Dirty secret of $1 trillion loans is when you get money back

Its a critical issue, said Beth MacLean, a money manager at Newport Beach, Calif.-based Pacific Investment Management, which oversees $1.97 trillion, including the worlds biggest bond mutual fund. Any single retail fund not being able to meet their redemptions would have a ripple effect on the whole market.

The time it takes to settle a loan has gotten worse since the financial crisis, lengthening to an average 20 days as of June, from 17.8 days in 2007, according to data tracked by the Loan Syndications and Trading Association. In the high-yield bond market, it generally takes three or fewer days.

When regulators were drafting securities laws more than 70 years ago, company loans were excluded because they were mainly private transactions between one bank and one borrower. Thats no longer the case, as the debt is mostly syndicated, or distributed, to investors who can then trade the loans among themselves like a bond or a stock.

Quebec government mulls financial involvement in NHL return

From the Canadian Press:

Quebecs premier is downplaying a suggestion from one of his cabinet ministers that the government could get involved financially in the project to get the NHL back in Quebec City.

Sam Hamad, who is minister responsible for the Quebec City area, raised the possibility of the Liberal government becoming a financial partner of Quebecor Inc., which has bought naming rights on a $400-million arena due to be completed by fall 2015.

Hamad said Wednesday the assistance could be in the form of a guaranteed loan.

But the premier, Philippe Couillard, suggested later that, with public finances as they are, taxpayers would have issues with any government involvement.

Why Hamad felt Quebecor, a media company that books billions of dollars in annual revenue, would even need any government assistance is a question worth asking. Sure, Quebecor might take a guaranteed loan if it was offered, but its not like they couldnt finance it themselves or through the financial markets. And if they couldnt as in, no private concern was willing to put its money on the line why would it be a good deal for the government to risk its money?

As Quebecs economy minister, Jacques Daoust, said: Lets ask the question: should the state intervene to buy a hockey team in a situation deemed too risky by traditional financial markets? Ill stop there.

At any rate, the NHL continues to say its not formally considering expansion, and that no teams are in jeopardy of moving.

PS The Avs and Habs are playing a preseason game tonight in Quebec City. Tickets are not cheap.

Related: NHL won’t expand ‘just to fulfill somebody’s notion of symmetry’

CSC Corp CDS whipsaws on LBO talk

CSC’s five-year credit default swaps tightened about 18bp, or 10%, on Tuesday to 147.5bp, according to Markit, after more than doubling to 185bp on Monday¬†– its widest level since early 2013, according to Fitch analyst Diana Allmendinger.

The move was triggered by a Bloomberg report saying that the company had been in contact with private equity firms including Blackstone Group LP and Bain Capital to gauge their interest in an LBO.

In such a scenario, the expectation is that the acquirers would ramp up debt to pay for the deal, and likely send CSC’s investment-grade ratings hurtling into “junk” territory.

“After pricing consistently in line with ‘BBB’ levels for the past six months, credit protection on Computer Sciences’ debt is now pricing in below investment grade space,” Allmendinger said.

CSC is rated Baa2 by Moody’s, BBB+ by Samp;P and BBB by Fitch.

Bank of America said in a research note that the news has not been a total surprise as CSC has traditionally been considered a potential LBO candidate.

“Currently the company scores as a feasible LBO candidate in our own model, with a pro-forma EV of US$10bn,” the note said.

The news also re-priced the tech sector, with most companies in the sector widening about 10bp after news hit the tape.

Computer Sciences Corp did not return calls seeking comment.

The company has a US$2.5bn revolving credit facility maturing in 2019 and approximately US$2.3bn of cash, according to Fitch Ratings.

Fitch said about US$1.1bn of CSC’s cash is held offshore, a portion of which is accessible in a tax-efficient manner through settlement of inter-company loans or return of capital distributions.

Its total debt, according to the ratings agency, was approximately US$2.8bn as of December 2013.

‘The Ray Rice Video For The Financial Sector Has Arrived’

We always pretty much knew that our banking regulators were captured by the industry they regulate, and now we apparently have proof.

The Ray Rice video for the financial sector has arrived, famous author and finance-explainer Michael Lewis declared on Friday morning. He was referring to a new report from ProPublica and This American Life about Carmen Segarra, a former New York Federal Reserve bank examiner who claims she was fired in 2012, after seven months on the job, for examining Goldman Sachs a little too aggressively.

It seems a safe bet, though, that this story wont have quite the same impact as the video of Ray Rice punching his wife unconscious in an elevator. And it may strike some as terrifically tone-deaf to compare the inner workings of banking to the horror of domestic violence. Still, Lewiss overall point holds: Here is the material proof of something we knew was happening all along.

