ABI Bankruptcy Brief:

ABI Bankruptcy Brief:

ABI Bankruptcy Brief

August 13, 2020

ABI Bankruptcy Brief

Companies Lease Offices in New York Suburb to Pick Bankruptcy Judge

Suite 101 in the modern, white-columned office building at 777 Westchester Ave. in White Plains, N.Y., has become an unlikely landing spot for financially troubled companies based thousands of miles or even half a world away from the sleepy suburb north of Manhattan, the Wall Street Journal reported. The suite has attracted short-term tenants as varied as the Milwaukee-based maker of seats for Harley-Davidson Inc. motorcycles, an oilfield service company based in Singapore and the Moscow-based maker of Russian Standard vodka. Businesses can rent short-term workspace in this building through flexible-office provider Regus, which touts amenities that include its leafy setting and an on-site cafe. But these companies, advised by top corporate law firms, really want something else: the ability to pick their bankruptcy judge. Judge Robert Drain is the only bankruptcy judge in White Plains, and until a recent rule change made during the coronavirus pandemic shifted some cases to Manhattan, corporate restructurings filed in the suburb went only to him. That sets White Plains apart from other popular bankruptcy venues, where cases are assigned to judges at random. Companies are able to shop around for their preferred courtroom under bankruptcy law. For years, venue rules have made Delaware, Manhattan and, more recently, Houston and Richmond, Va., hubs for large corporate bankruptcies. Appointed to the bench in 2002, Judge Drain earned his law degree from Columbia University and worked as a partner in the restructuring group of elite corporate law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP. He has handled some of the largest and most complex corporate bankruptcies during his nearly two decades as a judge, including those of Hostess Brands and, currently, OxyContin-maker Purdue Pharma LP. Kevin Carey, a retired Delaware bankruptcy judge who is now a partner at law firm Hogan Lovells US LLP, said that Judge Drain is one of the best bankruptcy judges in the country and “has a good business sense in addition to having a keen and able legal mind.” Judge Drain is also one of a handful of U.S. bankruptcy judges to approve a type of chapter 11 restructuring that can be in and out of bankruptcy court in 24 hours. This type of bankruptcy is increasingly popular with some big law firms, which say they prevent unnecessary disruptions and tend to cost less than traditional chapter 11 cases, which could take months or even years. Judge Drain told the Wall Street Journal that the notion “that judges slant their rulings in order to lure future cases to their courts is an offensive fantasy” and noted that amid the economic downturn, major chapter 11 cases have been filed throughout the country. “We’re public servants; we decide what comes before us to the best of our ability, working long hours, often at great stress, addressing the financial ills of companies large and small and individual debtors throughout the country, no more and no less,” Judge Drain said.

'Only Superficial Commonality': There Will Be No MDL for Lawsuits Against Insurers over COVID-19 Claims

A federal judicial panel has refused to coordinate hundreds of lawsuits against insurance firms over business-interruption claims tied to the COVID-19 pandemic, the National Law Journal reported. Yesterday’s order, by the U.S. Judicial Panel on Multidistrict Litigation, found that the cases shared “only a superficial commonality” and no common defendant. In fact, the panel wrote, the cases involve hundreds of plaintiffs, “many with disparate views of the litigation,” and more than 100 insurance firms that have “different insurance policies with different coverages, conditions, exclusions, and policy language, purchased by different businesses in different industries located in different states.” “To say this litigation would result in a complicated MDL seems an understatement,” the panel wrote. “Managing such a litigation would be an ambitious undertaking for any jurist, and implementing a pretrial structure that yields efficiencies will take time.” Plus, given that several plaintiffs are “on the brink of bankruptcy” due to lost business from COVID-19 and government closures, an MDL would not be quick enough, the panel added. In an unusual move, however, the panel issued orders to show why separate MDLs should not be created for cases against four specific insurers. The panel noted that those requests would be heard at its Sept. 24 hearing. “Such an MDL would be limited to a single insurer or group of related insurers and thus would not entail the managerial problems of an industry-wide MDL involving more than a hundred insurers,” the panel wrote. “The actions are more likely to involve insurance policies utilizing the same language, endorsements, and exclusions. Thus, there is a significant possibility that the actions will share common discovery and pretrial motion practice.” The order is the latest in which the MDL panel, reviewing half a dozen dockets related to COVID-19, has refused to coordinate cases against various companies in the same industry. Previous orders refused to coordinate MDLs against various banks, including Bank of America and JPMorgan Chase & Co., over their handling of COVID-19 relief loans to small businesses and payment of agent fees.

Borrowers Face New Fee to Cover Heightened Risks

Fannie Mae and Freddie Mac said they would impose a new fee to insulate themselves from losses on refinanced mortgages they guarantee, a sign of potential turbulence in the housing market and a move likely to generate pushback from lenders, the Wall Street Journal reported. The government-controlled companies, which back nearly half of the $11 trillion U.S. mortgage market, said yesterday that they would begin charging lenders the added fee next month. It will apply to most loans they buy that borrowers have refinanced to lock in lower interest rates. Some mortgage lenders have reported record earnings amid a refinancing boom, and the fee could dampen their future profits. It is equal to 50 basis points, or half a percentage point, on each loan Fannie and Freddie guarantees, or roughly $1,400 on the average mortgage backed by the companies, according to industry estimates. Industry officials said the fee isn’t correlated with the risk of refinanced loans and would simply be passed on to consumers, increasing their costs at a time when the Federal Reserve is acting aggressively to support lower interest rates. Borrowers would likely see only a modest increase in their monthly costs, since the fee would be paid over the life of their loan.

