News

Companies Grapple with Rise in Bankruptcy Fees - ABI

PenAir Chief Operating Officer David Richards thought the $156,215 bankruptcy fee was a mistake. The Anchorage, Alaska, airline had been in bankruptcy since August 2017, paying a quarterly fee of about $20,000 that the Justice Department collects from companies in chapter 11. PenAir was one of the first businesses to feel the effect of an increase in the fees the court system is charging companies for going through the bankruptcy process, WSJ Pro Bankruptcy reported. The quarterly fee is now capped at $250,000; the previous cap was $30,000. Some bankruptcy lawyers and financial advisers say the price increase is pushing the cost of bankruptcy to an unaffordable level for businesses, which already are struggling between reorganization and shutting down. Congress passed the fee increase as part of a disaster-relief spending bill in October, and it affects companies operating under chapter 11 protection that spend more than $1 million a quarter on operating expenses. Companies that spend below that amount would pay a fee of $4,875 or less. The new fee system is set to end in 2022, but it will be reviewed each year. If the trustee program account tops $200 million during an annual check on Sept. 30, the higher fees would be suspended for the next year and the old $30,000 fee cap would apply, until its next annual check.


California Takes Financial Wallop from Unrelenting Wildfires - ABI

California is taking a financial wallop from unrelenting wildfires that have drained its firefighting budget and prompted nearly $1 billion in property claims even before the start of the dangerous fall fire season, the Associated Press reported. The disclosures came as a roaring blaze in a rural area near the Oregon state line closed 45 miles of heavily traveled Interstate 5, the main highway from Mexico to Canada. Fierce orange flames forced panicked truckers to abandon big-rigs and brought screams from motorists as they watched the advancing fire in Shasta-Trinity National Forest. The wildfire flared just weeks after a blaze in the Redding area killed eight people and burned about 1,100 homes. California’s insurance commissioner said that victims of that fire and one in the Mendocino area — the two largest blazes in the state so far this year — have filed more than 10,000 claims so far totaling $845 million. The two wildfires destroyed or damaged a combined 8,800 homes and 329 businesses. “The worst may be yet to come,” Commissioner David Jones warned, noting that California wildfires are typically more destructive after Sept. 1. The director of the state’s firefighting agency also said in a letter to lawmakers that the agency only had about $11 million remaining in its annual budget and anticipates needing another $234 million to add firefighters and helicopters, and to cover other costs of fires expected later this year. The department had spent $432 million through the end of August. The legislature budgets for firefighting costs based on historical averages.


U.S. Regulators Extend Comment Period for Proposed ‘Volcker Rule’ Rewrite - ABI

U.S. regulators said yesterday that they will giving the public an extra 30 days to comment on a proposed rewrite of the “Volcker Rule” banning proprietary trading by banks. The five regulators charged with enforcing the rule will now accept comments until Oct. 17. Regulators announced a proposal to simplify the rule at the end of May, after years of complaints from banks that the original rule was too complicated. The Volcker Rule was a centerpiece of tougher rules established following the 2007-2009 financial crisis, and is aimed at barring banks from engaging in profit-seeking trades with customer funds. The Federal Reserve, Federal Deposit Insurance Corporation, Securities and Exchange Commission, Commodity Futures Trading Commission and Office of the Comptroller of the Currency share responsibility for writing and enforcing the rule. A final version of the rule could be completed as soon as early 2019.


Federal Reserve Considers a New Tool to Avert Crises - ABI

A decade after a financial crisis that paralyzed the global economy, Federal Reserve officials are debating how to apply one of the central lessons they drew from that dark episode, the Wall Street Journal reported. The Fed has two tools for stamping out financial bubbles. It can use either regulation or interest-rate increases to prevent banks and other financial institutions from getting carried away during an economic boom. Many Fed officials concluded after the last crisis that it’s best to use regulation. They can apply that tool surgically, while aggressive interest-rate increases — like taking a sledgehammer to a nail — might damage the broader economy in the name of financial stability. Some Fed officials want to use one of the regulatory tools the central bank developed after the crisis, called a countercyclical capital buffer. It can require the U.S.’s largest banks to sock away additional capital during good times so they have more to fall back on when loans go bad during bad times, like socking oil away in the nation’s strategic petroleum reserve. But other officials, as well as the banking industry, have questioned why the tool is needed now, when bank capital levels are high and financial-stability risks appear in check.


