SEC Issues

Analysis: Retail Funk: Stores Facing Biggest Challenges Since Recession

ABI BANKRUPTCY BRIEF
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May 11, 2017

 
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NEWS AND ANALYSIS

Analysis: Retail Funk: Stores Facing Biggest Challenges Since Recession

It’s starting to look a lot like the Great Recession redux for retailers, according to an analysis by the Associated Press Tuesday. More than twice as many stores have closed this year than at the same point last year. Bankruptcies are far outpacing last year’s rate. Retailers slashed jobs at the sharpest pace in seven years this spring. And retailers collectively could report the biggest drop in first-quarter profits since 2009. This time, the culprit’s not the economy but shoppers whose habits have changed profoundly and permanently, as they shop online more and look for deals. The results this week from department stores like Macy’s, Kohl’s and J.C. Penney are expected to illustrate the latest damage by the spending shift and the dominance of Amazon. “The first-quarter reports will show how difficult the mountain retailers will have to climb [is],” said Ken Perkins, president of research firm Retail Metrics LLC. Perkins estimates that the 114 retailers he tracks will see an average drop of more than 5 percent in first-quarter earnings, marking the second straight quarter of declines and third in the last six quarters. But he thinks there’s even a chance they could surpass a 7.1 percent drop in the fourth quarter of 2013 that would make it the worst quarter since 2009. Moreover, 22 percent are expected to post losses, the highest percentage since the second quarter of 2009. And he forecasts that nearly half of the retailers will see total sales revenue fall, nearing the level of the last downturn.
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Analysis: Profits from Store-Branded Credit Cards Hide Depth of Retailers' Troubles

Department stores and big-name retailers are increasingly making the hard sell to sign up customers for credit cards at the register. The store cards promise deep discounts on clothing, furniture and electronics, and are tough for shoppers to resist. For some retailers, those credit cards are not just a sales tool, but also an essential way to bolster their struggling businesses — a trend that has worrisome implications for the industry and its customers, according to an analysis in the New York Times DealBook today. The store cards, with steep interest rates that are often twice that of the average credit card, generate a rich profit stream for retailers at a time when many of America’s traditional retailers are losing the battle for sales against Amazon and other e-commerce rivals. Those profits on plastic are helping obscure the true extent of the industry’s pain, a major pressure point for a piece of the economy that employs one in 10 Americans. Weak consumer spending, digital competition and changing shopping habits have already roiled retailers. In recent months, the industry has shed tens of thousands of workers, making it one of the job market’s weakest links. But the businesses may be in worse shape than they appear, since store cards are a shaky foundation. If more consumers fall behind on their payments, the profits could dry up, intensifying retailers’ troubles.
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Trump Administration, Senators Put Fannie, Freddie Overhaul Back in Play

The Trump administration and a bipartisan group of U.S. senators are working to address an issue that has gone unresolved for nearly a decade: how to overhaul Fannie Mae and Freddie Mac, the mortgage-finance giants the government took over in 2008, the Wall Street Journal reported today. The Senate Banking Committee has begun behind-the-scenes work on the issue of how, exactly, to revamp the companies. The senators want to develop a framework to decrease the government’s outsize role backstopping the nation’s $10 trillion mortgage market. It remains unclear whether policymakers can overcome philosophical differences and hammer out a final deal. Conservative Republicans have called for a private market with no new federal guarantees. Some centrist Republicans and many Democrats have said a federal role is needed to preserve liquid markets for the popular 30-year fixed-rate mortgage that drives home buying. Nevertheless, Senate Democrats say that a Fannie and Freddie overhaul would garner much more bipartisan support than other GOP priorities, such as rollbacks to Dodd-Frank law financial regulations.
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Credit Unions Ask CFPB to Limit Business Loan Rules