Pentagon Combats Financial Predators By Offering Military Families Additional …

The Department of Defense (DOD) is proposing a significant expansion of rules meant to shield military families from predatory lending in hopes of closing loopholes in a seven-year-old set of regulations that have left members of the armed forces vulnerable to unscrupulous financial companies.

The rules relate to the 2006 Military Lending Act (MLA), which set a 36 percent interest rate cap on loans to members of the military but left the DOD to define which sorts of financial products would be covered by the cap. In 2007, the Pentagon decided the cap would apply only to three types of lending products: three-month payday loans, six-month car title loans, and tax refund advance loans. The rules proposed on Friday would extend the rate cap to many other types of loans and get rid of the time period limitations on the 2007 rules.

The three, limited types of lending that the DOD proscribed in 2007 largely disappeared in the years after, according to a 2012 report, indicating that the law was effective in the places where it was applied. But the timeline limitations left big holes for predatory lenders to exploit, especially in states such as Colorado where state law already required payday loans to carry repayment terms of at least six months leaving payday lenders free to post up next to military bases and do business with soldiers. The rules left other classes of lending such as retail payment plans and credit cards completely untouched.

Even within the strictures of the 2007 rules, the MLA wasnt perfect. The new consumer watchdog agency set up by the Dodd-Frank Wall Street reform law has busted numerous financial companies for illegally preying upon members of the armed forces.

That agency welcomed the new proposal in a statement emailed to reporters on Friday. As one of the agencies charged with enforcing the Military Lending Act, we have seen firsthand how lenders use loopholes in the rule to prey on members of the military, Consumer Financial Protection Bureau (CFPB) chief Richard Corddray said. They lurk right outside of military bases, offering loans that fall just beyond the parameters of the current rule. This proposal would shut down the predatory lending to the military that has flourished through exploiting legal technicalities.

Financial watchdogs outside the government also praised the rules on Friday. The nonprofit Wall Street regulatory advocates Americans for Financial Reform (AFR) emailed a statement celebrating the Pentagon for taking much-needed action to close dangerous loopholes in the original regulations.

By focusing narrowly on high-cost payday and car-title loans in their conventional form, the rules created an opening for lenders to develop similarly abusive products of longer duration, AFRs statement said, offering an example from 2011 of a Marine who was charged $15,600 over three years for a $1,615 loan taken out against the value of his car. That Marine had no legal recourse because the loan he signed came with a forced arbitration clause that would have been illegal if the Military Lending Act rules had applied to the loan.

For millions of Americans in dire financial straits, predatory lending products continue to be the best of several bad options at their disposal despite astronomical interest rates. The payday lending industry alone serves 12 million people a year, sucking $3 billion out of the poorest communities in the country each year, as lawmakers who take campaign money from these companies fight to prevent further regulation. Progressives including Sen. Elizabeth Warren (D-MA) have begun calling for replacing the payday lending business with new banking services from the United States Postal Service.

Financial trouble forces SWRMC to close

Southwest Regional Medical Center shut down on Friday, Sept. 26 at 5 pm due to financial issues.

Roger Rieger, SWRMCs chief operating officer, delivered the news to employees on Friday afternoon after the hospital learned it was unable to make payroll. Employees wages were garnished, and, in addition to not knowing what lies ahead for the hospitals future, they were not paid on Friday.

An employee was seen leaving the hospital in tears just minutes before its doors locked for the time being, while others were carrying boxes out of the building.

The hospitals closing comes as a response to a judgment made last April against the hospital in favor of CIT Group, operating under the trade name of Toshiba America Medical Credit, for an MRI machine that was loaned to the hospital in 2008.

Visiting Judge William Walker, a retired judge in Clermont County, ruled in favor of CIT Group following a lawsuit filed on Aug. 13, 2013, awarding CIT Group $731,747.01 in addition to a 7.5 percent tax, court costs of $1,658.21, attorney fees of $76,900, and a per diem of $106.14 until the judgment is satisfied.

According to a memorandum in opposition of a motion to quash non-wage garnishments filed by CIT Groups legal counsel, Brian Muething and Joseph Lehnert of Keating Muething Klekamp PLL, on Sept. 18, SWRMC was not cooperating under the terms of the judgment or previous agreements between the two parties.

Since entry of judgment, Southwest has made no attempt to satisfy a single cent of CITs judgment, Muething wrote in the memorandum. When contacted on Friday evening, Muething declined to comment, instead pointing to the expansive case docket.

This is the second time in as many weeks that SWRMC has faced the wrath of creditors who are demanding large sums of money that the hospital seemingly cant afford to pay all at once.

On Sept. 16, a number of items, including furniture and medical equipment, were taken from the hospital and loaded into moving vans, only for the trucks to return later that day after an agreement on a new pay schedule was reached.

The medical center owes a judgment of more than $350,000 to Georgetown Emergency Group, according to court documents, though the hospitals legal counsel, Robert Hoskins, believes that the hospital has already paid one third of the total cost.

Hoskins stated that the hospital closing took him by surprise, as he was busy all day Friday in negotiations with CIT Groups legal counsel as well as SWRMC President and CEO Dr. Krishna Surapaneni.

I thought we were still negotiating, Hoskins said in a phone interview. Were closer in the last 20 minutes than we had been for weeks. I dont know whats going on over there. Ive been working with Dr. Krishna all day on this negotiation. I dont think the parties are that far apart.

Despite Hoskins belief that a deal could be reached within the next 72 hours, it seems unlikely that the hospital will reopen any time soon without an influx of cash.

The medical center entered into two leases with CIT Group for medical equipment, including the MRI machine, signing the first on Feb. 27, 2008 and the second on March 5, 2008, according to the lawsuit. On May 26, 2011, CIT Group declared a default under the leases because of the hospitals repeated failure to make the required monthly payments.

On June 1, 2011, CIT Group and the hospital entered into a forbearance agreement, stating that the hospital would make regular and on-time monthly payments of $25,000 for 12 months until $300,000 had been paid back to CIT Group. Then the hospital would be obligated to pay for the MRI machine and other equipment as per the lease schedules, which called for payments of around $30,000 per month combined between the two leases.

Even though the two signed the new agreement, it appears that SWRMC failed to make payments for the MRI machine, leaving CIT Group with no choice but to file a lawsuit in order to force the hospital to pay for using the machine as well as repossess the machine.

On Aug. 14, CIT Groups legal counsel asked that funds from insurance companies and Social Security that were meant for the hospital be diverted, or garnished, and collected by CIT Group, as a means of recouping its losses.

Then, SWRMC filed a motion to quash non-wage garnishment, but following the memorandum filed by CIT Group, Magistrate W. Kenneth Zuk denied the motion to quash on Sept. 25, on the basis that SWRMC did not specifically cite any state or case law to support their position.

This is the latest administrative mess that the hospital has been dealing with in September alone, and it includes an ongoing conflict between it and Ohios largest pension system, the Ohio Public Employee Retirement System. OPERS alleges that a number of SWRMC employees were paying into the states pension fund from Dec. 2012 through March 2014 despite being ineligible. However, SWRMC is arguing that the employees should still be eligible on a legal technicality that could hold up in court.

10 Financial Land Mines That Can Decimate Your Net Worth


Paula Pant launched her own business at age 27, traveled to 30 countries by age 30, and hates cubicles with a passion. Her blog, Afford Anything, is dedicated to becoming money-savvy, crushing limits, and maximizing life. AffordAnything.com is the new gathering spot for a tribe of people who refuse to say, Id love to do that … but I cant afford it. Her message is that anyone can build wealth, create financial freedom and quit the corporate grind (if they choose).

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Here’s Credit 101 for Your College Freshman

To parents with a freshman entering college this fall: Youre probably expecting to shell out major bucks for tuition, room and board and a million other necessities over the next few years. But before you send your kid off, make sure you share one gift likely to steer him or her along the road to financial security a sound understanding of how credit works.

You probably learned the hard way yourself that young adults encounter many unfamiliar expenses and temptations upon entering college or the workforce. So its important to help your kids avoid early financial missteps that could damage their credit for years to come.

The first step in managing personal finances is mastering the basic checking account and debit card. A few tips you can pass along:

Look for a bank or credit union that charges no monthly usage fee, requires no minimum balance and has conveniently located ATMs so you dont rack up foreign ATM charges.

Enter all transactions in a check register or in a budgeting tool like Mint.com and review your account online at least weekly to verify when deposits, checks, purchases and automatic payments have cleared.

Avoid writing checks or making debit card transactions unless your current balance will cover them such transactions often clear instantly.

A good way to build sound credit is to demonstrate responsible credit card use. But people under age 21 must have a parent or other responsible adult cosign credit card accounts unless they can prove sufficient income to repay the debt. So how can parents help their kids begin building a credit history if they cant open their own account? A couple of alternatives:

Make them an authorized user on one of your accounts. Theyll get their own card and you can usually restrict the amount theyre able to charge. Authorized users are not legally responsible to pay balances owed thats your responsibility, so tread carefully.

You can add them as a joint account holder to a new or existing account preferably, one with a small credit limit. Joint account holders are equally liable to pay off the account.

Just remember, any account activity, good or bad, goes on both your credit reports, so careful account monitoring is critical.

