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Banks Could Get $24 Billion in Fees From PPP Loans

JPMorgan Chase & Co. and Bank of America Corp. are in line to split between $1.5 billion and $2.6 billion in fees for being the conduits of the government’s aid program for small businesses stricken by the coronavirus shutdown, according to an analysis of newly released data, the Wall Street Journal reported. The nation’s two biggest banks by assets delivered more emergency loans than any other lenders that participated in the Paycheck Protection Program and the two are set to earn the biggest fees as well, according to a review of disclosures made on Monday by the Treasury Department and Small Business Administration. In total, the more than 4,000 lending institutions in the analysis are in line to split $14.3 billion to $24.6 billion in processing fees for PPP loans, according to Edwin Hu, at New York University School of Law’s Institute for Corporate Governance & Finance, and Colleen Honigsberg of Stanford Law School. The PPP has delivered more than $520 billion in loans meant to soften the economic blow of the novel coronavirus. The loans can be forgiven if businesses spend the money on certain expenses like rent or payroll, though businesses have said the process is confusing. It is common for banks to be compensated for facilitating loans made under government programs. What sets PPP apart is its size: The high end of the range of PPP fees lenders can earn exceeds the total size of the SBA’s flagship lending program in the 12 months ended Sept. 30. Banks have said they don’t expect sizable profits for the program. Getting their systems up-and-running quickly required diverting thousands of workers to help with applications and building new software to manage the process.

CFPB Revokes Payday Lending Restrictions

The Consumer Financial Protection Bureau (CFPB) yesterday revoked rules that required lenders to ensure that potential customers could afford to pay the potentially staggering costs of short-term, high-interest payday loans, The Hill reported. The bureau yesterday released the final revision to its 2017 rule on payday loans, formally gutting an initiative with roots in the Obama administration that was aimed at protecting vulnerable consumers from inescapable debt. The initial rule, released shortly before President Trump appointed new leadership at the CFPB, effectively banned lenders from issuing a short-term loan that could not be paid off in full by a borrower within two weeks. The measure required payday lenders to determine whether the customer had the “ability to repay” the loan with an underwriting process similar to what banks use to determine whether a customer can afford a mortgage or other longer-term loan. The CFPB has now issued a new version of the regulation that scraps those underwriting requirements, in line with a proposal released in February 2019. The new regulation leaves in place the original regulation's restrictions on how frequently a payday lender can attempt to withdraw funds from a customer's bank account.

Ann Taylor Owner Ascena Prepares Bankruptcy to Cut Debt, Stores

Ascena Retail Group Inc., the owner of mall brands that occupy almost 3,000 stores in the U.S., is preparing to file for bankruptcy and shutter at least 1,200 of those locations, Bloomberg News reported. The company, which owns brands such as Ann Taylor and Lane Bryant, could enter chapter 11 as soon as this week with a creditor agreement in place that eliminates around $700 million of its $1.1 billion debt load. Lenders including Eaton Vance Corp. would assume control of the company. Ascena has experienced years of financial losses amid a boom in online shopping and slowdown in foot traffic at malls. The bankruptcy filing would allow the company to keep some of its brands operating while it shutters or sells others, the people said. Catherines and Justice are among the chains it’s considering to close or sell. The plan is not final and certain details could change. Ascena shut its shops in mid-March as the coronavirus outbreak spread, and began to re-open locations in early May as state authorities lifted restrictions. Customer traffic is much lower than normal at the revived stores, the company said in an update on the impact from COVID-19 on its business. Like other retailers, the company cited a slump in sales tied to the closures. The company’s earnings and cash flow have been “significantly reduced” despite efforts to preserve liquidity, Carrie Teffner, Ascena’s interim executive chair, said in the update. Ascena previously failed to sell two of its chains amid the losses and signs that creditors were losing confidence in its prospects. In September management discussed divesting Catherines and Lane Bryant, which specialize in plus-size women’s apparel, Bloomberg reported.

Cinema Chain AMC Nears Financing Deal to Avert Near-Term Bankruptcy

AMC Entertainment Holdings Inc. is nearing a restructuring deal that would help stave off a near-term bankruptcy filing while turning down a competing financing offer from senior lenders including Apollo Global Management Inc., WSJ Pro Bankruptcy reported. The proposed deal, which could be announced within days, would require bondholders to provide a $200 million senior loan and to swap their unsecured claims at a discount for new, second-lien debt, people familiar with the matter said. Private-equity firm Silver Lake Group LLC, which has a representative on the company’s board and owns $600 million of convertible bonds, would swap for first-lien debt. Senior lenders including Apollo, Davidson Kempner Capital Management LP and Ares Management Corp. have pushed back against the proposal, which would allow Silver Lake to share in the collateral pledged to them. The group, which is represented by law firm Gibson, Dunn & Crutcher LLP, submitted a counterproposal in recent days in which they offered to inject an additional $200 million in senior debt financing, on top of $200 million supplied by junior bondholders. As a condition of the counteroffer, the senior lenders wanted Silver Lake blocked from swapping into the top-ranking debt and subordinated beneath the senior loans in the payment line.

Delta, United Among Airlines that Will Accept Government Loans under CARES Act

Treasury officials yesterday announced that five more airlines have signed letters of intent to accept government loans through the $2 trillion coronavirus economic relief package known as the CARES Act, the Washington Post reported. Alaska Airlines, Delta Air Lines, JetBlue Airways, United Airlines and Southwest Airlines join American, Frontier, Hawaiian, Sky West and Spirit airlines, which signed letters of intent last week. That brings to 10 the number of U.S. carriers that have signaled they will accept loans in addition to billions of dollars in government grants as they struggle to stay afloat amid the worst economic downturn in the industry's history. Under the CARES Act, airlines were eligible to receive more than $50 billion in grants and loans. The $25 billion grant program was focused on keeping pilots, flight attendants, mechanics and other front-line workers on the job. Another $4 billion in grants was made available to cargo carriers. The CARES Act provided $46 billion in loans, with $25 billion available to airlines, certified repair stations and ticket agents. Companies that receive loans must follow conditions similar to those required under the grant program, including keeping employees on the payroll through the end of September, maintaining certain levels of service as far out as 2022, and limiting stock buybacks and executive compensation.

Layoffs Fell in May to Pre-Coronavirus Levels

The number of Americans dismissed from their jobs fell sharply in May to match levels recorded before the coronavirus pandemic and related shutdowns caused widespread layoffs, the Wall Street Journal reported. In May, 1.8 million workers were laid off or otherwise discharged from their jobs, the Labor Department said yesterday. That was down from 7.7 million in April and 11.5 million in March. May’s dismissals were in line with the numbers reported in January and February, before the pandemic shut swaths of the U.S. economy. Yesterday’s report showed hirings and the number of open jobs also rose in May from April, signs that the labor market was healing this spring. However, the 5.4 million openings in May were dwarfed by the 21 million Americans unemployed that month. “Layoffs and discharges are settling back to levels similar to those we saw before the virus, and hiring snapped back as employers recalled workers,” said Nick Bunker, an economist with job-search website Indeed. But employer demand for workers moving forward is depressed, he said, noting job openings are down 23 percent compared with February. The numbers, which reflect the job market through the last business day of May, are consistent with other measures showing that hiring picked up and layoffs eased late this spring. The data don’t capture the recent increase in COVID-19 cases in several states and related moves by governors to halt or reverse plans to reopen their economies. The separate monthly jobs report, released last week, showed U.S. employers added about 7.5 million jobs to payrolls in May and June, after losing 22.2 million in March and April.