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Western Community Energy, a local government agency that sells electricity to six small towns in Southern California, has filed for bankruptcy, blaming its financial woes in part on an inability to shut off service to customers who quit paying during the pandemic, Bloomberg News reported. Western Community owed creditors as much as $100 million, but had less than $50 million of available assets, according to court papers filed on Monday in the U.S. Bankruptcy Court in Riverside, Calif.. The agency buys power wholesale and resells it to residents of Eastvale, Hemet, Jurupa Valley, Norco, Perris and Wildomar, which are cities in Riverside County on the edge of the desert. “The ongoing impacts of COVID-19 severely limited the organization’s options moving forward and forced today’s action,” said Todd Rigby, chair of Western Community and a city council member for Eastvale, a former dairy farm turned suburb. The agency said that it has been unable to shut off customers for not paying their bills under an emergency order issued by California Gov. Gavin Newsom. Late bills have averaged ten times higher than before the pandemic and have cost the agency millions of dollars, Western Community said in an emailed statement.

From California to Virginia, many states that faced devastating shortfalls in the depths of the pandemic recession now find themselves flush with tax revenues because of a rebounding economy and a soaring stock market, the New York Times reported. Lawmakers who worried about budget cuts are now proposing lucrative increases in school spending, tax cuts and direct payments to their residents. That turnaround is partly the product of strong income tax receipts, particularly in states that heavily tax high earners and the wealthy, whose finances have fared well in the crisis. The unexpectedly rosy picture is raising pressure on President Biden to repurpose hundreds of billions of dollars of federal aid approved this year, in order to help fund a potential bipartisan infrastructure deal. Last week, Sen. Mitt Romney (R-Utah) suggested that Biden and Republican negotiators look to “some of the funding that’s been sent to states already under the last few bills” to help pay for that agreement. “They don’t know how to use it,” Romney said. “They could use that money to finance part of the infrastructure relating to roads and bridges and transit.” Some economists and budget experts support that push, arguing that the money could be better spent elsewhere and that states’ spending plans could add to a risk of rapid inflation breaking out across the country. Other researchers and local budget officials say that the federal aid is rescuing harder-hit cities and states, like New York City and Hawaii, from a cascade of layoffs and spending cuts.

President Biden and Treasury Secretary Janet Yellen promoted the administration’s infrastructure and tax plans as vital for the U.S. to compete globally, as the White House and Republican lawmakers continued to pursue a deal to improve the nation’s bridges, roads and broadband internet, the Wall Street Journal reported. Proclaiming himself a “car guy,” Biden visited Dearborn, Mich., on Tuesday to tour the Ford Motor Co. Rouge Electric Vehicle Center, using the facility to pitch his $2.3 trillion infrastructure plan, which includes funding for electric vehicles. He argued that his proposals would help create jobs and make the U.S. more competitive with countries such as China. “The future of the auto industry is electric,” he said. “The real question is whether we’ll lead or we’ll fall behind in the race to the future. And whether we’ll build these vehicles and the batteries that go in them here in the United States or in other countries.” Some Republicans have said the package includes too much funding for the electric-vehicle industry and want Mr. Biden to give priority to fixing roads and bridges. The proposal — one of two economic plans designed to invest in American workers and infrastructure — calls for fixing roads and bridges, as well as expanding broadband internet access and boosting funding for research and development. To help pay for the package, he has proposed raising the corporate tax rate to 28% from 21% and increasing taxes on U.S. companies’ foreign earnings. Biden has said he is open to a compromise. A group of Republican senators met with administration officials Tuesday on an alternative GOP infrastructure plan. (Subscription required.)

