On June 4 the Consumer Financial Protection Bureau (CFPB) issued proposals to address issues arising from the required transition away from the London Interbank Offered Rate (LIBOR) scheduled for the end of 2021.  LIBOR has been widely used as a benchmark in consumer financial products such as adjustable rate mortgage loans, home equity lines of credit (HELOCs), student loans and credit cards.  The CFPB released a more than 200 page rulemaking proposal calling for changes to its truth-in-lending regulations relating to the LIBOR transition.  The CFPB also simultaneously issued guidance in the form of Frequently Asked Questions (FAQ)  This blog will emphasize the proposal’s and the FAQ’s impact on adjustable rate mortgage loans and HELOCs.
Continue Reading CFPB Issues Proposed Amendment to Regulation Z and Guidance to Deal with LIBOR Transition

BREAKING NEWS: In a contentious 4-3 decision and amid more than 300 community members on both sides of the issue, the City Council for the City of Richmond voted to continue pursuing its eminent domain plan in the early morning hours of Wednesday, September 11. The council also rejected two related measures, one that would withdraw the letters threatening eminent domain and another requiring Mortgage Resolution Partners, the firm providing financial backing for the City’s plan, to obtain insurance to insulate the city from legal liabilities.
Continue Reading Showdown in the Richmond: The City of Richmond Threatens Eminent Domain on Underwater Loans

In re Majestic Star Casino, LLC, F.3d 736 (3rd Cir. 2013), the U.S. Court of Appeals for the Third Circuit broke from other courts by holding that S corporation status (or “qualified subchapter S subsidiary” or “QSub” status) is not property of the estate of the S corporation’s bankruptcy estate. Other Circuits have routinely held that entity tax status is property of the estate.
Continue Reading Equityholder’s Strategy for Shifting Tax Burdens to Creditors Upheld by Third Circuit

One of the quintessential principles of the Bankruptcy Code is that when a debtor assumes an executory contract, it must assume the contract as a whole – a debtor cannot cherry pick the contract provisions it wants to assume while rejecting others. Two recent bankruptcy court decisions – In re Hawker Beechcraft, Inc. and In re Contract Research Solutions, Inc. – demonstrate a growing trend among debtors to test the parameters of this general rule. But they also provide guidance to parties on how they can structure their agreements to limit or expand a counterparty’s ability to selectively assume contract provisions in bankruptcy.
Continue Reading Cherry Picking Contract Provisions in Bankruptcy: Not so Taboo After All?

The United States Bankruptcy Court for the District of Delaware (the “Court”) recently upheld a $23.7 million make-whole payment (the “Make-Whole Payment”) in In re School Specialty (Case No. 13-10125), denying the assertion by the Official Committee of Unsecured Creditors (the “Committee”) that the fee is unenforceable under the United States Bankruptcy Code and applicable state law.
Continue Reading Committee’s Attack upon Lender’s Make-Whole Premium Denied

The U.S. Treasury placed Fannie Mae and Freddie Mac into conservatorship in September 2008 as a result of the subprime mortgage crisis. Five years later, the first indications of potential reform are emerging from Capitol Hill. Senators Bob Corker (R-TN) and Mark Warner (D-VA) are currently working on a draft bill entitled, the “Secondary Mortgage Market Reform and Taxpayer Protection Act of 2013,” copies of which began circulating on June 6, 2013. The bill contemplates winding down Fannie Mae and Freddie Mac and replacing them with a new government agency called the Federal Mortgage Insurance Company (the “FMIC”).
Continue Reading Saying Goodbye to Fannie and Freddie?

Secured lenders often resort to non-judicial foreclosure sales of personal property upon a borrower’s default. Article 9, Part 6 of the Uniform Commercial Code requires that every aspect of such a sale must be commercially reasonable. However, the courts have historically provided little guidance as to what exactly constitutes a commercially reasonable sale. Fortunately, the Delaware Chancery Court recently issued a decision, entitled Edgewater Growth Capital Partners, L.P. v. H.I.G. Capital, Inc., C.A. No. 3601-CS (Del.Ch. Apr. 18, 2013), in which the court analyzed the meaning of this “commercial reasonableness” requirement and provided helpful guidance to borrowers and secured creditors alike.
Continue Reading Delaware Court Provides Critical Guidance as to the Commercial Reasonableness of a UCC Article 9 Foreclosure Sale

The London Interbank Offered Rate (Libor) is calculated daily by the British Banking Association (BBA) and published by Thomson Reuters. The rates are calculated by surveying the interbank borrowing costs of a panel of banks and averaging them to create an index of 15 separate Libor rates for different maturities (ranging from overnight to one year) and currencies. The Libor rate is used to calculate interest rates in an estimated $350 trillion worth of transactions worldwide.
Continue Reading The Libor Scandal: What’s Next?

Judge Christopher M. Klein’s decision to accept the City of Stockton’s petition for bankruptcy on April 1, 2013 set the stage for a battle over whether public workers’ pensions can be reduced through municipal reorganization.

Stockton’s public revenues tumbled dramatically when the recession hit, leaving Stockton unable to meet its day-to-day obligations. Stockton slashed its police and fire departments, eliminated many city services, cut public employee benefits and suspended payments on municipal bonds it had used to finance various projects and close projected budget gaps. Stockton continues to pay its obligations to California Public Employees’ Retirement System (“CalPERS”) for its public workers’ pensions. Pension obligations are particularly high because during the years prior to the recession, city workers could “spike” their pensions—by augmenting their final year of compensation with unlimited accrued vacation and sick leave—in order to receive pension payments that grossly exceeded their annual salaries.


Continue Reading The Stockton Saga Continues: Untouchable Pensions on the Chopping Block?

On April 30, 2013, the United States Court of Appeals for the Ninth Circuit held that the bankruptcy court has authority to recharacterize as equity, rather than debt, advances of funds made purportedly as a loan to the recipient prior to its bankruptcy. In re Fitness Holdings International, Inc., — F.3d —-, 2013 WL 1800000 (9th Cir. 2013). The Ninth Circuit, in reversing the district court, held that the fact that the same result of recharacterization can be obtained through the statutory remedy of equitable subordination under section 510 of the Bankruptcy Code does not deprive the bankruptcy court of the authority to employ the separate and distinct remedy of recharacterization.
Continue Reading The Ninth Circuit Holds that Bankruptcy Courts Have Authority to Recharacterize Debt as Equity

Conventional wisdom says that it is nearly impossible to obtain a discharge of student loan debt in bankruptcy. Indeed, Section 523(a)(8) expressly excepts student loans from discharge, unless the exception of such indebtedness from discharge would impose an undue hardship upon the debtor. But two recent developments may signal that this bedrock principle is eroding – i.e., (i) the Seventh Circuit’s affirmance of a bankruptcy court’s ruling that an impoverished but otherwise healthy woman’s student loan debts were dischargeable, and (ii) the recent introduction of a Congressional bill that would make it easier to discharge privately issued student loan debt.
Continue Reading Student Loans: Nondischargeability Questioned in Seventh Circuit and Beyond