Analysis: Fed Shows It Is Willing to Shift

Analysis: Fed Shows It Is Willing to Shift

The Federal Reserve eased monetary policy on Wednesday, and the global economy is safer for it, according to an analysis in yesterday's Wall Street Journal. While the Fed didn't cut interest rates, Fed officials signaled they would raise rates only two more times this year instead of four. This wasn't a shock. Markets had already written off any chance of rates rising that much. But hearing it from the Fed still matters, because it proves the central bank means it when it says rate increases aren't on a preset path. The response in the financial markets said it all: The dollar fell, two-year bond yields dropped, the stock market rose and the price of oil jumped. The Fed hasn't eliminated the threat of recession by any means. But by showing a willingness to shift plans when that threat arises, the Fed cuts the odds that its own mistakes will be the cause of that recession.

Watch Now: Video Provides Recap and Analysis of Oral Argument in In re Ritz

How did the late Justice Scalia's absence impact the oral argument in In re Ritz? Why is this bankruptcy case important? Watch ABI Editor-at-Large Bill Rochelle provide his take on the March 1 oral argument, including a potential outcome of the case.

For further analysis, read Bill's full recap of the oral argument in Rochelle's Daily Wire, appearing in ABI's Newsroom.

Analysis: U.S. Coal Sector Faces Reckoning

When Peabody Energy Corp. warned Wednesday that it could go bankrupt, it signaled the end of an era for listed U.S. corporate coal companies, even as their mines continue to fuel a big chunk of the country's power stations, according to an analysis in the Wall Street Journal yesterday. A chapter 11 filing by St. Louis-based Peabody, the U.S.'s largest coal miner, would be the latest in a wave of bankruptcies to hit top American coal producers, including Arch Coal Inc., Alpha Natural Resources, Inc., Patriot Coal Corp. and Walter Energy, Inc. U.S. coal miners are wrestling with high debt levels, low energy prices, new environmental regulations, the decline of steel production, and the conversion of coal-fired power plants to use natural gas made abundant by shale drilling. The industry's setbacks have been especially damaging in the coal strongholds of Wyoming and Appalachia. To be sure, this isn't the end for coal, according to the analysis. Just under one-third of the U.S. grid is still powered by coal, and hundreds of mines are still profitable and operating. What isn't sustainable are the publicly traded coal powers built atop the recent China-driven commodity boom, and the corporate structures — headquarters, salaries, pensions — they maintained.

Will exploration and production hit bottom in 2016? Be sure to attend ABI's Annual Spring Meeting in Washington, D.C., from April 14-17, as a panel of experts will be addressing this topic. Register today!

Get a better understanding of what happens when an oil, gas or other natural resources company goes bankrupt with ABI's When Gushers Go Dry: The Essentials of Oil & Gas Bankruptcy.

Energy Companies Draining Loans Before Banks Clamp Down

Troubled U.S. energy companies, maneuvering for stronger negotiating positions if they wind up filing for bankruptcy, are racing to tap cash still available under existing reserve-based loan commitments before banks cut their credit access next month, Reuters reported today. In April, lenders, in semi-annual valuations of oil and gas reserves backing these loans, are expected to cut available credit to many energy companies based on deeply depressed collateral prices. “Every company out there is nervous that if they don’t draw in the next couple of weeks, with determinations coming up, banks will finally start saying ‘no,’” said one investor. Drawing down cash before banks’ contractual commitments change is a tactic used widely in other previously troubled industries, including autos and airlines. These “extraordinary draws” are a new concept in the oil and gas sector, however, said Buddy Clark, a partner with Haynes and Boone, LLP in Houston. More than a dozen companies, with debt totaling up to US$17bn to US$19bn, are already in default on interest payments, he said. Banks have been seen clamping down more aggressively on reserve-based lending than they were last fall, based on extended asset price weakness.

Lenders Are Getting Choosier When It Comes to Risky Real Estate Deals

Lenders are getting stingier when it comes to funding risky U.S. real estate developments, putting pressure on landlords in need of fresh funding to keep their projects afloat, according to a Bloomberg Business report Tuesday. Banks are proceeding with caution as the specter of slowing economic growth rattles financial markets and shakes investor confidence in a six-year recovery that’s helped lift property values to record levels. Lenders are going to be more selective and discriminating as the year progresses, said Mark Myers, head of the commercial real estate business at Wells Fargo & Co., the largest U.S. commercial-property lender. Real estate investors are bracing for repercussions as loan costs start climbing, threatening to drag down the value of their holdings and raising the risk of defaults. Credit for commercial-property owners was already contracting at the end of last year as banks reported tighter underwriting standards for property financing across the board, according to the Federal Reserve’s senior loan officer survey released in January.

Consumer Credit Default Rates Remain Stable

Consumer credit default rates started to stabilize in December 2015, and that trend is continuing based on the latest data on consumer borrowing and debt released by S&P Dow Jones and Indices and Experian for the month of February, according to an Association of Credit and Collection Professionals press release yesterday. The S&P/Experian Consumer Credit Default Indices show a composite rate of 0.97 percent in February, which is within one basis point of the rate for the previous two months. The bank card default rate increased four basis points to 2.56 percent in February, according to a news release from S&P and Experian. Auto loan defaults increased slightly in February to 1.05 percent, while the first-mortgage default rate remained unchanged at 0.84 percent. “Low and stable consumer credit default rates confirm the positive picture of the consumer economy seen in recent data on personal income and consumption,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices.

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Upcoming Webinars Provide Update on New Bankruptcy Forms and the Importance of Pre-Bankruptcy Planning

Join us for two FREE and compelling abiLIVE webinars that both feature optional CLE!

- Enjoy a follow-up webinar on March 29 to our popular program from last year looking at the new bankruptcy forms (enacted on Dec. 1). Covered in this new program will be forms B 410 (proof of claim) and B 410 - A (supplement for a secured claim). Hear experts discuss the pros and cons of both new forms; attendees will have time to ask questions and provide feedback. Register here.

- When it comes to pre-bankruptcy planning, what is on your "checklist?" ABI's Business Reorganization Committee will be hosting a free abiLIVE Webinar on April 4 to help you identify potential pitfalls and privacy issues, and gain a few tips on best practices. Register here.