Bankruptcy Brief

Trump Says Stimulus Talks, $1,200 Checks Are Back in Play

President Trump and House Speaker Nancy Pelosi (D-Calif.) both said today that they’re still negotiating on broad economic relief legislation, the latest twist after five head-spinning days during which the White House has whipsawed between demanding a stimulus bill, then shutting down talks — only to renew them again, the Washington Post reported. Pelosi made her demands for a new package clear, nixing the idea of passing a stand-alone bill to solely help the airline industry. She said that such aid would only be considered if it's part of — or accompanied by — a larger relief bill to meet other economic needs. She said that she and Mnuchin were still talking. There appears to be a new sense of urgency from the White House and some congressional Republicans to reach some sort of agreement amid signs the economic recovery is weakening. Trump said in a Fox Business interview that economic relief talks are back on and could include a new round of $1,200 stimulus checks. This announcement came two days after he abruptly declared them over and ordered his deputies to stop negotiating with Pelosi. Pelosi and Mnuchin had been negotiating for about a week on a comprehensive relief bill with a price tag of between $1.6 trillion and $2.2 trillion. The deal under discussion would include new $1,200 stimulus checks, renew enhanced unemployment benefits, and provide $75 billion for coronavirus testing and tracing, among other provisions. When talks broke off Tuesday, Democrats were pushing for language ensuring a wide-scale testing strategy. Pelosi said today that they were still waiting to hear back on that issue.

U.S. Jobless Claims Remained Elevated Last Week

Applications for jobless benefits remained high last week, even as they have fallen swiftly from their peak of more than 6 million last spring, the New York Times reported. But that progress has recently stalled at a level far higher than the worst weeks of past recessions. That pattern continued last week, the Labor Department said today: More than 800,000 Americans filed new applications for state benefits before adjusting for seasonal variations, roughly in line with where the total has been since early August. “The level of claims is still staggeringly high,” said Daniel Zhao, senior economist at the career site Glassdoor. “We’re seeing evidence that the recovery is slowing down, whether it’s in slowing payroll gains or in the sluggish improvement in jobless claims.” That slowdown comes as trillions of dollars in government aid to households and businesses has dried up. The continued high level of jobless claims, combined with large monthly job gains, highlight the remarkable level of churn still roiling the U.S. labor market. Companies are continuing to rehire workers as they reopen, even as other companies cut jobs in response to still-depressed demand for goods and services.

Retailers Brace for a Black Friday Without Crowds

While shoppers may be wary about in-store shopping on Black Friday, American malls and stores are desperate to make the key shopping day happen, Bloomberg News reported. Traditional brick-and-mortar holiday shopping has been declining for a decade as consumers flock to e-commerce, and the COVID-19 outbreak and recession will only hasten its fall. The U.S. retail sector has been devastated after months-long shutdowns and dozens of bankruptcies, battering the survivors’ hopes that shopping patterns would get back to normal by retail’s busiest day. With barely seven weeks left, merchants are scrambling to prepare stores and websites to make up for lost time. The holiday playbook of opening stores right after family Thanksgiving feasts, lining the weekend with doorbuster sales, and cramming shops with inventory and workers has been thrown out the window. Stores will be reconfigured, with fewer racks on the floor and service stations spread farther apart. Online sales will take center stage. Supply chains will be strained like never before as businesses try to keep up with record e-commerce purchases, with distribution centers hiring tens of thousands more workers to package and ship orders. What’s more, the pandemic has made shoppers wary of going to crowded stores and left many tight on cash after mass layoffs in most industries. COVID-19 has already cost the U.S. retail industry billions of dollars. In a normal year, department stores and apparel sellers get about a quarter of their annual sales in November and December, according to Fitch Ratings. This year’s fourth-quarter shopping spree will be even more crucial; many sales were missed when stores were closed, and consumers refrained from buying gold necklaces, designer handbags, and other discretionary items. Almost $122 billion in U.S. retail sales has evaporated since the pandemic caused store shutdowns in March. Sales at clothing and accessories stores plunged 34.9 percent in the first eight months of 2020 from the same period in 2019, according to the U.S. Census Bureau.

Census Bureau: Nearly One-Fourth of American Households Facing Layoffs or Pay Cuts

Survey results released yesterday by the Census Bureau found that nearly a quarter of Americans expect someone in their household to lose their job or take a pay cut before Election Day, and nearly one-third expect to potentially lose their homes within the next two months, The Hill reported. The Census Bureau’s latest edition of the Household Pulse Survey found that 24 percent of Americans expect either themselves or someone they live with to suffer a loss of employment income within four weeks. The survey was conducted Sept. 16-28 through an online questionnaire. Roughly 32 percent of respondents said it is likely they will be evicted or foreclosed on within the next 60 days despite federal protections meant to prevent a widespread homelessness crisis, and another 6.8 percent said they do not expect to pay their next monthly rent or mortgage payment on time.

