Bankruptcy Brief

Lawmakers Race to Finish $900 Billion Covid-19 Aid Package

ABI Bankruptcy Brief

December 17, 2020

 
ABI Bankruptcy Brief
 
 
NEWS AND ANALYSIS

Lawmakers Race to Finish $900 Billion Covid-19 Aid Package

Lawmakers and the White House face a rapidly approaching deadline to wrap up negotiations on another coronavirus relief bill, racing today to complete the details of the roughly $900 billion package and pass it through Congress before the end of the week, the Wall Street Journal reported. Top Republicans and Democrats are closing in on a relief package that would send another direct check to many Americans, enhance unemployment benefits, provide aid to small businesses and fund the distribution of the Covid-19 vaccine, among other measures. Because they are planning to approve a relief bill alongside a broad government spending package, they are sprinting to finish the relief bill before current government funding expires at 12:01 a.m. Saturday. Forms of unemployment assistance and other relief measures will expire in the coming weeks without congressional action. As of yesterday, lawmakers were still discussing the duration of a $300 weekly boost to unemployment benefits and whether to include $90 billion in emergency aid for the Federal Emergency Management Agency. But negotiations on a long-discussed relief package eased this week when Republicans and Democrats dropped the two most contentious issues from the proposed package: aid for state and local governments, and enhanced liability protections for businesses, schools and health care providers.(Subscription required.)



In related news, ABI yesterday sent a letter to congressional leadership requesting Congress to make it clear in any future amendments or legislation addressing Paycheck Protection Program (PPP) funding that debtors who have filed bankruptcy cases remain eligible for PPP loans, notwithstanding their respective bankruptcy filings. “ABI is not advocating that Congress mandate PPP assistance to any particular borrower, or category of borrowers, in a case pending under the Bankruptcy Code,” ABI Executive Director Amy Quackenboss writes in the letter. “However, it is imperative that bankruptcy debtors remain eligible for PPP funding if they otherwise satisfy the borrowing requirements. PPP funding may facilitate a successful reorganization under the Bankruptcy Code, and it certainly facilitates the PPP’s goals, which include the preservation of paying jobs.” Click here to read ABI’s letter.

Commentary: Bankruptcy Is the Solution to the Student Loan Crisis*

To understand why we have a student loan crisis — and with $1.6 trillion in outstanding student debt, it surely is a crisis — just look at the Bankruptcy Code, according to a Bloomberg commentary. In 1965, Congress passed the Higher Education Act, part of President Lyndon Johnson’s Great Society. On the one hand, the new law established federal grants and loan programs to ease the monetary burden of attending college, especially for disadvantaged students. On the other hand, the bill included rules that made it difficult to discharge a federal student loan in bankruptcy. Over the next four decades, Congress added additional restrictions that made it not just difficult but impossible to shed a federal student loan, no matter how dire a borrower’s circumstances. In 2005, Congress crossed the final frontier: It added privately issued student debt to its no-discharge list. Nearly one out of five former students is in default, according to the Pew Research Center. The student loan burden has been debilitating for millions of people who had hoped that taking on that debt would lead to a better life, only to discover that, for one reason or another, it didn’t. But there is another largely unacknowledged consequence of outlawing the discharge of student loans in bankruptcy: It ushered in a lot of moral hazard, according to the commentary. The student loan industry is built on a similar premise that caused the subprime housing bubble, when brokers sold homes to anyone, knowing that their firms would offload the loans to Wall Street, so they didn’t care whether the borrowers would ever repay the money, according to the commentary. While student loan forgiveness legislation has been floated, the commentary advocates for passing a law that allows student loans to be included in a bankruptcy filing as an obvious compromise. It doesn’t give either side everything it wants, but it gives each of them enough to make it an acceptable solution.



*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.

Jobless Claims Increase for the Second Week in a Row, Highest Level Since Labor Day

An estimated 885,000 people applied for unemployment aid for the first time last week — a second consecutive week of increased claims, and a high not seen since the end of the summer, as negotiations for stimulus funding continue in Washington, D.C., the Washington Post reported. Economists have warned that a lack of aid for the unemployed and small businesses, since Congress let some stimulus programs expire over the summer, is dragging down the economy, jeopardizing the fragile recovery of the labor market as the country heads into a bleak winter of increasing coronavirus infections. There were 455,000 new claims for the Pandemic Unemployment Assistance program for gig and self-employed workers. And about 20.6 million people were counted on the unemployment rolls as of the week ending Nov. 28, although officials say that number is inflated by duplicate claims and other issues stemming from backlogs in state unemployment systems.

Workers Tap Retirement Savings as a Last Resort

Since the pandemic began rippling through the economy in March, more than 2.1 million Americans have pulled money from retirement plans at the five largest 401(k) plan administrators: Fidelity, Empower Retirement, Vanguard, Alight Solutions and Principal, the New York Times reported. These workers, especially those in hard-hit industries like transportation, manufacturing and health care, have been helped by more flexible withdrawal rules created by the CARES Act. Even with millions unemployed and the economy’s recovery shaky at best, that’s only about 5 percent of the eligible 401(k) and 403(b) clients across all of those companies. But that’s still higher than in a more typical year, when many participants can still generally withdraw money for hardships, albeit under a stricter set of rules. The various federal relief programs put into place — including stimulus payments, more generous unemployment benefits and the suspension of federal student loan payments — have helped curb the damage, retirement experts said. But some of those programs have already run out, or could soon. “As these start to expire, there may be an uptick in withdrawals for households that have been financially impacted,” said David Fairburn, associate partner at Aon, a professional services firm that provides retirement consulting. “For example, maybe an active employee’s spouse had a job loss, so a withdrawal would be helpful to make up for the lost household income.” Usually, pulling out money from a tax-deferred account before age 59½ would set off a 10 percent penalty on top of any income taxes. But under the temporary rules part of the CARES Act, people with pandemic-related financial troubles can withdraw up to $100,000 from any combination of their tax-deferred plans, including 401(k), 403(b), 457(b) and traditional individual retirement accounts, without penalty. The rules apply to plans only if your employer opts in, and they expire on Dec. 30.

For the Retail Industry, 2020 Was a Wild Ride

Changes have been coming to the retail sector for years. But in 2020, with the onslaught of the Covid-19 pandemic, the industry received a ticket to the Fury 325 roller coaster, according to a Wall Street Journal analysis. Perhaps the most surprising part of the 2020 retail experience was that through November, retail sales (excluding gas, auto and food services) rose 6.6 percent from the year-earlier period, according to the National Retail Federation’s analysis of U.S. Census Bureau data. Oddly, 2020 could turn out to be one of the best years in the overall retail sector in the past 20 years. The industry did experience a precipitous dip in April, with a sharp drop in sales of 5.5 percent, including a startling plunge in apparel sales of more than 86 percent. But concurrently, food-and-beverage store revenues were up nearly 27 percent. Losses and gains in these two sectors have been persistent throughout the year, as a dressed-down population focuses on just the essentials for their families and homes. In many cases, traditional or overleveraged retailers struggled to navigate through the uncertainties. More than 27 retailers declared bankruptcy in the first nine months of the year, including Lord & Taylor, JCPenney, Neiman Marcus and J. Crew. In January, before the coronavirus swept across the U.S., just over 15% of retail sales occurred outside of physical stores. That number spiked to about 20 percent of sales in April, and has since leveled back to about 16 percent of sales in the three months ended in September.