As the CFPB contemplates regulations governing small business lending, credit unions are asking the agency to ensure that any rules do not conflict with NCUA requirements and do not require data collection that could be misleading, the Credit Union Times reported today. The CFPB held a field hearing on small business lending in Los Angeles Wednesday, and agency officials said that they are soliciting advice on how to collect data on it — a requirement under the Dodd-Frank Act. “Given the importance of small businesses to our economy and their critical need to access financing if they are to prosper and grow, it is vitally important to fill in the blanks on how small businesses are able to engage with the credit markets,” CFPB Director Richard Cordray said. NAFCU is asking the agency to exempt credit unions from any new rules that require disclosure of business loan information. “Credit unions are bound by defined fields of membership, which means that MBL activity could be limited by geographic restrictions, employer groups, or other charter-specific language that defines who the credit union may serve,” said Andrew Morris, NAFCU’s regulatory affairs counsel. As a result, Morris said, any information collection that mixes credit union business lending data with the data gathered from banks could be misleading and unhelpful. Morris said if the agency is unwilling to exempt credit unions, then data collection should be coordinated with the NCUA and the Treasury Department to ensure the data is not misleading.
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Op-Ed: WTO Review Is Perfect Opportunity to Tackle Currency Manipulation

President Trump recently announced that he has tasked Commerce Secretary Wilbur Ross with undertaking a broad-based review of the U.S.'s membership in the World Trade Organization, according to an op-ed in The Hill today. Such a review is long overdue, but it should be expanded to include the U.S.'s membership in the International Monetary Fund (IMF) and a review of the U.S. law that identifies and sanctions currency manipulation by our trading partners, according to the op-ed. The WTO is woefully slow in addressing concerns about unfair trade practices. The U.S. should create a special WTO trade assistance counsel within the office of the U.S. Trade Representative for U.S. companies and industries to file complaints assisted by attorneys, free of charge, against foreign competitors they allege to be cheating. In the meantime, the U.S. should offer loans, credit and unemployment benefits to support the continuation of the business by the complainant company or industry until such time as the case is resolved. But Secretary Ross’s review of the WTO should go further, according to the op-ed. The U.S. should insist that the IMF adopt WTO-style sanctions on foreign currency manipulators or that the WTO expand the definition of an export subsidy to include currency manipulations. Secretary Ross will need to take a bit more on his plate if he hopes to return the U.S. to a policy of fair trade among its trading partners, according to the op-ed.
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Commentary: Economists Say President Trump's Agenda Would Boost Growth — a Little

One of the most-watched economic forecasts in Washington will come later this month when the White House releases its budget, according to a commentary in the Wall Street Journal today. Here is what it would look like if it were done by economists recently surveyed by the Journal. Over the course of the next decade, the estimated cost of many items on President Donald Trump’s wish list will depend critically on his own team’s projections for economic growth, unemployment and interest rates. Per longstanding custom, however, the White House budget differs from most economic forecasts in one crucial way: Most forecasters estimate the path for the economy they believe is most likely, taking into account that many political promises will never come to fruition. To establish a baseline of what a reasonable forecast might look like under Trump, respondents to the monthly survey of forecasters provided their own estimates of the economy if all of Trump’s initiatives were enacted. White House officials have reportedly considered penciling in growth rates as high as 3.2% a year. But the survey respondents — a mix of academic, financial and business economists who regularly produce professional forecasts — say numbers so high will be hard to attain, because the policies under consideration just might not pack that kind of punch. Key Trump initiatives, which face a challenging road through Congress, include overhauling the health care system, simplifying the corporate tax code, cutting income taxes, rewriting regulation and investing in the nation’s infrastructure.
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ABI Podcast: A Practical Guide to Bankruptcy Valuation Authors Discuss Key Updates in Their New Second Edition

In ABI's latest podcast, ABI Resident Scholar Andrew Dawson talks with Israel Shaked of the Michel-Shaked Group in Boston and Robert F. Reilly of Willamette Management Associates, Inc. in Chicago about the ways in which they have expanded on valuation in the bankruptcy context in the latest edition of their comprehensive guide A Practical Guide to Bankruptcy Valuation, Second Edition — and why the art of valuation is more important than ever in insolvency practice. Click here to listen to the podcast.

To purchase A Practical Guide to Bankruptcy Valuation, Second Edition, please click here.

