| NEWS AND ANALYSIS
LATEST ABI PODCAST EXAMINES MORTGAGE LIEN-STRIPPING CASES BEFORE THE SUPREME COURT
Former ABI Resident Scholar Prof. Lois Lupica is joined by Dennis Levine of Dennis LeVine & Associates, P.A. (Tampa) and Rich Thomson of Clark and Washington, P.C. (Atlanta) to discuss two cases recently granted certiorari by the Supreme Court (Bank of America v. Calukett and Bank of America v. Toledo-Cardona) involving mortgage lien-stripping in bankruptcy. Levine, who typically represents creditors, and Thomson, a debtors' lawyer, share their perspectives on arguments that may be raised before the Court for both cases. Click hereto listen.
For more information on these cases and other bankruptcy cases currently being considered by the Supreme Court, be sure to visit the ABI Newsroom
CFPB ISSUES REPORT ON STEPPING UP MILITARY FINANCIAL PROTECTIONS
The Consumer Financial Protection Bureau (CFPB) has issued a report highlighting how loopholes in the current Military Lending Act rules are racking up costs for servicemembers, NationalMortgageProfessional.com reported yesterday. According to the report, these gaps have allowed companies to offer high-cost loans to military families by skirting the 36 percent rate cap and other military-specific credit protections. The CFPB included these findings in a comment letter filed in support of the Department of Defense's proposal to broaden the scope of the Military Lending Act rules to cover deposit advance products, and more types of payday, auto title, and installment loans. In 2006, Congress passed the Military Lending Act to protect active-duty military personnel, active National Guard or Reserve personnel, and their dependents from predatory lending practices. In 2013, Congress amended the law by, among other things, giving the CFPB specific authority to enforce it. Read the full report.
For more information on servicemember protections and bankruptcy, be sure to pick up a copy of ABI's Bankruptcy and Debt under the Servicemembers Civil Relief Act from the ABI Bookstore.
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CREDIT-DEFAULT SWAPS GET ACTIVIST NEW LOOK
Hedge-fund managers are putting a new twist on credit-default swaps, using the contracts to fortify bets on troubled companies, the Wall Street Journal reported yesterday. The swaps, which work like insurance policies when companies default on bonds and loans, fell out of favor after Wall Street's outsize bets on the swaps soured during the financial crisis. Now, investors are increasingly combining credit-default-swaps trades with elements of activist investing to push companies toward default in some cases and away in others. Swaps buyers pay sellers an upfront fee and a steady flow of premiums in exchange for a guaranteed payout from the seller if default occurs. Historically, the corporate credit-default-swaps market was dominated by bets on giant borrowers with billions of dollars of debt outstanding. But that use has declined, while swaps contracts on the debt of smaller companies in financial distress has surged. The average market capitalization of the five most actively traded nonfinancial companies in the credit-default-swaps market has been about $6 billion since March, according to data from Depository Trust & Clearing Corp. and S&P Capital IQ. That's down from $20 billion at the end of 2013 and well below the $16 billion average since July 2010, when DTCC began collecting the data. Read more.(Subscription required.)
INVESTORS STRUGGLE TO GET INTO SOME PRIVATE EQUITY FUNDS
Pension funds, endowments and wealthy individuals that invest with private equity are finding it increasingly hard to get into the most sought-after funds, according to data and industry participants, the Wall Street Journal reported today. Private-equity firms, which raise money from such investors and then put it to work in various investment strategies, are generally filling their coffers faster this year from clients. The proportion of private-equity funds that reached or exceeded the maximum amount the firms set out to raise this year is at its highest level since at least 2009, according to a snapshot of funds for which private-equity tracker Preqin has data. Typically, firms put a limit on the size of the fund they are raising, known as a hard cap, at the beginning of the fundraising process. That hard cap generally can't be exceeded without approval from fund investors. As of Nov. 13, 55 percent of roughly 280 funds for which Preqin had hard-cap data reached or surpassed that maximum size. Last year, 43 percent of funds hit or exceeded those limits. Also, private-equity firms have taken an average of 16.4 months to raise capital for funds that have closed this year, Preqin data show. That's two months shorter than the average time it took to raise funds that closed in 2013.Read more.(Subscription required.)