Washington Prime Lenders Spar over Assets as Talks Drag On

Washington Prime Group Inc.’s creditors are having difficulty advancing discussions over a planned chapter 11 filing as groups tussle over dividing the mall owner’s assets, Bloomberg News reported. The slow talks have sparked several deadline extensions -- the latest announced on Wednesday -- with sticking points, including creditors’ rights to assets that aren’t already being used as collateral for Washington Prime’s debt. The company on Monday reported a $55 million loss for the three months through March 31. At issue is the division of new equity, debt and cash each lender group would receive from the bankruptcy plan. Given the diminishing appeal of owning a mall chain, the parties are all pushing to minimize their equity exposure and maximize their take of new debt, they added. After the latest extension, Washington Prime’s forbearance agreements with lenders are set to expire May 19.
https://www.bloomberg.com/news/articles/2021-05-13/washington-prime-len…

Bankrupt Long Island Diocese to Appoint Former Adviser as Mediator

A bankruptcy judge cleared the Diocese of Rockville Centre, N.Y., to hire Arthur J. Gonzalez as a special mediator to help resolve claims by sex-abuse victims over real estate and other assets that have been sold or transferred to other parts of the institution, WSJ Pro Bankruptcy reported. At a hearing yesterday in the U.S. Bankruptcy Court in New York, Judge Shelley Chapman signed off on a compromise between the Roman Catholic diocese and a panel of abuse survivors that allows for the hiring of Mr. Gonzalez, a former bankruptcy judge, to help resolve disputes over past asset transfers. The Office of the U.S. Trustee, a government watchdog overseeing the bankruptcy system, objected to Gonzalez serving in that position, saying he can’t take an unbiased role in any fight between the diocese and abuse victims, since he was one of three advisers hired by the diocese before it filed for bankruptcy to look into the asset transfers in question. Rockville Centre filed for bankruptcy in October, becoming the largest diocese to seek chapter 11 protection in response to lawsuits by victims of sexual abuse. https://www.wsj.com/articles/bankrupt-long-island-diocese-to-appoint-fo…

Archdiocese of Santa Fe Says It Needs Consultant for Real Estate Issues

The Archdiocese of Santa Fe, N.M., intends to hire a land use planning consultant to help it shed dozens of properties as part of its bankruptcy case, the Santa Fe New Mexican reported. Consultants with James W. Siebert & Associates, a Santa Fe land planning firm, would be among numerous experts the archdiocese has hired — attorneys, real estate brokers and accountants — drawing accusations from critics of wasteful spending that ultimately will affect payouts to hundreds of victims of sexual abuse by members of the clergy. An attorney with the Roman Catholic institution said, however, the experts are needed and that bankruptcy court is the most efficient place for settlements between victims and dioceses. Court records show the archdiocese has asked U.S. Bankruptcy Judge David T. Thuma for approval to hire the Siebert firm. The records say that Siebert can help the archdiocese comply with subdivision statutes and regulations. A court document said the Siebert company would charge $180 an hour if a principal of the firm worked on the case, $120 an hour if an associate worked on it, $95 an hour for a computer-aided designer and $45 an hour each for research and clerical work. An attorney for the archdiocese, Ford Elsaesser, said that real estate issues can involve broken lot lines or lots created long ago. Elsaesser, who is based in Idaho, said he didn’t want to contract properties for sale and then learn a step was missed in the process. “So that’s the reason why they’re being engaged,” Elsaesser said of Siebert. An auctioneer hired by the archdiocese recently began trying to sell 732 properties around Northern New Mexico.
https://www.santafenewmexican.com/news/local_news/archdiocese-says-it-n…

Boy Scouts Insurer Decries ‘Vote-Buying Scheme,’ Victims Push Claims Estimate

Certain Boy Scouts of America insurers, as well as groups representing former Scouts who say they were sexually abused by Scouting leaders, are challenging the youth organization’s efforts to push through a reorganization plan by the end of the summer, Reuters reported. Despite being on opposite sides of the Boy Scouts’ bankruptcy – with the insurers potentially on the hook for covering sex abuse claims that span decades – Century Indemnity Co. and the official group representing survivors both filed objections to the Boy Scouts’ disclosure materials and related bankruptcy matters on Wednesday. The Boy Scouts, represented by White & Case, filed for bankruptcy in February to address nearly 300 lawsuits accusing leaders of sexual abuse. The objections come about a week ahead of a hearing in which U.S. Bankruptcy Judge Laurie Selber Silverstein will determine whether the Boy Scouts can begin soliciting creditor votes for its proposed reorganization plan. Century, represented by O’Melveny & Myers, argues that the organization has “effectively forfeited” defending itself against potentially fraudulent sex abuse claims. https://www.reuters.com/business/legal/boy-scouts-insurer-decries-vote-…