Falling Behind on Weekly Rent and Afraid of Being Evicted

Low-budget weekly rental lodgings — furnished units with limited cooking facilities that typically rent for around $200 a week — are often the housing of last resort for people on government assistance or those living from paycheck to paycheck. They usually cannot qualify for more traditional apartments because they have a recent eviction on their credit history or don’t have the money saved for a security deposit, the New York Times reported. Few such residents can afford to hire a lawyer if faced with eviction. In September, the Centers for Disease Control and Prevention imposed a four-month eviction moratorium to prevent landlords from removing tenants who present a signed declaration stating they can’t pay rent because of the pandemic. But the moratorium has sparked confusion when it comes to weekly rentals, which fall into a gray area of the housing market because they function like temporary apartments but are often licensed as motels — which are technically exempt from the moratorium. Taking advantage of the confusion, some owners of weekly rental lodgings aren’t waiting around for the moratorium to expire at year’s end to push out people who cannot pay the rent.

Sale Ends Tuesday: Insolvency 2020 On-Demand Content 25 Percent Off; Meet Your Annual CLE Requirements in One Place!

Enjoy 25 percent off (regular and government rates) access to Insolvency 2020 from now through December 22. The site allows you to tap into more than 50 hours of on-demand content curated by 16 leading industry organizations and more than 170 experts. Sessions featured at Insolvency 2020 included a look at the next big wave of chapter 11s, force majeure and business insurance, bankruptcy issues related to PPP loans and much more. Satisfy all of your CLE requirements for the year in one discounted place! Click here to get your discounted access on Insolvency 2020.

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New on ABI’s Bankruptcy Blog Exchange: The Consumer Bankruptcy Reform Act of 2020

Sens. Elizabeth Warren (D-Mass.), Dick Durbin (D-Ill) and Sheldon Whitehouse (D-R.I.), along with Representatives Jerrold Nadler (D-N.Y.) and David Cicilline (D-R.I.), introduced the Consumer Bankruptcy Reform Act of 2020. This is the first major consumer bankruptcy reform legislation to be introduced since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), according to a recent blog post. Whereas BAPCPA introduced a number of major, but targeted, reforms to consumer bankruptcy law (and a few business bankruptcy provisions as well), the CBRA is a much more ambitious bill: It proposes wholesale reform of the structure of consumer bankruptcy law, with an eye toward reducing the costs and frictions that prevent consumers from being able to address their debts in bankruptcy.

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

 
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Prosecutors Likely to Be Investigating PPP Fraud for Years

ABI Bankruptcy Brief

December 10, 2020

 
ABI Bankruptcy Brief
 
 
NEWS AND ANALYSIS

Prosecutors Likely to Be Investigating PPP Fraud for Years

As thousands of applications for government-backed loans flooded into Chris Hurn's firm, Fountainhead Commercial Capital, it reported at least 500 suspicious cases to federal officials, the New York Times reported. But what shocked him was the brazen glee of the scammers who got money anyway. At least a dozen times, “someone tried to defraud us, got turned down and then followed up to taunt us that they got their loan,” said Mr. Hurn, Fountainhead’s chief executive. Four months after the federal government’s signature coronavirus relief program for small businesses expired, investigators and lawmakers have only scratched the surface of schemes that illicitly tapped its forgivable loans. The program’s quickly drafted and frequently revised rules, its removal of normal lending guardrails, and governmental pressure to swiftly approve applications created the ideal conditions for thievery to thrive. So far, the Justice Department has brought criminal charges against more than 80 people accused of stealing at least $127 million from the relief program, but there’s far more to uncover. The House Select Subcommittee on the Coronavirus Crisis said that it had identified more than $4 billion in potentially improper loans, and some bankers believe the total will be much higher. A Small Business Administration fraud hotline that took in 742 complaints in 2019 has received more than 100,000 this year. And there are hundreds of active investigations across more than a dozen government agencies, which means that a program that offered borrowers a few months of relief will spark years of court actions.

States Try to Rescue Small Businesses as U.S. Aid Is Snarled

With the economic recovery faltering and federal aid stalled in Washington, D.C., state governments are stepping in to try to help small businesses survive the pandemic this winter, the New York Times reported. The Colorado legislature held a special session last week to pass an economic aid package. Ohio is offering a new round of grants to restaurants, bars and other businesses affected by the pandemic. And in California, a new fund will use state money to backstop what could ultimately be hundreds of millions of dollars in private loans. Other states, led by both Republicans and Democrats, have announced or are considering similar measures. But there is a limit to what states can do. The pandemic has ravaged budgets, driving up costs and eroding tax revenues. And unlike the federal government, most states cannot run budget deficits. “We have done what we can do to pump money into small businesses so that people can continue to work,” said Gov. Mike DeWine (R) of Ohio. “From the jobs point of view and the economy point of view and the workers’ point of view and small businesses, we’ve got to get that help from the federal government. That’s the only place we can get it."



In related news, economists are warning that a COVID-19 relief bill without aid for state and local governments would mean passing up an opportunity to include a proven stimulus provision, The Hill reported. Congressional leaders are at odds over not only the price tag of a new relief measure, but what should be in it. The various proposals on Capitol Hill range from tens of billions of dollars in government aid for states, cities, tribes and territories to no funds at all. “The most effective form of relief and stimulus for the overall economy is flexible money that states can use depending on need,” said Tracy Gordon, senior fellow with the Urban-Brookings Tax Policy Center, which is led by a former Obama administration official. State and local government budgets have been hit hard by the pandemic, losing revenue from sales taxes and business taxes as local purchases dried up and stores shuttered. Other fees and revenue sources are dwindling as residents pull back from many day-to-day activities.


