Mexico's troubled payroll lender Credito Real said in a filing to the Mexican stock exchange late Wednesday that it was aware of claims of a filing of an involuntary chapter 11 bankruptcy petition, which it would fight once the petition was served, Reuters reported. "The company believes the Involuntary Petition is improper and was filed as a litigation tactic in the U.S. by certain alleged minority creditors to gain leverage in negotiations with the company," Credito Real said.
Sri Lanka was sued in the U.S. by a bondholder after the South Asian nation defaulted on its debt for the first time in history while struggling to stop an economic meltdown, Bloomberg News reported. Hamilton Reserve Bank Ltd., which holds more than $250 million of Sri Lanka’s 5.875% International Sovereign Bonds due July 25, filed the suit Tuesday in a New York federal court seeking full payment of principal and interest. The bank’s holding represents more than 25% of the aggregate amount of the bonds, which, per the indenture, would likely enable it to block an undesired modification to the notes. Sri Lanka, an island nation off the southern tip of India, fell into default in May after the expiry of a 30-day grace period for missed interest payments on two of its sovereign bonds. It was the first sovereign debt default by the country since it gained independence from Britain in 1948. Hamilton Reserve, based in St. Kitts & Nevis, said in the lawsuit that the default is being “orchestrated by officials at the highest levels of government,” including the ruling Rajapaksa family, and accused Sri Lanka of excluding bonds held by domestic banks and other interested parties from an announced debt restructuring.
The Supreme Court yesterday agreed to decide how steep the penalties are for people who fail to file required reports with the federal government listing their foreign bank accounts, Bloomberg News reported. The justices said they will hear arguments from Alexandru Bittner, a businessman who was assessed a $2.72 million penalty for not filing timely reports for five years when he was living in Romania. Bittner contends the maximum fine under federal law is $50,000. The fight centers on the Bank Secrecy Act, a law designed to combat tax evasion and money laundering by requiring U.S. citizens and residents to report on their foreign holdings. For unintentional violations, the law authorizes penalties of as much as $10,000. The Internal Revenue Service concluded that Bittner violated the law 272 times, once for each account that was not reported in each of those five years. Bittner says he violated the law at most five times, once for each annual report he failed to file. Bittner, who is a dual U.S.-Romanian citizen, was required to file a form known as an FBAR during the 2007-2011 period at issue in the case. The New Orleans-based 5th U.S. Circuit Court of Appeals sided with the government, creating a split on the issue among federal appeals courts. The divide prompted the Justice Department to join Bittner in asking the Supreme Court to step in.
A bankruptcy judge approved a chapter 11 exit plan for Latam Airlines Group SA that puts $5.44 billion of fresh capital into the Chilean business, moving it closer to ending its pandemic-driven restructuring after two years, the Wall Street Journal reported. Judge James Garrity of the U.S. Bankruptcy Court for the Southern District of New York said the chapter 11 plan resulted from “good faith, arm’s-length negotiations” among Latam and its stakeholders and provides the best available path to resolve its bankruptcy case. He also said the financial restructuring aims to maximize the value of Latam, the largest airline in Latin America, which filed for chapter 11 in New York in 2020 as pandemic restrictions shut down air travel in the region. Latam is handing control to major unsecured creditors including Sixth Street Partners, Strategic Value Partners LLC and Sculptor Capital Management, which agreed to backstop $3.67 billion of a planned capital raise. Current shareholders of Latam, including Delta Air Lines Inc. and Qatar Airways, will guarantee another $1.77 billion in common stock and convertible notes, while retaining minority stakes in the business. Latam said it expects to complete the chapter 11 process by the end of this year and will focus in coming months on the remaining steps to emergence, which include obtaining the necessary legal and regulatory approvals in Chile.
