SPAC Companies Accounted for at Least 21 Bankruptcies this Year and $46 Billion in Lost Investor Value ​​​

Wall Street’s affair with blank-check firms, the finance fad that pushed companies onto the stock market during the COVID-19 pandemic, ended this year with a string of big bankruptcies and even bigger losses for shareholders, Fortune reported. At least 21 firms that went public by merging with special purpose acquisition companies, or SPACs, went bankrupt this year, according to data compiled by Bloomberg. Measured from their peak market capitalizations, the insolvencies bookend the loss of more than $46 billion of total equity value. The failures span money-losing electric vehicle startups and forward-thinking farming companies. Blank-check firms were good at propelling their targets to the public market even when they lacked well-formed financials, said Gary Broadbent, an executive guiding former SPAC AppHarvest Inc. through its liquidation. Many weren’t “ready for primetime,” he said. Some were more promising than others, but all drew dollars from excitable investors caught up in the SPAC craze, including mom-and-pop traders. Plenty of shareholders are now suing SPAC sponsors over their losses. The largest SPAC bankruptcies included that of flexible workplace provider WeWork Inc., which boasted a $9.4 billion market value after going public in 2021. It succumbed to chapter 11 last month with plans to jettison expensive office leases. Electric vehicle makers Proterra Inc. and Lordstown Motors Corp. also carried sizable market values, topping out at roughly $3.7 billion and $5 billion, respectively, before filing for bankruptcy earlier this year. Many of these companies sought protection from creditors less than two years after going public. Software firm Near Intelligence Inc. filed chapter 11 in December, less than nine months after its stock debuted on the Nasdaq. Of course, many predicted the ongoing wave of bankruptcies. Critics called the SPAC frenzy a bubble soon after it began. Going public via SPAC has historically been faster and faced less scrutiny than traditional initial public offerings. During the boom, companies targeted by blank-check firms also often made more optimistic projections about the trajectory of their businesses than would be seen in old-fashioned IPO processes. The result was a glut of SPACs which Rodrigues described as “a ticking time bomb” of corporate failures that materialized in 2023. More trouble is likely on the way as higher interest rates weigh on company balance sheets. Read more.

Big Oil Enters 2024 Strengthened by U.S. Industry Consolidation ​​​

The oil and gas industry went on a $250 billion buying spree in 2023, taking advantage of companies' high stock prices to secure lower-cost reserves and prepare for the next upheaval in an industry likely to undergo more consolidation, Reuters reported. A surge in oil demand as world economies shook off the pandemic downturn has stoked acquirers' enthusiasm. Exxon Mobil, Chevron Corp. and Occidental Petroleum made acquisitions worth a total of $135 billion in 2023. ConocoPhillips completed two big deals in the last two years. The grand prize in this dealmaking is the largest U.S. shale-oil field, the Permian Basin in western Texas and New Mexico. The four companies are now positioned to control about 58% of future production there. Each aims to pump at least 1 million barrels per day (bpd) from the oilfield, which is expected to produce 7 million bpd by the end of 2027. And more transactions are on the horizon. Three-quarters of energy executives polled in December by the Federal Reserve Bank of Dallas expected more oil deals worth $50 billion or more to pop up in the next two years. "Consolidation is actively changing the landscape," said Ryan Duman, director of Americas upstream research at energy consultancy Wood Mackenzie. "A select few companies will determine whether (production) growth will be strong, more stable or somewhere in between." The consolidation will have spillover effects on oilfield servicers and pipeline operators. The companies that provide drilling, hydraulic fracturing and sand and transport oil and gas to market are entering an era of fewer customers wielding more power over pricing. Pipeline operators face their own consolidation wave with fewer new oil and gas pipes being approved and built, said Rob Wilson of pipeline experts East Daley Analytics. The latest acquisitions illustrate oil companies' quest for untapped and lower-cost oil and gas reserves. Helped by their strong share prices, most of the year's major acquisitions were stock swaps, not the big cash outlays that would jeopardize buyers' balance sheets if oil prices were to fall as they did in 2016 and 2020. Read more.

