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U.S. Flirts With Credit Downgrade; Bank Execs Say Crisis Is Over; Cayman Islands Regulator Exploring Options on Seized SVB Deposits
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Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Thursday, May 25. In today's newsletter, the U.S. government is at risk of losing its triple-A rating from Fitch, some banking executives believe the crisis of confidence has passed, and the Cayman Islands' monetary authority is assessing its legal options after deposits at Silicon Valley Bank's branch in the territory were seized.
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The U.S. government’s reputation for paying its bills on time is a cornerstone of the global financial system. Photo: Nathan Howard/Bloomberg News
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Fitch weighs downgrade of U.S. rating. The ratings firm is reviewing whether the U.S. should retain its top credit score as the White House and Republicans struggle to reach an agreement on raising the debt limit. While Fitch said it still expects Democrats and Republicans to reach an agreement on raising the debt limit, it said there was a greater risk it could fail to do so in time.
The ratings firm also said that potential workarounds—such as invoking the 14th amendment to ignore the debt limit—would undermine the creditworthiness of the country.
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“The brinkmanship over the debt ceiling, failure of the U.S. authorities to meaningfully tackle medium-term fiscal challenges that will lead to rising budget deficits and a growing debt burden signal downside risks to U.S. creditworthiness."
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— Fitch Ratings
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Photo: Nathan Howard/Bloomberg News
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Treasury securities are a bedrock of the global financial system, meaning any missed payments on U.S. government debt could have wide ramifications. Yet Wall Street is coming up with ways to mitigate the damage from a possible government default. The primary goal is to keep markets functioning by allowing investors to keep trading all U.S. Treasurys, even those with past-due principal or interest.
Many fear everything from computer glitches to cascading panic if the U.S. misses payments on Treasurys, considered almost as safe as cash. But efforts to plan for a possible default date back more than a decade.
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During The Wall Street Journal’s CEO Council Summit in London, leaders and analysts of global economies explored the challenges ahead for the world’s resources and how to best manage them.
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Cayman Islands regulator exploring legal options after FDIC seized SVB deposits. The Cayman Islands Monetary Authority has engaged lawyers to assess its legal options after deposits at Silicon Valley Bank’s branch in the territory were seized by the Federal Deposit Insurance Corp., a government official told affected depositors.
André Ebanks, the Cayman Islands’ minister of financial services and commerce, met in person last week with some of SVB’s depositors in Hong Kong. He told them the financial regulator has retained lawyers and is looking for ways to help them, according to meeting attendees.
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Payments processor Plastiq files bankruptcy after aborted SPAC deal. The San Francisco-based company filed for bankruptcy, less than a year after an aborted merger with a special-purpose acquisition company and weeks after Silicon Valley Bank’s collapse temporarily halted Plastiq's operations.
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Telecom contractor Qualtek Services files bankruptcy with lender support. The Blue Bell, Pa., contractor for the telecommunications and utilities industries, said the reorganization will reduce the company's debt by about $307 million and provide $40 million in additional liquidity.
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Cineworld's proposed restructuring is now backed by most lenders. Cineworld Group said Thursday that its proposed restructuring has the backing of lenders controlling almost all of its legacy credit lines and most of the outstanding debt under its debtor-in-possession facility.
The London-based cinema company—which owns Regal Cinemas—said more lenders under its term loans due in 2025 and 2026 and revolving credit line due this year, have agreed to amended and restated versions of the restructuring support agreement and the backstop commitment agreement, first filed in early April in the U.S. Bankruptcy Court.
Now, the proposed restructuring has support of those holding and controlling 99% of the legacy credit lines and at least 69% of the outstanding indebtedness under the debtor-in-possession facility, the company said.
The proposed restructuring is expected to reduce indebtedness by around $4.53 billion, raise $800 million and provide $1.46 billion in new debt financing, the company said on April 3. The proposed restructuring doesn't provide for any recovery for holders of Cineworld's existing equity interests.
Cineworld now expects to emerge from Chapter 11 bankruptcy in July. During the restructuring, the company has continued to operate its business and cinemas as usual, it said.
—Joe Hoppe
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Federal Reserve governor Christopher Waller and Fed Chair Jerome Powell, in red tie, in Washington in 2022. Photo: Manuel Balce Ceneta/Associated Press
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Fed officials were divided over June rate pause. Meeting minutes show that Federal Reserve officials agreed unanimously to lift rates at their meeting this month but split on whether they would need to raise them in June, with some ready to pause.
The Fed raised its benchmark federal-funds rate by a quarter percentage point to a range between 5% and 5.25% at the meeting, marking its 10th consecutive increase since March 2022 to combat high inflation. The central bank's next meeting is June 13-14, and their decision over whether to raise rates or hold them steady is shaping up to be a close call.
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Shaquille O’Neal was a commentator at the NBA game on Tuesday night at the Kaseya Center in Miami. Photo: Megan Briggs/Getty Images
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Shaq served with FTX investor lawsuit at its former arena. Lawyers for FTX investors said they finally served Shaquille O’Neal—again.
Process servers pursued the NBA legend for months as part of a lawsuit targeting the failed cryptocurrency exchange and celebrities who appeared in its ads. Process servers had tried to reach him at his homes and studio, and at one point tossed legal papers at his SUV. On Tuesday night, they got him in Miami at an NBA playoff game, according to a lawyer representing the FTX investors. He was at the venue, formerly known as FTX Arena, commentating for TNT.
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