Philippine Air Mulling Chapter 11, in Talks to Reduce Its Fleet

Philippine Airlines Inc. is in talks with plane lessors about reducing its fleet size and has told them it’s considering a chapter 11 filing in the U.S. to carry out a restructuring, Bloomberg News reported. The airline could return at least two Airbus SE A350s to lessors and four of the 10 Boeing Co. 777s in its fleet. Two A350s are in the process of being taken back by aircraft lessors and will be redeployed to other carriers. Prior to the negotiations, Philippine Airlines had six A350s. One lessor reached an agreement with the airline for it to keep a 777 and an A330. Philippine Airlines is working on documentation for a pre-packaged bankruptcy, with Seabury Capital advising on the restructuring. Founded in 1941, the airline said in a statement it is working with stakeholders “on a comprehensive restructuring plan” that will enable it to emerge from the global crisis financially stronger. Flights and operations won’t be affected in any restructuring, it said.
https://www.bloomberg.com/news/articles/2021-05-14/philippine-air-mulli…

N.Y.’s Biggest Mall Borrowed Big and Now Can't Pay

A sprawling shopping mall in Syracuse, New York, may be driven into one of the biggest municipal-bond defaults since the onset of the pandemic, Bloomberg News reported. Already struggling before the lockdowns hammered retailers, Destiny USA, the state’s largest mall, said it doesn’t know if it will generate enough cash to keep running and pay its debts this year, raising doubts about whether it can continue as a business. Its owner, Pyramid Management Group, hired restructuring advisers and has sought a meeting with investors who hold about $285 million of municipal bonds that financed the project, according to a filing last month. Nuveen LLC and MFS Investment Management were the biggest holders of the debt as of March 31, according to data compiled by Bloomberg. If Destiny can’t pay what it owes, it would be the second-largest default in the state and local government bond market since Covid-19 began racing through the nation in early 2020. It would also mark the first ever on debt backed by payments developers agreed to make instead of property taxes, making it a potential precedent for a $7.5 billion corner of the market that financed New York’s Hudson Yards development, the Mets’ baseball stadium and the new American Dream mall in New Jersey, whose grand opening was delayed by the pandemic.
https://www.bloomberg.com/news/articles/2021-05-13/n-y-s-biggest-mall-f…

Barnes & Noble Owner Buys Stationery Retailer Paper Source Out of Bankruptcy

Elliott Investment Management, the owner of Barnes & Noble, said on Tuesday that it will acquire gift and stationery retailer Paper Source, CNBC.com reported. The acquisition will provide Paper Source with the funding it needs to emerge from chapter 11 bankruptcy. Barnes & Noble CEO James Daunt will oversee both companies. While the two businesses plan to operate independently, it hinted at possible partnerships in the future. Paper Source plans to operate 130 stores in the U.S. as well as its website and wholesale division, Waste Not Paper by Paper Source. The stationery chain filed for bankruptcy on March 2 and was forced to close stores, cut jobs and reduce the pay of senior managers. Like many retailers, Paper Source’s sales fell last year after Covid pandemic shutdowns, capacity restrictions, and a wave of canceled weddings and events hurt sales of invitations. Paper Source had purchased 30 new stores from its competitor Papyrus just weeks before the pandemic hit in March 2020. At the time of its bankruptcy filing, Paper Source had 1,700 employees, 158 stores, and $100 million in debt and leases that cost $36 million annually.
https://www.nbcnews.com/business/business-news/barnes-noble-owner-buys-…