Hawley Introduces Bill for Second Round of Stimulus Checks

Sen. Josh Hawley (R-Mo.) today introduced legislation to provide a second round of stimulus checks to most Americans as negotiations on a larger coronavirus relief package struggle to reach a breakthrough, The Hill reported. Hawley, who has said he will oppose any deal that doesn't include another round of direct assistance, said that his legislation mirrors a proposal from the March CARES Act that provided a $1,200 check for individuals who made up to $75,000. Under Senate rules, any one senator can go to the floor to ask for a vote, but any one senator can also object and block the vote. Hawley’s decision to introduce a stand-alone bill comes as lawmakers on both sides of the aisle have pushed for another round of checks to be included in any year-end agreement. Separate proposals from Senate Majority Leader Mitch McConnell (R-Ky.) and a bipartisan group of lawmakers did not include another round of stimulus checks over concerns that including them would increase the price tag and compromise support for the frameworks. But Treasury Secretary Steven Mnuchin pitched Speaker Nancy Pelosi (D-Calif.) and GOP leadership on another proposal that would include $600 checks. House Minority Leader Kevin McCarthy (R-Calif.) told Axios that both he and McConnell supported the proposal.

U.S. Unemployment Claims Jump to 853,000 Amid Resurgence of Coronavirus

The number of people applying for unemployment aid jumped last week to 853,000, the most since September, the Associated Press reported. The Labor Department said today that the number of applications increased by 137,000, from 716,000 the previous week. The four-week moving average was 776,000, an increase of 35,500 from the previous week’s revised average, according to the department. Before the coronavirus paralyzed the economy in March, weekly jobless claims typically numbered only about 225,000.

U.S. Household Net Worth Hits Record in Third Quarter

The net worth of U.S. households rose to a record in the third quarter as the value of stock portfolios and real estate surged, a Federal Reserve report showed, although household debt also grew as stimulus programs phased out and the recovery began to slow, the Wall Street Journal reported. Household net worth rose 3.2 percent in the third quarter from the second quarter to $123.52 trillion, the Fed said today. Household debt rose 5.6 percent to $16.4 trillion, its fastest pace in at least two years. The report underscores what many economists have called a K-shaped recovery from the coronavirus-induced shock early this year. More affluent Americans are doing well, while millions of others — including lower-paid workers in vulnerable jobs in retailing and restaurants — are seeing their incomes and net worth decline. Only about 15 percent of American households held stocks directly at the end of 2019, according to Fed data. About half of households owned retirement accounts, such as 401(k) and IRA accounts, with a median value of $65,000. (Subscription required.)

Insolvency 2020 On-Demand Content 25 Percent Off for a Limited Time! Meet Your Annual CLE Requirements in One Place!

Enjoy 25 percent off (regular and government rates) access to Insolvency 2020 from now through December 22. The site allows you to tap into more than 50 hours of on-demand content curated by 16 leading industry organizations and more than 170 experts. Sessions featured at Insolvency 2020 included a look at the next big wave of chapter 11s, force majeure and business insurance, bankruptcy issues related to PPP loans and much more. Satisfy all of your CLE requirements for the year in one discounted place! Click here to get your discounted access on Insolvency 2020.

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BLOG EXCHANGE

New on ABI’s Bankruptcy Blog Exchange: The Consumer Bankruptcy Reform Act of 2020

Sens. Elizabeth Warren (D-Mass.), Dick Durbin (D-Ill) and Sheldon Whitehouse (D-R.I.), along with Representatives Jerrold Nadler (D-N.Y.) and David Cicilline (D-R.I.), introduced the Consumer Bankruptcy Reform Act of 2020. This is the first major consumer bankruptcy reform legislation to be introduced since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), according to a recent blog post. Whereas BAPCPA introduced a number of major, but targeted, reforms to consumer bankruptcy law (and a few business bankruptcy provisions as well), the CBRA is a much more ambitious bill: It proposes wholesale reform of the structure of consumer bankruptcy law, with an eye toward reducing the costs and frictions that prevent consumers from being able to address their debts in bankruptcy.

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

 
© 2020 American Bankruptcy Institute
All Rights Reserved.
66 Canal Center Plaza, Suite 600
Alexandria, VA 22314
 

McConnell Calls for Congress to Focus on Narrow Stimulus

ABI Bankruptcy Brief

December 3, 2020

 
ABI Bankruptcy Brief
 
 
NEWS AND ANALYSIS

McConnell Calls for Congress to Focus on Narrow Stimulus

Senate Majority Leader Mitch McConnell (R-Ky.) said that it was “heartening” that Democrats have embraced a smaller price tag for a stimulus package but gave no indication he was willing to raise his own offer to get a deal, Bloomberg News reported. McConnell again called for passing narrowly targeted relief that focuses on priorities that have broad support — such as small business aid and funding for vaccine distribution — while leaving for later debate other elements that Republicans and Democrats disagree on. House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Chuck Schumer (D-N.Y.) yesterday endorsed using a bipartisan $908 billion relief plan as a basis for new talks with Republicans. McConnell has pushed an alternative that’s along the lines of a previous bill of roughly $500 billion that Democrats blocked, calling it inadequate. McConnell today reiterated criticism of Democratic moves to include what he described as non-coronavirus-related items. “It’s been heartening to see a few hopeful signs in the past few days,” he said. “After months of arbitrary attachment to sky-high dollar amounts,” there is now movement “in the right direction.” Pelosi and Schumer had pushed for a $2.4 trillion COVID-19 relief plan before the election, and their shift yesterday prompted welcoming comments from Republicans as well as Democrats. President Donald Trump also expressed optimism. “I believe they’re getting very close to a deal,” he told reporters at the White House, adding that he would “absolutely” support an agreement.

States Race to Craft Their Own Economic Relief Plans

Governors and state lawmakers across the country are racing to authorize millions of dollars in new coronavirus stimulus aid, aiming to plug gaping holes in their local economies before the end of the year, the Washington Post reported. The burst of activity has intensified in recent weeks after months of false starts in Washington, where congressional lawmakers repeatedly have failed to deliver additional support for a growing number of Americans who are still out of work, struggling to pay their bills or facing severe financial straits. Michigan, for example, has sought to extend another round of enhanced payments to its unemployed residents. Minnesota has eyed one-time stimulus checks to locals under financial duress. And Colorado has mounted a wide-ranging effort to help its cash-starved workers and businesses, working on legislative proposals that could help cover rent payments, utility bills and other critical costs. The states’ redoubled stimulus efforts may offer a critical economic lifeline for millions of Americans at a time when many governors are instituting a new round of shutdown orders nationwide. But local leaders say their aid is likely to be short-lived, illustrating their financial constraints — and the urgent need for Congress to adopt a more robust relief package after considerable delay.