Bankruptcy Report Gives Details on 2017 Filers - ABI

Consumers filing for bankruptcy in 2017 reported aggregated assets of $80 billion and aggregated total liabilities of $105 billion, according to an annual report filed by the Judiciary with Congress, according to a DOJ press release. The report, required by Congress under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, describes the activities of individuals with predominantly consumer debt. The report is found here.



Bankrupt Titanic Exhibitor Sets Biggest Sale Ever of Ship Relics - ABI

The company holding the rights to the R.M.S. Titanic and 5,500 artifacts from the ship has been mired in debt, placing the future of its collection in the hands of a bankruptcy court, Bloomberg News reported. A judge yesterday weighed plans for auctioning the largest trove of Titanic memorabilia, which already is drawing the interest of U.S. hedge funds, Chinese investors, British museums and award-winning director James Cameron. Among the items is the bell a crow’s nest lookout rang to warn the bridge of an iceberg ahead; window grills from the first-class dining area; a passenger’s three-diamond ring; and a suitcase full of clothes owned by William Henry Allen, an English toolmaker immigrating to America. Titanic, once the biggest ocean liner ever built, sank almost two miles below the sea on its maiden voyage in 1912, killing more than 1,500 of its 2,200 passengers. At least three groups are vying for the artifacts from the current owner, Premier Exhibitions Inc. It’s the successor to a company once owned by a wealthy Connecticut auto dealer, who bankrolled a French exhibition that retrieved artifacts from Titanic for the first time in 1987.


SEC Chairman Wants to Let More Main Street Investors In on Private Deals - ABI

SEC Chairman Jay Clayton said that the commission wants to make it easier for individuals to invest in private companies, including some of the world’s hottest startups, the Wall Street Journal reported. Clayton, a Trump appointee wrestling with how to boost flagging interest in public markets, said that the commission also wants to take steps to give more individual investors a shot at companies that have been out of their reach because they haven’t gone public. Companies including Uber Technologies Inc. and Airbnb Inc. have shunned the public markets in favor of private investors such as venture capitalists. For decades, regulators have typically walled off most private deals from smaller investors, who must meet stringent income and net-worth requirements to participate because of the added risk private investing holds. Clayton said the SEC is now weighing a major overhaul of rules intended to protect mom-and-pop investors, with the goal of opening up new options for them.


Trump to Sign Executive Order to Boost Retirement Savings - ABI

President Donald Trump will sign an executive order today aimed at boosting retirement savings, giving Americans more time to keep their money in tax-deferred accounts and allowing small businesses to band together to offer 401(k)s, Politico reported. The order will call on the Treasury Department to review its rules for mandatory withdrawals from 401(k) plans and individual retirement accounts. Generally, people must start withdrawing funds from these accounts when they turn 70-and-a-half. The Treasury rules have not been updated since 2002, said Daniel Kowalski, counselor to the Treasury secretary. The executive order will also call on the Labor Department to consider allowing small businesses to jointly offer 401(k) plans. Historically, the Department has prevented unrelated businesses such as barbershops and car dealerships from collaborating to offer so-called open multiple employer plans because of the potential for abuse. Open multiple employer plans, which have bipartisan support in Congress, would eliminate the need for businesses to have a common interest in order to pool their retirement assets into a single 401(k).


PG&E Could Get Bankruptcy ‘Stress Test’ in Wildfire Legislation - ABI

Facing wildfire lawsuits that could cost it $17 billion, Pacific Gas and Electric Co. may soon be given a bankruptcy stress test by California regulators to determine just how big a financial blow the utility can survive, the San Francisco Chronicle reported. The test is a piece of draft legislation approved by a conference committee on Tuesday in Sacramento that would let utility companies pass on to their customers costs arising from wildfires sparked by power lines, provided the companies acted reasonably in maintaining their equipment. If they didn’t act reasonably, the companies and their shareholders would have to swallow the costs. But the draft, which was publicly released on Tuesday afternoon with just four days left in the legislative session, contains a big exception. Before forcing a utility to cover the costs of settling wildfire suits, regulators at the California Public Utilities Commission would first have to decide how much the company could afford to pay before “materially impacting its ability to provide adequate and safe service.” Anything above that amount would be passed on to customers.