Senator Warren Renews Attack on Private Equity’s Debt-Fueled Fallout

Senator Warren Renews Attack on Private Equity’s Debt-Fueled Fallout

October 21, 2021

ABI Bankruptcy Brief

Senator Warren Renews Attack on Private Equity’s Debt-Fueled Fallout​​​​​​

Dubious debts are back again after the pandemic, and Sen. Elizabeth Warren (D-Mass.) is renewing efforts to keep private-equity firms from forcing new loans on companies they own to extract dividends that they can’t afford, according to a Bloomberg analysis. Warren reintroduced legislation that would ban such payouts for two years after a company is acquired, a move that aims to reduce the risk that the business will collapse. The bill, which faces long odds in a closely divided Congress, would also ban outsourcing jobs over the same span, and if the company goes bust anyway, workers would get more priority for severance and other payments they’re owed. Under current bankruptcy law, employees often wind up near the back of the line behind lawyers, bankers, executives and creditors, with little left over for workers. “The abuses accelerated during the pandemic,” Sen. Warren said. She had tried before in 2019 without success to get enough support for her bill, which originally debuted following the collapse of retailers like Sports Authority, Shopko and Gymboree under the weight of buyout debt, and the failure of owners at defunct chains like Toys ‘R’ Us to provide for their workers. Whether the senator will get more traction this time isn’t clear. Warren, who sits on the Senate Banking Committee, has lined up several sponsors in her own chamber and in the House for her bill, with the unforgiving title of “Stop Wall Street Looting Act.” It’s likely to be opposed by Wall Street’s buyout and alternative-asset firms, which have billions of dollars in profits at stake and would be required to disclose more about their fees and returns, which some firms keep carefully guarded. ​​

Click here to read the bill text.

Legislation Aims to Address Bankruptcy Bonuses for Top Executives​​​​​​

Bonuses for executives of bankrupt companies have been commonplace for many years now, occurring either during a bankruptcy or shortly before a company files its chapter 11 petition. Now, politicians on both sides of the aisle have decided it’s time to rein that practice in, Reuters reported. A report from the Government Accountability Office in late September found that in fiscal year 2020, $165 million in bonuses was paid to 223 executives across 42 companies shortly before they filed for bankruptcy, and another $207 million in incentive bonuses was granted for 309 executives across 47 companies during their chapter 11 cases. Representative Cheri Bustos (D-Ill.) last week introduced legislation proposing to prevent executives of bankrupt companies who make more than $250,000 per year from receiving bonuses either during, or in the six months before, a bankruptcy. "These are folks who have in many cases driven their company to bankruptcy," Bustos said. "This bill doesn't do anything to their base salary. This is just saying that you don't deserve a bonus if your company has filed for bankruptcy." ​​

U.S. Unemployment Claims Fall to New Pandemic Low of 290,000​​​​​​

The number of Americans applying for unemployment benefits fell last week to a new low point since the pandemic erupted, evidence that layoffs are declining as companies hold on to workers, the Associated Press reported. Unemployment claims dropped 6,000 to 290,000 last week, the third straight drop, the Labor Department said Thursday. That’s the fewest people to apply for benefits since March 14, 2020, when the pandemic intensified. Applications for jobless aid, which generally track the pace of layoffs, have fallen steadily from about 900,000 in January. Unemployment claims are increasingly returning to normal, but many other aspects of the job market haven’t yet done so. Hiring has slowed in the past two months, even as companies and other employers have posted a near-record number of open jobs.​​

Commerce Department Announces First Round of Awards for American Rescue Plan Programs​​​​​​

The Commerce Department announced today that the first round of funding has been awarded to support communities after the pandemic using money from the American Rescue Plan, a sweeping COVID-19 relief bill that President Biden signed earlier this year, The Hill reported. The department announced that 24 states were awarded $1 million each in grants through an Economic Development Administration (EDA) program for planning initiatives aimed at tackling states’ recovery from the COVID-19 pandemic, creating jobs and supporting economic development. Other EDA programs that will distribute American Rescue Plan funding are focused on developing skills training programs, travel and tourism recovery and economic development in indigenous communities. In total, 59 states and territories are anticipated to receive $1 million grants through the program, with more grants expected to be awarded in the next few weeks and months.​​

Pandemic Fallout Could Slow U.S. Online Holiday Spending Growth​​​​​​

U.S. online holiday spending is expected to grow at its slowest pace in at least eight years, as product shortages, higher prices and lingering pandemic-related uncertainties threaten to put a strain on the shopping season, Reuters reported. Adobe Analytics forecast an average 10% growth or $207 billion in online sales in November and December, compared with a record 33% jump in 2020 when people chose to shop from home, instead of traveling to stores during the pandemic. After grappling with virus restrictions on stores for the better part of last year, retailers are now dealing with a slew of pandemic consequences, including a clogging of global supply chains that could lead to a shortage of everything from Nike shoes to Apple iPhones during the holiday quarter. The lack of clarity around what items could run out of stock, and when, is making it hard to determine whether product shortages could push consumers to shop more online or in-store, Adobe Digital Insights Lead Analyst Vivek Pandya said yesterday. ​​

Analysis: Supply-Chain Crisis Fuels Latest Retreat from Globalization​​​​​​

Nothing embodied the promise of globalization more than the humble supply chain. Thanks to the integration of production across and within borders, consumers have come to expect infinite variety, instantly available. That is now under siege, according to a Wall Street Journal analysis. The supply-chain crisis of 2021 is fueling the retreat from globalization, much as the global financial crisis of 2008 did. Three big forces are driving this latest crisis: COVID-19, climate and geopolitics. All have played a part in the semiconductor shortage that has crippled automotive production worldwide. COVID-19-driven demand for consumer electronics diverted chips from car makers, and virus-control measures interrupted production in Malaysia. Extreme weather idled chip factories in Texas and threatened to do the same in Taiwan. And U.S. tariffs and export bans ran down chip inventories in the U.S. while prompting hoarding by Chinese buyers, according to Chad Bown of the Peterson Institute for International Economics. Those forces also contributed to Britain’s energy crisis. COVID-19 and Brexit reduced the number of truckers available to deliver fuel, while a lack of wind reduced renewable power at a time when natural gas reserves were low. China’s economy has been tripped up by shutdowns intended to stamp out all COVID-19 outbreaks or meet carbon-reduction goals, and coal shortages were aggravated by a punitive ban on imports from Australia for demanding an inquiry into COVID-19’s origins. (Subscription required.) ​​

Register Today for CPEX21 and Immerse Yourself in the Future of Consumer Bankruptcy Practice, Student Loans, Mortgage Mediation and More!​​​​​​

Be sure to register today for ABI’s Consumer Practice Extravaganza (CPEX21), being held Nov. 1-12, during which leading practitioners will be examining key issues across the consumer bankruptcy landscape! Held on a state-of-the-art virtual platform, CPEX will feature five broad session tracks to ensure that there is something for every level of consumer practitioner, with deep dives into the future of bankruptcy, practice management, spotlights on key consumer issues, bankruptcy 101 and ethics. Watch a video from program co-chair David Leibowitz as he provides an overview of all the things to look forward to at the conference. 

CPEX will also feature a range of special “demo days” showcasing technology and money-saving tools especially designed for consumer practitioners, circuit-specific breakout sessions and plenaries, and networking with members of the consumer bench and bar. All for the registration price of only $100! Register here.

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New on ABI’s Bankruptcy Blog Exchange: How Climate Risk Is Already Creeping into Banking Policy

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

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