U.S. Jobless Claims Remain High at 712,000 as Virus Escalates

The number of Americans applying for unemployment benefits fell last week to a still-high 712,000, the latest sign that the U.S. economy and job market remain under stress from the intensified viral outbreak, the Associated Press reported. Today’s report from the Labor Department said that initial claims for jobless aid dropped from 787,000 the week before. Before the virus paralyzed the economy in March, the number of people applying for unemployment benefits each week had typically amounted to roughly 225,000. The chronically high pace of applications shows that nearly nine months after the pandemic struck, many employers are still slashing jobs. The total number of people who are continuing to receive traditional state unemployment benefits declined to 5.5 million from 6.1 million. That figure is down sharply from its peak of nearly 23 million in May. With layoffs still elevated and new confirmed viral cases in the United States now exceeding 160,000 a day on average, the economy’s modest recovery is increasingly in danger. States and cities are issuing mask mandates, limiting the size of gatherings, restricting restaurant dining, closing gyms or reducing the hours and capacity of bars, stores and other businesses. Many jobless Americans are now collecting checks under two federal programs that were set up this year to ease the economic pain inflicted by the pandemic. But those programs are set to expire the day after Christmas. When they do, benefits will end completely for an estimated 9.1 million unemployed people. The number of people collecting aid under one of those programs — the Pandemic Unemployment Assistance program, which offers coverage to gig workers and others who don’t qualify for traditional benefits — fell by 339,000 to 8.9 million for the week ending Nov. 14.

U.S. Trustee Program Reaches Settlement with McKinsey and Company to Withdraw and Waive its Fees in the Westmoreland Coal Bankruptcy Case

The U.S. Trustee Program (USTP) has entered into a settlement agreement with global consulting firm McKinsey & Company (McKinsey) requiring McKinsey to forego payment of fees in the Westmoreland Coal bankruptcy case pending in the U.S. Bankruptcy Court for the Southern District of Texas, according to a DOJ press release. The agreement, which is subject to review and approval by the bankruptcy court, resolves the USTP’s objection to the adequacy of McKinsey’s disclosures of connections and possible conflicts of interest in the Westmoreland case. The USTP previously reached a $15 million settlement with McKinsey in February 2019 to address past disclosure practices by McKinsey in three bankruptcy cases, including the Westmoreland case. The USTP had objected to McKinsey’s initial application seeking to be retained in the Westmoreland Case, and after the prior settlement McKinsey withdrew that application. McKinsey later made new disclosures in a renewed attempt to be retained in the Westmoreland case. The USTP again objected, alleging that the disclosures remained deficient because McKinsey failed to disclose the connections of all of its affiliates, failed to make adequate disclosures regarding its investments in entities that could create a conflict of interest, and failed to address inconsistencies concerning its disclosure of confidential client connections. Under the terms of the settlement, McKinsey’s application seeking employment in the Westmoreland Case will be withdrawn. As a result, McKinsey will not seek to recover any fees in connection with services rendered in the case that would otherwise be subject to review and approval of the court. While the total amount of fees it is waiving is unknown, McKinsey rendered services throughout the case and likely would have sought approval for, and reimbursement of, millions of dollars in fees and expenses. In addition, McKinsey has for the first time agreed that it will fully disclose all affiliate connections and all confidential client connections in any bankruptcy case in which it seeks to be retained in the future, unless the bankruptcy court orders otherwise.


 

Mnuchin in Talks with Fannie-Freddie Overseer on Rushed Redo

Treasury Secretary Steven Mnuchin said he’s made no decision on actions that might be taken at the end of the Trump administration to free Fannie Mae and Freddie Mac from U.S. control, while raising the possibility that the companies could be released before they are fully capitalized, Bloomberg News reported. Mnuchin, testifying at a House Financial Services hearing, said that he has had discussions about possible moves with Federal Housing Finance Agency Director Mark Calabria, the companies’ regulator. But Mnuchin said he hasn’t made up his mind on whether to do anything, while reiterating that he opposes ending Fannie's and Freddie’s federal conservatorships until they have “significant” capital buffers to protect against losses. “Despite the fact that the director and I are having conversations, we’ve made no decisions at Treasury whatsoever yet," Mnuchin said. "We are contemplating.” Fannie and Freddie have been under government control since the 2008 financial crisis, when the companies piled up steep losses amid the housing crash and needed a taxpayer rescue. They’ve since become profitable again and have started retaining earnings to build up their capital cushions. Still, Fannie and Freddie are far short of the roughly $280 billion that Calabria has demanded they have as fully private companies. During the House hearing, Mnuchin said that the companies could be released from U.S. control before reaching the capital requirement under a consent decree. In such a scenario, the companies would technically exit conservatorship but still have restrictions on some business activities.

Fed Economists Warn of Debt Overhang Problem from Covid Crisis

The COVID-19 crisis could be worse than the Great Recession for companies that had high levels of indebtedness at the start of the outbreak, according to economists at the Federal Reserve Bank of New York, Bloomberg News reported. Firms in industries most affected by the pandemic such as tourism, travel and hospitality could grow as much as 10 percent more slowly than in ordinary times if the current crisis plays out in a similar way to the economic decline of 2007 to 2009, Kristian Blickle and João Santos wrote in a blog post on Tuesday. Research from the two economists shows that companies with higher levels of debt experienced 3 percent slower growth during the Great Recession compared to less-indebted peers. The gap between the two groups is closer to 2 percent in normal conditions. The sharper contraction in growth that could materialize during the Covid-19 crisis is due to the combined effect of record levels of corporate indebtedness at the outset of the pandemic and the sharp revenue declines during the course of 2020, the economists said. Many of America’s most iconic companies — from Boeing Co., Carnival Corp. and Delta Air Lines Inc. to Exxon Mobil Corp. and Macy’s Inc. — aren’t earning enough to cover their interest expenses after borrowing billions of dollars over the past few months to help get them through the coronavirus, according to a Bloomberg analysis. Large debt loads can hamper the ability of companies to borrow more to finance worthwhile investments, a problem economists call debt overhang. To read the full report, please click here.

Census Bureau: Nearly One-Third of U.S. Adults Expect to Lose Employment Income

Roughly a third of U.S. adults expect someone in their household to imminently lose their job or see their pay or hours reduced, according to survey results released yesterday by the Census Bureau, The Hill reported. Almost 31 percent of respondents to the Census Bureau’s Household Pulse Survey conducted Nov. 11 through Nov. 23 said that they expected someone in their household to suffer a loss of employment income. Another 33.2 percent said they expected to face foreclosure or eviction within the next two months, 34.5 percent said they have struggled to pay basic expenses, and roughly 12 percent said there was sometimes or often not enough food to eat in their homes during the week leading into the survey. The latest data from the Census Bureau shows the deep economic turmoil suffered by millions of Americans amid the third wave of the coronavirus pandemic. COVID-19 cases, hospitalizations and deaths have shattered records across the U.S. for months, and the White House has warned that the pandemic could soon overrun the American medical system.

COVID-19 Damage to Social Security to Extend Beyond Pandemic

COVID-19’s impact on America’s older adults is set to outlast the pandemic itself as it wreaks havoc on the Social Security retirement trust fund that millions rely on for benefits, The Hill reported. The nonpartisan Congressional Budget Office projects that in the aftermath of the pandemic, the trust fund will deplete its $2.8 trillion reserve over the next decade unless changes are made. Inaction would lead to cuts of 20 percent or more to benefits starting in 2031. The decreased revenue stream stems in large part from the millions of lost jobs during the pandemic, which has led to fewer people and employers paying into the trust fund. That drop, paired with a scaling back of hours at remaining jobs, has been the biggest blow to the long-term outlook for Social Security, according to a report from the Bipartisan Policy Center (BPC). But COVID-19 has impacted the fund in several other ways. The recession has prompted older workers to retire earlier than they previously expected, meaning that they’re drawing down funds instead of contributing to them. Also, low interest rates mean smaller yields for the bonds held by the Social Security funds. Provisions in the record $2.2 trillion CARES Act passed in March are letting more people dip into their retirement savings funds sooner without penalty, raising concerns among experts that many Americans in the long run will be more reliant on Social Security. An executive order by President Trump allowing employers to defer paying into the fund for several months raised additional concerns, though it required all deferred funds be paid back in 2021, leading few to participate in the program. Depending on how long and slow the recovery is, the trust fund could run out by the late 2020s, the BPC report said.

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New on ABI’s Bankruptcy Blog Exchange: After CARES Act Clash, Mnuchin and Powell Unite over Need for More Aid

Following their disagreement about emergency funds mandated by the last big relief package, the Treasury secretary and Fed chief urged House lawmakers to pass another stimulus bill by the end of the year, according to a recent blog post.

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

 
© 2020 American Bankruptcy Institute
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66 Canal Center Plaza, Suite 600
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Struggling Retailers Rack Up $52 Billion in Missed Rent

ABI Bankruptcy Brief

November 19, 2020

 
ABI Bankruptcy Brief
 
 
NEWS AND ANALYSIS

Struggling Retailers Rack Up $52 Billion in Missed Rent

Eight months into the pandemic, clothing stores, restaurants, gyms and other businesses find themselves in a $52 billion hole, Bloomberg News reported. That’s the total amount of retail rent that’s been missed since April, according to CoStar Group Inc. While some of the overhang has since been paid back, the remainder will be a drag on merchants as they try to rebuild and landlords demand their money. In some cases, the unpaid balances could drive them into bankruptcy. “You’re going to have big bubbles that are going to be hitting next year or even in the fourth quarter,” said Andy Graiser, co-president of A&G Real Estate Partners, an advisory firm. “I’m not sure if they are going to be able to make those payments in addition to their existing rent.” Overdue rent compounds the problems these companies have faced this year, including lost sales during shutdowns, consumers’ reluctance to return to stores and restaurants, and the long-running migration of shoppers from brick-and-mortar locations to online venues. CoStar estimated missed retail rent, including payments from store chains, restaurants, gyms and bars, in each month using its own data, industry statistics and landlords’ public reporting. The figures don’t account for any back rent that may have been repaid in subsequent months. In all, retailers paid $146 billion in rent from April to November, CoStar said. By Graiser’s tally, the group broadly owes an average of two to four months’ rent from earlier this year, but he expects making good on those debts will be hard because sales probably won’t return to what he considers normal levels next year. TIAA Real Estate Account, run by the giant Teachers Insurance and Annuity Association of America, said in a Nov. 10 filing it received more than 1,000 requests from tenants for rent relief, primarily among retailers, with most asking for deferrals of less than six months. So far, the amount of rent collected from retailers climbed from 54 percent at the end of April to 86 percent this month, according to CoStar. Malls have fared worse, with only 79 percent of rent due this month received. That makes the situation critical for landlords, too.



Don't miss "A Catch-22: Dilemmas for Landlords in the Era of COVID-19" at ABI's Virtual Winter Leadership Conference Dec. 3-4. The panelists will be exploring the myriad legal conundrums landlords have been facing in bankruptcy cases across the country since the COVID-19 pandemic took hold. Click here to register.

President-Elect Biden Feels Congressional Pressure to Act on Student Loan Forgiveness

Democratic leaders in Congress are pushing President-Elect Joe Biden to take quick action on canceling student loan debt with an executive order to stimulate the economy and provide relief to struggling borrowers, The Hill reported. Biden has expressed interest in forgiving some amount of education debt, a move that would undoubtedly trigger political backlash, perhaps on both sides of the aisle. There are also questions among economists about how much of a boost to consumer spending would result from swift action during a downturn. Progressives such as Sen. Elizabeth Warren (D-Mass.) have long called for student debt cancellation as a necessary plank of any economic recovery. More than 40 percent of U.S. adults who attended college — about 30 percent of all U.S. adults — had at least some student debt last year, according to a survey released in May by the Federal Reserve. Nearly 30 percent of those who have student loans also deferred their payments in 2019. Warren, who alongside Senate Minority Leader Charles Schumer (D-N.Y.) is calling on Biden to cancel $50,000 of student debt through executive fiat, upped the pressure this week by characterizing student loan cancellation as the “single biggest stimulus we could add to the economy.” Biden has not gone quite that far, saying this week that he supported canceling $10,000 of student debt through legislative means as part of a broader proposal to make community college free, doubling Pell grants and offering free public education to people earning under $125,000 a year. But a legislative path to lowering student debt is unlikely if Republicans maintain control of the Senate after two runoff elections in Georgia scheduled for Jan. 5.

U.S. Unemployment Increased Last Week Amid COVID-19 Surge

The number of Americans filing first-time claims for jobless benefits rose last week, likely because new business restrictions to control spiraling COVID-19 infections unleashed a fresh wave of layoffs, which could further slow the labor market recovery, Reuters reported. The weekly unemployment claims report released today from the Labor Department also showed at least 20.3 million people on unemployment benefits at the end of October, threatening the recovery from the worst recession since the Great Depression. About 12 million people will lose benefits next month when two government-funded programs expire a day after Christmas, according to a study released yesterday by The Century Foundation, a public policy research group. Initial claims for state unemployment benefits increased 31,000 to a seasonally adjusted 742,000 for the week ended Nov. 14. Economists polled by Reuters had forecast 707,000 applications for the latest week. Unadjusted claims rose 18,344 to 743,460 last week. Economists prefer the unadjusted number because of earlier difficulties adjusting the claims data for seasonal fluctuations due to the economic shock caused by the pandemic. Including a government-funded program for the self-employed, gig workers and others who do not qualify for the regular state unemployment programs, 1.1 million people filed claims last week.

Banks May Be Office Landlords’ New Problem Tenants

Tech companies have talked the loudest about shifting away from the office, but it is banks that are putting their money where their mouth is, the Wall Street Journal reported. Taking up of new office space in Europe was weak over the late summer. Leasing activity halved during the third quarter compared with the same period of 2019, according to data from real-estate company JLL. In the U.S., the decline was even sharper at 55 percent. The physical constraints of lockdowns made it hard for companies to get out and look at properties, and firms are reluctant to take on extra space until they understand how the shift to home working will play out and what shape the economy is in. Already, though, differences are emerging between industries. Public-sector tenants have been a bright spot for real estate owners. Less exposed to the business cycle, they have doubled their usual share of overall leasing activity in Europe since the pandemic began, data from real estate services giant CBRE shows. Tech companies’ share was 17.9 percent, in line with the average between 2012 and 2019. (Subscription required.)

Tourism, Engine for N.Y.C. Economy, May Not Fully Recover Until 2025

The pandemic triggered a free-fall in tourism to New York City, one of the world’s most popular destinations. A new forecast predicts that the influx of tourists will not fully rebound for at least four years, a somber assessment that reflects one of the biggest challenges to the city’s recovery, the New York Times reported. The surge in tourism in recent years has been a vital pillar of the city’s economy, supporting hundreds of thousands of workers across a range of industries, from hotels to restaurants to Broadway. New York drew a record 66.6 million visitors in 2019 and was on pace for even more this year, according to the forecast released on Monday by the city’s tourism promotion agency, NYC & Company. Now the city is likely to reach just one-third of last year’s total. The collapse of tourism has been a key reason that New York’s economy has been hit harder than most other major American cities. Hundreds of restaurants, many of which rely on out-of-town visitors, and several large hotels have closed for good. Before the shutdown in March, the hospitality industry provided as many as 400,000 jobs and drew $46 billion in annual spending. Seven months later, at the end of October, more than 1.3 million residents were collecting unemployment benefits: The city’s unemployment rate is 14.1 percent, more than double the national rate.


 

U.S. Home Sales Rose to 14-Year High in October

Sales of previously owned homes rose to a new 14-year high in October while median home prices again hit new highs, the Wall Street Journal reported. Existing-home sales rose 4.3 percent in October from September to a seasonally adjusted annual rate of 6.85 million, the highest level since February 2006, the National Association of Realtors said Thursday. The October sales marked a 26.6 percent increase from a year earlier. Home prices have climbed in recent months as low interest rates have spurred strong demand, especially for expensive homes, while the supply of homes on the market remains constrained. The median existing-home price rose 15.5 percent from a year earlier to $313,000, a record high nominally and adjusted for inflation, NAR said. (Subscription required.)

Proposed Amendments to Bankruptcy Rules and Forms Published for Public Comment

On June 23, 2020, the Judicial Conference Committee on Rules of Practice and Procedure (Standing Committee) approved the publication of proposed amendments to the following:

- Appellate Rule 25;
- Bankruptcy Restyled Rules Parts I and II; Rules 1007, 1020, 2009, 2012, 2015, 3002, 3010, 3011, 3014, 3016, 3017.1, 3017.2 (new), 3018, 3019, 5005, 7004, and 8023; and Official Forms 101, 122B, 201, 309E-1, 309E-2, 309F-1, 309F-2, 314, 315, and 425A;
- Civil Rule 12 and Supplemental Rules for Social Security Review Actions Under 42 U.S.C. § 405(g); and
- Criminal Rule 16.

The comment period is open from Aug. 14, 2020, to Feb. 16, 2021. For information on the proposed amendments and instructions on how to submit comments, please click here.

Key Issues Facing the Profession in 2021 to Be Addressed at ABI’s Winter Leadership Conference Dec. 3-4

Experts will speak on key issues facing the profession now and heading into 2021 at ABI’s Winter Leadership Conference. Thirteen plenary and concurrent sessions will be held on the afternoons of December 3 and 4, and will include ample networking on both days. Attendees will be able to take part in the conference from the comfort of their home or office while earning up to 8.75/10.5 hours of CLE/CPE credit, including 1.25/1.5 hours of ethics. Sessions at the Winter Leadership Conference include:

• Hot Topics with Bill Rochelle
• Anatomy of a Pharmaceutical Bankruptcy Case
• Money Talks: Getting Retained and Paid (Ethically) by the Bankruptcy Estate
• Witness Preparation: A Roundtable Discussion
• Peace Bridge, or Bridge of Sighs: Cross-Border Mediation of Insolvency-Related Disputes
• “Too Many Hats”: The Peculiar Problems and Challenges that Arise When an Equity Sponsor/Secured Lender Is DIP Lender/Stalking-Horse Buyer in a Chapter 11 Case
• A Catch-22: Dilemmas for Landlords in the Era of COVID-19
• Judicial Round-and-Round
• But I’m Afraid of Needles: The Sale of Health Care Assets, sponsored by BakerHostetler
• Consumer Commission Report: Top 10 Wish List
• Opportunities and Challenges Associated with Early-in-the-Case § 363 Sales
• Do This, Not That: Ethics Roundtable
• Navigating Distressed Investing, Sales and Technology: Protecting Your Sale Process, Your Investments and Your Hide

Register here.

The ABI Endowment will also be holding a special virtual wine tasting event on the evening of December 2 to benefit The Anthony H.N. Schnelling Endowment Fund. Sponsored by Cozen O'Connor, Polsinelli and SSG Capital Advisors LLC, the event features four premium small-batch wines chosen by America’s first Master Sommelier Eddie Osterland.

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BLOG EXCHANGE

New on ABI’s Bankruptcy Blog Exchange: Is GSE reform dead on arrival under Biden? 

The Trump administration has moved forward on a plan to privatize Fannie Mae and Freddie Mac, but Joe Biden appointees could take steps to slow or stop their release from conservatorship, according to a recent blog post. 

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

 
© 2020 American Bankruptcy Institute
All Rights Reserved.
66 Canal Center Plaza, Suite 600
Alexandria, VA 22314
 

Fed Holds Rates Steady and Signals Continued Wariness

ABI Bankruptcy Brief

November 12, 2020

 
ABI Bankruptcy Brief
 
 
NEWS AND ANALYSIS

Fed Holds Rates Steady and Signals Continued Wariness

Federal Reserve Chair Jerome H. Powell said today that the labor market’s recovery was only halfway completed and that more government support would likely be needed to return the economy to full strength, calling the recent rise in virus cases “particularly concerning,” the New York Times reported. In remarks after the central bank’s November meeting, Powell reiterated that the economic outlook is “extraordinarily uncertain” and pledged to continue supporting growth for as long as needed. Economic progress has exceeded initial expectations amid state and local reopenings, but the recovery remains incomplete, progress is moderating and risks loom ahead. Mr. Powell noted that the U.S. is “a long way from our goals, and we’re halfway there on the labor market recovery, at best.” The Fed is trying to coax the economy back to full health. It left interest rates unchanged at its November meeting, having slashed them to near-zero in March, and it reiterated that it plans to keep them low for the foreseeable future. The central bank has also been buying huge quantities of government-backed bonds — about $120 billion a month, recently — in an attempt to keep markets functioning smoothly and to stimulate demand. Low rates do seem to be powering a recovery, but government spending programs have also been an important driver of the rebound so far, keeping money flowing to businesses and households. Now further economic progress is teetering on a precipice as U.S. coronavirus cases rise and those government support programs run dry.

Analysis: Biden Transition Chief Proposed Limiting Size of Biggest U.S. Banks

A decade ago, Ted Kaufman sought to rein in big banks. Now, he will have a significant role in picking the people who supervise them, according to an analysis in the Wall Street Journal. In 2010, during a brief stint in the Senate, Kaufman led a push to limit the size of U.S. lenders — a move that would have led to the breakup of the biggest banks had it been successful. Kaufman is leading President-Elect Joe Biden’s transition team, giving him a voice in choosing appointees to fill positions across the government, including the Consumer Financial Protection Bureau and the Securities and Exchange Commission. A longtime friend of Biden, Kaufman is seen as a bridge between moderate Democrats and more liberal members of the party, who applaud his long history of seeking tough new rules on the financial-services industry. Even if he doesn’t take a formal role in the administration, Kaufman is likely to continue to have the ear of Biden, people who know him say. Kaufman has taken aim at the revolving door between Wall Street and Washington and was an early critic of the high-frequency trading that he said contributed to the May 2010 stock-market “flash crash.” Yet with Republicans likely to maintain control of the Senate, banking-industry officials are hopeful that Kaufman will refrain from recommending progressive nominees for roles that require Senate approval.

Federal Reserve’s Emergency Loan Programs at Center of Political Fight

A political fight is brewing over whether to extend critical programs that the Federal Reserve rolled out to help keep credit flowing to companies and municipalities amid the pandemic-induced recession, the New York Times reported. The dispute has the potential to roil financial markets, which have calmed significantly since the Fed announced in March and April that it would set up backstops in response to market turmoil spurred by the coronavirus pandemic. Those programs expire on Dec. 31, and it is unclear whether the Trump administration will agree to extend them. Federal Reserve Chair Jerome H. Powell and Treasury Secretary Steven Mnuchin must together decide whether they will continue the programs — including one that buys state and local bonds, another purchasing corporate debt and another that makes loans to small and medium-size businesses. The officials will probably make that decision by early to mid-December, according to a senior Treasury Department official. The Fed might be inclined to keep the efforts going, but Mr. Mnuchin, whose Treasury Department provides the funding backing up the programs, has signaled that he would favor ending the one that buys municipal bonds. And he is under growing pressure from Republicans to allow all five of the Treasury-backed programs to sunset. The programs’ expiration could come at exactly the wrong moment, however, as the U.S. faces an expected surge in coronavirus cases this winter and as fiscal stimulus measures that Congress passed in the spring fade. While lawmakers have toyed with passing a new relief bill before next year during the lame-duck session of Congress, President Trump’s election loss makes the outcome highly uncertain.

Analysis: Covid Crisis Brings Regime Change for World’s Central Banks

Just eight months after they swung into action to avert a crippling depression and credit crunch, central banks are in the uncomfortable position of relying on governments to power fragile economic rebounds, according to an analysis in the Washington Post. The decisions their counterparts make will affect not just the growth outlook for the next few quarters, but could shape central banks’ policy options, and even their credibility, for years to come. Monetary authorities entered the COVID-19 crisis with the least conventional policy space — namely, interest-rate cuts — of any postwar downturn. After pulling down borrowing costs to near or even below zero and deploying massive asset-purchase programs, they are now practically begging governments to step up. Without aggressive fiscal stimulus now, the danger is that economies will develop deep scars that hobble growth over the longer term. That could then leave central banks unable to reset and prepare for the next shock or recession. Monetary policy and fiscal policy are now interdependent. For now, government aid is present, helping to preserve jobs and production capacity. The worry is that it will be withdrawn too soon out of concern to repair public finances, even as the virus continues to rage.

Commentary: How the White House Rolled Back Financial Regulations*

On the campaign trail in 2016, Donald J. Trump promised to roll back regulations he said were stymying American businesses and Wall Street. Once elected, he chose agency heads willing to carry out those promises. For banks and other financial firms, that brought a cast of characters including Treasury Secretary Steven Mnuchin, Federal Reserve Vice Chair Randal K. Quarles and Comptroller of the Currency Joseph Otting, according to a commentary in the New York Times. Working from a blueprint drawn up early in the administration, they and other regulators eased restrictions on the finance industry, including those that had been put in place by the Obama administration after the 2008 financial crisis. Some of the changes were small, but together they amount to a significant regulatory shift. Financial firms now face lesser consequences for taking too much risk or abusing customers, which could pave broader paths to a new financial crisis, critics say. Here’s a look at some of the changes under President Trump. Payday lending: In late 2017, the Consumer Financial Protection Bureau finalized tough new restrictions on payday lending, but a director appointed by Trump, Kathleen Kraninger, took over the bureau in 2018 and delayed the new restrictions from taking effect. This year, she rescinded them. Rent-a-bank rules: Many states have caps on the interest rate that lenders can charge on loans, but lenders can skirt the rule by partnering with a bank in another state — one without rate caps — and having that bank issue its loans. The bank then sells the loan to the lender. Fiduciary rule rollback: The Obama-era Labor Department imposed a rule that would have forced financial advisers and brokers handling retirement and 401(k) accounts to act as “fiduciaries,” but in 2018, a federal appeals court ruled that the agency had overstepped its authority, and the Trump administration didn’t challenge the decision, which killed the rule.



* 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.

U.S. Unemployment Claims Slip but Hold at High Levels

New applications for unemployment benefits fell sharply last week, suggesting that layoffs are easing as the broader economy flashes signs of improvement, the Wall Street Journal reported. Initial claims for jobless benefits, a proxy for layoffs, declined to 709,000 last week from 757,000 a week earlier, the Labor Department said Thursday. While weekly claims have fallen from a peak of near 7 million at the end of March, they remain well above levels of about 200,000 seen before the coronavirus hit this spring. The number of people collecting unemployment benefits through regular state programs, which cover most workers, dropped to 6.8 million for the week ended Oct. 31 from 7.2 million a week earlier. Continuing claims are down significantly from their spring levels, reflecting that many laid-off workers have been recalled to jobs or hired elsewhere. Others, though, have exhausted state benefits, a sign that many are facing long periods of joblessness.

