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Bankruptcy Headlines

Democrats Crafting New $2.4 Trillion Stimulus Bill to Spur Talks

House Democrats have started drafting a stimulus proposal of roughly $2.4 trillion that they can take into possible negotiations with the White House and Senate Republicans, according to House Democratic officials, Bloomberg News reported. The bill could get passed by the House next week. While smaller than the $3.4 trillion package the House passed in May, it remains much larger than what Senate Republicans have said they could accept. President Donald Trump has indicated he’d be willing to go as high as $1.5 trillion. “When you are talking about $2.2 trillion and $1.5 trillion you are in deal-making territory” said Representative Dan Kildee (D-Mich.). House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer had earlier pressed the White House for a $2.2 trillion package. As the top-line figure remains well above what the Trump administration has favored, the new House bill may do little on its own to resolve the impasse in talks that’s persisted since August. Senate Republicans have been unable to coalesce around an earlier $1 trillion proposal, and instead backed a $650 billion plan that ended up getting blocked by Democrats as insufficient. The bill adds to the previous $2.2 trillion Pelosi-Schumer plan with help for the U.S. airline industry to avert massive job losses, which could start Oct. 1 when restrictions expire from a prior round of federal assistance. Also included is small-business aid and a bailout for restaurants.

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Commentary: Bankruptcies and Startups Tell Unusual Tale in COVID-19 Recession

As measured by employment and gross domestic product, the recession brought on by the COVID-19 pandemic has been the deepest since the Great Depression, according to a Bloomberg News commentary. Going by Bloomberg’s Corporate Bankruptcy Index, though, it’s a standard-issue downturn, nowhere near as bad as the recession of just over a decade ago. This index, which was heavily affected by a few large bankruptcies in 2008 and 2009 (Lehman Brothers, Washington Mutual, General Motors, CIT Group), is definitely not the only way to measure bankruptcy activity. Edward Altman, an emeritus professor at New York University’s Stern School of Business, favors counting the number of bankruptcies with liabilities of more than $1 billion, of which he says there have been 50 so far this year, breaking 2009’s full-year record of 49. Then again, the total number of business bankruptcies is actually down, according to the commentary. Federal courts data show business filings in the second quarter of this year (April through June) to be the lowest in more than a decade and nearly the lowest in four decades. Only the first two quarters after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect, raising the bar for both business and consumer filings, saw fewer. Trillions of dollars of aid from Congress and the Federal Reserve have clearly played a role here, as has the mostly exuberant state of financial markets (which is not unrelated to all that aid from the government), according to the commentary. U.S. corporate bond issuance through the end of August totaled $1.73 trillion, according to the Securities Industry and Financial Markets Association, breaking the full-year record of $1.67 trillion set in 2017. During the last recession, bond issuance fell 38 percent from 2007 to 2008. This year to date, it’s up 83 percent. Although that channel of financing has not been available to smaller businesses, many of them have been able to avail themselves of the government’s Paycheck Protection Program. Personal bankruptcies are down, too, with chapter 7 and chapter 13 filings through August of this year 27 percent lower than over the same period in 2019. On the whole, those with family incomes of $40,000 or less surveyed by the Federal Reserve reported being in slightly better financial shape in July than before the pandemic, according to the commentary. With additional federal help looking less and less likely before November’s election, and the economy showing some signs of stalling from its rapid early-summer rebound, these positive trends won’t necessarily persist. “Once the government and Fed stimuli end, I feel there will be a spike in all bankruptcies,” Altman predicts.

*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.

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Publicly Traded Firms Paid Dividends, Bought Their Own Stock after Receiving PPP loans to Pay Employees

Some publicly traded companies that received taxpayer-backed small business loans to pay their employees during the early weeks of the pandemic paid out millions to Wall Street investors in dividends and share buybacks, publicly available financial disclosures reviewed by the Washington Post show. Under the Small Business Administration rules, a PPP loan could be used only to meet payroll and pay mortgage interest, leases or utility bills. PPP loan recipients weren’t prohibited from paying investors with other funds, as long as the PPP funds were kept separate. Still, some advocacy groups believe companies that had enough cash on hand to pay millions in dividends and stock purchases were unlikely to qualify for the PPP program, which was designed to assist troubled companies in keeping employees on the payroll during weeks when they were unable to do business because of pandemic-related lockdowns. The issue of whether some undeserving businesses received PPP loans has arisen previously when it became known that scores of publicly traded companies received millions of dollars in loans, even though they had access to other sources of capital. The SBA’s initial rules allowed for businesses to self-certify that “current economic uncertainty” made the loan “necessary to support the ongoing operations of the applicant.” But in late April, after the news broke that many publicly traded companies had received loans, the SBA said firms with access to capital elsewhere were “unlikely” to qualify and asked that the loans be returned. Some returned the money, but many did not (SBA and Treasury officials have declined to say exactly how many did so).

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Mnuchin, Powell Say Nearly $380 Billion in Unused Aid Could Help U.S. Economy

As much as $380 billion from the U.S. Congress’ last big coronavirus aid package is unused and could help households and businesses if lawmakers approve, Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin said yesterday, Reuters reported. That is far short of the $500 billion to $1 trillion many economists had expected in new fiscal stimulus for the flagging recovery. But rising tensions between Republicans and Democrats have made a new relief package ahead of the Nov. 3 election look increasingly unlikely. The unused money, authorized by Congress in March as part of a $2.3 trillion aid package but not yet spent, could go a long way to tide over businesses and keep people who have lost work from losing their homes. The Treasury still has $200 billion in unused funds earmarked to backstop emergency programs launched by the U.S. central bank after the coronavirus outbreak, Mnuchin said.

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Noble Settles Multibillion-Dollar Suit Over Paragon Spinoff

Noble Corp., an operator of offshore oil-and-gas drilling rigs, has settled multibillion-dollar litigation over its 2014 spinoff of Paragon Offshore PLC, a critical step in Noble’s path to exiting bankruptcy, WSJ Pro Bankruptcy reported. The settlement with a trust that benefits Paragon creditors sets up two options: Noble will either pay $10 million as part of a global settlement of the litigation or it will pay $7.5 million to resolve only the claim against the company and its affiliates, while allowing the lawsuit to proceed against insurance carriers covering its current and former directors and officers, according to papers filed Wednesday in the U.S. Bankruptcy Court in Houston. With a settlement in hand, Noble said it is well positioned to move ahead with a chapter 11 plan that cuts its debt and preserves about 1,600 jobs “during remarkably turbulent economic times.” The trust set up to represent Paragon creditors was seeking more than $2.6 billion in damages, accusing Noble of loading Paragon with old rigs and an unsustainable amount of debt before spinning it off. Paragon filed for chapter 11 protection less than two years after the spinoff. London-based Noble, which has denied the allegations, said the settlement is “exceptionally favorable” to Paragon and its creditors while avoiding the time and expense of a trial over the spinoff.