Additionally, some of the largest private-equity firms are giving up their claim to fees that generated hundreds of millions of dollars for them over the years in the face of pressure from investors and heightened scrutiny from federal regulators, the Wall Street Journal reported yesterday. The investment firms usually collect the fees from companies they buy for providing services such as consulting, serving as directors and helping them make their own acquisitions. Instead of keeping some of the money, the buyout firms, in new funds they are raising, will now pass the fees on in full to investors in the funds. The payouts being reimbursed, known in the industry as transaction and monitoring fees, have provided many private-equity firms with a steady income stream augmenting their share of investment gains on deals, which remain the key source of profits from their buyout funds. The decision by private-equity firms to essentially reimburse investors with payments that can amount to tens of millions of dollars or more, sometimes on just one transaction, shows the increased influence wielded by investors such as public pension funds that historically accepted terms buyout firms proffered. To reimburse investors, the buyout firms don't actually pay cash. Instead, they lower separate management fees the investors owe by the same amount. For managing their money, private-equity firms typically charge investors between 1 and 2 percent of the cash they commit as a management fee. Blackstone, Apollo Global Management LLC, Carlyle Group LP and KKR collectively reported roughly $9 billion in management fees from their private-equity businesses between 2008 and the end of 2013, regulatory filings show. Read more.(Subscription required.)
EMERGING-MARKET DISTRESSED DEBT LOSS IS WORST SINCE 2008
Emerging-market distressed debt losses are the worst this month since the global financial crisis, Bloomberg News reported yesterday. Bank of America Merrill Lynch's Distressed Emerging Markets Corporate Plus Index fell 13.4 percent through Dec. 26, set for its worst performance since October 2008, as a tumble in the price of oil sparked a currency crisis in Russia. That brought this year's decline to 19.7 percent, the most in six years. High-yield distressed securities in the U.S. lost 8 percent, the indexes show. Emerging markets accounted for 14 of the 56 global defaults this year in Standard & Poor's coverage. Read more.
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USTP NOTICE OF PROPOSED RULEMAKING ON CHAPTER 11 MONTHLY OPERATING REPORTS
Section 602 of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) authorizes the U.S. Trustee Program (USTP) to issue rules requiring uniform periodic reports by debtors in possession or trustees in non-small business cases under chapter 11. The USTP just published in the Federal Register a notice of proposed rulemaking seeking public comment on the proposed rule and periodic report forms. The proposed rule is published in the Federal Register at 79 FR 66659 (Nov. 10, 2014) (to be codified at 28 C.F.R. pt. 58). The proposed rule, along with the proposed periodic report forms and instructions, may be viewed on the USTP's website. The proposed rule may also be accessed at www.regulations.gov. All public comments must be submitted on or before January 9, 2015, via www.regulations.gov. Please note that the proposed rule and forms only apply in chapter 11 cases filed by debtors that are not small businesses. Small business debtors are already required to use Official Form 25C, "Small Business Monthly Operating Report."
NEW CASE SUMMARY ON VOLO: STATION FINANCIAL V. MCCORMICK (IN RE MCCORMICK; 8TH CIR.)
Summarized by Bryan Robinson
The Eighth Circuit Bankruptcy Appellate Panel reversed the bankruptcy court's order denying Starion Financial's motion to compel payment of fees under the confirmed reorganization plan and granting the debtors' motion to disallow attorneys' fees and costs. The Bankruptcy Appellate Panel remanded the case back to the bankruptcy court for further proceedings consistent with the panel's opinion. There are more than 1,500 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.
NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: IRS AUCTIONING DEFERRED ANNUITY OF FORMER BASEBALL PLAYER
A recent blog post looks at the IRS auction of the deferred annuity the New York Mets owe to former major league baseball player Darryl Strawberry.
Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.
ABI Quick Poll
"Executoriness" should be dropped as a threshold requirement in § 365.
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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