GAO: Enhanced Authority Could Strengthen Oversight of Executive Bonuses Awarded Before a Bankruptcy Filing​​​​​​

While the Bankruptcy Code restricts executive retention bonuses during bankruptcy, a U.S. Government Accountability Office review of FY 2020 data showed that some debtors may be working around the Code's restrictions by paying these bonuses prior to filing. Based on court dockets for the approximately 7,300 companies that filed for chapter 11 bankruptcy in fiscal year 2020, the GAO found the following:

- Less than 1 percent (70) of debtors requested court approval to pay employee bonuses, and the courts approved nearly all the requests.
- Debtors awarded around $571 million to more than 16,600 executive and non-executive employees through court-approved bonuses.
- Creditors or U.S. Trustees (who administer and monitor chapter 11 cases) raised objections in 50 percent of all bonus requests, including 68 percent of executive incentive bonus requests, which frequently led debtors to modify their plans (for example, by lowering bonus amounts).
- None of the debtors requested court approval for executive retention bonuses during bankruptcy; 42 debtors awarded pre-bankruptcy retention bonuses — totaling about $165 million — from 5 months to 2 days before filing.

According to some attorneys the GAO interviewed, Section 503(c) makes it nearly impossible to award executives retention bonuses during bankruptcy, so debtors use pre-bankruptcy bonuses as a workaround. As noted above, the GAO found that none of the 7,300 chapter 11 debtors that filed in fiscal year 2020 requested executive retention bonuses during bankruptcy but 42 awarded such bonuses shortly before filing. This practice may undermine § 503(c)'s restrictions and decrease the ability of creditors, U.S. Trustees, and the courts to prevent bonuses that are inconsistent with the section's requirements. The GAO is recommending that Congress amend the Code to bring pre-bankruptcy bonuses under court oversight and specify factors the court should consider before approving them. ​​

While Some Warned of Immediate Eviction ‘Tsunami,’ Experts Caution on Timing of Distress​​​​​​

When the Supreme Court decided to strike down a federal ban on evictions in August, lawmakers and housing experts mentioned a slew of devastating metaphors — cliff, tsunami, tidal wave — to describe the national eviction crisis they saw coming. One month later, however, many of those same authorities find themselves wondering: Where is the cliff? In major metropolitan areas, the number of eviction filings has dropped or remained flat since the Supreme Court struck down the Centers for Disease Control and Prevention’s moratorium on Aug. 26, according to experts and data collected by the Eviction Lab at Princeton University, the Washington Post reported. In cities around the country, including Cleveland, Memphis, Charleston and Indianapolis, eviction filings are well below their pre-pandemic levels. Housing and eviction experts offered a mix of guesses about why an expected onslaught of evictions has not yet materialized, including that the wave could still be coming. The pace at which courts handle cases varies widely across the country, and some courts may be severely backlogged. In some regions of the country, the federal eviction moratorium did little to slow filings amid the pandemic, and in other areas protections are in place. Some tenants may have also moved on their own to avoid an eviction. Housing experts don’t believe the country has solved its eviction issues, and there are still places where evictions have risen since the ban ended. Filings have surpassed their pre-pandemic levels in Gainesville, Fla., and have come close in Cincinnati and Jacksonville, Fla. Still, the overall picture has confused experts who had grim warnings for the looming crisis once the federal ban was no longer in place. Those same experts are hesitant to say the wave won’t come. After all, recent Pulse Survey data by the Census Bureau suggests that some 3 million households have reported concerns of imminent eviction. “I think it’s too early to declare decisively that this isn’t happening,” said Peter Hepburn, a research fellow at the Eviction Lab, which tracks cases in 31 cities and six states around the country. “This may not take the form of a sudden spike in eviction cases all at once. It may be something that’s much more delayed and diffuse.” ​​

Rents Are Increasing at ‘Shocking’ Rates of More than 10%​​​​​​

Rent data for the past two months show no signs yet of the usual seasonal dip at this time of year, following peaks early in the summer, when many lease renewals come due, Bloomberg News reported. A Zillow Group Inc. index based on the mean of listed rents rose 11.5% in August from a year earlier, with some cities in Florida, Georgia and Washington state seeing increases of more than 25%. “To have double-digit rent growth over the course of a year and a half is a shocking level of growth, especially considering the vast majority of it has come in the last 9 months,” according to a Zumper National Rent report. Since the start of the pandemic, the median rent for a two-bedroom apartment has soared 13.1% to $1,663, Zumper data show. ​​

