High-yield market guru Martin Fridson’s latest statistical deep dive this week reveals a strange paradox: secured bonds are much more likely than unsecured bonds to end up trading at distressed levels. Fridson, chief investment officer at Lehmann Livian Fridson Advisors, finds that secured bonds account for 40.2% of distressed bonds (bonds trading with risk premiums of at least 10 percentage points over comparable Treasury bonds) outstanding even though they make up just 18.6% of the overall high-yield bond universe. He says 8.82% of outstanding secured issues are currently distressed, versus just 3.04% of senior unsecured bonds, making secured bonds 2.9 times as likely to end up distressed.
Fridson notes that secured bonds still enjoy better recoveries (58.8 cents on the dollar, on average) than senior unsecured bonds (38.9 cents) in the event of a default, but that bonds can suffer big price losses even without a default, as happened in 2007. Here’s Fridson, writing for S&P Capital IQ:
Somewhere there may be investors who do not care one bit if a bond takes a 30-point hickey, as long as they know they will be comparatively well off if the issuer eventually goes bankrupt. Over here in the real world, price declines do matter. Therefore, the goal of high-yield management is not merely to avoid defaults but also to avoid bonds that fall to prices indicative of a high probability of default….

WSJ.com: Bankruptcy Beat
(posted 5 days 17 hours ago)

A Philadelphia-area swimming pool that opened in the late 1950s for black members who were denied access to a nearby whites-only pool has filed for bankruptcy.
Officials who put the Nile Swim Club of Yeadon into Chapter 11 protection on Wednesday didn’t explain the club’s survival plan in the seven-page bankruptcy petition.
Officials launched a fundraising effort earlier this year, telling a local newspaper that the club needs to pay off about $134,000 in taxes and plans to start a competitive swim team and basketball league.
The swim club, located in Yeadon, a suburb bordering Philadelphia, has a storied place in civil rights history. The facility opened in 1959 after two black families were not allowed into another “racially exclusive” club, according to the club’s website.
“Club management stonewalled the applicants, indicated that their paper work had become lost and refused to admit them as guests or members of the facility,” the Nile Swim Club’s website said, adding that the effort to establish the Nile Swim Club got national media attention and support from singer Harry Belafonte and the Supremes.

WSJ.com: Bankruptcy Beat
(posted 5 days 17 hours ago)

256px-CalendarUncle Sam expects a quarterly tax payment from the self employed next week on the 15th.
Make this the last quarterly tax payment you pay.
Seriously.
Think I’m advocating tax resistance?  No way.
The tax collectors  have more weapons than you want to encounter.  It’s like the advice from the era of newspapers  not to pick a fight with someone who buys ink by the barrel;   Don’t spit in the face of the tax man.
Give up making them quarterly, I say.
Pay taxes monthly, just like every other recurring bill in your life.

Folks who get a paycheck have their income tax liability, or at least some estimate of that liability, deducted from each paycheck.  No fuss, and, well,  only some bother.
Their take home pay has already paid the taxes.  The paycheck is what is available to pay the bills.
Not so the self employed.
We are expected to make quarterly estimated tax payments in January, April, June, and September.

(posted 5 days 18 hours ago)

This month the Judicial Conference will meet to consider proposed changes to a number of the official bankruptcy forms. Among the proposed forms are new proposed Forms 22A and 22C. Although the Bankruptcy Appellate Panel for the Ninth Circuit and a growing number of bankruptcy courts have held that the Form incorrectly allows deduction of business expenses when calculating current monthly income, the Committee has proposed a form which continues to incorrectly allow debtors to deduct business expenses “above the line” when calculating current monthly income. The agenda for the April 2014 meeting of the Committee brushed off the suggestion that the placement of the deduction of business expenses on the Form should be reconsidered. The Committee’s position relies on the Census Bureau’s median income figures which are based on net business and rental income. Thus, the Committee defers to the Census Bureau calculations instead of recognizing that 11 U.S.C. § 1325(b)(2)(B) specifically references the deduction of business expenses from current monthly income.  However, a number of courts that have specifically considered the issue, including the Ninth Circuit BAP, have correctly recognized that 11 U.S.C. § 1325(b)(2), authorizing the deduction of business expenses after the calculation of current monthly income, is “plain and unambiguous.”

(posted 5 days 20 hours ago)

Micro branches have their merits Â-- but banks should be aware that changes in technology and customer preferences could render them obsolete.

BankThink
(posted 5 days 20 hours ago)

In “Foreign Buyers of US Assets in a Section 363 Sale: National Security Regulatory Review” Commercial Bankruptcy Investor (Sept. 10, 2014), the Editorial Staff of Commercial Bankruptcy Investor describes how regulatory review of transactions to foreign purchasers can complicate a section 363 sale, and how such complications can be dealt with.
Read the full article here or visit www.commercialbankruptcyinvestor.com for more information.

(posted 5 days 21 hours ago)

As we began discussing this week in our previous entries, on August 26, 2014, Judge Drain of the Bankruptcy Court for the Southern District of New York issued a momentous bench ruling in connection with the confirmation hearing of Momentive Performance Materials and its affiliates. The decision grappled with a number of important topics in modern, complex chapter 11 bankruptcies. In Parts I and II of this series, we examined Judge Drain’s analysis of secured party cramdown considerations in detail. In this entry, we turn to the topic of subordination. In Part IV, we will explore both the “make-whole” aspects of Judge Drain’s decision and third party releases.
What You Need to Know: Subordination
As a preliminary matter, section 510(a) of the Bankruptcy Code serves as the basis for most subordination discussions in bankruptcy court — just as it did in Momentive. The provision simply enforces subordination agreements to the same extent they would be enforceable under nonbankruptcy law.

(posted 5 days 21 hours ago)

[Editor’s note: We received this post from five Weil, Gotshal & Manges partners in response to this Examiners blog post on the gender gap in the restructuring field.]

Weil Gotshal partners, clockwise from top left: Ronit J. Berkovich, Marcia L. Goldstein, Debra A. Dandeneau, Jacqueline Marcus and Lori R. Fife
Weil, Gotshal & Manges

It was disappointing to read Philip Dublin’s piece concluding that restructuring is likely to remain a male-dominated field. Mr. Dublin may be correct that bankruptcy is currently a male-dominated field. However, as five successful female bankruptcy partners at Weil, Gotshal & Manges, one of the leading restructuring practices in the world, we feel compelled to point out that it does not need to be this way.

WSJ.com: Bankruptcy Beat
(posted 5 days 21 hours ago)

As we previously discussed here, in May, a shareholder challenged the validity of an amendment to Cheniere Energy’s 2011 incentive plan that was voted on at the company’s February 2013 meeting. In the complaint, the plaintiff questioned whether abstentions should have been counted as votes “against” the plan, based on the company’s bylaws. According to the plaintiff, treating abstentions as “no” votes would have meant that the plan was not approved by shareholders.

(posted 5 days 21 hours ago)

[Editor’s note: We received this post in response to our series of Examiners’ posts on work-life balance.]

WSJ.com: Bankruptcy Beat
(posted 5 days 21 hours ago)