Need a Credit Card or Auto Loan? Banks Are Making Them Easier to Get

Credit cards, auto loans and other personal loans are all getting easier to come by, more than a year into a pandemic that spooked lenders and caused them to tighten lending standards significantly, the Wall Street Journal reported. The net share of banks that loosened underwriting standards for credit cards hit a high in roughly the first quarter, according to a survey of loan officers conducted by the Federal Reserve. The net share of banks relaxing underwriting on other consumer loans such as installment loans also notched a record. For auto loans, that share was the highest level in more than eight years. For example, about 29% of banks eased their underwriting standards for credit cards in the first quarter, and only 2% tightened them, according to the Fed. About 19% of banks loosened auto underwriting, while less than 2% tightened standards. The loosening reflects a pandemic about-face in consumer lending. A year ago, lenders expected people to stop paying their loans en masse, and they made loans harder to get. But then the government stepped in with expanded unemployment benefits and stimulus checks, and the expected flood of defaults never happened. Now banks have a different problem: Loan demand is down. Many people are even paying off their credit card balances. And while that signals that Americans are faring well even in the pandemic, it is problematic for lenders looking to boost revenue. (Subscription required.)
https://www.wsj.com/articles/need-a-credit-card-or-auto-loan-banks-are-…

For-Profit Law School Blocked from Student Loan Programs

The Biden administration is taking its first stand against for-profit colleges, signaling plans to increase scrutiny of the schools, Bloomberg News reported. The Education Department denied an appeal by Florida Coastal School of Law to participate in federal student aid programs, saying it failed to meet the required standards. The move marks a reversal from the Trump administration, which loosened oversight of such schools, and demonstrates President Joe Biden’s promise to stop them for potentially profiting off of students. For-profit institutions, like most colleges, rely on access to federal loans for enrollment. “We’re going to be tough but fair with the for-profit colleges under our purview,” said Richard Cordray, the department’s head of Federal Student Aid and a former director of the Consumer Financial Protection Bureau. Skirting standards is “not going to fly in this new administration. Whatever happened in the past, it’s a new day,” he said in an interview. Florida Coastal was denied because it received the department’s lowest financial responsibility score. It had too much debt, failed to provide advertised services, and its financial statements raised doubt about whether it could continue operations, the department said. The private-equity firm that owned 98.6% of the institution, Sterling Partners, relinquished control of the school last month, the department said.
https://www.bloomberg.com/news/articles/2021-05-13/for-profit-law-schoo…

N.C. Towns Face Insolvency as Financial Oversight Falls Short

After a decade of financial struggle, the small town of East Laurinburg in Scotland County could soon cease to exist. It could be the start of a trend: State Treasurer Dale Folwell now warns that a growing number of North Carolina towns are at risk of insolvency, the Carolina Journal reported. To date, a half-dozen other small rural N.C. towns have had their financial operations taken over by the Local Government Commission due to a lack of fiscal controls. “These aren’t revolutions; these are evolutions. These are patterns and trends that have been evolving for, in some cases, 20 years, and they’re just now coming to a head,” said Folwell, who chairs the Local Government Commission as part of his role. The Local Government Commission is made up of nine members, including the treasurer, state auditor, secretary of state and secretary of revenue. The other five members are appointed by the governor or General Assembly. Along with a staff of about 20, the commission is responsible for overseeing more than 1,300 local governments across the state, reviewing their audited financial statements and making sure they prudently manage their finances. Now, more than 100 towns, counties, or water and sewer districts are on the Local Government Commission’s “watch list” due to problems with financial management. Many of them are small, rural towns. Their financial difficulties often began when a major employer closed or left town, Folwell said. As people began to leave as well, essential town services then had to be paid for by a smaller and smaller population. Costs rose, forcing even more people out. The most dramatic situation is in East Laurinburg, a former mill town with fewer than 300 residents. The town’s books now reside in Raleigh after the town failed to submit audited financial reports for the past four years. The state treasurer’s staff has spent months trying to untangle things. Last week, the Local Government Commission determined the town was “no longer viable” and unanimously voted to recommend its charter be suspended. It was the first such vote in the commission’s history.

