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U.S. Congress Eyes Next Steps in Coronavirus Response

Three days after passing a $2.2 trillion package aimed at easing the heavy economic blow of the coronavirus pandemic, the U.S. Congress was looking on Monday at additional steps it might take as the country’s death toll approached 3,000, Reuters reported. Democrats who control the House of Representatives were discussing boosting payments to low- and middle-income workers, likely to be among the most vulnerable as companies lay off and furlough millions of workers, as well as eliminating out-of-pocket costs for coronavirus medical treatment. House Speaker Nancy Pelosi (D-Calif.) said that she would work with Republicans to craft a bill that could also provide added protections for front-line workers and substantially more support for state and local governments to deal with one of the largest public health crises in U.S. history. Pelosi said that she did not expect new legislation to be completed until sometime after Easter, which is on April 12.

Commentary: Bankruptcy Law Needs a Boost for Coronavirus*

The bankruptcy system is not well-designed for a complete economic shutdown, according to a Wall Street Journal commentary by Profs. David Skeel of the University of Pennsylvania Carey Law School and Kenneth Ayotte of the UC Berkeley School of Law. Corporate reorganization depends on experienced lawyers and judges to manage its complexity, and these professionals are in limited supply. The system could easily be overwhelmed if entire industries file for bankruptcy. Absent federal assistance, corporate debtors might also be unable to obtain the funding they need to maintain their operations and protect current jobs during the case. By providing cash to companies that suddenly have no liquidity, Mnuchin may enable some to avoid bankruptcy altogether. Treasury could also adapt its administration of chapter 11 to suit the current crisis, much as the government helped transform auto companies into the “arsenal of democracy” during World War II. Mnuchin could encourage some companies to file “pre-packaged” bankruptcies that write down only the company’s largest obligations and can be approved by a bankruptcy judge in as few as 30 days. With larger companies, Mnuchin could make bankruptcy a condition of receiving a federal loan. Because bankruptcy enables an “automatic stay” on a company’s debt payments, it would provide more relief than a loan or grant outside bankruptcy. Temporary debt relief would buy companies time to sell assets and minimize their need for taxpayer support. Unfortunately, a curious provision in the CARES Act discourages regulators from making loans to “medium sized” companies with between 500 and 10,000 employees if they are in bankruptcy. Ideally, this provision would be removed or replaced with new language that allows loans to any company in bankruptcy. But as it stands, the provision wouldn’t prevent a loan followed by a subsequent pre-packaged bankruptcy.

*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.

St. Louis Fed: Unemployment Could Top 32 Percent as 47 Million Workers Are Laid Off Amid Coronavirus

The unemployment rate in the U.S. could reach a staggering 32.1 percent in the second quarter as 47 million workers are laid off amid the coronavirus outbreak, according to estimates published in a blog by the Federal Reserve Bank of St. Louis, USA TODAY reported. That would be the highest jobless rate on records dating to 1948 and easily top the 25 percent rate during the Great Depression. “These are very large numbers by historical standards, but this is a rather unique shock that is unlike any other experienced by the U.S. economy in the last 100 years,” St. Louis Fed economist Miguel Faria-e-Castro wrote in the blog. Millions of Americans already have been laid off as states and localities shut down nonessential businesses and Americans avoid public gathering spots to contain the spread of the virus. About 3.3 million people filed for unemployment benefits for the first time during the week ending March 21, reflecting layoffs in the economy. The latest unemployment estimate is even worse than the 30 percent jobless rate St. Louis Fed President James Bullard projected earlier in March. Faria-e-Castro says he arrived at his figures by combining data in two other blogs by his colleagues at the St. Louis Fed. One estimates that 66.8 million Americans work in occupations at a high risk of a layoff, including sales, production and food preparation and services.

U.S. Retail Crisis Deepens as Hundreds of Thousands Lose Work

Macy’s and Gap said yesterday that they planned to furlough much of their work forces, a stark sign of how devastating the coronavirus will be for major retailers and their workers who sell clothing, accessories and other discretionary goods, the New York Times reported. Macy’s, which said the cuts would affect the “majority” of its 125,000 workers, lost most of its sales after the pandemic forced it to close stores. Gap, which also owns Old Navy and Banana Republic, said it would furlough nearly 80,000 store employees in the United States and Canada. The announcements followed similar actions by other name-brand chains with products considered nonessential. When a national emergency was declared earlier this month, a number of retailers announced stores would close but vowed to keep offering pay and benefits to employees for at least two weeks. As the odds of reopening stores quickly became increasingly unlikely, many extended workers’ pay into April. But now, it appears the money is drying up. A large part of the retail industry that is not involved in selling groceries, toilet paper or disinfectant simply has very little cash coming in. L Brands, which owns Victoria’s Secret and Bath & Body Works, said it would furlough most store staff and “those who are not currently working to support the online businesses or who cannot work from home” starting April 5. Nordstrom said last week that it would furlough “a portion of corporate employees” on April 5 for six weeks. Buzzy start-ups are also under pressure: Rent the Runway laid off its retail employees through a call via Zoom on Friday, while Everlane laid off or furloughed nearly 300 of its workers.

Small-Business Loans Expected to Start Friday, Mnuchin Says

Treasury Secretary Steven Mnuchin said he expects details will be released soon on how small businesses disrupted by the coronavirus pandemic can tap a new loan program Congress passed last week, the Wall Street Journal reported. The roughly $2 trillion economic relief package President Trump signed into law on Friday includes nearly $350 billion in loans for companies with fewer than 500 employees, which will be administered by the Small Business Administration. Mnuchin said in an interview with Fox Business Network that he expected the loans to be available starting Friday, “which will be at lightning speed.” He said the Treasury Department that hoped to release documents and instructions soon on how businesses can apply for the funds. Small-business owners can go to any of the existing SBA lenders, as well as any FDIC-insured institution, credit union or financial-technology lender that has signed up for the program, he said.

Pressure Mounts on Insurance Companies to Pay Out for Coronavirus

Lawmakers and regulators are pressuring insurers to go beyond the legal language of policies to get cash to Americans amid the mounting cost of shutdowns from the coronavirus pandemic, the Wall Street Journal reported. In at least three states, lawmakers have proposed legislation to force insurers to pay billions of dollars for business losses tied to government-ordered shutdowns. In other states, regulators are pushing insurers to expand coverage under personal-car policies to also cover certain commercial activity, such as delivery of takeout meals by owners and employees of restaurants that are struggling to survive bans on dine-in eating. Some regulators have declared moratoriums on cancellations and nonrenewals of policies. And some are urging car insurers to lower people’s bills. These states note that policyholders now working from home don’t have the commutes they used to and thus aren’t on the roads as much. This push comes despite specific contractual exclusions in most standard policies for claims stemming from viruses. As a result, some insurers are threatening court challenges over these efforts to rewrite policies and provide benefits that weren’t priced in. “If elected officials or courts require payment for perils that were excluded and for which no premium was ever collected, catastrophic results are likely to occur and we may deal with a second crisis: insurance insolvencies and impairments,” said Charles Chamness, president of trade group National Association of Mutual Insurance Companies. While insurers are pushing back hard on some fronts, they are accommodating in other areas. Allstate Corp., Berkshire Hathaway Inc.’s Geico, Hartford Financial Services Group Inc., Liberty Mutual Insurance, Progressive Corp., Travelers Cos. and USAA are among insurers that have extended deadlines, waived fees or taken other steps to help people avoid cancellations for nonpayment. Some also are approving the use of personal vehicles for food and other essential deliveries.