Analysis: The $1.7 Billion Student Loan Deal that Was Too Good to Be True​​​

Even though prosecutors said Navient had made predatory loans to hundreds of thousands of borrowers it knew couldn’t afford them, the $1.7 billion settlement the lender made last month with 39 states covered only about 66,000 who were in default. Those who managed to make the payments on their deceptive, high-interest debt — mostly to attend for-profit schools that left them with worthless degrees — would just have to keep paying, the New York Times reported. The settlement resolved nearly a decade of state investigations into the role Navient, the lender and loan-servicer that has long been a linchpin of the educational lending market, played in a bleak cycle of vulnerable students, dubious for-profit schools and taxpayer money. State prosecutors said that Navient, which did business as Sallie Mae until 2014, was willing to give private loans to borrowers it knew couldn’t pay them back because they were a money-losing lure for a far more profitable product: federal student loans. Starting in the early 2000s, Navient and the schools it worked with used the private loans to fill gaps for students who relied on government-backed loans from Navient to pay the bulk of their tuition. Even if the private loans weren’t repaid, the federally guaranteed loans were bulletproof revenue for Navient — and the more borrowers it attracted, the more money it made. One internal Navient email cited in court documents described the private loans as a “baited hook” to reel in more government-backed loans.

Weekly Jobless Claims Increase by 23,000 in Latest Report​​​

New applications for jobless aid rose by 23,000 last week, ending a weeks-long trend of declines, according to figures released by the Labor Department today, The Hill reported. For the week ending Feb. 12, seasonally adjusted initial claims reached 248,000, the data shows. The four-week moving average was 243,250 last week, 10,500 less than the revised average from the previous week. The uptick in claims comes after the nation recently saw a three-week decline in applications for jobless aid. Jobless claims lowered in November to levels seen prior to the start of the pandemic. But that trend temporarily made an about-face in the weeks that followed amid a surge in coronavirus cases fueled by the spread of the omicron variant. Labor Department data also showed that millions reported being unable to work last month due to a pandemic-related closure or lost business last month. The figure is about twice the level of the 3.1 million the agency recorded in December. However, monthly data released by the agency also showed that the country was still able to make significant job gains last month, adding 467,000 jobs in January in the face of mounting concerns over the omicron wave’s impact on the labor market.

GAO: Access to Federal Emergency Rental Assistance Increased During Pandemic, but Some Challenges and Risks Remain Unaddressed​​​

At the peak of rental assistance requests during the COVID-19 pandemic, just under 500,000 households a month were receiving it. But some renters struggled to access the assistance, particularly when it first became available, because they had trouble demonstrating financial hardship or housing instability, according to a new GAO report. Early in the pandemic, Congress appropriated $47 billion in funding to help struggling renters who lost jobs or income due to COVID-19. The Department of the Treasury (Treasury) managed Emergency Rental Assistance funding, providing grants to state, local and tribal governments. The grantees then cut checks to renters, landlords and utility-providers to cover past-due rent payments or utility bills. In order to receive assistance, renters were required to provide documentation such as a paystub or signed lease. Providing this documentation was particularly difficult for people who were in and out of work, gig workers, or workers who were paid in cash. Because of this, the grantees said that they had a hard time quickly approving many renters’ requests for funding. Treasury sought to address this challenge by allowing renters to self-attest their eligibility to the grantees. Alternatively, renters could be approved for assistance if their income had already been verified by another government program meant to support low-income Americans, or if the average income of their geographical area was low enough to qualify. These additional flexibilities allowed grantees to spend their allocations more quickly and help more people. Getting assistance to renters more quickly was particularly important after the national eviction moratorium ended in August 2021. While additional flexibilities improved access, they also presented an increased risk of fraud. Treasury Inspector General officials are investigating several instances of potential and significant misuse of funds — including several incidents where as much as $100,000 may have been misused.

In related news, House Financial Services Committee Chair Maxine Waters (D-Calif.) and Rep. Jimmy Gomez (D-Calif.) co-led a letter with 36 Members of California’s Congressional delegation to Treasury Secretary Janet Yellen urging the Department of the Treasury to reallocate unused Emergency Rental Assistance Program (ERA) funds to states with the highest need for such aid.