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PRESIDENTIAL PARTNERS
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UPCOMING EVENTS
7th Annual Steven M. Yoder Memorial Golf Tournament May 15, 2017 Avondale, Pa.
Litigation Skills Symposium May 17-20, 2017 Coronado, Calif.
New York City Bankruptcy Conference May 18, 2017 New York, N.Y.
Central States Bankruptcy Workshop June 8-10, 2017 Acme, Mich.
Northeast Conference & Consumer Forum July 20-23, 2017 Newport, R.I.
Southeast Bankruptcy Workshop July 27-30, 2017 Hilton Head, S.C.
Mid-Atlantic Bankruptcy Workshop August 3-5, 2017 Hershey, Pa.
Midwest Regional Bankruptcy Seminar August 23-24, 2017 Cincinnati, Ohio
Click here for Full calendar
BLOG EXCHANGE

New on ABI’s Bankruptcy Blog Exchange: Bankers Raise Fears on New CFPB Small Business Data-Collecting Effort

The U.S. Chamber of Commerce and U.S. Bank have urged the Consumer Financial Protection Bureau to narrow its approach to collecting data on small-business lending, fearing it could add costs and compliance burdens, according to a recent blog post.

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

 
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Analysis: Puerto Rico Bondholders Are In for a Bumpy Bankruptcy Ride

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May 4, 2017

 
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NEWS AND ANALYSIS

Analysis: Puerto Rico Bondholders Are In for a Bumpy Bankruptcy Ride

If Puerto Rico’s record-setting bankruptcy follows the template of other municipal restructurings, general obligation bondholders may be in for a long ride, despite constitutional guarantees on their debt, according to an analysis in Reuters today. The federal financial oversight board for Puerto Rico yesterday pushed the U.S. commonwealth into a court-sanctioned restructuring process (Title III), and similar filings for the island’s public agencies could be coming soon. The island's constitution guarantees the debt of GO, or general obligation, bondholders, while other debt, known as COFINA, is backed by revenue streams from tax proceeds. But in past bankruptcies, that has not meant much. In five of six recent public bankruptcies in which the debtor defaulted on bonds, pensioners walked away with full recovery while bondholders took haircuts, according to data from Moody’s Investors Service. “If the market hasn’t taken this dynamic into account by now, you can imagine they will after Puerto Rico, given its enormous scale,” said bankruptcy expert and ABI Resident Scholar Drew Dawson, a professor at the University of Miami School of Law. Moody’s has rated the commonwealth's GO and COFINA debt on equal footing, forecasting recoveries for both of between 65 and 80 cents on the dollar, and ahead of debt from Puerto Rican agencies like the Government Development Bank, which it sees as recovering less than 35 cents. Susheel Kirpalani, a lawyer for a COFINA investor group, on Wednesday called the filing “sound public policy.” All along, COFINA holders have favored the bankruptcy route. But Andrew Rosenberg, a lawyer for a GO bond group, said “the economy of Puerto Rico will be put on hold for years” in a bankruptcy.
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Op-Ed: Puerto Rican Bankruptcy: Better Late than Never

Wednesday's application by Puerto Rican Governor Ricardo Rosselló for bankruptcy protection for the island under the provisions of the PROMESA Act underlines the dictum that if a debt cannot be repaid, it will not be repaid, according to an op-ed in The Hill today. One must now hope that wise use will be made of the forthcoming bankruptcy process not only to ensure that a fair deal is secured for both Puerto Rico and its creditors, but also to put the Puerto Rican economy back on an economic growth path that might restore prosperity to the island. It was always fanciful to think that Puerto Rico could either repay or engineer a voluntary restructuring of its public-debt mountain, according to the op-ed, but the island has no fewer than 18 separate bond issues, each of which has different legal protections or claims to different streams of government revenues. In light of the island’s highly compromised public finances, one should not have been surprised by Wednesday’s request by Governor Rosselló for bankruptcy protection. After all, the island was being hit by a slew of damaging creditor lawsuits in the immediate wake of the May 1 expiry of the temporary stay against such litigation. Rather, one should have been surprised that the governor waited until after the lawsuits had been filed before he sought such protection, given how inevitable bankruptcy for the island seemed to be. One must welcome Governor Rosselló’s decision now to seek bankruptcy protection, according to the op-ed. This should provide the framework for an orderly and fair restructuring of the island’s debt without rancorous and economically damaging creditor lawsuits. The orderly restructuring of Puerto Rico’s debt should also be seen as a necessary, but far from sufficient, condition for its economic revival.
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House Panel Approves Plan to Undo Parts of Dodd-Frank Financial Law