Lenders Get Stuck with Busted Eateries After Bidders Get Scarce

Lenders are having a hard time unloading distressed and bankrupt restaurants amid the financial storm caused by the COVID-19 pandemic, Bloomberg News reported. California Pizza Kitchen Inc. on Tuesday canceled an auction to sell itself after no buyers bid for the company, making its bankers the likely new owners. Ruby Tuesday Inc. went bankrupt Wednesday and plans to hand itself over to its lenders. With federal stimulus talks shelved and colder weather putting an end to outdoor dining, the industry’s pain may start to get even worse in the coming months. “It is a difficult time to sell a casual dining brand,” said John Gordon, a longtime restaurant analyst with Pacific Management Consulting Group. Casual dining chains have been slammed this year both by government shutdowns and by consumer worries about catching COVID-19. Restaurant dining rooms across the U.S. were temporarily shuttered by the pandemic earlier this year. While most have reopened, capacity limits have put a cap on how much revenue they can actually generate. “This fear factor is material; it has an impact on the casual dining sales potential,” Gordon said in an interview. He added that locations that can’t reach annual sales of $4 million to $5 million won’t have the margins that entice investors. Casual dining has suffered for the past decade as consumer tastes diverged away from the sit-down experience of chains like Applebee’s and TGI Friday’s. Sales have instead flowed into local restaurants, fast-food chains like McDonald’s Corp., delivery-focused companies like Domino’s Pizza Inc., and fast-casual concepts like Chipotle Mexican Grill Inc. and Shake Shack Inc. With many diners opting against eating in restaurants since March, casual restaurants have been forced to improvise to hold on to sales. TGI Friday’s, for example, has tried to lure customers with outdoor dining tents, while others are selling meal kits and bulk food.

Companies Give Up Cash Cushions to Buy Back Debt

Companies in the U.S. and Europe are buying back bonds to reduce the cash piles they built up earlier this year, signaling expectations for more stable economic times ahead, the Wall Street Journal reported. This year has seen a 40 percent rise in the value of bonds bought back early by investment-grade firms in the U.S. and a 50 percent increase in the region that includes Europe, the Middle East and Africa, compared with last year, according to research from Deutsche Bank. Corporate debt issuance hit a record high in 2020, data from Dealogic showed. In the U.S., firms tapped the bond market for close to $1.5 trillion through September. Companies in Europe raised €486 billion, equivalent to $573 billion. Many firms rushed to set aside the money as a cushion in anticipation of a prolonged disruption to their operations during the pandemic. (Subscription required.)

ABI Sessions Next Week at the Insolvency 2020 Virtual Summit: Bankruptcy Issues Related to PPP Loans, Ethics, Keynote on the Pandemic’s Impact on Mental Health Now and in the Future, and More!

ABI sessions continue next week at the Insolvency 2020 Restructuring, Insolvency and Distressed Debt Virtual Summit to examine the key issues facing the commercial bankruptcy landscape. Panels include:

Oct. 12
• Premier Sponsor Showcase: Development Specialists, Inc. 

Oct. 13
• Bankruptcy Issues Related to PPP Loans and Other Pandemic Governmental Lending Programs
• Views from the Bench: Ethics

Oct. 14
• Networking Hour: A Martial Artist's Guide to Conflict Management 
• Keynote with Dr. Patrice Harris: The COVID-19 Pandemic: The Impact on Mental Health Now and in the Future 
• Networking Event: Spooktacular Mastering Mixology 

Oct. 15
• Trivia Night 

Oct. 16
• Premier Sponsor Showcase: Getzler Henrich
• Premier Sponsor Showcase: Squire Patton Boggs
• Premier Sponsor Showcase: Moelis & Company

Also, don’t miss great programing from Summit partners ABA, AIRA, IWIRC, NABT, NAFER and NCBJ and M&A Advisors throughout the week!

Sixteen leading insolvency organizations are participating in the Virtual Summit through Oct. 27 to bring thought leaders from the worlds of restructuring, insolvency and distressed debt for insightful online programming and engaging networking via a state-of-the-art virtual platform. Click below to learn more about how the Insolvency 2020 platform provides attendees with an enhanced online conference experience:



For more information and to register, please click here.

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Commentary: After the COVID-19 Deluge, a Bankruptcy Tidal Wave?

The number of people filing for bankruptcy could set records next year. And while bankruptcy reform artificially spurred the 2005 record of nearly 2.1 million cases filed, this peak will be all about the reality of a COVID-19-blasted economy, according to a Forbes commentary. So far, 2020 has avoided a surge of personal bankruptcies. In fact, total bankruptcy filings year to date trail the 2019 figures due to variables such as federal stimulus payments, mandated mortgage and other loan forbearance, unemployment insurance enhancement, and the additional support provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and other government programs. It may be because people are borrowing less. But whatever the cause of the decline, bankruptcies still seem likely to rise if unemployment and loss of income persist. There are at least two schools of thought about the future of bankruptcy, according to the commentary. One predicts a bankruptcy surge as filings mushroom quickly to record levels. Another more measured view that says a moderate and gradual increase in bankruptcies seems equally, if not more, likely. “All of us in the field are expecting bankruptcies to spike up dramatically, probably later this year and even more so into the New Year as the longer-lasting effects of the pandemic hit people in the wallet,” says Ike Shulman, bankruptcy lawyer and co-founder of the National Association of Consumer Bankruptcy Attorneys (NACBA). Uncertainty plays a bigger role in the expectations of some other observers of the bankruptcy scene. “Are bankruptcies going to increase? Probably,” said Prof. Robert Lawless of the University of Illinois College of Law. “But people need to be more modest about their predictions." Lawless says his research indicates that bankruptcy is tied to debt levels, not unemployment rates. “People like to talk about unemployment,” he says. “But if people don’t have debt, they don’t file for bankruptcy. It doesn’t put money in your bank account or food on the table or find you a job.”

'Fresh-Start' Accounting More Imperative for Struggling Companies During Pandemic

Coronavirus-induced chapter 11 filings are putting a spotlight on "fresh-start accounting" for increasing the chances of success for a company coming out of bankruptcy by reorganizing it into a new firm, or a new subsidiary of an existing firm, with a new set of books, CFODive.com reported. Although fresh-start accounting is designed to give investors more confidence in the long-term prospects for the emerging company, investors are likely to evaluate the financial statements coming out of the process themselves, said Jason Pizza, Grant Thornton Transaction Accounting Services National Lead Partner. The pandemic has shown that long-term outlooks can be quickly and unexpectedly squashed. "It's hard to do due diligence on the projections," said Robert Reilly of Willamette Management Associates, who has been doing bankruptcy valuations for 45 years. CFOs at companies considering buying an entity emerging from fresh-start accounting must watch out for a red flag, Reilly said. "If you are investing in one of these reorganized companies and you start seeing identifiable intangible assets or goodwill on the balance sheet, then you should be concerned," he said.

Another 870,000 Workers Filed for Jobless Benefits Last Week

Another 870,000 new applications for unemployment insurance were processed last week, a slight increase from the week before, as unemployment claims remain stubbornly high six months into the pandemic, the Washington Post reported. That figure is up slightly from the 866,000 applications processed the week before, according to the Department of Labor. Another 630,000 people had new claims processed for Pandemic Unemployment Assistance, the program for self-employed and gig workers, down from 675,000 the week before. The total number of people claiming unemployment insurance dropped to 26 million for the week ending Sept. 5 — a drop of more than 3.5 million. The new claim numbers have come down gradually from their peak in March but remain at historically high levels.

No Job, Loads of Debt: Covid Upends Middle-Class Family Finances

Millions of Americans have lost jobs during a pandemic that kept restaurants, shops and public institutions closed for months and hit the travel industry hard. While lower-wage workers have borne much of the brunt, the crisis is wreaking a particular kind of havoc on the debt-laden middle class, according to a Wall Street Journal analysis. Debt didn’t present a major problem before the coronavirus. The job market was booming, and median household incomes were rising, allowing families to keep up with payments. American families with nonhousing debt making over $98,018 a year in pre-tax income owed an average of nearly $92,000 of such debt in 2016. That’s up 32 percent from 2004, adjusted for inflation, according to an analysis of Federal Reserve data by the Employee Benefit Research Institute, a nonpartisan nonprofit research group. Before the pandemic, Americans had amassed $4.2 trillion in consumer debt, excluding mortgages, according to the Federal Reserve Bank of New York, a record even when adjusting for inflation. Housing debt added an additional $10 trillion to the tally. The coronavirus has spared few industries, and expanded unemployment benefits designed to replace the average American income didn’t cover all the lost pay of higher-earning workers, especially in or near expensive cities. The extra $600 weekly payments expired in July, putting them even further behind. Roughly six months into the pandemic, many lenders that let borrowers skip monthly payments now expect to get paid again. They have set aside billions of dollars to cover potential losses on soured consumer loans — an acknowledgment that America’s decade-long debt binge has come to an end. (Subscription required.)

Mnuchin Says He and Pelosi Have Agreed to Restart Stimulus Talks

Treasury Secretary Steven Mnuchin said Thursday that he and Speaker Nancy Pelosi (D-Calif.) have agreed to revive negotiations over a stalled follow-up coronavirus relief bill, The Hill reported. “I've probably spoken to Speaker Pelosi 15 or 20 times in the last few days on the CR,” Mnuchin told the Senate Banking Committee, referring to a continuing resolution to extend government funding, “and we've agreed to continue to have discussions about the CARES Act.” Mnuchin’s comments come amid a months-long partisan stalemate over a follow-up to the CARES Act, the $2.2 trillion coronavirus relief bill signed by President Trump in March. While there is broad bipartisan support for certain components of a stimulus bill, Democrats and Republicans remain deeply divided over the size and scope of another package. Spiking partisan tensions driven by the looming November elections and the battle over the Supreme Court vacancy left by the death of Justice Ruth Bader Ginsburg have also made a breakthrough unlikely before Election Day. Democrats have insisted that the federal government must approve trillions in further aid to renew a lapse in enhanced unemployment benefits, bolster state and local government budgets, send another round of direct relief payments to struggling households, and expand housing and eviction protections. Republicans, however, are wary of adding to the national debt and prefer a targeted package intended to help schools and daycare centers reopen and bring Americans back to work as quickly as possible.



In related news, Federal Reserve Chair Jerome Powell indicated that aid to small businesses and support for the unemployed should be prioritized if Congress were to reallocate money away from backstopping the central bank’s emergency-lending programs, Bloomberg News reported. Powell, responding during congressional testimony to a question from Sen. John Kennedy (R-La.), said an expansion of the Paycheck Protection Program and “something more” for Americans who have lost their jobs because of the coronavirus pandemic would have the greatest economic impact. Powell also estimated that the Main Street Lending Program could have $10 billion to $30 billion in loans outstanding by the end of the year. That underscores how the facility, unless significantly redesigned, won’t soon come close to the $600 billion capacity initially envisioned. Under the CARES Act, passed by Congress in March, U.S. lawmakers appropriated $454 billion to act as a buffer against losses for the Fed’s multiple emergency-lending programs. About $215 billion of that has been allocated to specific programs, like Main Street. More than $200 billion remains unallocated, and several of the programs appear no longer in need of backstops because of their success in calming short-term credit markets.

Pay Cuts Become Permanent for Many Americans Amid Pandemic

Pay cuts introduced by U.S. employers in the early days of the coronavirus pandemic — meant to stave off layoffs and retain key employees — have proven to be less temporary than perhaps originally envisioned, Bloomberg News reported. The majority of workers who took a pay reduction as the virus brought the economy to a halt are still earning less than they were prior to the outbreak, according to a Pew Research Center study released today. The extent of outright job losses brought on by efforts to contain the virus has been well-documented: Half of adults who say they lost a job due to the pandemic remain unemployed, according to the study, a finding consistent with government statistics showing that the U.S. has regained about half of the 22 million positions lost in the early spring. But shifts in earnings and pay structure have been harder to track, with average hourly wage data skewed higher by the disappearance of low-paid service-industry jobs and with overall income figures inflated by expanded government benefits that gave Americans a temporary boost. Nearly one-third of adults surveyed by researchers say either they or someone in their household had to reduce their hours or accept a pay cut because of the outbreak, with 21 percent saying that this happened to them personally. Among that subsegment of adults, 60 percent say they are currently earning less than before the outbreak, with 34 percent making about the same amount of money and 6 percent earning more than before the spread of the virus.

Networking Is a “Big Deal” at Insolvency 2020 Virtual Summit: Don’t Miss the Spontaneous and Impressive Networking Opportunities Via the Summit Portal!

In addition to insightful sessions, the Insolvency 2020 Virtual Summit portal presents attendees with convenient and powerful networking opportunities. While the schedule has plenty of scheduled networking events, attendees will be able to create spontaneous networking engagements simply by clicking on another attendee’s name in the virtual lobby. This impromptu meeting can be made public for other attendees to join, or private. Be sure to utilize the Insolvency 2020 Virtual Summit’s portal and impressive attendee list to help you find your next opportunity! Click below to learn more about how the Insolvency 2020 platform provides attendees with an enhanced networking experience:



For more information and to register, please click here.

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Senate Republicans Fail to Advance "Skinny" Stimulus Bill as Stalemate Continues

The Senate failed today to advance a Republican coronavirus stimulus plan, the latest blow to stalled efforts to pass another package to mitigate the pandemic’s economic damage, CNBC.com reported. The measure fell short of the 60 votes needed on a procedural step to move toward passage. All Democrats present, and one Republican — Rand Paul of Kentucky — opposed it in a 52-47 vote. The nearly unanimous vote for the GOP followed weeks of disagreements within the Republican caucus about whether to pass any more aid at all. The legislation would have reinstated enhanced federal unemployment insurance at a rate of $300 per week, half of the $600 weekly payment that expired at the end of July. It also would have authorized new small business loans and put money toward schools and into Covid-19 testing, treatment and vaccines. The measure did not include a second $1,200 direct payment to individuals. It also lacked new relief for cash-strapped state and local governments or money for rental and mortgage assistance and food aid — all priorities for Democrats. “It is beyond insufficient. It is completely inadequate,” Senate Minority Leader Chuck Schumer (D-N.Y.) said of the GOP plan earlier today. Senate Majority Leader Mitch McConnell (R-Ky.) brought the measure to the Senate floor this week as efforts by the Trump administration and Democratic leaders to strike a bipartisan relief agreement remained stalled. He aimed not only to show that Republicans, and particularly vulnerable GOP senators running for reelection this year, were taking action to fight the pandemic, but also to put pressure on Democrats ahead of Election Day. Congress has failed to pass a fifth coronavirus aid package even as the outbreak infects tens of thousands of Americans per day and economic pain felt by millions of jobless people sharpens. Lifelines including the jobless benefits, a federal moratorium on evictions and the window to apply for Paycheck Protection Program small business loans have all lapsed. While President Donald Trump has taken unilateral steps to extend temporary unemployment aid to some Americans and limit evictions for a few months, only Congress can pass comprehensive relief because it controls federal spending. Doubts have grown about lawmakers’ ability to approve any more stimulus during the heated final weeks before the 2020 election. Even so, House Speaker Nancy Pelosi told reporters Thursday she is hopeful Congress can pass another bill before the Nov. 3 election.

Trump Administration’s Handling of Stalled Student Debt Relief Claims Threatens Proposed Settlement

A proposed court settlement between the Trump administration and defrauded borrowers is in jeopardy after the administration revealed its widespread denials of requests for student debt cancellation, the Washington Post reported. Ninety-four percent of the debt-relief claims the Education Department has processed since reaching the agreement in April have been rejected, the department said in a court filing last week. The federal agency issued 78,400 decisions, of which 4,400 were approved and the remainder denied. Attorneys for the borrowers in the class-action lawsuit say that the rejection letters lack detailed explanations for the denials, making it difficult for people to appeal the decisions. They say that the department’s hasty disposal of the claims without a clear cause violates the spirit of the agreement, which is still pending final approval. Under the proposed deal, the Education Department agreed to clear out nearly 170,000 unresolved claims within a year and a half. Borrowers who are still awaiting a decision after 18 months would get 30 percent of their federal loans discharged for every month that the department is late, and those who are denied reserve the right to an appeal. The agreement stems from a lawsuit brought against Education Secretary Betsy DeVos and her agency in June 2019 by a group of borrowers seeking debt relief under a federal program known as “borrower defense to repayment.” That program, which dates to 1994, provides federal loan forgiveness to students whose colleges lied to get them to enroll.



In related news, the prospects for major changes to student loan forgiveness hinge largely on the outcome of the November elections, both presidential and congressional, The Hill reported. Democratic presidential nominee Joe Biden and President Trump are offering significantly different proposals for the size and scope of canceling student debt, creating a crossroads that experts say could play a key role in how Americans approach higher education. Under Biden’s plan, individuals would pay 5 percent of their discretionary income toward their education debt, followed by forgiveness after 20 years. Individuals earning $25,000 or less per year would not owe any payments on their federal student loans, nor would they accrue interest on their loans. The plan would be coupled with lowering the cost of tuition to help reduce student loans. Public colleges and universities would be tuition-free for families with incomes below $125,000, while two years of tuition-free community college or training programs would be offered for certain students. Key elements of Trump’s student loan plan were outlined in his fiscal 2020 budget proposal. Overall, his approach would combine multiple income-driven repayment programs into one. Among the programs that would be eliminated is the Public Service Loan Forgiveness program, which cancels federal student loan debts for full-time government or nonprofit employees after a certain amount of years. Trump’s plan also calls for 12.5 percent payment of discretionary income with forgiveness after 15 years for undergraduate debt and 30 years for graduate students.

Do Jobless Benefits Deter Workers? Some Employers Say Yes. Studies Don’t.

The $600-a-week jobless benefit supplement that Congress approved in March as part of the CARES Act has been widely credited by economists with keeping the economy functioning through the coronavirus pandemic, the New York Times reported. Households used the extra cash to pay rent, buy food and cover medical, utility and credit card bills when many businesses abruptly shut, and cars lined up for miles at food banks. With the supplement, which ended in July, most unemployed workers got more than they had earned in wages; without it, they fell short of their previous income. Workers, businesses, policymakers and scholars have all had differing perspectives on whether the supplement simply provided a lifeline or discouraged people from taking jobs. The answer has consequences for tens of millions of Americans, particularly those on the lower end of the income ladder; for businesses trying to restore their operations; and for an economy that largely depends on the lifeblood of consumer spending. There has been striking agreement among conservative and liberal economists who have studied the issue that the $600 supplement has deterred few workers from accepting a job. But the relief is not only a matter of contention among business owners; it is also at the center of an acrimonious debate in Congress that has held up agreement on a new aid package. Democrats have insisted on extending the full $600 payment beyond July, while Republicans are pushing for no more than $200, arguing that the extra income is deterring people from working. President Trump decided to use federal disaster relief funds to give most jobless workers $300 a week, but officials said the funds would cover only four or five weeks of payments. The issue is likely to continue to resonate through the election campaign. For most people collecting unemployment benefits, there are simply no jobs. Roughly half of the 22 million jobs that evaporated with the coronavirus outbreak have not yet returned. Freelancers, gig workers, the self-employed and others have also seen their contracts and incomes shrink. But what about those who declined to return to a previous job, or take a new one? Turning down a job offer to stay on unemployment insurance is considered fraud and is grounds for losing all jobless benefits. But many states suspended verification checks, and with the flood of claims, keeping track of applicants’ job searching can be difficult. So can determining the reason for declining a job. A lack of child care or health concerns related to COVID-19 are generally considered acceptable excuses. Making more money on unemployment insurance is not.

Justice Department Has Charged 57 People with Trying Steal $175 Million in Coronavirus Relief Funds

The Justice Department has so far charged 57 people with trying to steal a total of $175 million in taxpayer-backed coronavirus pandemic loans, officials said today, part of a months-long effort to stamp out profiteering as the federal government continues to spend giant sums of money to stimulate the economy, the Washington Post reported. The Paycheck Protection Program, a taxpayer-subsidized loan program that is regulated by the Small Business Administration and implemented by banks and financial technology companies, has been a fraud concern from the moment it was rolled out in early April. Funds were disbursed with relatively little vetting, and businesses were allowed to self-certify their own eligibility. “The PPP program represented critical help at a critical time,” acting assistant attorney general Brian C. Rabbitt told reporters on Thursday. “Unfortunately, the crisis brings out not only those that try to help others, but those who try to take advantage of the crisis for personal gain.” Those charged include individuals who allegedly received money on behalf of fake companies; legitimate business owners accused of spending the funds on luxury items for themselves rather than on employees’ paychecks; people who allegedly knew they weren’t eligible but applied anyway; businesses that allegedly double-dipped in a program meant to provide one loan per business; doctors accused of stealing from patients; and elaborate rings of people accused of trying to steal tens of millions of dollars. The $175 million that fraudsters have attempted to steal has entailed a known loss of $80 million to the government, officials said. The Justice Department was able to recover $30 million.

U.S. Unemployment Claims Held Steady Last Week

U.S. unemployment claims held steady at 884,000 last week, the Labor Department reported Thursday, a sign the labor-market recovery is losing steam six months after the coronavirus pandemic struck the U.S., the Wall Street Journal reported. Claims have fallen from a March peak of about 7 million but remain at historically high levels — above the pre-pandemic record of 695,000. The total number of workers receiving assistance from state and federal programs also remained high in late August, as more workers turned to pandemic-related programs for assistance. The total of about 29.6 million people, which isn’t seasonally adjusted and lags two weeks behind new state claims figures, includes temporary federal pandemic-related programs for self-employed and gig workers in addition to those receiving regular state benefits. The number of workers collecting state unemployment benefits has also dropped from highs reached earlier in the pandemic but remains elevated at historically high levels. So-called continuing claims increased to about 13.4 million at the end of August. State reopenings helped boost employment this summer, and gains continued in August, but at a slower pace, Friday’s Labor Department report said. The bulk of the decline in jobless claims at the end of August reflected a change in how the Labor Department calculated seasonal adjustments, economists said. The agency’s methodology change, which will be applied to claims figures going forward, is intended to better align the adjusted figures with raw numbers distorted by the pandemic. (Subscription required.)

Commentary: A Surprisingly Durable Stock Market Recovery Faces Tougher Tests*

When the stock market began to rally back in March, it seemed oblivious to an economy sliding into its worst contraction since the Great Depression, the Wall Street Journal reported. Nearly six months later, some of that optimism has proved justified. The economy touched bottom in April, and it has clawed back ground every month since. The recovery has shown surprising resilience in the face of resurgent coronavirus infections and expiring fiscal stimulus. That’s the good news. The less-good news is that recovering the remaining ground may be tougher, which may be why the stock market has wobbled recently. Back in May, economists projected unemployment would still be 11 percent this December. Last month, it dropped to 8.4 percent. August was the fourth straight month the job market outperformed economists’ expectations. As the economy shrank at a record 31.7 percent annual rate in the second quarter, economists saw only a halting recovery. In July, IHS Markit, an economic analysis firm, projected gross domestic product would expand 17.7 percent annualized in the third quarter. But most economic indicators since have been better than projected, and IHS now sees GDP growing 29.6 percent in the third quarter, which ends Sept. 30. Goldman Sachs is even more optimistic, projecting a 42 percent gain. One reason for this comeback is unprecedented monetary and fiscal stimulus. After the Federal Reserve slashed interest rates to near zero in March and boosted purchases of government bonds, mortgage rates plunged. As a result, new home sales hit a 13-year high in July, and home construction is back to pre-pandemic levels. Congress supplied households and laid-off workers with enough added income to more than offset lost wages, bolstering retail sales. More important is that, unlike typical recessions, this one was caused by a natural disaster — the COVID-19 pandemic and related restrictions on economic activity. Typically, when a disaster fades, activity snaps back to its previous level. While the pandemic hasn’t passed, the economy did begin to reopen in May, and a new wave of infections across the South and West didn’t reverse that. “I’d have expected a resurgence in infections to produce more caution in consumers,” said Ben Herzon, an economist at IHS Markit. But “we haven’t seen it yet.” (Subscription required.)



*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Proposed Amendments to Bankruptcy Rules and Forms Published for Public Comment

On June 23, 2020, the Judicial Conference Committee on Rules of Practice and Procedure (Standing Committee) approved publication of proposed amendments to the following:

• Appellate Rule 25;
• Bankruptcy Restyled Rules Parts I and II; Rules 1007, 1020, 2009, 2012, 2015, 3002, 3010, 3011, 3014, 3016, 3017.1, 3017.2 (new), 3018, 3019, 5005, 7004, and 8023; and Official Forms 101, 122B, 201, 309E-1, 309E-2, 309F-1, 309F-2, 314, 315, and 425A;
• Civil Rule 12 and Supplemental Rules for Social Security Review Actions Under 42 U.S.C. § 405(g); and
• Criminal Rule 16.

The comment period is open from Aug. 14, 2020, to Feb. 16, 2021. For information on the proposed amendments and instructions on how to submit comments, please click here.

Starting Wednesday! Next Big Wave of Chapter 11s, Force Majeure and Business Insurance and Bankruptcy Issues Related to PPP Loans Among ABI Sessions Featured at Insolvency 2020 Summit

ABI sessions at the Insolvency 2020 Restructuring, Insolvency and Distressed Debt Virtual Summit will highlight and examine the key issues facing the commercial bankruptcy landscape. Sixteen leading insolvency organizations are participating in the Virtual Summit from Sept. 16 – Oct. 27 to bring thought leaders from the worlds of restructuring, insolvency and distressed debt for insightful online programming and engaging networking via a state-of-the-art virtual platform. ABI will be contributing its top-rated sessions, including Great Debates, to add the Summit's flexible schedule of online sessions, creative optional events and virtual networking opportunities. More than 170 leading industry professionals will be taking part on panels at the Summit to offer more than 50 hours of educational content.

ABI sessions at the Insolvency 2020 Restructuring, Insolvency and Distressed Debt Virtual Summit include:

• Views from the Bench: Great Debates
• Force Majeure and Business-Interruption Insurance
• Views from the Bench: Dilemmas of an Official Committee
• Views from the Bench: Mass Torts
• Views from the Bench: Sales — Chapter 11 or § 363?
• Views from the Bench: Confirmation Roundtables: Competing Interests in Today's Chapter 11
• ABI: How to Restructure an Industry that Has Been Shut Down, and How to Prove Feasibility When You're Starting from Ground Zero
• ABI: Next Big Wave of Chapter 11's: Corporate Real Estate
• ABI: Bankruptcy Issues Related to PPP Loans and Other Pandemic Governmental Lending Programs
• Views from the Bench: Ethics

For more information and to register, please click here.

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Phantom Companies Got More Than $1 Billion in Coronavirus Aid

A federal program meant to help small businesses hurt by the coronavirus pandemic may have sent more than $1 billion to places it shouldn’t have gone, according to a Bloomberg Businessweek analysis of Small Business Administration data. In some parts of the country the SBA approved far more $10,000 Economic Injury Disaster Loan (EIDL) grants than the number of eligible businesses, the analysis found. The epicenter was six adjacent congressional districts in the Chicago area, where 81,000 grants were approved even though there are only 19,000 eligible recipients. That’s more than $600 million going to phantom entrepreneurs. The SBA declined to comment on the discrepancies, saying in a statement it had “stringent fraud-protection safeguards” and noting that it had been under pressure to move the money quickly. Bloomberg identified 52 congressional districts across the nation where the number of $10,000 grants exceeded the number of eligible small businesses, for a total of $1.3 billion in suspect payments. Illinois’s 2nd District, which includes a swath of Chicago and its suburbs, had the greatest excess, with 24,278 grants going to businesses that listed addresses there. But the most recent U.S. Census Bureau data show that only 1,925 small businesses in the district have at least 10 employees, the number required to qualify for the maximum $10,000 grant. Districts in Georgia, Texas, Florida, and other states also showed payments to more than the number of eligible companies. The Census data are from 2017, and the number of businesses in each district may have changed since then. But the discrepancies uncovered in Bloomberg’s analysis are so large that potential increases in business activity alone can’t explain them. The suspect payments far exceed the $47.8 million that SBA Inspector General Hannibal “Mike” Ware identified in a preliminary report in July that warned of “potentially rampant fraud” in the $20 billion grant program. The SBA said in its statement that its anti-fraud safeguards had “prevented the processing of thousands of invalid applications.” It also said it was “balancing the agency’s fiduciary duties against the urgent need to provide the small-business sector with more than $207 billion — including $20 billion in EIDL Advances — needed to weather the precipitous challenges created by this pandemic.”

Another 1 Million Americans Filed for Unemployment Insurance Benefits Last Week

The Labor Department reported today that another 1 million American workers filed for first-time unemployment benefits last week on a seasonally adjusted basis, CNN.com reported. Continued jobless claims, which count people filing at least two weeks in a row, stood at 14.5 million on a seasonally adjusted basis. The ongoing decline in continued claims is a good sign that some people who lost their jobs in this crisis are returning to work. All in all, 27 million American workers filed for some form of jobless assistance under various government programs during the week ending August 8, representing a decrease of around 1 million claims — but still highlighting that this jobs crisis due to the pandemic remains in full force.



In related news, more than half the U.S. states have received federal approval to offer an extra $300 per week in “lost wages assistance” per an executive order that President Donald Trump signed on August 8. If you are currently receiving unemployment benefits, the federal government could be sending you additional funds soon. And although local governments themselves are cash-strapped, some states will also be contributing an additional $100. Experts are warning Americans tapping into unemployment assistance to remember that, come April 2021, unemployment benefits will be considered taxable income. While they won’t have to pay payroll taxes on unemployment, such as Social Security and Medicare withholdings, Americans will get taxed according to their income level for 2020.

Staying Afloat by Any Means, Tenants Face Difficult Future Amid Pandemic

Whether it has been with government checks, family help, personal savings, church charity, nonprofit rescue funds or even GoFundMe campaigns. the nation’s tenants have for the most part made their rent through five months of economic dislocation, the New York Times reported. Almost from the moment the coronavirus upended the economy in March, there has been a persistent fear that the loss of wages and employment, concentrated among lower-income service workers, would lead to widespread evictions. According to one study, as many as 40 million people in 17 million households risk eviction by the end of the year — an astounding figure. Yet interviews with dozens of landlords across the country returned comments like “no difference,” “pleasantly surprised” and “seems like normal.” That view is reinforced by the corporate earnings reports of housing providers and a weekly survey of big landlords by the National Multifamily Housing Council, which for several months has shown little difference from rent collections a year ago. On its face, the disconnect between upbeat landlords and anxious tenants seems to expose a glitch in the data or an example of the growing economic dissonance — like the stock market’s rise to new heights despite a 10.2 percent unemployment rate. What it actually shows is that for all of the government’s problems in containing the virus, financial rescue efforts were largely effective in keeping tenants in their homes. The $2 trillion CARES Act, with its $1,200 stimulus payments and $600 a week in extended unemployment benefits, helped laid-off renters stay current, while federal, state and local eviction moratoriums guaranteed stability for those who could not. But those efforts have largely lapsed: The $600 payments ended in July, and about 20 states have eviction moratoriums, down from 43 in May. President Trump signed an executive order telling federal agencies to help avoid evictions, but the provisions were vague. Congress has been at an impasse over new aid, and a stopgap $300 weekly unemployment supplement announced by Trump has reached few workers so far and will provide only a few weeks of relief. In the meantime, mounting bills are prompting tenants to take ever more desperate measures, with potentially devastating long-term effects.

As Job Losses Loom, the Airline Recovery Is Under Threat

The future is bleak for airline employees, and the latest round of job cuts doesn’t even come with a silver lining for investors, the Wall Street Journal reported. American Airlines said this week that it would lay off roughly 19,000 staff when the industry’s federal-aid package expires on Oct. 1. While American is the most troubled of the three major U.S. full-service carriers, United Airlines and Delta Air Lines have also warned of potential cuts in the fall. Airlines and their unions have unsuccessfully pushed Washington to approve a second $25 billion package, which would prevent redundancies until March 2021. Yet the Dow Jones U.S. Airlines Index has gained 13 percent over the past month, outpacing the S&P 500. Financial markets have already discounted the need for long-term changes, and major airlines’ cash buffers seem adequate to ensure their survival. Importantly, July air traffic showed that people are still eager to hop on a plane to go on vacation. Recent signs, however, suggest the pain may be greater than investors expect. For one, 85% percent of routes around the world are still restricted, the same percentage as in the beginning of May, UBS data shows. Back in July, as COVID-19 cases rose again, the International Air Transport Association updated its forecast for global passenger traffic, saying that it wouldn’t return to its pre-pandemic level until 2024 — a year later than previously thought. Ever since, trends have taken a worrying turn. According to data by travel analytics firm OAG, global scheduled capacity has now fallen for three weeks in a row. Capacity is still set to continue its recovery, but the August lull is a bad omen for the industry’s prospects. An optimistic explanation for a slowing number of seats flown would be sensible efforts by airlines to restrict supply and push up ticket prices. American has indeed moved away from its aggressive July strategy. Broadly, though, it is more likely that uncertainty is weighing simultaneously on demand for flights and on the price customers are paying for them. (Subscription required.)

Fed Unanimously Approves Shift on Inflation Goal, Ushering in Longer Era of Low Rates

The Federal Reserve unanimously approved today a new strategy that will effectively set aside a practice it has followed for more than three decades to pre-emptively lift interest rates to head off higher inflation, the Wall Street Journal reported. Fed Chairman Jerome Powell unveiled the updates in a speech set for delivery at a virtual symposium today, the most ambitious revamp of the Fed policy-setting framework since it was first approved in 2012. The practical effect is that it may be a very long time before the Fed considers raising interest rates. Powell said that the changes reflected lessons the central bank officials had learned in recent years about how inflation didn’t rise as anticipated when unemployment fell to historically low levels. The Fed had been moving in this direction over the last 18 months, a point made clear in early 2019 when officials abruptly abandoned plans to continue lifting interest rates. Powell initiated a policy-setting strategy review in late 2018, motivated by the sobering probability that central banks around the world will face greater difficulty than in the past to spur growth due to low levels of interest rates. (Subscription required.)

Real Estate Investors Skip Paying Loans While Raising Billions

Some of the largest real estate investors are walking away from debt on bad property deals, even as they raise billions of dollars for new opportunities borne of the pandemic, Bloomberg News reported. The willingness of Brookfield Property Partners LP, Starwood Capital Group, Colony Capital Inc. and Blackstone Group Inc. to skip payments on commercial mortgage-backed securities backed by hotels and malls illustrates how the economic fallout from the coronavirus has devalued some real estate while also creating new targets for these cash-loaded investors. “Just because a prior investment didn’t work out doesn’t necessarily mean that should tarnish the reputation for future endeavors,” said Alan Todd, head of U.S. CMBS research for Bank of America Securities. “It’s not like something was done in bad faith.” While cutting losers to buy winners is an age-old investment proposition, the COVID-19 pandemic may create even more openings than the past crises that became bonanzas for real estate investors. The mass exodus of Americans from public spaces has hammered already-weak retailers and their landlords, crippled business travel, crushed restaurants unable to fill all of their tables, and sown chaos for office towers whose tenants may never need as much space again. Hotels and malls have been the biggest CMBS losers during the pandemic. Lodging and retail debt turned over to so-called special servicers — workout specialists — is at the highest level since 2010, according to industry tracker Trepp.

Analysis: The Corona Credit Binge Is Dominated by the Biggest Companies

The Bank for International Settlements said that companies with annual revenues above $1 billion dominate corporate borrowing now more than any time in at least a decade, Bloomberg News reported. These firms account for 78 percent of global issuers of dollar bonds so far this year, according to data compiled by Bloomberg. While their bigger peers are setting records for blockbuster deals at historically low rates, many smaller companies are getting muscled out or losing access altogether. Tighter financing conditions and falling revenues raise the specter of a fresh wave of bankruptcies that could imperil the economic recovery. “Led by easier access to bond markets, large firms significantly increased their borrowing,” BIS researchers Tirupam Goel and José María Serena wrote this month in a report about credit during the COVID-19 crisis. “The rest of the firms faced bottlenecks due to their reliance on a strained syndicated loan market and hurdles in switching to bond markets.” Although the Federal Reserve is taking unprecedented steps to help smaller companies and buying their debt for the first time, many of the neediest remain outside its reach. Researchers at Princeton University and the University of Chicago found that a decline in the long-term interest rate leads to “more concentrated markets” by encouraging market leaders to borrow relative to followers, and inhibits “aggregate productivity growth.” The trend echoes the aftermath of the global financial crisis, when banks also pulled back funding to small and medium-sized companies. A decade of balance sheet repair has made banks much healthier now than then; yet it’s also made them more risk-averse as they prepare for a wave of loan defaults, according to the BIS report.

Proposed Amendments to Bankruptcy Rules and Forms Published for Public Comment

On June 23, 2020, the Judicial Conference Committee on Rules of Practice and Procedure (Standing Committee) approved publication of proposed amendments to the following:

• Appellate Rule 25;
• Bankruptcy Restyled Rules Parts I and II; Rules 1007, 1020, 2009, 2012, 2015, 3002, 3010, 3011, 3014, 3016, 3017.1, 3017.2 (new), 3018, 3019, 5005, 7004, and 8023; and Official Forms 101, 122B, 201, 309E-1, 309E-2, 309F-1, 309F-2, 314, 315, and 425A;
• Civil Rule 12 and Supplemental Rules for Social Security Review Actions Under 42 U.S.C. § 405(g); and
• Criminal Rule 16.

The comment period is open from Aug. 14, 2020, to Feb. 16, 2021. For information on the proposed amendments and instructions on how to submit comments, please click here.

Next Big Wave of Chapter 11s, Force Majeure and Business Insurance and Bankruptcy Issues Related to PPP Loans Among ABI Sessions Featured at Insolvency 2020 Summit

ABI sessions at the Insolvency 2020 Restructuring, Insolvency and Distressed Debt Virtual Summit will highlight and examine the key issues facing the commercial bankruptcy landscape. Sixteen leading insolvency organizations are participating in the Virtual Summit from Sept. 16 – Oct. 27 to bring thought leaders from the worlds of restructuring, insolvency and distressed debt for insightful online programming and engaging networking via a state-of-the-art virtual platform. ABI will be contributing its top-rated sessions, including Great Debates, to add the Summits flexible schedule of online sessions, creative optional events and virtual networking opportunities. More than 170 leading industry professionals will be taking part on panels at the Summit to offer more than 50 hours of educational content.

ABI sessions at the Insolvency 2020 Restructuring, Insolvency and Distressed Debt Virtual Summit include:

• Views from the Bench: Great Debates
• Force Majeure and Business-Interruption Insurance
• Views from the Bench: Dilemmas of an Official Committee
• Views from the Bench: Mass Torts
• Views from the Bench: Sales — Chapter 11 or § 363?
• Views from the Bench: Confirmation Roundtables: Competing Interests in Today's Chapter 11
• ABI: How to Restructure an Industry that Has Been Shut Down, and How to Prove Feasibility When You're Starting from Ground Zero
• ABI: Next Big Wave of Chapter 11's: Corporate Real Estate
• ABI: Bankruptcy Issues Related to PPP Loans and Other Pandemic Governmental Lending Programs
• Views from the Bench: Ethics

For more information and to register, please click here.

Sign up Today to Receive Rochelle’s Daily Wire by E-mail!
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