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U.S. Unemployment Rate Likely to Approach 20 Percent as COVID Pandemic Hits Jobs Market Again in May

The U.S. unemployment rate likely shot up to almost 20 percent in May, a new post World War II record, with millions more losing their jobs amid the Covid-19 crisis, Reuters reported. The Labor Department’s closely watched monthly employment report on Friday could bolster economists’ dire predictions that it would take several years to recover from the economic meltdown. Still, May was probably the nadir for the labor market. While layoffs remained very high, they eased considerably in the second half of May as businesses reopened after shuttering in mid-March to slow the spread of Covid-19. Consumer confidence, manufacturing and services industries are also stabilizing, though at low levels, hopeful signs that the worst was over. “The good news is that we probably have hit the bottom,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “But the recovery will be painfully slow. It will take years, probably a decade to get back to where we were at the end of last year.”

Senators Crafting a Tax Break for SBA’s Forgivable Loan Program

After passing legislation to amend a forgivable loan program for coronavirus-stricken small businesses on Wednesday, the Senate was working on a related bill yesterday that would give borrowers another tax break on their loans, Roll Call reported. Sen. John Cornyn (R-Texas) who introduced the bill in early May, told reporters that leadership was trying to pass the bipartisan measure, but said that it still faced obstacles. The bill would give borrowers a second tax benefit, a practice sometimes described as double-dipping. The borrowers already don't have to treat forgiven loans as income and the bill would allow them to get a business expense deduction. “If I’m not mistaken, we did hotline it — got a couple of holds and we’re working through those one at a time,” he said yesterday. (Senate hotlining involves leadership quickly polling members to see if any have issues with passing it by unanimous consent. It’s a way to pass uncontroversial measures without hours of floor debate.) But Senate Majority Leader Mitch McConnell (R-Ky.) wrapped up later in the afternoon, deferring any action until at least next week. Senate backers of the bill may also be facing resistance from the administration. Treasury Secretary Steven Mnuchin has resisted calls to allow the deduction by changing the rules of the PPP program, calling it a "double dip."

PG&E Faces Renewed Challenge Over Bankruptcy Votes From Wildfire Victims

PG&E Corp. heads into a third and final day of court fights today, with concerns a last-minute protest from fire victims could upend plans by the utility to raise $9 billion in fresh capital to get it out of bankruptcy, WSJ Pro Bankruptcy reported. Demands for an examiner to probe the voting process are before U.S. Bankruptcy Judge Dennis Montali, who must rule on PG&E’s chapter 11 plan. If he grants the request, investors that PG&E is counting on to provide bankruptcy exit financing will be rattled, Stephen Karotkin, lawyer for PG&E, warned yesterday. Judge Montali is expected to wrap up confirmation hearings on PG&E’s $59 billion bankruptcy exit plan today, and rule shortly. The plan is an effort to address damages from years of wildfires linked to its equipment, and PG&E is trying to hit a June 30 deadline to qualify to participate in a new California utility wildfire fund. The call for an examiner comes from a splinter group of victims of the fires that pushed California’s largest utility into chapter 11 protection last year. They say that tens of millions of victims were left out of the polling process on PG&E’s chapter 11 plan, and an examiner needs to conduct an investigation to figure out why.

Rival J.C. Penney Lenders Reach Bankruptcy Financing Deal

Competing factions of J.C. Penney Co. lenders that were vying to finance the retailer’s restructuring efforts reached a deal yesterday, averting potential litigation between them, WSJ Pro Bankruptcy reported. Kris Hansen, a lawyer for creditors including Aurelius Capital Management LP, said at a court hearing his group had come to terms with rival lenders on a financing package that supplies Penney with up to $900 million to stay afloat through bankruptcy. The settlement avoided a possible fight between Hansen’s clients and rival lenders led by H/2 Capital Partners LLC that hold roughly three-quarters of Penney’s top real-estate loans. Penney filed for bankruptcy last month with a commitment from H/2, along with Silver Point Capital LP, Sculptor Capital Management and others, to cover its expenses while it attempts a complex financial restructuring. Other investors including Aurelius cried foul, saying the proposed terms were stacked against Penney and offering a competing loan proposal. Under the settlement announced Thursday, Aurelius and its allies can participate in the financing package. They will get to convert $53 million of their debt claims into top-ranking bankruptcy loans. The judge presiding over Penney’s bankruptcy approved the loan package, even as he acknowledged it was “expensive money” for the company. “If we were in a perfect world, this financing package would be highly objectionable,” Judge David Jones said from the bench. But he added he wouldn’t let the bankruptcy languish any longer without a financing source. “It is the only path forward that I see,” the judge said. Read more

In related news, J.C. Penney said yesterday that it will start closing 154 of its stores next week in what it is calling the first phase of its efforts to shrink its footprint, the Associated Press reported. The Plano, Texas-based retailer said that it could take about 10 to 16 weeks to complete the closures. A list of the stores closing was published on Penney’s website. Penney filed for bankruptcy protection last month, making it the biggest retailer to do so since the coronavirus pandemic forced non-essential stores to be shut down temporarily. J.Crew and Neiman Marcus sought bankruptcy protection days before J.C. Penney. All three were laden with debt and had trouble connecting with shoppers, who are increasingly skipping the mall and shopping online. As part of its bankruptcy reorganization, Penney said it planned to permanently close nearly a third of its 846 stores in the next two years. That would leave it with just over 600 locations. Read more

24 Hour Fitness Engages With Suitors Before Planned Bankruptcy

24 Hour Fitness Worldwide Inc. is in discussions with suitors as it seeks a potential buyer to serve as a stalking horse in a court-supervised bankruptcy process, Bloomberg News reported. The operator of more than 430 gyms is working with an adviser to solicit potential bidders ahead of a planned bankruptcy filing. “24 Hour Fitness is productively engaged with its creditors to explore strategic options and ensure the company is well positioned to serve its members nationwide for the long-term,” the San Ramon, California-based company said in a statement. 24 Hour Fitness — which has felt the brunt of nationwide shutdowns to curb the spread of Covid-19 — skipped a June 1 interest payment on its unsecured bonds due 2022, Bloomberg reported earlier this week. As it works out its borrowings, the fitness chain also started reopening certain locations in Texas under state and federal guidelines. The contemplated sale process of the company is one option 24 Hour is weighing as part of its restructuring efforts.

Tuesday Morning Scores Additional $25 Million Bankruptcy Loan

Tuesday Morning Corp. secured a new $25 million loan from a unit of B. Riley Financial Inc. to support the discount retailer through its bankruptcy restructuring, Bloomberg News reported. With the capital, Tuesday Morning has a total of $125 million of debtor-in-possession financing which will allow it to keep operating as stores across the country start to reopen, the company said yesterday. The $25 million financing from BRF Finance Co. was required under the terms of the company’s previously pledged $100 million DIP agreement provided by existing lenders. Dallas-based Tuesday Morning filed for bankruptcy last week after the coronavirus pandemic forced temporary store closures and drained revenue. The company plans to cut its debt and store-count through the court-supervised process which it expects to wrap up in the early fall. “This additional capital is an important milestone as it provides significant liquidity for us to continue operations throughout the reorganization process,” Chief Executive Officer Steve Becker said in a statement. Tuesday Morning’s new financing from B. Riley remains subject to certain conditions including approval from the bankruptcy court, the company said. The retailer won initial approval to access part of its bankruptcy financing at a hearing in front of Judge Harlin Hale.