The House Financial Services Committee voted 34-26 along party lines today to approve the first comprehensive congressional plan to undo Obama-era financial regulations, the Wall Street Journal reported today. The committee sent the Financial Choice Act, a bill by the panel’s chairman that unwinds significant parts of the 2010 Dodd-Frank law approved after the financial crisis, to the full House, where it will likely get a vote in the coming weeks. The legislation eases regulations and some capital requirements for healthy firms, forces failing firms to go through bankruptcy and restructures the Consumer Financial Protection Bureau. “Our plan replaces Dodd-Frank’s growth-strangling regulations on small banks and credit unions with reforms that expand access to capital so small businesses on Main Street can grow and create jobs,” said House Financial Services Committee Chairman Jeb Hensarling (R-Texas). Democrats relentlessly fought to stop the bill’s first passage over three days of committee debate by proposing nearly two dozen amendments, many of which would have preserved components of the law Republicans want to eliminate. All of the Democratic amendments were rejected. But some of the issues, such as narrowing the CFPB’s powers and the process for unwinding a failed financial firm, will come up again as debate over changing Dodd-Frank moves through Congress.
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Interest Rates Remain Unchanged; Fed Notes Softness in Economy

The Federal Reserve’s Open Market Committee’s decision about raising interest rates was a no go, Forbes reported Wednesday. That likely doesn’t surprise market-watchers who have been following the CME’s FedWatch Tool, which has been predicting with a 95 percent probability for some time now that Wednesday’s Fed decision would be a nondecision. Could there be a step-up by June? Hard to say, based on the Central Bank’s statement. Sticking with the “gradual pace” of tightening that Fed Chair Janet Yellen has advocated for some time, the Fed statement noted softness in the economy and a slowdown in household spending, but signaled a stay-the-course position on monetary policy. “The committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term,” according to the Central Bank’s statement. The statement failed to give any clear hints about when the Fed might raise interest rates next, noting that it believes that “economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate” and adding that “the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”
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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!

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PRESIDENTIAL PARTNERS
Bloomberg Law  Gavin / SolmoneseThomson-ReutersThompson-Reuters
UPCOMING EVENTS
7th Annual Steven M. Yoder Memorial Golf Tournament May 15, 2017 Avondale, Pa.
Litigation Skills Symposium May 17-20, 2017 Coronado, Calif.
New York City Bankruptcy Conference May 18, 2017 New York, N.Y.
Central States Bankruptcy Workshop June 8-10, 2017 Acme, Mich.
Northeast Conference & Consumer Forum July 20-23, 2017 Newport, R.I.
Southeast Bankruptcy Workshop July 27-30, 2017 Hilton Head, S.C.
Mid-Atlantic Bankruptcy Workshop August 3-5, 2017 Hershey, Pa.
Click here for Full calendar
BLOG EXCHANGE

New on ABI’s Bankruptcy Blog Exchange: How Ending the FDIC's Resolution Powers Would Hurt Americans

The full-scale attack on the “orderly liquidation authority,” the Dodd-Frank Act provision authorizing the government to manage wind-downs of failed companies, is unfortunate, according to a recent blog post.

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

 
© 2017 AMERICAN BANKRUPTCY INSTITUTE
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ALEXANDRIA, VA 22314

TO UNSUBSCRIBE FROM FUTURE BANKRUPTCY BRIEF EMAILS,
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Second Circuit Describes When Claims Based on Securities Are Subordinated

Lehman workers barred from making claims based on worthless stock awards.
Court: 

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