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4.4 Million Sought Unemployment Benefits Last Week

ABI Bankruptcy Brief

April 23, 2020

 
ABI Bankruptcy Brief
 
 
 
NEWS AND ANALYSIS

4.4 Million Sought Unemployment Benefits Last Week

More than 4.4 million Americans filed for unemployment benefits last week, according to the Labor Department, a signal the tidal wave of job losses continues to grow during the coronavirus pandemic, the Washington Post reported. It’s the fifth straight week that job losses were measured in the millions. From March 15 to April 18, 26.5 million people have probably been laid off or furloughed. The number of jobs lost in that brief span effectively erased all jobs created after the 2008 financial crisis. Jobless figures on this scale haven’t been seen since the Great Depression. The new weekly total comes on top of 22 million Americans who had sought benefits in previous weeks, a volume that has overwhelmed state systems for processing unemployment claims. Economists estimate the national unemployment rate sits between 15 and 20 percent, much higher than it was during the Great Recession in 2008 and 2009. The unemployment rate at the peak of the Great Depression was about 25 percent.

In related news, as millions file claims, many are poised to receive more money than they would have typically earned in their jobs, thanks to the additional $600 a week set aside in the federal stimulus package for the unemployed, the New York Times reported. That calculation is based on an analysis of the so-called replacement rate, which is the share of a worker’s wages that is replaced by unemployment benefits. Replacement rates for each state are determined by dividing the average unemployment payment by the average 40-hour-a-week salary of those who receive unemployment benefits. Ernie Tedeschi, a former Treasury Department official and an economist at Evercore ISI Research, combined the new stimulus relief with each state’s average unemployment payment at the end of 2019 to estimate how much their replacement rates would increase. The Massachusetts replacement rate will increase the smallest amount, he found, though it still doubles. Mississippi will have an 88 percentage point jump, meaning workers there earning an average wage will make roughly $130 more in benefits. These estimates, which reflect what tens of thousands of people around the country may now receive, come with caveats. As large portions of the economy remain closed because of the outbreak, rendering more than 26 million people without jobs in a matter of weeks, no one knows for sure how wages and benefits for those receiving unemployment might change as more people enter the ranks. A provision of the stimulus package, for example, allows part-time and self-employed workers who would normally not qualify for unemployment to receive benefits. That will alter the makeup of the typical pool of people filing claims, not to mention the average benefit paid out.

Commentary: Congress Will Need More than the CARES Act to Help Consumers Weather the COVID-19 Financial Crisis

The financial support for Americans within the CARES Act will unfortunately prove to be shockingly minimal, according to a recent essay by Profs. Pamela Foohey, Dalié Jiménez and Christopher K. Odinet. The direct payments represent a fraction of the average American households’ monthly budget. It also quickly became apparent that the payments were unlikely to reach most people within any sort of useful time frame, and that once they did, they could be garnished immediately by debt collectors and even banks themselves. The unemployment benefits, while providing people with more money over several months, required that people be laid off and similarly were unlikely to reach people quickly enough to be effective. People’s wages decreased at the exact time they were spending more money to stock up on supplies. The CARES Act promised to send people small checks and augment unemployment benefits. Americans very soon began to discover that these promises would do little to help them survive the coming months of financial and social upheaval. It has also become quickly apparent to lawmakers that Congress will need to pass at least one additional stimulus package. And with projections that the pandemic could last for 12 to 18 months, it seems that Congress may have several more opportunities to craft legislation that actually will help American families survive the pandemic. This legislation must provide people with true funding to stay current with their minimum necessary expenses as these expenses are incurred. If done right, helping individuals will cost the government more than $2 trillion next time, and the time after that, and possibly the time after that. And, if done right, it will be worth every penny, according to the essay.



 

Getting a Mortgage-Payment Break Isn’t the Boon Many Expected

A government effort to give Americans a break on their mortgage payments during the coronavirus pandemic hasn’t provided the relief many homeowners were hoping for, the Wall Street Journal reported. The stimulus package that Congress passed in March allows homeowners with federally backed loans to suspend monthly payments for up to a year without penalty if they face financial hardship. But the law doesn’t specify what happens after the so-called forbearance period ends. Many borrowers say they are being told they will have to make lump-sum “balloon” payments. The situation is causing extra anxiety for U.S. households dealing with job losses and the struggles of life under lockdown. If mortgage servicers follow through with demands for lump-sum payments, borrowers could be pushed into default, damaging their creditworthiness and compounding the financial pain inflicted by the downturn. The coronavirus relief package passed by Congress created no mechanism to test whether homeowners face financial hardship and left servicers on the hook for payments skipped by borrowers during the forbearance period.