Justice Department to Take on Exploitation of Supply Chain Issues​​​

The Justice Department is launching a new initiative aimed at identifying companies that exploit supply chain disruptions in the U.S. to make increased profits in violation of federal antitrust laws, the Associated Press reported. The program, being unveiled today by the Justice Department’s antitrust division and the FBI, comes amid ongoing supply chain struggles and labor shortages in the U.S. that have plagued retailers since the coronavirus pandemic began. Justice Department lawyers worry that companies may “seek to exploit supply chain disruptions for their own illicit gain,” the department said. And, if that’s the case, the Justice Department and the FBI will prosecute antitrust violations they uncover, the department says. Those violations could include agreements between individuals and businesses to fix prices or wages or to rig bids, prosecutors say. The U.S. government also has formed a working group focused on supply chain collusion — meant to share intelligence and detect global schemes — with officials in several other countries, including the United Kingdom, Australia, New Zealand and Canada. “Temporary supply chain disruptions should not be allowed to conceal illegal conduct,” said Assistant Attorney General Jonathan Kanter, who runs the Justice Department’s antitrust division. “The Antitrust Division will not allow companies to collude in order to overcharge consumers under the guise of supply chain disruptions.”

Private Credit Funds Swoop In to Bail Out Banks’ Riskier Bets​​​

Banks are turning to private credit markets to help them offload riskier parts of deals they underwrote before markets turned sour, Bloomberg News reported. Barclays Plc, HSBC Holdings Plc, Mizuho Financial Group and others are expected to hold talks with private credit funds to offload part of Apollo Global Management Inc.’s $1.2 billion buyout of Covis Pharmaceuticals Inc. The move follows the sale of a chunk of the financing behind the buyout of Wm Morrison Supermarkets Plc to Canada’s biggest pension plan. More of these deals are likely to follow as banks get stuck with debt financings underwritten last year, before credit spreads blew out, interest rates widened and investor risk appetite waned. Private credit funds are an attractive option as they have plentiful liquidity to put to work in credits at higher yields. In a strong market, the assets typically wouldn’t be considered. “Dry powder in the private market is seeking an attractive return on capital,” said Zachary Swabe, portfolio manager at UBS Asset Management. “This is bear market liquidity emerging when public markets pull back, which is normal late cycle behavior.”

ABI Collaborates with Sheppard Mullin for Special Podcast Featuring Judges Marvin Isgur and David R. Jones​​​

Held in conjunction with Sheppard Mullin's "Restructure This!" podcast, this special ABI podcast features Bankruptcy Judges Marvin Isgur and David R. Jones of the U.S. Bankruptcy Court for the Southern District of Texas (Houston) discussing a number of important issues, such as third-party releases and venue reform, with host Justin Bernbrock, a partner at Sheppard Mullin.

For previous episodes of ABI's podcasts, please click here. To listen to previous episodes of Sheppard Mullin's "Restructure This!" podcast, please click here.

Registration Now Open for ABI's Annual Spring Meeting in Washington, D.C.!​​​

ABI is pleased to announce the in-person return of the Annual Spring Meeting at the JW Marriott in Washington, D.C., April 28-30. Always one of the most significant annual gatherings of bankruptcy and insolvency professionals in the country, ABI's Annual Spring Meeting provides the ultimate in learning and networking opportunities for the insolvency community — both in person and online. Your next big deal or career-boosting connection could be just a click away. Register today!

Special abiLIVE Sponsored by Reorg Next Tuesday to Provide Review of 2021 Chapter 11 Filing Trends and Perspectives on the Year Ahead ​​​​​​

A special abiLIVE sponsored by Reorg next Tuesday at 11 a.m. EDT will feature Kirkland & Ellis LLP's Josh Sussberg joining Jessica Steinhagen and Ian Howland of Reorg's First Day team to provide an overview of 2021 chapter 11 filing data and trends to expect in 2022. Complimentary registration.

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