Money-for-Nothing Lawsuits Against Private-Equity Founders Get Boost​​​

The founders of giant private-equity firms have been paid billions of dollars over the years. Payouts tied to arcane tax deals that brought nearly a billion more are under scrutiny in a Delaware courtroom, the Wall Street Journal reported. Private-equity titans Apollo Global Management and Carlyle Group paid insiders more than $900 million as part of the tax deals. These second windfalls have triggered litigation by investors alleging that the firms paid their founders for nothing in return. Now, a judge’s ruling on a related case involving fellow private-equity giant KKR gives these lawsuits more heft and could trigger settlement talks between the firms and their investors. The lawsuits involved so-called tax-receivable agreements, or TRAs. Firms with TRAs have a specific corporate structure that can create valuable tax assets for the company when founders and early investors sell their stakes after an initial public offering. Then the company and the sellers share the tax asset so that both benefit. (Subscription required.) Read more.

Drivers Squeezed as Auto Insurance Costs Soar Across the U.S.​​​

Car insurance premiums have kept climbing even as other types of inflation have cooled, the Washington Post reported. According to the Bureau of Labor Statistics, car insurance for U.S. drivers in July was 16 percent more expensive than in July 2022, and 70 percent more expensive than in 2013. “Car repair costs, body shop wages, and used car prices have all had significant increases,” said Frank Palmer, chief insurance officer at Root Insurance. “The entire industry has had to raise rates to keep up with these trends.” Motor vehicle maintenance costs, for example, are up 13 percent from July of last year, according to the Bureau of Labor Statistics. But the rate hikes are also an attempt by insurers to make up for big payouts driven by floods and natural disasters, which insurers categorize as “catastrophe losses.” States prone to climate disasters have seen some of the steepest auto-rate hikes. In Colorado, car insurance premiums have increased 52 percent since last July as blizzards, tornadoes and hailstorms have led to an increased number of claims. And in Florida, premiums have soared 88 percent as insurers scramble to make up losses from hurricane-linked damage claims. Read more.

Tomorrow at 3 p.m. ET: ABI Subchapter V Task Force Virtual Public Hearing to Examine Confirmation Issues​​​

The fifth virtual public hearing of ABI's Subchapter V Task Force will take place tomorrow at 3 p.m. EDT, and will feature witness testimony from bankruptcy judges and practitioners who will share their perspectives on confirmation issues. Click here to register.

Looking to catch up on previous hearings? Access them here!
 

Rising Rents Are Hitting American Suburbs Hardest​​​

America’s suburbs are posting the country’s fastest-rising rents, a sign that the recent migration of families from major cities is starting to look more long-term, the Wall Street Journal reported. Many white-collar workers with remote jobs moved out of city apartments for roomier accommodations during the early months of the pandemic in 2020. Now, high mortgage rates and home prices are keeping some of the same families renting for longer periods. A rise in crime and homelessness in several big cities has some renters looking to the suburbs. The trend is propping up rents and fueling concerns about rental affordability in suburban areas, leading some governments to pass new rent-control measures in response. Rents in suburbs had climbed 26% through this past July since March 2020, 8 percentage points higher than the gain in urban cores, according to a report from rentals website Apartment List. Suburban rent growth was greater than its urban counterpart in 28 of the 33 metro areas studied, the company said. (Subscription required.) Read more.

Child Care Is About to Get More Expensive, as Federal Funds Dry Up​​​

Millions of parents — mothers, in particular — could soon be in a bind as states run out of $24 billion in stimulus money Congress had set aside for child care during the pandemic, the Washington Post reported. That record investment has helped keep the industry afloat by propping up workers’ salaries, boosting training programs and waiving family payment requirements. Now, with the last of that money expiring this month, an estimated 70,000 child-care programs — or about one in three — could close as a result of lost funding, eliminating care for 3.2 million children, according to a study by the Century Foundation, a liberal think tank. That translates to $10.6 billion in lost U.S. economic activity, researchers found, adding new strain to a nation already struggling with a profound lack of child care. Despite the recent influx of federal money, the child care industry has been teetering on the edge since the pandemic forced sudden and widespread shutdowns across the country. An estimated 20,000 child care centers — or 1 in 10 nationwide — permanently closed in the first two years of the pandemic, according to the Century Foundation. Hundreds of thousands of workers lost their jobs as a result, and many more quit for less demanding, higher paying jobs. Today, the industry remains short 40,000 positions from early 2020 levels. Experts say another 232,000 jobs could be on the line as government funding expires, just as the labor market cools. Read more.

FDIC Chair: Banking Industry Faces 'Significant Downside Risks'​​​

FDIC Chair Martin Gruenberg said today that the U.S. banking industry "continues to face significant downside risks" from inflation and high interest rates, which could cause profitability and credit quality to weaken, YahooFinance.com reported. The top regulator issued his warning as the FDIC released a comprehensive look at how thousands of institutions fared during the second quarter, one of the most tumultuous periods for banking since the 2008 financial crisis. The quarter included the seizure of San Francisco lender First Republic, which was the second-largest bank failure in U.S. history, and wild fluctuations in the stocks of other regional banks. Two other mid-sized lenders, Silicon Valley Bank and Signature Bank, went down during the first quarter. What the report showed is that deposits declined for the fifth quarter in a row, largely due to the exit of uninsured account-holders. The decline of $98.6 billion, or 0.5%, "moderated substantially" from the $472 billion outflow during the first quarter, but it continued to place pressure on banks to raise their funding costs to keep account-holders who are searching for higher yields. That, in turn, ate into a key measure of profitability. Those pressures, Gruenberg said in a separate release, pose “significant challenges” to the industry, along with concerns about a weakening market for commercial real estate. Banks are major lenders to commercial property owners across the U.S. All of these developments “will continue to be matters of supervisory attention by the FDIC,” he added. Read more.

Latest "Party in Interest" Podcast Features ABI President-Elect Chris Ward Discussing His Path to Bankruptcy, Work/Life Balance and His Dapper Fashion Sense​​​

The latest “Party in Interest” podcast features ABI Executive Director Amy Quackenboss talking with ABI President-Elect Chris Ward, chair of Polsinelli's Bankruptcy and Restructuring practice and managing shareholder of the firm’s Delaware office. Ward discusses how his career path turned toward bankruptcy, ways he decompresses when he’s not working, and his reputation as a snappy dresser. Click here to listen.

Where can you be part of a live “Party in Interest” podcast taping and then enjoy a virtual happy hour with friends and colleagues afterward? Don't miss next Wednesday's virtual happy hour kicking off with a live recording of ABI's "Party in Interest" podcast featuring the witty and colorful Ian Williams of Williams Consulting International (London)! Click here to register.
 

Submissions Due Tomorrow for ABI’s International Matter of the Year Award!​​​

The submission deadline is tomorrow for the ABI International Committee’s Second Annual ABI International Matter of the Year Award. For criteria, eligibility and other submission information on the award, please click here.

Click here for the submission form.

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