U.S. Unemployment Claims Increase for Third Straight Week to 362,000​​​​​​

The Labor Department said today that the number of Americans applying for unemployment benefits increased for the third straight week as claims rose by 11,000 last week to 362,000, the Associated Press reported. The four-week moving average of claims, which smooths out week-to-week ups and downs, rose for the first time in seven weeks to 340,000. Since topping out at 900,000 in early January, applications had fallen fairly steadily as the economy bounced back from last year’s shutdowns. But they’ve been rising along with coronavirus infections. America’s employers have rapidly increased their hiring since they slashed 22 million jobs in March and April 2020 as the coronavirus outbreak — and the shutdowns meant to contain it — brought economic activity to a near-standstill. Since then, the economy has recovered about 17 million jobs as businesses open or expand hours and Americans return to bars, restaurants and hotels. But hiring, which has averaged more than 585,000 jobs a month this year, slowed to just 235,000 in August as the delta variant disrupted the recovery. Restaurants and bars cut nearly 42,000 jobs last month, the first drop this year. Hiring is expected to pick up to more than 560,000 this month; the Labor Department issues the September jobs report next week. Altogether, 2.8 million Americans were receiving some type of jobless aid the week of Sept. 18, down by 18,000 from the week before. Earlier this month, the federal government stopped additional aid — including $300 a week on top of traditional state benefits — that was meant to ease the economic impact of the pandemic.​​

Analysis: How Global Supply Chains Are Falling Out of Fashion​​​​​​

Fashion brands like Benetton are increasingly turning away from globe-spanning supply chains and low-cost manufacturing hubs in Asia, in a shift that could prove a lasting legacy of the COVID-19 pandemic, Reuters reported. Italy's Benetton is bringing production closer to home, boosting manufacturing in Serbia, Croatia, Turkey, Tunisia and Egypt, with the aim of halving production in Asia from the end of 2022, Chief Executive Massimo Renon told Reuters. Renon gave some insight into the economics driving a trend affecting much of the industry as strained supply lines have driven up shipping costs and times, undermining a business model that's proved popular for the past 30 years. "It's a strategic decision to have more control on the production process and also on transport costs," he said, adding that the group had already shifted more than 10% of output out of countries like Bangladesh, Vietnam, China and India this year. The tenfold jump in sea freight costs has been driven by a scarcity of available vessels, as many were idled during the pandemic, coupled with rebounding consumer demand, said Renon, whose company makes most of its sales in Europe but has been shifting production to lower-wage countries since the early 2000s. This shipping quandary is roiling several companies in the clothes, and wider consumer, industry. Hugo Boss is also looking to bring manufacturing operations closer to its markets, for example, while more immediately Lululemon, Gap and Kohl's say they'll rely more heavily on far costlier air freight to avoid running out of stock during the holiday season. ​​

Selling Homes Privately, via ‘Pocket Listings,’ Is on the Upswing​​​​​​

Pocket listings, the practice of brokers selling a home through private networks rather than on the open market, have skyrocketed throughout the pandemic, the New York Times reported. One analysis from Redfin put the increase at 67 percent, and in some markets, it’s estimated that as many as 20 percent of all listings are now available only to buyers with the connections to hear about them in the first place. Brokers and buyers alike credit these secret listings with offering a leg up in a lopsided market where demand far outstrips supply. But detractors say they aggravate inequalities in a housing market already plagued by racial and socioeconomic disparity. Pocket listings have become so commonplace that in November 2019, the National Association of Realtors prohibited the practice for its 1.5 million members, who represent about three quarters of active real estate agents in the U.S. But violators must be reported by their peers and are generally subject to only small fines. The national association now requires its member brokers to publish all properties on its multiple listing service (MLS) within 24 hours of publicly marketing them in any way, but loopholes abound. The association does not enforce the ban; they leave it to local broker organizations to identify offenders and set penalties. And agents are still permitted to circulate listings privately within their own brokerage, or market properties as “coming soon.”​​

Don't Miss the ABI Strategies and Perspectives Webinar "Anatomy of the Hertz Chapter 11" on October 14!​​​​​​

Industry leaders are coming together on a special ABI Strategies and Perspectives webinar to discuss how they facilitated the Hertz chapter 11, one of the largest chapter 11 bankruptcies in recent years, during the pandemic, resulting in a successful exit from chapter 11 and restructuring. The interactive discussion — moderated by Bloomberg Law — will include Katherine Bologna, the asset-based securitization lender; Amy Caton, counsel to the Official Committee of Unsecured Creditors; Bill Derrough, the lead investment banker; and Thomas Lauria, counsel for Hertz. This highly skilled group of professionals will discuss their strategies, how they employed aggressive, nontraditional steps to maximize the value of the company and the return to creditors, and how negotiation was of utmost importance. Click here for complimentary registration!

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