American Bankruptcy Institute Update

May 26, 2005

In This Issue

Highlights

Legislation Update

Senate Panel Approves Asbestos Bill with Changes to Come

The Senate Judiciary Committee today passed the asbestos bill on a bipartisan vote, although it still faces modification before and during floor debate, CongressDaily reported. The package included a compromise negotiated among Senate Judiciary Chairman Arlen Specter (R–Pa.), Judiciary ranking member Patrick Leahy (D–Vt.), and Sens. Dianne Feinstein (D–Calif.) and Jon Kyl (R–Ariz.), concerning the start up of the asbestos trust fund. The bill passed 13–5. All Republicans and three Democrats—Leahy, Feinstein and Sen. Herb Kohl (D–Wis.)—voted for it. The package also included about 20 additional changes to the bill, such as one proposed by Sen. John Cornyn (R–Texas) that would limit surcharges on certain companies paying into the fund. Specter said he expects more changes to the bill before it reaches a final Senate vote.

The committee rejected a series of amendments, including some sponsored by Sens. Joseph Biden (D–Del.) and Edward Kennedy (D–Mass.). Biden said the bill does not ensure that companies will pay the amounts envisioned into the trust fund and that it likely will face delays from lawsuits challenging its constitutionality. The bill would halt all asbestos lawsuits and instead create a $140 billion trust fund to compensate victims of asbestos-related illnesses.

Pension Agency Faces a New Front

As the government wrestles with strategies to deal with failed pension plans sponsored by troubled companies such as UAL Corp.’s United Airlines, big problems in many multi-employer plans have been largely overlooked, the Wall Street Journal reported today. Lawmakers say they recognized only recently that Congress also must address financial turmoil in this separate segment of government-backed pension plans, which covers about 10 million workers in several industries.

Both single- and multi-employer defined-benefit plans pay retirees a set monthly amount depending on years of service. Companies in both plans pay premiums to the federal Pension Benefit Guaranty Corp. (PBGC) in exchange for certain retirement-benefit guarantees. The White House has been largely concerned with failing steel, airline and auto-parts companies that have dumped billions of dollars of pension liabilities on the PBGC, which estimates that the whole universe of single-employer plans have liabilities that exceed assets by $450 billion. Of growing concern, however, are multi-employer retirement plans underfunded by $150 billion in 2004, a 50 percent jump in the deficit from the year before, the federal insurer reported. Rep. John Boehner (R–Ohio), chairman of the Education and the Workforce Committee, says the seriousness of problems in the multi-employer plans requires fixes to be included in his pension-overhaul bill, which is expected to be introduced early next month. Read the full article at www.wsj.com (subscription required).

Earlier this month, Reps. George Miller (D–Calif.), ranking member of the House Education and the Workforce Committee, and Janice Schakowsky (D–Ill.) introduced H.R. 2327, to forestall future pension plan transfers to the PBGC from bankrupt companies.

Credit Card Stocks Down This Year

For much of 2004, consumer finance stocks surged, posting a 23 percent gain, but this year, the group has fallen by 11 percent, trailing the Standard & Poor’s 500 by nine percentage points, Barron’s Online reported. Investors fear that a softer housing market, in addition to concerns over high fuel prices and rising short-term interest rates, could precipitate a drastic decline in cardholders’ net worth, limiting their ability to tap home equity to repay debt. But a housing slowdown actually may have the opposite effect, says Kathy Blake Carey, an analyst with Milwaukee-based Mason Street Advisors, a Capital One shareholder. “If the housing market declines and homeowners cannot use their homes for cash, then credit cards may again be their only option,” she points out. In fact, despite easy access to low-interest home-equity loans, “the average customer [still] does not pay their full debt every month,” points out Michael Vinciquerra, an analyst with Raymond James & Associates.

Around 89 million (of a total 105 million) U.S. households carry an average $8,854 total debt across an estimated 12 cards, according to CardWeb.com, a Frederick, Md.–based credit-card data site. Credit-card spending grew by 10 percent last year and will grow by 8 percent this year, estimates Joe Dickerson, an analyst with Atlantic Equities. Meanwhile, a stricter bankruptcy law, which goes into effect in October, could prompt some debtors to file for bankruptcy before it gets tougher for them to wipe out their debts. That could cause a short-term crunch for card companies. But Dickerson notes that large credit-card issuer MBNA attributes roughly 40 percent of its credit-card losses to bankruptcy filings. For Capital One, it’s about 25 percent. A tougher law “will improve loss ratios, and help them offer more competitive pricing” for both new and existing customers, he says.

Study: Students’ Credit Card Debt Down

A study released this week by college lender Nellie Mae found that 76 percent of undergraduate college students carried credit cards in 2004, down from a peak of 83 percent in 2001, when the last survey was made. They carried an average of four cards last year, and their outstanding balances averaged a total of $2,169, down from $2,327 in 2001 and $2,748 in 2000, though up from the $1,879 average balance of 1998, according to the study. More than half of the undergraduates with credit cards carried balances lower than $1,000. The study found also that a s students progress through school, credit card usage increased. Ninety-one percent of final-year students had a credit card compared to 42 percent of freshmen. Fifty-six percent of final-year students carried four or more cards, while only 15 percent of freshmen carried that many. Final-year students carried an average balance of $2,864, while freshmen carried an average balance of $1,585. Undergraduates reported direct mail solicitation as the primary source for selecting a credit card vendor; the second most common source was referral from parents. View the full study at Nellie Mae’s web site.

Register by Tomorrow for Central States Bankruptcy Workshop and Save!

More than 350 are already registered to attend the 12th Annual Central States Bankruptcy Workshop, June 16–19, 2005, at the Grand Traverse Resort and Spa, in Traverse City, Mich. Register by tomorrow, Friday, May 27, and save $50 off the late registration fee. The event will feature a special reform update presented by U.S. Trustee Program Acting Director, Clifford J. White III, plus Immediate Former Director, Lawrence A. Friedman. All workshop presentations will incorporate the new legislation. Learn the latest on the auto-supplier industry, post-petition transfers, preclusion issues, secured property in chapter 7, client control and education in consumer cases, claims objections, case administration, forbearance agreements, the consumer credit and mortgage industries, conversion issues between chapter 7 and chapter 13, Supreme Court, Sixth and Seventh Circuit case review and a special judges roundtable discussion. Register online today.

Register for ABI’s Webinar on Business Bankruptcies under the New Bankruptcy Law

Register for ABI’s webinar series examining details of the new bankruptcy law. The first program on business bankruptcies will be held on June 15 and will feature new small business rules, expansion of reclamation claims, broadened preference defenses, trade creditor strategies, new grounds for the appointment of a trustee, single-asset cases and limits on exclusivity. Confirmed faculty are:

  • Andrew Caine of Pachulski, Stang, Ziehl, Young, Jones & Weintraub PC (Los Angeles)
  • Alec Ostrow of Stevens & Lee PC (New York)
  • Michael Richman of Mayer, Brown, Rowe & Maw LLP (New York)
  • George Singer of Lindquist & Vennum PLLP (Minneapolis, Minn.)
  • Deborah Thorne of Barnes & Thornburg LLP (Chicago)

There are a total of three programs devoted to the details of business practice under the new law as well as three consumer programs. The final session will be a judges’ roundtable. View the full teleseminar schedule of the 90-minute programs or register online.

Latest Job Postings at ABI Career Center

Check out the ABI Career Center. The Center is a one-stop site for job seekers and employers in the insolvency community. Career Center resources are available free to both employers and job seekers. New positions are featured daily. The latest listings include: