Brazilian Company Files Bankruptcy

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Timothy T Brock Eike Batista

Eike Batista

Yesterday, an iron-ore mining company owned by Brazilian tycoon Eike Batista filed for bankruptcy, the third time in a year that a unit of the former billionaire’s EBX industrial group has sought protection from creditors.  The company that made the petition, MMX Sudeste Mineracao SA, currently holds all of the significant assets of Batista’s MMX Mineracao e Matalicos SA, which is part of an EBX mining, oil, energy, shipbuilding and port group that suffered a massive collapse back in 2013.

This move comes at the end of a decade-long commodities boom, with the price of iron ore falling to around its lowest level in five years.  As the Chinese economy has begun to weaken, the demand for iron ore and other minerals has started to drop, and lower prices have made many new mining projects uneconomic.  Chances are that the MMX Sudeste petition will determine whether its parent, MMX, can continue as a viable company.  Delays in the development of MMX iron ore mines in Minas Gerais and iron ore terminal near Rio de Janeiro have hindered MMX revenue while increasing debt.

Due to expectations that Brazil would prosper as China grew, Batista was able to build an industrial empire worth more than $50 billion, in addition to a personal fortune of about $30 billion.  He was Brazil’s richest man, and as recently as 2012, the seventh-richest man in the world.  However, failure to meet production promises back in 2012 started a decline in EbX group shares.  Batista ran out of credit and his fortune evaporated.  In October and November of 2013, OGX and shipbuilder OSX Brasil SA sought bankruptcy protection.  Back in September, Brazilian prosecutors filed criminal charges against Batista, accusing him of manipulating the market.  The courts also froze $611 million of his and his family’s assets.  Previously, Batista had sold most of his holdings to pay debt, in addition to most of MMX’s share of an iron ore port near Rio de Janeiro.  However, MMX has remained his principal asset.  In 2008 they sold their Minas-Rio iron ore project to the London-based Anglo American Plc for $5.5 billion.  With that money, Batista launched OGX, OSX and the rest of the EBX Group that crash-landed last year.

After the sale to Anglo-American, MMX moved to develop another iron ore project in the highlands of Minais Gerais.  They also currently have an agreement to operate the Pao de Vinho iron-ore prospect.

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Struggling Jails in Small Towns

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Timothy T Brock empty jail

Empty jail cells like this one can prove problematic for local economies.

Recently, the Donald W Wyatt Detention Facility in Rhode Island has struggled after officials at US Immigration and Customs Enforcement pulled out their detainees some 6 years ago in the aftermath of the death of a Chinese national there.  This occurred shortly after the facility was expanded to hold 770 people.  This detention center, which currently owes around $97.3 million in bonds, was taken over by an outside financial professional earlier this year.

The facility was meant to kick in money to the city of Central Falls, which has had its own financial problems and eventually filed for bankruptcy in 2011.  When the city’s lawyers redrew revenue forecasts as part of its financial revival, lawyers pointed out that they hadn’t been getting payments from the facility, nor did they expect to receive payments any time soon.  According to an article in yesterday’s Wall Street Journal, some cities and states that took on risk to build jails or prisons are currently hurting after crime rates fell, leading to a decline in the number of inmates.

Bonds that pay for jails have the second-highest default rate in the municipal sector, at 2.1%, only being behind retirement community debt.  Jail debt also has the second fastest-growing default rate, rising from 1.1% in the second quarter of 2013.  Since 2010, 18 jail bonds have defaulted, with a par value of about $400 million.  Of course, the jail bond sector is small, and its hardship doesn’t seem likely to infect the overall market.  Jail bonds tend to be unrated, and are sought out by high-yield funds or others aware of their risks, as opposed to the the smaller-scale investors that make up most of the municipal bond market, meaning that the impact on the market as a whole is small.

However, the economy of a small town that extended municipal bonds to build a big facility might not be so insulated.  Take, for instance, the Glades County Detention Center in Florida, the largest employer in the county, which currently only has a fraction of the 114 workers it once employed after numerous rounds of layoffs.  County officials were looking to build a smaller jail, but were pressured into building a much larger facility by officials from US Immigration and Customs Enforcement.  In Ocilla, Georgia, the Irwin County Detention Center had trouble repaying $55 million in bonds sold back in 2004 to pay for an expansion after taking in fewer detainees than expected. Back in 2012, the facility was forced into bankruptcy.  With these facilities, upon which so many people in nearby communities rely for employment and business, closing down, the results could be catastrophic.

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Detroit Residents Angry About Bankruptcy Case

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Timothy T Brock Detroit

Detroit

Residents and retired public workers in Detroit have just been given temporary control of the city’s historic bankruptcy trial so they can present their own case against its $7 billion debt-cutting plan, which also includes pension reductions.  Yesterday, US Bankruptcy Judge Steven Rhodes set aside for opponents who don’t have lawyers to try and persuade him to reject the plan.  With this first presentation, the typical rules and traditions governing federal trials began to break down.

Wanda Hill, a retired city employee, got the chance to question one of Detroit’s lead bankruptcy lawyers, despite a rule that tends to prevent attorneys from testifying about the case that they’re working on.  Under questioning by Hill, the lawyer acknowledged that the city never warned retirees in key documents that they would need to pay interest on money clawed back from a saving plan that overpaid some workers.  Currently, Detroit is nearing the end of a bankruptcy trial that began in the beginning of September.  Since it filed the biggest US municipal bankruptcy case in history back in July of 2013, Detroit has been cutting deals with almost all of its major creditors, including pensioners.

Two days ago, the last large holdout creditor, bond insurer Financial Guaranty Insurance Co., suspended its fight with Detroit to try and resolve its objection to the plan.  FGIC and Detroit both said that they’ll be returning to court tomorrow and either announce a deal or continue the trial.  According GFIC, Detroit owes them more than $1 billion after insuring pension-related debt that the city proposes to pay at about 11 cents on the dollar.  During the break in FGIC’s case, Judge Rhodes spent time listening to objections from residents and city workers.  Around 40 people filed objections asking for permission either to testify or question witnesses, including city officials.  Most of these objections were related to the proposed cuts to pensions.  Under the plan, general city employees will see their monthly retirement pay reduced by 4.5 percent, in addition to losing their cost-of-living adjustments.  Police and firefighters will get their full pensions, but their cost-of-living adjustment will also be cut in half.

These cuts would directly affect around 30,000 active employees and retirees.  Retirees that contributed money to an optional annuity savings fund will have to return overpayments received from the program, in addition to 6.75 percent in interest.  The annuity program paid employees while also guaranteeing interest rate regardless of how the fund’s assets performed, with the city arguing that workers were overpaid in many years.  Such cuts, in addition to changes to retiree health benefits, means that retirees will only get about 60 percent of what they’re actually owed.

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How to Stay Positive

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If you’ve ever seen Monty Python’s 1979 classic “Life of Brian”, you’ll

Timothy T Brock positive

know that it’s important to always look on the bright side of life.  Time and time again, an optimistic outlook on life tends to be extremely helpful in not only maintaining your sanity, but also achieving success.  I recently came across an article from Michael Jacobs, the co-founder of SociaLink, who spoke about what he said were the top steps to ensure that you can maintain a positive attitude, even when life gets you down.

Expressing gratitude is one of the best and easiest ways to increase positivity.  It could always be a lot worse, so being thankful for what you currently have can immediately release any negativity that you might be holding onto.  Being grateful will instantly put you in touch with the feeling of love, which is a great way to drown out more negative emotions.  If you’re looking to implement gratitude in your life, a great way is to express it each morning by thinking of 10 things that you’re grateful for as you wake up.

A lot of times, bad feelings come from focusing on perceived negative aspects of life.  Giving to others can be a great way to shift these feelings.  Share with those around you; if somebody is looking for advice, then help them out.  Even the smallest gestures of kindness can cause a massive shift in another person’s perspective.

Some people say that somebody who can control their breath can control their life as well.  If you look back at the last time you lost control, your breathing pattern tends to become short and quick.  But if you can control your breath, then you’ll be able to calm down and feel better during the long run.

The ability to visualize or imagine can be a powerful tool to increase positivity.  Many of the world’s greatest minds have used visualization to attract what they desire.  Close your eyes, and think of a positive event that occurred.  Keep those feeling in your mind when you open your eyes and allow yourself to stay in a positive state.

Meditation, as cliché as it sounds, is one of the most effective ways to increase your positivity.  It helps expand awareness within you and allows for a clear connection between mind, body and soul.  Simply find a quiet and comfortable place to sit, close your eyes, relax and let go of all the emotions you’re holding onto.

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