, D.C. To view the ongoing work of the Consumer Commission, including videos of open meetings and prepared witness testimony, please click here.

Annual Spring Meeting Spotlight: National Security Expert Provides Insights on How Bankruptcy Courts Can Protect Against Countries Targeting Sensitive American Technology

Countries with adverse interests to the U.S. are increasingly using bankruptcy courts and investment in venture capital firms to secure access to sensitive American technology. National security expert Harvey Rishikof, Chair, Advisory Committee for ABA Standing Committee on Law and National Security, joins host Prof. Charles Tabb on a special "Eye on Bankruptcy" episode at ABI's Annual Spring Meeting to talk about what bankruptcy courts can do. Have you registered for this important program? Watch more:



ABI's ASM this April features 30 sessions with expert speakers analyzing important bankruptcy cases and issues. ABI's Commission on Consumer Bankruptcy will release their final report of recommendations to improve the consumer bankruptcy system. Legendary journalist and author Bob Woodward will provide the keynote. These are just some of the many reasons to join the 700 already registered for ASM. Register here.

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!

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New on ABI’s Bankruptcy Blog Exchange: Housing Finance Reform Bill Coming by 2020

Senate Banking Committee Chairman Mike Crapo said that the committee is planning to tackle legislative reform of government-sponsored housing finance enterprises in the current congressional term, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

 
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New Legislation Aims to Protect Veterans' Disability Benefits in Bankruptcy

ABI Bankruptcy Brief

March 7, 2019

 
ABI Bankruptcy Brief
 
 
 
 
NEWS AND ANALYSIS

New Legislation Aims to Protect Veterans' Disability Benefits in Bankruptcy

The Honoring American Veterans in Extreme Need (HAVEN) Act was introduced yesterday seeking to create parity in bankruptcy cases for benefits provided by the VA and Department of Defense to disabled veterans and their surviving spouses, the Military Times reported. Sen. Tammy Baldwin (D-Wis.) and Sen. John Cornyn (R-Texas) introduced the bill, which has already been endorsed by 10 Republican and 10 Democratic senators. When a disabled vet declares bankruptcy currently, the law allows debtors to count a veteran’s disability benefits as disposable income, allowing them to seize the benefits. However, Social Security disability benefits are exempted by law from being lumped into a person’s disposable income in bankruptcy filings, and disability benefits in any form aren’t taxable and therefore generally not considered disposable income. “Right now, veterans and their families are forced to dip into their disability-related benefits to pay off bankruptcy creditors,” Baldwin said. Baldwin and others involved with the HAVEN Act say the bill could also help veterans’ mental health issues by easing their financial burdens. Bankruptcy John H. Thompson, a veteran and member of ABI's Veterans Affairs Task Force, brought up “startling statistics” surrounding veteran suicides. “We know that one of the single greatest contributing factors to that is financial distress,” he said. “And this is going to go a long way [toward] easing that financial distress for many American veterans.”

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For more information on the HAVEN Act, please click here.

To read the full bill text, please click here.

For more on this issue, be sure to read this November ABI Journal article or listen to this special ABI podcast.

Illinois Rep. Seeks to End Executive Bonuses During Corporate Bankruptcies

U.S. Rep. Cheri Bustos (D-Ill.) is joining a bipartisan group of legislators to ban executives from receiving bonuses after their companies declare bankruptcy, week.com reported. Bustos’s bill, the No Bonuses in Bankruptcy Act of 2019, would bar companies from paying bonuses to employees making more than $250,000 a year while they are going through the bankruptcy process. The bill would also ban employee relatives, board members, general partners or insiders at affiliate corporations from receiving bonuses while the bankruptcy case is ongoing. “Wealthy corporate executives and insiders shouldn’t be able to cash out during a bankruptcy while workers are laid off and struggle to pay the bills,” Bustos said. The bill was inspired by high-profile cases, such as Toys “R” Us and RadioShack.

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Pimco, Elliott Lead Distressed-Debt Heavyweights in PG&E Faceoff

Some of the biggest players in distressed debt have banded together in PG&E Corp.’s bankruptcy to press their case for repayment of about $12.5 billion, Bloomberg News reported. Topping the list is bond giant Pacific Investment Management Co. with about $2.7 billion in PG&E debt, and Elliott Management Corp., which holds $1.2 billion in debt and a mix of long and short positions in the utility’s stock, court records show. That makes them the biggest players in a group of 24 investors and part of the senior unsecured noteholders' committee. Their presence foreshadows some hard-fought battles over who gets what in the bankruptcy process, which analysts have said could last two years or more. Besides Elliott, which is led by billionaire Paul Singer, the group includes firms such as Howard Marks’s Oaktree Capital Management and Leon Black’s Apollo Global Management LLC that have long track records of dealing with troubled companies and complex litigation. The group has been aggressive early in the biggest-ever bankruptcy by a U.S. utility, fighting against proposed debt-trading restrictions sought by PG&E and inserting itself in a battle between the power company and federal regulators.