Analysis: Adjustable-Rate Mortgages Are No Longer a Bargain ​​​

Zigzag interest rates have upended a lot of things, including the appeal of an adjustable-rate mortgage, according to an analysis in the Wall Street Journal. When the Federal Reserve began aggressively increasing interest rates last year, home buyers turned to ARMs, hoping to lower their mortgage costs. Now, they aren’t saving much money at all, and in some cases they are paying more. One common type of ARM came with a rate of about 7.04% for the first five years on average this month, according to Optimal Blue, a mortgage technology and data company. That was higher than the comparable 30-year fixed mortgage rate of 6.86%. ARMs have rates that are fixed for the first few years and then rise and fall periodically with market conditions. Historically, the initial rate on these loans was significantly lower than the rate on a fixed mortgage because of their shorter length. Many borrowers are still calling their lenders to inquire about how much they can save with an adjustable rate. “They almost always ask,” says Kevin Leibowitz, who runs the New York brokerage Grayton Mortgage. The Fed’s rate-increasing campaign has weighed on the housing market for nearly two years. Though rates have fallen in recent weeks, they are still high compared with those of 2021, sidelining buyers and sellers alike. The Fed is also behind the diminishing attractiveness of ARMs. ARM interest rates were still significantly lower than those on fixed-rate mortgages throughout 2022, when the Fed first started raising rates. But the two types of mortgages follow different benchmarks. The 30-year fixed mortgage rates tend to rise and fall along with longer-term rates, typically the yield on the 10-year U.S. Treasury. The initial rates on ARMs tend to track shorter-term rates. The Fed’s moves affect short-term rates most directly. And the central bank lifted short-term rates so much that they became higher than long-term rates, an unusual phenomenon known as an inverted yield curve. That made it harder for lenders to keep offering attractive rates on ARMs. Read more.

The Rise of the Forever Renters ​​​

Americans who would traditionally be homeowners have become long-term renters, including some with no plans to ever buy a home, the Wall Street Journal reported. Renters are changing savings patterns, sparking new developments and inspiring businesses, from contractors that help out with renovations for renters to high-end fixtures that are easily removed from one dwelling to the next. Lace Village in Scranton, Pa., is one of hundreds of new rental developments rising up to serve a wave of higher-income and older renters flooding into America’s towns and cities searching for luxury without commitment, retirement without feeling old and tidy lawns without owning lawn mowers. Homes in Scranton — which is a roughly two-hour drive from Philadelphia, New York City and Syracuse, N.Y., and is known for being where the hit mockumentary show “The Office” took place — are listed at a median price of $179,900 on listing platform Realtor.com. With a $150,000, 30-year mortgage at a rate of 7% on such a home, average monthly payments would be around $1,000. Sustained high interest rates in the U.S. have made mortgages unpalatable to many, though the Federal Reserve recently signaled an end to more rate hikes. There has been a dearth of inventory of homes for sale, and there are more rentals available with luxuries that make life seem easy. About 64% of people in the U.S. are homeowners compared with about 89% of people in China and 72% in Brazil, according to a Euromonitor analysis. Real-estate investor GID, which owns and manages about 50,000 apartment units across 30 markets in the U.S., says nearly a quarter of its residents earn over $200,000. The influx of higher-income renters has in part led to a decline in the number of lower-priced rental properties available in the U.S. The number of renter households with incomes of more than $1 million reached a record high of 4,453 in 2022, according to census data compiled by the IPUMS. That is more than four times as many as there were in 2017, when 956 millionaires were renting their homes. The number of renters earning over $200,000 a year is up fourfold since 2010, according to the census bureau. Read more.

Analysis: Biden Promised to Make Student Loan Forgiveness in Bankruptcy Court Easier. But Has He? ​​​

Life led Elizabeth Hadzic and Kim Coles to bankruptcy court, according to a USA TODAY analysis. Hadzic, 50, a psychotherapist in Maryland, doesn’t make enough to support herself and her adult son, whose health struggles set her back thousands of dollars. Coles, an accountant in Oregon in her late 60s, was laid off last year. Both have tens of thousands of dollars in student loan debt. Although they have been making payments on those loans for years, they no longer can. And both, in the absence of an alternative, have resorted to taking the costly, typically unsuccessful route of trying to get their loans discharged in bankruptcy court. That’s where things diverge. For Hadzic, bankruptcy is proving to be the answer to her financial woes. After months of litigation, she’s on track for a full discharge. In Coles’s case, the government is putting up a fight — though she is of retirement age — against discharging the balance of a loan she’s been paying down for more than a decade. The disparity in how the government is treating their cases is indicative of the intractability of one of the country’s most extreme and inaccessible forms of student debt relief, as the Biden administration grapples with finding alternatives to the kind of sweeping student loan forgiveness option that the Supreme Court struck down in June. Historically, only about 1 in 1,000 student loan discharges have been successful in bankruptcy court. Last year, the Justice Department released new guidance for federal lawyers meant to streamline the process and, theoretically, lead to more discharges. In November of this year, the department said roughly 630 cases had been filed in 10 months using the new system, and that the “vast majority” of those borrowers received full or partial discharges. “Because the new process is working well, the Justice Department is not making any changes to the guidance at this time,” said Vanita Gupta, an associate attorney general in a statement last month. While many acknowledge the system has indeed improved, the process hasn’t been a total overhaul, according to a USA TODAY review of recent discharge cases, as well as interviews and emails with more than a dozen borrowers, lawyers and student loan experts. Whether a bankrupt borrower can actually have their student loans discharged still depends on which federal lawyer is assigned to the case and in which jurisdiction their case is filed. Read more.