The U.S. Treasury Department is sending a message to states and cities that the billions in aid from the American Rescue Plan should provide relief to residents, not their governments’ debt burdens, Bloomberg News reported. The department on Monday released guidance on how state and local governments can use $350 billion in funding from President Joe Biden’s $1.9 trillion rescue package. The funds are intended to help states and local governments make up for lost revenue, curb the pandemic, bolster economic recoveries, and support industries hit by COVID-19 restrictions. In a surprise to some, these funds can’t be used for debt payments, a potential complication for fiscally stressed governments that had already etched out plans to pay off loans. Biden’s rescue package seeks to shore up the finances of states and municipalities that have been on the front lines of the government response to the outbreak. While municipal tax collections initially plunged at the start of the pandemic, the majority of U.S. states have seen revenue recover to pre-pandemic levels. That’s left governors and mayors grappling with how to best spend the aid. Several officials, including leaders in Illinois, Chicago and New Jersey, had considered using the funds to pay back loans, but this week’s guidance muddles those plans. States and cities stepped up borrowing as pandemic raged. “Expenses related to financing, including servicing or redeeming notes, would not address the needs of pandemic response or its negative economic impacts,” according to a document from the Treasury. “Such expenses would also not be considered provision of government services, as these financing expenses do not directly provide services or aid to citizens.”

Coming on the heels of a Moody’s Investors Service’s assessment of the territory’s financial outlook on the bond market and the solvency of its Government Employees’ Retirement System, Gov. Albert Bryan Jr. renewed his pitch to legislators to refinance the territory’s bond debt, the Virgin Islands Daily News reported. In an analysis published Monday, the financial services firm said the recent ruling of the Third U.S. Circuit Court of Appeals relieving the government of $40 million associated with past-due contributions will do little to reduce the pension fund’s insolvency and debt default risks. “This is not a loss for the GERS or the V.I. by any means,” Bryan said in a press statement. “It underscores the urgency with which the executive and legislative branches need to work together to address and put forward a comprehensive solution to this problem. The court clearly defined the duty of the legislature to address the funding needed, he acknowledged. “By working collectively I believe we can solve this issue on behalf of the people of the Virgin Islands,” he said. Bryan pointed to millions of dollars paid to the GERS over the years as evidence of the government’s commitment.

Long Beach, N.Y., a city of about 34,000 on Long Island’s south shore, is considering restructuring obligations that could surpass $460 million as it faces a court judgment that exceeds its annual revenue, Bloomberg News reported. The community, about 25 miles east of New York City, last week hired M3 Partners, LP to help it develop a restructuring plan and O’Melveny & Myers LLP for legal advice, according to city meeting minutes. In January, a Nassau County judge awarded about $130 million to a developer who had sued the city in 1989 over the revocation of permits to build condominium towers. The court judgment, which is more than Long Beach’s roughly $85 million in annual revenue, capped years of financial mismanagement by the city, including borrowing to pay operating costs, according to the state Comptroller’s Office. Long Beach, which was walloped by Superstorm Sandy in 2012, has also been plagued by management turnover. “We’ve got to do something to get things back in line,” said Long Beach City Manager Donna Gayden, adding that the city is appealing the judgment. “We’re making sure we’ve recorded all the long-term liabilities, that there’s nothing else sitting out there and doing the first part of the work.” Long Beach had about $120 million in bond debt and $140 million in retiree health-benefit liabilities as of its most recent financial statement. The city, where actor Billy Crystal grew up, also owes about $30 million for compensated absences like sick leave and vacation pay and another $40 million in liabilities for pensions, employee separation agreements and other claims. Long Beach doesn’t have an immediate need to file bankruptcy, according to people familiar with the matter who asked not to be identified because the deliberations over the municipality’s finances were private.

The crippling winter freeze that sent gas and power prices skyrocketing across Texas in February is providing a warning to cities about the risks of global warming: The cost of some extreme weather events can stick around for years, Bloomberg News reported. The municipal-bond market generally shrugs off natural disasters because they are usually offset by an influx of federal aid. But the electricity meltdown in the Lone Star state has left cities and local utilities on the hook for massive power bills. Bay City, a small community of less than 20,000 people, says its tab for that one week dwarfs what it spends in an entire year. Denton’s utility spent $200 million over four days buying power. San Antonio’s utility plans to sell long-term bonds to spread out the $1 billion in charges it incurred. While municipal-bond holders have been paying more attention to climate change in recent years, the Texas freeze is the latest in a series of disasters that have forced investors to rethink the way they evaluate bond portfolios that hold securities that don’t mature for decades.