Discharge/Dischargeability

Analysis: Goldman, Morgan Stanley Seek to Plug Holes After Split Verdict on 'Living Wills'

When U.S. regulators this month announced their verdicts on eight big banks' "livings wills" — blueprints showing how the institutions would fail without needing a bailout — officials promised more clarity in a process that the industry has criticized as opaque. The government did release more information than in the past about decisions that affect banks' business plans and balance sheets. But the fact that the two agencies involved issued clashing verdicts on a pair of large Wall Street investment banks, Goldman Sachs Group Inc. and Morgan Stanley, stoked confusion and added to calls for the government to be even more transparent in next year's verdicts, according to an analysis in today's Wall Street Journal. Both Goldman and Morgan Stanley said this month they are committed to addressing regulators' concerns, and all the banks are set to meet with the two agencies, the Federal Reserve and the Federal Deposit Insurance Corp., in the coming weeks. While the Fed and FDIC spoke with one voice to six of the eight firms they assessed — failing five and passing one — their disagreement on Goldman and Morgan Stanley came without a clear explanation. The Fed failed Morgan Stanley, but the FDIC didn't. The opposite was true for Goldman. Because the regulators disagreed on Goldman and Morgan Stanley, the firms avoided the "failing" label — and the potential sanctions that come with it, such as higher capital requirements — but the firms still have to take action on the shortcomings that regulators perceived. The opposing verdicts are a reminder of the subjective nature of regulators' decisions and the agencies' continuing struggle to communicate their expectations to the industry.

Analysis: Buyouts Saddle Struggling Retailers with Debts They Can't Repay

Sports Authority Inc. learned the hard way that buyout debt can be a drag as the bankrupt company was loaded with at least $643 million in debt, a hangover from its $1.4 billion leveraged buyout in 2006 by investors led by Leonard Green & Partners, Bloomberg News reported today. Other retailers filing recently for bankruptcy include Deb Shops Inc., a 2007 buyout by Thomas H. Lee Equity Partners Inc., and Dots Stores Inc., a 2011 purchase by Irving Place Capital. Also headed for the debt wall are Claire's Stores Inc., bought by Apollo Global Management in 2007, and Gymboree Corp., a 2010 Bain Capital Partners acquisition. Some in the industry see high levels of indebtedness as a new normal. Many retailers that are struggling now have been slowing down for years, said Sandeep Mathrani, chief executive officer of mall-owner General Growth Properties Inc. In the fast-evolving world of retail where the one constant is the need for investment, retailers laboring under heavy debt are at a disadvantage. "Doing it right is very expensive," said Raya Sokolyanska, an analyst with Moody’s Investor Service in New York. "Limited financial flexibility has been a reason why a lot of these retailers haven’t been able to fight back and position themselves correctly for growth." With the rise of smartphones, shoppers can compare prices in an instant. While competitors such as Dick’s Sporting Goods Inc. were sprucing up stores and building their online businesses, Sports Authority was falling behind, said Ryan Severino, senior economist at REIS Inc. Charles Tatelbaum, a bankruptcy attorney with Tripp Scott in Fort Lauderdale, Fla., said he expects companies acquired through leveraged buyouts to be well represented in the next round of retail bankruptcies because a firm with high debt is running in a three-legged race.

What are the prospects for traditional brick-and-mortar retail? A panel at ABI’s New York City Bankruptcy Conference will examine retail’s changing landscape. Register today!

Texas, Oklahoma, Wyoming: Oil Woes Start to Hit Hard

In states from Oklahoma and Texas to North Dakota and Wyoming, rising unemployment in the energy sector is pushing up loan delinquencies and raising the risk of new losses for banks, the Wall Street Journal reported yesterday. Wells Fargo & Co. this month reported an increase in borrowers falling behind on payments in areas including Houston and parts of Alaska. JPMorgan Chase & Co. said that auto-loan delinquency rates picked up in some energy-related markets. Overall, energy-dependent states are posting delinquency rates that in many cases exceed the national average, according to data prepared for the Wall Street Journal by credit bureau TransUnion. Nearly 119,600 oil and gas jobs nationwide have been eliminated — 22 percent of the total — since September 2014, according to the Federal Reserve Bank of Dallas. The price of U.S.-traded oil, while on the rise this year, has dropped 28 percent since June. Some analysts have warned that persistent crude oversupply could prevent further price gains. (Subscription required.)

White House Steps Up Effort to Reform Student Loan Servicing to Stave Off Rising Defaults

The White House unveiled a series of initiatives today to improve the way the government collects payments on education loans, at a time when defaults are rising, the Washington Post reported today. Government agencies are working together to provide the 43 million Americans who carry $1.3 trillion in student debt more transparent information about the terms of their loans, account features and consumer protections. They also are asking colleges, local governments and employers to help get the word out about repayment plans, especially those that cap monthly payments to a percentage of earnings, known as income-driven repayment plans. The Obama administration has given Americans more options for repaying their student debt so they can avoid default, expanding income-driven plans that require little to no money from people in dire straits. Direct outreach by the Department of Education and marketing campaigns has led to higher enrollment, yet the amount of people severely behind on their debt remains stubbornly high. To reach as large an audience as possible, the CFPB is releasing its own “Payback Playbook,” a guide to help borrowers determine the best repayment plans for them. The playbook will be available to borrowers included in their monthly bills, in email communications from servicers and when they log into their student loan accounts. The bureau is also working to develop guidance to make sure that servicers provide fair, consistent and accurate data to credit bureaus.

In related news, more law firms are adopting initiatives to help lawyers refinance their law school loans at reduced rates, American Lawyer reported yesterday. Last year, Latham & Watkins spearheaded a program with First Republic Bank Co. that allows associates with student loans exceeding $50,000 to refinance at rates as low as 2.5 percent. Since January, at least three other Am Law 100 firms have set up similar programs with the bank. The latest to join the club is Kirkland & Ellis, which launched a program this week that allows associates paying between 6.5 and 8 percent interest on their loans to refinance with First Republic.

Opponents of New Retirement Rule Renew Efforts to Kill It

Opponents of a new rule on retirement advice are regrouping to mount a fresh attack, as their initial optimism has given way to the realization of the regulation's deep and long-lasting impact on the financial industry, the Wall Street Journal reported today. Three weeks after the Labor Department unveiled a tougher standard for brokers working on retirement accounts, the House is expected to pass a resolution tomorrow to scrap it. Trade groups, after keeping relatively quiet as they sought to digest the regulation known as the fiduciary rule, have come out strongly in support of Republican-led efforts aimed at preventing it from taking effect. Any legislative attempt to block the new rule has a slim chance of success. The White House issued a statement yesterday saying that the president would veto the bill. Still, the lawmakers' swift action and the unified front of industry groups show that opposition to the rule remains strong. Reflecting continued industry concerns, eight big trade groups had jointly sent a letter to House lawmakers yesterday timed to coincide with the vote, urging them to kill the new rule. (Subscription required.)

Latest ABI Podcast Looks at the Challenges in Representing Creditors' Committees

In a new ABI Podcast, ABI Resident Scholar Melissa Jacoby talks with Mark E. Felger of Cozen O'Connor (Wilmington, Del.) and Paul Hage of Jaffe Raitt Heuer & Weiss (Southfield, Mich.) about the challenges that professionals face when representing creditors' committees. Felger and Hage are co-authors of ABI's Representing the Creditors' Committee: A Guide for Practitioners, available for purchase in ABI's Bookstore.