The Building Spree that Reshaped Manhattan’s Skyline Is Over ​​​

The Manhattan office construction boom is over, the New York Times reported. Just three large office towers — of more than 500,000 square feet — are being built across New York City, with two expected to open in 2024 or 2025 and nothing else projected to go up for years. Normally, a handful of sites that size would be in various stages of construction, with at least one opening every year since 2018, according to JLL, a real estate services firm. Nearly 20 large office buildings that developers have proposed, including the final tower near ground zero, have yet to break ground. Many are on indefinite hold as developers face numerous challenges. Rising construction costs and interest rates have significantly driven up the price to build. Banks are increasingly reluctant to finance such construction while Manhattan has record office vacancies. And there are few large tenants, which lenders require to be lined up before a new office can be built, actively looking to move. As a result, Manhattan is entering its most significant office construction drought since after the savings and loan crisis in the late 1980s and early ’90s. Developers now concede that the next wave of large office towers may not open until the early 2030s, if not later. “It’s hard to justify putting a shovel in the ground when you have supply-demand fundamentals that are out of whack,” said James Millon, a president at CBRE, a real estate services firm, who helps developers secure capital. In a city usually whirling with cranes, the current lull in new office projects signals the end to a quarter-century-long building spree resulting in glass-and-steel towers that reshaped the Manhattan skyline and were filled with growing companies, especially in the technology sector. The pause stands in contrast to other metropolises, including London, where demand for new office spaces remains relatively robust. Ten buildings were recently approved for construction in London’s financial district, including what would be the area’s tallest. In New York City, though, office developers are still reeling from a one-two punch. The initial shock of the pandemic upended corporate work culture, leading many companies to reduce their footprint because of remote work. Then came the aftershock of soaring interest rates — kryptonite for an industry built on debt. Read more.

Three Webinars in January Will Help Provide You with a Well-Informed Start to 2024! ​​​

ABI will be holding two abiLIVE webinars and, in collaboration with NCBJ, one "Behind the Bench" webinar to make sure you have a well-informed start to the New Year! Be sure to register for these complimentary webinars:

- "2023 Filing Trends and What to Expect in the Year Ahead" abiLIVE on Jan. 9 at 2:30 p.m. ET. Register here.

- "Revisiting Evidence in Bankruptcy with the Authors of ABI’s Quick Evidence Handbook" abiLIVE on Jan. 16 at noon ET. Register here.

- "Behind the Bench: Chapter 13 Plan Issues – The Good, The Bad, and The Ugly" in collaboration with NCBJ on Jan. 23 at 1 p.m. ET. Register here.

Make Sure to Take ABI’s Diversity Working Group Survey by Jan. 8 ​​​

As part of the ABI Diversity Working Group’s (DWG) ongoing efforts to address issues with diversity and inclusion (D&I) within ABI and the insolvency industry, the DWG wants to ensure that ABI’s D&I initiatives align with your interests and needs, including the specific D&I topics, issues and areas of learning that matter most to you. Please take a few minutes to share your thoughts by completing this survey by Jan. 8. Take the Survey.

Have an Idea for a Topic for an ABI Conference Session? Submit Your Proposal via ABI’s “Call for Abstracts” Page!​​​

ABI has launched an online portal for professionals to submit proposals for educational sessions at future ABI conferences. Submitters can describe their proposed topic, outline the session’s focus and learning goals, suggest speakers, and provide contact information via the portal’s detailed form. The portal can be accessed here.

All submissions will be reviewed by an internal Education Committee, who will contact the submitter to ask questions as needed and to discuss the status of the proposal. Submissions will be reviewed on a rolling basis, although please note that abstracts to be considered for the upcoming Annual Spring Meeting, being held April 18-20, 2024, at the Marriott Marquis in Washington, D.C., must be submitted no later than December 31, 2023. 

Miss Any of the 25+ Hours of CLE Programming at CPEX23? Access All Replays for Only $100!

Leading practitioners over the past two weeks examined key issues across the consumer bankruptcy landscape during ABI’s 2023 Consumer Practice Extravaganza (CPEX). Did you miss any of the sessions, including an exclusive “Fireside Chat” with EOUST Director Tara Twomey and deep dives into student loans, technology and the future, subchapter V of chapter 11, tax issues and more? Get access to all replays via a state-of-the-art virtual platform for only $100! All sessions will conveniently remain available until Jan. 31! 

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