postings by Stephen Lubben

Tax "Reform"

posted by Stephen Lubben

Key takeaways for Slips readers from a Moody's report, dated today:

The legislation is credit negative to the US sovereign, owing to the reality that the cuts do not pay for themselves, and Moody's estimates the cuts will add $1.5 trillion to the national deficit over ten years. Higher deficits will put further pressure on the federal government's finances, which are already facing prospects of increased costs of entitlements. Unless fiscal policy reverses course, Moody's estimates that the federal government's debt-to-GDP ratio will rise by over 25 percentage points over the next decade, to above 100%. Combined with rising interest rates, debt affordability for the US will weaken significantly.

The net impact to state and local governments is negative. While the new $10,000 limit on state and local tax (SALT) deductions does not directly impact state or local tax receipts, it will blunt the effect of lower federal rates for many taxpayers. Because the state and local provisions raise the effective tax cost for many taxpayers, public resistance to tax increases will likely rise, and that in turn will constrain local governments' future revenue flexibility. In addition, if larger federal deficits caused by the tax cuts result in attempts to cut entitlement spending, states will be pressured to backfill cuts to federal funds from their own budgets.

The SALT change, combined with the higher standard deduction and tighter limit on the mortgage interest deduction, also reduces the tax incentive for home ownership, which is likely to slow home construction and sales, and moderately suppress home values and property tax growth in higher-price markets.

 

So, Is the High Yield Market Efficient?

posted by Stephen Lubben

My inbox is being bombarded with law firm commentary on the Court of Appeals for the Second Circuit's decision that cramdown interest rates should be determined by "market rates," rather than by formula, when the relevant debt market is efficient. A good summary of the commentary can be found over at the Harvard Bankruptcy Roundtable.

And then we have a Bloomberg story this morning, filled with hand wringing about what might happen if a particular mutual fund were to sell a particular bond position – where the fund owns less than 20% of the issue. Nevertheless, the suggestion is that such a sale could have big, market moving effects. That does not sound like a very efficient market.

Given that the high yield market is apt to be the most relevant market to a chapter 11 case, what precisely, then, has the Court of Appeals achieved?

Academic News

posted by Stephen Lubben

The second edition of my Corporate Finance textbook is now available at finer booksellers, and Amazon too.  The companion website has also been updated – professors can get the password from their Aspen reps.

I Also Do Weddings

posted by Stephen Lubben

Blog administrator's note: I hope Stephen does not get mad at me, but I have moved the video "below the fold" as it wants to autoplay whenever Credit Slips loads. Click on the "continue reading" link to see a CBS video featuring Stephen and problems from the Alfred Angelo bankruptcy with women who may not get their wedding dresses.

Continue reading "I Also Do Weddings" »

Some Further Thoughts on the "CHOICE Act"

posted by Stephen Lubben

Over at Dealb%k.

The Choice Act and Bailouts

posted by Stephen Lubben

Over at Dealb%k.

Clearinghouses in OLA?

posted by Stephen Lubben

In this short paper, I question whether derivatives clearinghouses can be "resolved" under Dodd-Frank's title II "Orderly Liquidation Authority." That, of course, presupposes that OLA is still around when and if a clearinghouse failed.

If not, we'd better think about what a chapter 7 filing of a clearinghouse would look like. As discussed in the paper, most clearinghouses are "commodities brokers" for purposes of the Code, and thus can't file under chapter 11.

Thoughts and Frustrations – Jevic

posted by Stephen Lubben

Over at Dealb%k.

Exchange Offers and Hardball

posted by Stephen Lubben

Over at Dealb%k.  (BTW, I don't pick the pictures).

Jevic

posted by Stephen Lubben

Third Circuit is reversed. Opinion is here.

Dodd-Frank: Executive Order O'Rama

posted by Stephen Lubben

The new Executive Order is out. At heart, it says nothing. The press will probably make it into a big deal. 

Update:  I should clarify that I have no doubt the administration plans to gut Dodd-Frank. The order simply says "we plan to gut Dodd-Frank," and thus I don't find it particularly interesting.

Dodd-Frank and the New Order

posted by Stephen Lubben

Apparently just in time for another missive from the White House – and a bit of a tantrum from the House – I've got a new Dealbook up where I suggest that Orderly Liquidation Authority and title II might be a first target. I also argue that there is no real plan for what to do after OLA is gone.

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