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Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said that the Bankruptcy Code should be changed to accommodate the failure of a large financial firm, which he said was preferable to the federal government rescue of a cratering bank, the Wall Street Journal reported today. Lacker, in testimony at a House Judiciary Committee hearing yesterday, said that improving the Code would strengthen the financial system by reducing the chance of a government rescue and, in turn, imposing more discipline on financial firms and their creditors. Ensuring large financial firms have a credible bankruptcy path, and minimizing the chance of government support, could also help reduce reliance on potentially volatile short-term funding since creditors and firms would be less willing to take such risk, Lacker said. (Subscription required.)
http://online.wsj.com/news/articles/SB100014240527023043551045792360501…

To read the prepared hearing testimony, please click here.

Bankrupt mortgage lender Residential Capital LLC has struck a deal with a class of bondholders to resolve the group's objection to its plan to exit bankruptcy, Reuters reported yesterday. In court papers filed yesterday, ResCap outlined a new exit plan which includes a $125 million payment to the bondholder group to settle its demands for millions of dollars in interest payments. Implementation of the plan would allow ResCap to begin paying back creditors who include owners of residential mortgage-backed securities that collapsed in the 2008 mortgage crisis. It would also allow former parent Ally Financial, which is now part-owned by U.S. taxpayers, to focus on repaying the federal government for a $17 billion bailout during the crisis. Ally had contributed $2.1 billion to fund recoveries for ResCap creditors, a cornerstone of the plan.

As bankrupt American Airlines parent AMR Corp. prepares to close a merger with US Airways Group Inc., the stock trades at just below $11, and a small group of investors who bet on it when it was flying low when it filed for bankruptcy in 2011 are poised to reap one of the biggest bankruptcy windfalls in years, the Wall Street Journal reported today. That is thanks in part to a little-noticed quirk in the deal that means their holdings could translate into much larger stakes than previously expected in the combined airline, to be called American Airlines Group Inc. For an investor who bought American shares at their lowest closing price two years ago, the increase of more than 40 times to its current level is the best return over that period of any U.S.-listed company with a market value today of at least $300 million, according to a Wall Street Journal analysis of data from FactSet.

Total bankruptcy filings in the U.S. for November 2013 decreased 15 percent compared to the previous year, according to data provided by Epiq Systems, Inc. November bankruptcy filings totaled 74,021, down from the 87,090 filings registered in November 2012. Total commercial filings for November 2013 were 3,055, representing a 28 percent decrease from the 4,252 filings during the same period in 2012. Commercial chapter 11 filings totaled 482 in November, also a 28 percent decrease from the 671 filed in November 2012. The 70,966 total noncommercial filings for November represented a 14 percent drop from the November 2012 noncommercial filing total of 82,838. For the full statistical release, please click here.

Cielo Vineyards & Winery LLC filed for chapter 11 protection citing $1,000,001 to $10 million in assets and the same figure in liabilities, the Sacramento Business Journal reported yesterday. Though the winery’s website describes it as having 41 acres, only about 18 are actually planted vineyards at the moment. Among the list of creditors, the largest single amounts are for a total of $1.63 million to three individuals or entities whose claim is on the 21.6 acres of undeveloped land.

Charles Ergen knew that his relationship to Dish Network Corp. and EchoStar Corp. made it improper for him to buy up LightSquared Inc.’s debt, according to new allegations in a lawsuit filed against him, Bloomberg News reported yesterday. Philip Falcone’s Harbinger Capital Partners hedge fund made the claims yesterday in an amended complaint in bankruptcy court. Ergen first looked into whether Dish could acquire LightSquared debt in the fall of 2011, and an investigation then concluded that Dish was prohibited from buying LightSquared debt because it was a competitor, according to the complaint.

Atlantic Express Transportation Corp. yesterday received the bankruptcy court's approval of $53.5 million in bankruptcy financing, Dow Jones Newswires reported yesterday. Bankruptcy Judge Sean Lane said yesterday that it's clear Atlantic Express is unable to secure financing on better terms than those being provided by Wells Fargo Bank and that without this financing, the company would have to cease operations. Previously, Judge Lane granted the company access to $10 million of this loan provided by Wells Fargo Bank on an interim basis. The approval yesterday guarantees Atlantic Express's ability to tap the full amount of the loan, which matures Jan. 15.

FirstBank Puerto Rico asked a court to dismiss a bankruptcy case filed by the owner of a luxury Caribbean island resort, saying that it is interfering with an ongoing effort to collect the more than $120 million it is owed, Dow Jones Daily Bankruptcy Review reported today. FirstBank on Friday filed papers urging a Florida bankruptcy judge to dismiss the chapter 11 case of Scrub Island Development Group Ltd., which was filed days after a Caribbean court appointed a receiver to take over the company's 230-acre private island and its amenity-stocked resort. The bankruptcy filing stopped that court action, a move that FirstBank says shouldn't be allowed to go forward.

The trustee liquidating failed New York law firm Dewey & LeBoeuf LLP filed a $21.8 million complaint on Wednesday against two of the firm's leaders, former Executive Director Stephen DiCarmine and former Chief Financial Officer Joel Sanders, Dow Jones Daily Bankruptcy Review reported today. The complaint outlines a number of alleged financial irregularities at the firm — whose management is the focus of an ongoing criminal investigation — including $1.2 million loans to DiCarmine and Sanders. The suit seeks to claw back lavish compensation packages the pair received in the years leading up to Dewey's 2012 collapse.

American Airlines parent AMR Corp. won bankruptcy court approval of the deal it reached with regulators to complete its $17.2 billion merger with US Airways Group Inc. and create the world’s biggest airline, Bloomberg News reported on Thursday. The accord with the U.S. Justice Department, which agreed on Nov. 12 to drop its antitrust challenge if the carriers gave up some airport slots, was approved today by U.S. Bankruptcy Judge Sean Lane. “The settlement easily satisfies” bankruptcy requirements and the merger may be consummated without delay, Judge Lane said at a hearing. A group that sued to block the deal “utterly failed” to prove the merger would harm them, he said. AMR, based in Fort Worth, Texas, intends to complete the merger on Dec. 9 and rename the company American Airlines Group Inc. The last day of trading of all outstanding securities of AMR and the common stock of US Airways will be Dec. 6, according to a company statement.