Regulators Move to Ease Post-Crisis Oversight of Wall Street

Federal regulators moved on Wednesday to ease oversight of the country’s largest banks and other financial firms, continuing a push by the Trump administration to reverse rules that were put in place following the 2008 financial crisis, the New York Times reported. The Federal Reserve said it would adjust the structure of its annual “stress tests,” which measure the ability of leading banks to withstand a potential economic or financial storm. The changes are likely to make it easier for banks to get regulatory approval to pay higher dividends or buy back their own shares. Separately, a federal oversight panel announced that it planned to no longer designate big non-bank financial institutions — insurers, asset-managers and the like — as “systemically important.” The classification subjected such firms to more intrusive government regulation. Taken together, the announcements yesterday represented a big win for the financial industry, which has been arguing since the Obama administration that a flurry of regulations imposed following the financial crisis were onerous and made it harder for banks to make loans and support economic growth. Bank executives also argue that because the industry is financially much stronger than it was a decade ago, many recent regulations are now unnecessary.

Commentary*: Delaware Hedge Fund Tussle Puts Efficient-Market Hypothesis in Spotlight

Sophisticated hedge funds are turning in ever-greater numbers to Delaware’s courts to deploy “appraisal rights,” a once obscure legal remedy that gives shareholders of companies incorporated in the East Coast state the right to challenge the price of M&A transactions, according to a commentary in the Financial Times on Friday. Given that the majority of U.S. companies are incorporated in Delaware, the state’s judiciary has been busy. In a handful of cases, Delaware judges have agreed with dissenting shareholders that a company was not sold at fair value. The judgments have triggered windfalls for a breed of specialist hedge funds engaging in what is known as “appraisal arbitrage,” with more than $1 billion flowing to them. The trend has seen judges hold an increasing number of trials over disputed M&A valuations, sending those draped in black robes on a crash course in equity betas, market-risk premiums and other textbook esoterica. One judge in a high-profile valuation ruling made a math error that required a correction. Another pointed out in a ruling that the necessary financial “formulas did not spring from the mind of this judge, softened as it has been by a liberal arts education.” But this burst of number-crunching by Delaware’s judiciary may soon become nothing more than an historical oddity. On March 27, the Delaware Supreme Court is set to deliberate on a case in which hedge fund Verition Partners is appealing a ruling by a Delaware lower court judge on Hewlett-Packard’s $3 billion acquisition of Aruba Corp. in 2015. The judge, Vice Chancellor Travis Laster, shocked observers by ruling that the fair value for Aruba was just $17.13 a share, less than the $24.67 a share Hewlett-Packard had agreed to pay.



*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

The World’s Last Blockbuster Store Has No Plans to Close

The second-to-last Blockbuster in Western Australia will stop renting videos on Thursday and shut down for good at the end of the month. Two stores in Alaska, part of the final group of Blockbuster outlets in the U.S., closed in July. That will make the Blockbuster in Bend, Ore., a one-of-a-kind corporate remnant, the New York Times reported. The company filed for bankruptcy protection in 2010, shriveled from 9,000 to 300 stores, then mostly closed. But other bankrupt companies have holdout locations as well. Some Tower Records stores still thrive in Japan long after its parent company declared bankruptcy and closed all of its American stores. There is a Howard Johnson’s in Lake George, N.Y., that is the lone survivor of what was once the country’s largest restaurant chain. Such holdouts have bucked the norm in the retail and restaurant industries, which have shed stores by the hundreds in recent years. The roll call of closings continued Wednesday, with discount retailer Dollar Tree’s announcement that it would close up to 390 Family Dollar locations this year. As of mid-February, retailers had announced 2,187 store closings in the United States this year, according to Coresight Research.



Occupancy issues are at the heart of many significant retail cases, as detailed in the ABI publication Retail and Office Bankruptcy: Landlord/Tenant Rights, available at the ABI Store.

American Homeowners and Their Insurers Face a Flooding Crisis from Within

Old pipes and valves, worn-out hoses on second-story washing machines, and faulty connections for a proliferation of water-using appliances are causing a surge in increasingly expensive damage reported to insurers, the <em>Wall Street Journal</em> reported. The increase has occurred even as many other types of claims — including fire — have declined in frequency, according to industry figures. One in 50 homeowners filed a water-damage claim each year between 2013 and 2017, the latest data analyzed by Verisk Analytics’ ISO insurance-analytics unit. It crunches industry data on a five-year rolling basis. The 2.05 percent frequency rate is up from 1.44 percent annually between 2005 and 2009. The bottom line is a $13 billion water-damage bill for homeowners’ insurance companies in 2017. Claims average about $10,000, ISO says. The increase in overall claims is due partly to aging homes. A postwar building boom in the 1950s gave way to other booms, meaning much of America lives in houses that are decades old and are becoming likelier candidates for plumbing failures. Even homes built during the real estate bubble of the early 2000s can generate claims, as they often have far more appliances with water connections, boosting leak possibilities.

Annual Spring Meeting Spotlight: Survey the Changing Landscape of D.C. at Bob Woodward's Keynote

You won't want to miss legendary journalist and author Bob Woodward as he keynotes ABI's Annual Spring Meeting. Want to find out more? Watch this video: 



ABI's ASM this April features 30 sessions with expert speakers analyzing important bankruptcy cases and issues. ABI's Commission on Consumer Bankruptcy will release their final report of recommendations to improve the consumer bankruptcy system. A live broadcast of “Eye on Bankruptcy” will examine the national security implications of foreign exfiltration of high-tech assets through bankruptcy. These are just some of the many reasons to join us at ASM. Register here.

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!

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New on ABI’s Bankruptcy Blog Exchange: Deleveraging Is Over

An unsustainable run-up in consumer housing debt and other debt was a fundamental structural cause of the 2008 global financial crisis. Following four years of painfully slow decline, total U.S. consumer debt has now risen above its 2008 peak, with the growth led by student loan and auto loan debt, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

 
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