 

U.S. Treasury Says It Will Be Hard for Public Companies to Qualify for Coronavirus Relief Loans

A highly valued public company will have a hard time getting a coronavirus relief loan, the U.S. Treasury said today, just as Congress was poised to approve a new round of funding for the loans known as the Paycheck Protection Program, Reuters reported. “It is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith,” the Treasury said in an updated list of Frequently Asked Questions on the program. Public outcry has erupted over major chain restaurants being able to take out the forgivable loans in the first round of lending this month. Treasury Secretary Steven Mnuchin warned yesterday that companies that received the rescue money intended for small businesses could be investigated. He told Fox Business Network it was “questionable” whether larger firms had qualified for loans based on a self-certification step in the application process. The FAQ made it clear that the Treasury is looking hard at the step in which a small business “must certify in good faith that their PPP loan request is necessary.” “Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that ‘current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant,’” it said. The U.S. Senate has approved another $310 billion in funding for the loans, with the House of Representatives set to pass it later today.

Global Economy Hit by Record Collapse of Business Activity

Business activity in the U.S., Europe and Japan collapsed in April as governments tightened restrictions on movement and social interaction aimed at limiting the spread of the coronavirus, according to surveys of purchasing managers, the Wall Street Journal reported. The surveys, released today, suggest that governments have effectively closed parts of the economy where face-to-face interaction is unavoidable—such as restaurants and barbers—and activity has tumbled in parts of the economy less directly affected. The drop in services-sector activity is unprecedented in the history of the surveys, even in the wake of the global financial crisis. Manufacturing activity is also contracting, though not quite as severely. According to data firm IHS Markit, the composite Purchasing Managers Index for the U.S. — a measure of activity in the private sector — fell to 27.4 in April from 40.9 in March. A reading below 50.0 indicates that activity has fallen, and the lower the figure, the larger the fall. The April reading was the lowest in data dating back to October 2009.

The Death of the Department Store: ‘Very Few Are Likely to Survive’

American department stores, once all-powerful shopping meccas that anchored malls and Main Streets across the country, have been dealt blow after blow in the past decade. J.C. Penney and Sears were upended by hedge funds. Macy’s has been closing stores and cutting corporate staff. Barneys New York filed for bankruptcy last year. But nothing compares to the shock the weakened industry has taken from the coronavirus pandemic. Sales of clothing and accessories fell by more than half in March, a trend that is expected to only get worse in April. The entire executive team at Lord & Taylor was let go this month. Nordstrom has canceled orders and put off paying its vendors. The Neiman Marcus Group, the most glittering of the American department store chains, is expected to declare bankruptcy in the coming days, the first major retailer to be felled during the current crisis. “The department stores, which have been failing slowly for a very long time, really don’t get over this,” said Mark A. Cohen, the director of retail studies at Columbia University’s Business School. At a time when retailers should be putting in orders for the all-important holiday shopping season, stores are furloughing tens of thousands of corporate and store employees, hoarding cash and desperately planning how to survive this crisis. The specter of mass default is being discussed not just behind closed doors but in analysts’ future models. Whether or not that happens, no one doubts that the upheaval caused by the pandemic will permanently alter both the retail landscape and the relationships of brands with the stores that sell them.

Hard-Hit Restaurants, Gyms and Other Businesses Are Battling Insurers over COVID-19 Shutdown

A multibillion-dollar standoff between the nation’s leading insurers and the restaurants, hotels, gyms and theaters that purchase their policies has spilled into some of the most powerful corridors of Congress, as both sides clash over who should foot the sky-high costs of the coronavirus outbreak, the Washington Post reported. The battle hinges on whether insurance providers should have to pay claims to companies that have shuttered unexpectedly as a result of the deadly pandemic. The dispute has attracted the attention of President Trump, triggered lawsuits in courtrooms nationwide and touched off a massive lobbying blitz on Capitol Hill, where some insurers say the federal government instead should be the one providing financial help to those that need it most. The industry’s powerful lobbyists, led by the American Property Casualty Insurance Association (APCIA), say “business interruption” policies never were intended to cover contagions. Even if they had been, the estimated claims just from small businesses during the coronavirus pandemic could total more than $430 billion a month, threatening to create a “solvency event” for the industry, said David A. Sampson, the group’s chief executive. But business executives who have paid their premiums for years say they have been misled — and now face dire financial straits without the aid they believe they were promised. Some have sought federal aid in response: Prominent restaurateurs including Wolfgang Puck, for example, have raised the issue directly with Trump in recent days. The problem has taken on even greater urgency because of growing confusion about who qualifies for federal coronavirus aid, given changing government guidelines — and fast-dwindling funds.

