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Housing Bust Hits Pandemic Investors; PacWest Sells Unit
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Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Wednesday, May 24. In today's newsletter, the housing downturn is hitting real-estate syndicators and their thousands of small-time investors, many of whom were drawn to landlord business during the pandemic. And regional bank PacWest divested a division as it tries to win over a skeptical market.
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Mitzi Ordonez/Texas Organizing Project
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A housing bust comes for thousands of small-time investors. The real-estate entrepreneurs known as syndicators who rose to prominence during the pandemic were highly vulnerable to increases in interest rates. Many are now under financial pressure and holding properties they can no longer afford.
From 2020 through 2022, real-estate syndicators reported raising at least $115 billion from investors. While defaults have been rare so far, real-estate analysts and property investors anticipate a wave of foreclosures ahead.
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Photo: Eric Thayer/Bloomberg News
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Struggling regional bank PacWest sells real-estate unit. Roc360, a real-estate lending firm, will buy the bank’s Civic Financial Services unit, which specializes in lending money to landlords and investors who buy homes to fix them up for resale.
Beverly Hills, Calif.-based PacWest has been stung by the failures of other midsize lenders earlier this year as upheaval in the banking industry sparked deposit outflows and a decline in bank stocks.
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Platinum Equity’s fabric maker reaches out-of-court restructuring. Elevate Textiles reached an out-of-court restructuring deal in which its lenders will take control. The restructuring deal reduces the company’s debt load to $384 million from $778 million, leaving Platinum with a 2% stake in the restructured company and creditors taking the rest, a person familiar with the matter said.
Platinum Equity acquired the predecessor of Elevate in 2016. The company, which makes fabrics for automotive, apparel, interior furnishing and industrial applications, has struggled with the cost of servicing its debt.
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Lordstown Motors declares reverse stock split. Lordstown Motors declared a one-to-15 reverse stock split, weeks after the electric-truck startup said Foxconn Technology Group was trying to back out of a deal with Lordstown on the grounds that Lordstown's stock price had fallen too low and for too long.
Foxconn had planned to invest in Lordstown but now alleges that it breached the terms of its deal by allowing its stock price to trade below $1 a share for too long, putting it out of compliance with the Nasdaq listing rules.
The reverse stock split, which will condense every 15 shares of the company's Class A stock into one share, will become effective Wednesday morning. Lordstown said Tuesday the move is intended to improve the marketability and liquidity of the stock. —Will Feuer
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Rocket Lab agrees to pay $16 million for portion of Virgin Orbit assets. Rocket Lab USA said Tuesday that it is finalizing an asset purchase agreement to buy certain aerospace production and manufacturing assets as part of Virgin Orbit Holdings' chapter 11 bankruptcy auction.
The launch and space systems company said its purchase of the Long Beach, Calif. aerospace production and manufacturing assets is subject to finalizing the purchase agreement and approval by the U.S. Bankruptcy Court.
The company said its successful bid of about $16 million includes the assumption of the lease to Virgin Orbit's headquarters and manufacturing facility in Long Beach, along with certain production assets, machinery and equipment located there.
Peter Beck, founder and chief executive officer of Rocket Lab, said the dead would add to the company's presence in Long Beach and provides co-located engineering, manufacturing, and test capabilities for its Neutron rocket team. The company won't be integrating Virgin Orbit's launch system with its existing services.
Virgin Orbit said Tuesday it will cease operations following its bankruptcy filing and the sale of its assets. —Stephen Nakrosis
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The demise of Silicon Valley Bank along with those of Signature Bank and First Republic Bank have put added pressure on the economy.
Photo: Kori Suzuki/Reuters
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Pro Take: Yield-curve pioneer says this recession warning is real. The Duke University finance professor who developed a tool that has reliably predicted economic contractions for decades said in January that his indicator might be sending a false recession warning. He is not saying that now.
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Prof. Campbell Harvey developed the idea of the yield curve as a predictor of economic growth or downturn in the early 1980s. After Harvey’s dissertation, the yield curve inverted in 1989, 1999, 2006 and 2019 ahead of recessions. It has now been inverted for about seven months.
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Debt-ceiling fight sends investors to new havens. With the U.S. government at risk of a spending shortfall, investors are shunning U.S. Treasury bills that will mature over the next several months while paying a premium to buy debt issued by highly-rated companies. Recent trading has produced a rare twist in debt markets where corporate bonds are trading at a yield discount to Treasurys, generally viewed as the world’s safest investment.
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Companies unveil details about supply-chain financing. New disclosures are appearing in corporate financial statements about supply-chain-financing programs under a recent Financial Accounting Standards Board rule. The disclosures help to convey the widespread use of supply chain finance and could prove especially valuable to investors as a possible indicator of financial distress, our colleagues at CFO Journal report.
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