U.S. Weekly Jobless Claims Drop Below 1 Million

The number of Americans seeking jobless benefits dropped below one million last week for the first time since the start of the COVID-19 pandemic in the U.S., though at least 28 million people are still receiving unemployment checks, an indication that the labor market is far from healing, Reuters reported. The expiration of a $600 weekly jobless supplement at the end of July likely contributed to the decline in claims reported today by the Labor Department. Reports from payroll scheduling and workforce-management firms suggested a decline in employment in early August due to the spread of new COVID-19 cases across the U.S. Initial claims for state unemployment benefits decreased 228,000 to a seasonally adjusted 963,000 for the week ended Aug. 8. That is the lowest level since mid-March, when authorities started shutting down nonessential businesses to slow the spread of the novel coronavirus. Data from Homebase, a payroll scheduling and tracking company, showed a decline in employment last week, and figures from Kronos, a workforce-management software company, showed a flattening in the number of shifts worked.

Commercial Properties’ Ability to Repay Mortgages Was Overstated, Study Finds

Thousands of commercial-mortgage borrowers have been struggling to meet payments on their loans in the midst of the coronavirus pandemic. But there might be another reason so many are falling behind: aggressive lending practices that overstated borrowers’ ability to repay, the Wall Street Journal reported. A study of $650 billion of commercial mortgages originated from 2013 to 2019 found that even during normal economic times, the mortgaged properties’ net income often falls short of the amount underwritten by lenders. The underwritten amount should be a conservative estimate of how much a property earns. Instead, the actual net income trails underwritten net income by 5 percent or more in 28 percent of the loans, according to a study of nearly 40,000 loans by two finance academics at the University of Texas at Austin. The study shows risks in the $1.4 trillion market for commercial mortgage-backed securities (CMBSs), where loans on malls, apartment buildings, hotels and the like get packaged into bonds bought by investors, often with guarantees from the government. The findings suggest that loans sold to investors before the pandemic frequently featured overstated income and could have more trouble staying current in case of a downturn. The findings corroborate a complaint received last year by the Securities and Exchange Commission stating that commercial mortgage loans frequently feature inflated financials. They also come at a sensitive time for the CMBS industry, which has been seeking a lifeline since the spring, when the Federal Reserve left swaths of the market out of its $2.3 trillion economic-rescue package.

Airlines Are Withholding Billions in Refunds

Consumers continue to battle airlines over canceled tickets with billions of dollars at stake — and likely lasting animosity toward airlines over punitive policies, the Wall Street Journal reported. U.S. travel agencies have already handled more than $1 billion in airline cash refunds, according to Airlines Reporting Corp., which processes tickets. That doesn’t count refunds issued directly by airlines, which likely more than doubles that total. Then there’s the far more common outcome of a voucher issued instead of a refund, allowing the airline to hang on to a customer’s cash. The U.S. Transportation Department warned that any airline operating in the U.S., foreign or domestic, had to refund tickets for flights the airline canceled and couldn’t offer an alternative without a “substantial” schedule change. But many international carriers have offered only vouchers. Some forced consumers into accepting vouchers before the airline officially removed flights from its schedule. Some have delayed paying refunds while waiting for government bailouts or new investment. Another frustration for consumers: The terms airlines have imposed on vouchers. Though many airlines have given customers a year or more to use vouchers, it still can be tough to redeem them.

August 27 abiLIVE Webinar to Examine Fraud Schemes, Relief Act Forgiveness Fraud, and International Commercial Fraud Issues

Sponsored by ABI's Commercial Fraud Committee, the "COVID-19: Fraud Schemes, Relief Act Forgiveness Fraud, and International Commercial Fraud Issues" abiLIVE webinar on August 27 will discuss hot topics related to COVID-19, particularly fraudulent schemes likely expected due to the pandemic and schemes that may be revealed as a result of the pandemic's economic repercussions. The panelists will also address the coronavirus relief bill and resulting potential fraudulent schemes, as well as the international impact of the pandemic. Click here to register for FREE.

Sign up Today to Receive Rochelle’s Daily Wire by E-mail!
Have you signed up for Rochelle’s Daily Wire in the ABI Newsroom? Receive Bill Rochelle’s exclusive perspectives and analyses of important case decisions via e-mail!

Tap into Rochelle’s Daily Wire via the ABI Newsroom and Twitter!


New on ABI’s Bankruptcy Blog Exchange: PPP Had Its Strengths, but Its Successor Can Be Stronger

A public/private partnership that has fewer rules and restrictions than the Paycheck Protection Program could save more small businesses, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

© 2020 American Bankruptcy Institute
All Rights Reserved.
66 Canal Center Plaza, Suite 600
Alexandria, VA 22314