If your kids havent yet demonstrated financial maturity they may not be ready for an unsecured credit card or loan. Other alternatives include:

A secured credit card, where users can charge up to the amount deposited to open the account. Purchases are charged against the accounts revolving credit limit. As they pay off the balance the available credit rises, just like a regular credit card. After a period of on-time payments, ask the lender to convert it to an unsecured card, or to at least add an unsecured amount to the account.

Plant City financial advisor agrees to fraud plea

Paula Kampf Albertson, a Plant City financial advisor and insurance agent, has agreed to plead guilty to insurance fraud, state regulators said.

Albertson was arrested for stealing $200,000 in insurance claims from her clients, according to a statement from Florida Chief Financial Officer Jeff Atwater. An investigation by the Florida Department of Financial Services Division of Insurance Fraud revealed Albertson made her own family the beneficiaries of her clients’ insurance benefits, the statement said.

Albertson agreed to a guilty plea involving a 21-month prison sentence, immediate license termination and a prohibition on accepting profits from any practice of insurance.

Margie Manning is Quality and Content Editor of the Tampa Bay Business Journal. She also covers banking, finance and professional services.

Allonges: separate indorsements not effective unless affixed

Secured lenders routinely take pledges of instruments (including negotiable instruments under UCC Article 3 and other promissory notes) as collateral. Instruments are subject to special priority rules. Security interests perfected merely by filing a UCC1 financing statement are junior to security interests perfected by possession, without regard to time of filing or possession. Security interests perfected by control (possession plus indorsement) are senior to those perfected merely by filing or possession. Accordingly, secured parties who are relying on instruments as collateral will want to have control over the instruments.

Instruments may be indorsed to secured parties, but it is a cumbersome process that has to be unwound when the loan is repaid as expected. It is, therefore, convenient and common practice to have the requisite indorsements supplied on a separate piece of paper. This keeps the instrument clean so that it can be returned clean when the secured obligations are paid. The separate piece of paper is kept with the instrument but is not typically attached to it, though the lender or its custodian has authority to do so, at least upon default.

This practice works well in most cases. Even though the lender is not yet a holder under Article 3, because the indorsement is not attached, the lender has possession and the related loan documents should cause the lender to be a nonholder in possession of the instrument who has the rights of a holder, that is one who can enforce the instrument as such under UCC sect;3-301, and compel indorsement under UCC sect;3-203.

In addition, secured parties in (mere) possession have priority over other secured parties except those who have control (possession plus indorsement), so the failure to achieve full control does not normally impair priority (no one else will have possession except in rare cases). UCC sect;9-330(d). So, even if a separate indorsement is not initially affixed to an instrument, a secured party in possession normally maintains first priority and has the power to negotiate the instrument upon default.

There are occasions, however, when having an indorsement is critically important. One would be the relatively rare case where one competing secured party has possession for itself as well as for the other competing secured party, so both would be in possession and priority could depend on the effectiveness of an indorsement. Another would be where the maker of a negotiable instrument has defenses against the named payee but the secured party, with the indorsement, would be a holder in due course. Yet another would be an assignment of a note or a casual pledge where the related documents do not clearly provide the lender with the rights of a holder.

Under UCC Article 3, which applies to negotiable instruments (as defined in Article 3) and which is commonly applied by courts to non-negotiable instruments, indorsement means a signature onan instrumenthellip; For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument. UCC sect;3-204(a) (emphasis supplied). Under this rule, a separate assignment document is not sufficient to create the requisite indorsement, unless it is affixed to the instrument.

Some Michigan assignees found out the hard way how important it is to have ones separate indorsement affixed. In one case, a separate indorsement was not attached to the note in question and the assignee was unwilling to produce the underlying assignment of loans agreement. The court held the separate indorsement was not effective and, because it referenced the unproduced underlying agreement, it did not prove an absolute assignment was intended. Brown Bark, II, LP v. Bay Are Floor Covering amp; Design, Inc.,Case No. 296660, (Mich. Ct. App. May 31, 2011). In the other case, the assignee ultimately had two problems after it took a note and placed it in an envelope with a separate indorsement. Not only was the separate indorsement ineffective because it was not affixed to the note, it turned out the note was in fact a color copy of the original note, so the assignee did not even have possession of the note. Without ever having had possession, the assignee did have standing to enforce the note as a lost note under UCC sect;3-309.Shaya v. Karam,Case No. 308905 (Mich. Ct. App. May 6, 2014).

Pledgees and other assignees of notes need to ensure that original notes are delivered to them, and if indorsements are separately provided, that transaction documents properly authorize them to attach the separate indorsements when appropriate.

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