Businesses Strive to Reopen from Coronavirus Shutdown

As America’s attention turns to reopening its economy, many businesses are deploying a range of tactics to attempt to shield their workforces from the coronavirus. For the most part, they are making it up as they go, the Wall Street Journal reported. With no single standard or clear-cut road map, safety procedures and implementation vary widely, particularly on how to handle confirmed COVID-19 cases in the workplace. Pepsi-Cola bottling plants in New York are giving factory workers surgical masks and checking their temperatures at the door. A rival Coca-Cola bottler has given employees thermometers to monitor themselves and red bandannas as face covers at work. Testing employees for the virus before they come to work has also emerged as a potential solution for businesses looking to better track the outbreak. But executives say that there are still many hurdles to widespread deployment, including whether enough tests can be secured and workers will agree to take them. Businesses that never closed their facilities because they were deemed essential are on the forefront of these ad hoc efforts — with vastly mixed results and constant changes. Others, such as many major car makers, plan to reopen factories in coming weeks. The patchwork approach to safety is creating tensions with unions and debate over whether some companies are doing enough to protect workers. Some employees in recent weeks have walked off the job, saying their workplaces were putting them at risk. (Subscription required.)

ABI's GlobalInsolvency Webpage Features Global Responses to Limit the Economic Impact of COVID-19 Pandemic

Learn about the ongoing measures being taken around the world to limit the economic impact of the COVID-19 pandemic. GlobalInsolvency members have compiled insights into fiscal, monetary & macro financial, health policy and global cooperation/international assistance measures undertaken to date. Click here to view the COVID-19 Global Response page.

Upcoming abiLIVE Webinars Examine Trading in the Secondary Markets, Litigation Finance and the Nuts and Bolts of Subchapter V for Small Businesses

ABI will host a number of abiLIVE webinars over the next two weeks looking at key issues for practitioners amid the economic downturn due to the COVID-19 pandemic. Expert panels include:

• Hosted by the ABI Claims Trading Committee, "Trading in the Secondary Credit Markets: When Am I Bound?" on April 29 features attorney Richard Corbi (New York) moderating a panel including David Daniels of Richards Kibbe Orbe (Washington, D.C.), Jennifer Pastarnack of Sullivan and Worcester (New York) and Amanda Segal of Katten (New York). Click here to register for free.

• The "Litigation Finance: Lessons from the Last Financial Crisis for the COVID-19 Downturn" webinar on May 6 will feature Eric Fisher of Binder & Schwartz (New York), Marc Kirschner of Goldin Associates, LLC (New York), Cathy Reece of Fennemore Craig PC (Phoenix, Ariz.) and Emily Slater of Burford Capital (New York). Click here to register for free.

• Sponsored by ABI's Consumer Bankruptcy Committee, the "Understanding the Nuts and Bolts of ‘New’ Subchapter V Small Business Chapter 11" webinar on May 7 will feature Committee co-chair Jon Lieberman of Sottile & Barile (Loveland, Ohio) moderating a panel including James B. Bailey of Bradley Arant Boult Cummings LLP (Birmingham, Ala.), Bankruptcy Judge Paul W. Bonapfel (N.D. Ga.; Atlanta) and Judith Greenstone Miller of Jaffe Raitt Heuer & Weiss, P.C. (Southfield, MI). Click here to register for free.

• The "Update Your Chapter 12 Skills" webinar on May 20 will be hosted by ABI's Legislation Committee and feature Bankruptcy Judge Robert L. Jones (N.D. Tex.; Lubbock), Joseph A. Peiffer of AG & Business Legal Strategies (Cedar Rapids, Iowa) and Ronda J. Winnecour, Office of the Chapter 13 Trustee (Pittsburgh). Click here to register for free.

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BLOG EXCHANGE

New on ABI’s Bankruptcy Blog Exchange: State Attorneys General Urge FHFA, HUD to Expand Mortgage Payment Help

A bipartisan coalition of AGs said homeowners should be allowed to wait until the end of a loan term to make payments they skipped because of the coronavirus, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

 
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