A judge declined to end exiled Chinese businessman Guo Wengui’s personal bankruptcy, siding with the Justice Department and some of his creditors who asked that a neutral party be brought in to take charge of his finances, WSJ Pro Bankruptcy reported. Judge Julie Manning of the U.S. Bankruptcy Court in Bridgeport, Conn., yesterday ordered that an independent trustee be appointed to take over Mr. Guo’s chapter 11 case and work with his creditors on a plan to pay his debts and potentially resolve civil lawsuits against him. The ruling is a blow to Mr. Guo and his largest creditor, Pacific Alliance Asia Opportunity Fund LP, which asked Judge Manning to dismiss the case so the investment fund could resume litigation against him. Pacific Alliance seeks to collect on a $116 million judgment against Mr. Guo over an unpaid loan. Mr. Guo filed for personal bankruptcy in February after a New York judge ordered him to pay an additional $134 million fine for moving a 152-foot yacht called the Lady May out of the New York area, and out of Pacific Alliance’s reach, in violation of a court order. Pacific Alliance has called Mr. Guo’s bankruptcy a “sham” and argued in a May court filing that the appointment of a chapter 11 trustee wouldn’t result in a better outcome for creditors. But Pacific Alliance said it would support the appointment of a trustee if Judge Manning declined to dismiss the bankruptcy. Mr. Guo, also known as Kwok Ho Wan, agreed in May to have his bankruptcy case dismissed, saying he couldn’t afford the mounting legal costs. A prominent critic of China’s Communist Party, Mr. Guo fled the country in 2014, took up residence in New York and forged ties with fellow China critic Steve Bannon, an ex-political adviser to former President Trump. Mr. Guo has been dogged by litigation with Pacific Alliance over a business debt he allegedly guaranteed.
Market participants are still scrambling to understand a notice from the U.S. Treasury Department banning all U.S. investors from buying Russian debts, which has shut down trading in parts of the bond market, the Wall Street Journal reported. The guidance says U.S. investors aren’t allowed to buy any existing debt or equity issued by an entity in the Russian Federation, and they can only transfer or sell those assets to non-U.S. persons. Banks with a substantial U.S. presence have halted most trading in Russian corporate and sovereign bonds and are seeking clarity from Treasury’s Office of Foreign Assets Control, which manages sanctions policy. Trading levels in those bond markets were already running thin since Russia’s war in Ukraine began in February, but now they have tapered off further, according to investors. While Monday’s guidance only targets entities in Russia, Treasury also said that investors aren’t allowed to make new investments in a company whose revenues are “derived from its investments in the Russian Federation.” Some uncertainty surrounded whether the Treasury ban encompasses Russian companies that issue debt from jurisdictions such as Ireland, Luxembourg and the Netherlands.
The U.S. Treasury moved to block U.S. investors from making purchases of Russian debt in secondary markets, an apparent expansion from existing policy that only prohibited purchases of newly issued Russian government debt and some Russian corporate debts, WSJ Pro Bankruptcy reported. In new guidance, the Treasury Department said U.S. persons remain prohibited from new investment in Russia, which now includes “purchasing both new and existing debt and equity securities issued by an entity in the Russian Federation.” Investors would still be allowed to sell or transfer securities as long as they do so to a non-U. S. counterparty, according to the Treasury, and they can also continue to hold the already issued debt. “Consistent with our goal to deny Russia the financial resources it needs to continue its brutal war against Ukraine, Treasury has made clear that U.S. persons are prohibited from making new investments in the success of Russia, including through purchases on the secondary market,” a Treasury spokesperson said. Secondary purchases of Russian corporate debt in the U.S. and Europe have already been limited because of sanctions against financial institutions like Sberbank and VTB Bank and the perceived reputational cost of backing entities based in the country. Still, some opportunistic buyers have bought Russian companies’ debt at a discount, betting that the bonds will recover if the war between Russia and Ukraine comes to an end.
Russia failed to meet its obligations to creditors when it didn’t make a small interest payment in April, according to an industry body overseeing the derivatives market, a ruling that triggers some $2.2 billion in credit-default swaps, WSJ Pro Bankruptcy reported. Wednesday’s decision marks the first formal recognition within financial markets of a Russian debt default after its invasion of Ukraine caused the U.S. and its allies to impose broad financial sanctions, severing Moscow’s access to foreign bank accounts and global payment systems. Russia failed to include roughly $1.9 million in accrued interest when it made a 28-day late payment on a $2 billion sovereign bond in April, which the Credit Derivatives Determinations Committee said amounts to a failure-to-pay event. The missed payment won’t trigger a cross-default on Russia’s other bonds, since the country’s foreign-currency debts require nonpayment of at least $75 million for cascading defaults to occur. But it triggers credit-default swaps that act as insurance against nonpayment, putting investment firms that sold default protection on the hook to swap holders. Pacific Investment Management Co. has been among those writing insurance, with more than $1 billion in long positions on the Kremlin’s creditworthiness in the firm’s mutual funds, according to securities filings.