ABI's International Insolvency Forum Next Week to Feature Conversation with President Bill Clinton, Sessions Examining the Implications for Global Restructurings During COVID-19 Pandemic and More

Insolvency experts from around the world will virtually gather to provide their insights on key issues and timely topics pertaining to international practice at ABI’s 2020 International Insolvency Forum. The three-day online conference brings together ABI’s annual International Insolvency & Restructuring Symposium partners — International Insolvency Institute (III), American College of Bankruptcy, TMA Europe, INSOL and IWIRC — and ABI's annual Cross-Border Insolvency Program. Highlighting the event will be President Bill Clinton, 42nd President of the United States, discussing the current political landscape with Bill Brandt of Development Specialists, Inc. Experts will be examining the global restructuring landscape and provide an outlook on the year ahead. The Forum will be a "one-stop shop" for attendees looking for technical sessions covering current international insolvency issues and light-hearted networking opportunities — all from the comfort of their home or office! This program is eligible for up to 10.75/12.5 hours of general CLE/CPE credit. Click here to view the sessions and register.

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BLOG EXCHANGE

New on ABI’s Bankruptcy Blog Exchange: Why PPP Fraud Hit Fintechs Harder than Banks 

Scammers may have had more success at duping fintechs than banks in obtaining Paycheck Protection Program loans, but there are reasons for this apparent disparity, according to a recent blog post. 

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

 
© 2020 American Bankruptcy Institute
All Rights Reserved.
66 Canal Center Plaza, Suite 600
Alexandria, VA 22314
 

Mall Shakeout Just Beginning as Complex Debt Drowns Owners

ABI Bankruptcy Brief

November 5, 2020

 
ABI Bankruptcy Brief
 
 
NEWS AND ANALYSIS

Mall Shakeout Just Beginning as Complex Debt Drowns Owners

The two U.S. mall owners that filed for bankruptcy on Sunday could be just the beginning, Bloomberg News reported. As retailers ranging from JCPenney Co. to Brooks Brothers Group Inc. go bust, their landlords are struggling, too. But rescuing malls will be unusually complicated because the properties have intricate webs of financing that have only grown more elaborate with time. Interest groups ranging from lenders to shareholders to tenants to holders of complex mortgage bonds are wrangling over how to fix the situations, and for many large property owners, bankruptcy will be the only option, restructuring professionals said. That’s what CBL & Associates Properties Inc., which controls more than 100 retail properties including malls and shopping centers, found. The real estate investment trust spent months trying to restructure out of court before entering bankruptcy in November. Pennsylvania Real Estate Investment Trust, the owner of about 30 retail properties in mid-Atlantic states, also filed for bankruptcy this week. Both aim to continue operating in bankruptcy. There’s more pain to go around. As of October, 14% of U.S. malls were delinquent on their mortgages, almost double the high after the financial crisis, according to an analysis of mortgage bonds by research firm Trepp. Some malls are just trying to reduce their debt levels, or ease restrictions on their borrowing, when they may need to make more drastic changes that can happen only in bankruptcy, said Jeffrey O’Neale, a partner in the real estate practice of law firm Mayer Brown in Chicago. “Traffic is down and revenues are down. Some of these malls are not gonna make it under the current business model,” he said. “No amount of restructuring can change that.”

NBER Working Paper: Has the Paycheck Protection Program Succeeded?

Enacted as part of the CARES Act on March 27, the Paycheck Protection Program (PPP) was the most ambitious and creative fiscal policy response to the Pandemic Recession in the U.S., according to a recent working paper by the National Bureau of Economic Research (NBER). PPP offers forgivable loans — essentially grants — to businesses with 500 or fewer employees that meet certain requirements. The NBER research presents evidence that PPP has substantially increased the employment, financial health, and survival of small businesses, using data from the Dun & Bradstreet Corporation. Using event studies and standard difference-in-difference models, the research aimed to estimate the effect of a small business applying for larger PPP loans and of a small business being eligible for PPP based on size. The NBER paper concluded that it is too early to issue conclusive judgment on PPP’s success, but did offer a number of suggestions for potential future relief efforts, such as a lending program existing alongside a revenue-replacement program, particularly for a partially reopened economy.

U.S. Weekly Jobless Claims Drop Modestly; Labor Market Recovery Cooling

The number of Americans filing new claims for unemployment benefits fell only slightly last week, adding to signs that the economic recovery was losing steam as the COVID-19 pandemic intensifies and fiscal stimulus ends, Reuters reported. Initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 751,000 for the week ended Oct. 31, the Labor Department said. Data for the prior week was revised to show 7,000 more applications received than previously reported. “It looks like a second wave of layoffs is hitting the economy perhaps due to the rising count of virus cases, but it could also mean that many businesses are unable to reopen fully and facing bankruptcy, so they have to let their workers go,” said Chris Rupkey, chief economist at MUFG in New York. The weekly unemployment claims report, the most timely data on the economy’s health, followed on the heels of reports yesterday showing private payrolls increasing less than expected in October and activity in the services industry cooling.

Fed Says Virus Poses Considerable Risks, Maintains Low-Rate Pledges

The Federal Reserve said the coronavirus pandemic poses considerable risks for the U.S. economy despite recent gains, and officials made no changes today to their commitment to provide sustained stimulus, the Wall Street Journal reported. “The ongoing public health crisis will continue to weigh on economic activity, employment and inflation,” the central bank said in a policy statement after concluding a two-day meeting. In September, Fed officials pledged to support the recovery by setting a higher bar to raise interest rates and by signaling it expected to hold rates near zero for at least three more years. At that meeting, the Fed laid out three thresholds for raising rates, including evidence of a tight labor market, annual inflation of at least 2 percent, and forecasts that inflation would run moderately above 2 percent. Officials didn’t make any changes to that policy today. “Economic activity has continued to recover from its depressed second quarter level,” said Fed Chairman Jerome Powell at a news conference after the meeting. “In recent months, however, the pace of improvement has moderated.” Fed officials likely continued discussions this week over how to provide more support to the economy should the recent rebound fizzle. They have had their eye on two prominent risks since the summer: that growth would falter amid rising virus infections, and that Congress would fail to deliver additional spending to support unemployed workers, hard-hit businesses, and state and local governments. Powell said the recent upswing in virus cases was “particularly concerning” and urged Americans to stay vigilant in the coming months. “All of us have a role to play in our nation’s response to the pandemic,” he said. Wearing masks in public “will help get the economy back to full strength.” (Subscription required.)

Illinois Faces Risk of Junk After Voters Reject Tax on Rich

Illinois voters defeated a measure that would have allowed the state to raise taxes on its wealthiest residents, striking down a pillar of Governor J.B. Pritzker’s plan for shoring up the state’s finances and preventing its debt from being cut to junk, Bloomberg News reported. The failure of the constitutional amendment that would have scrapped the flat income tax by a vote of 55 percent against sent the prices of Illinois’s bonds tumbling, with those due in 2034 down about 7 percent. The costly campaign ended in a win for Citadel founder Ken Griffin, who spent nearly $54 million to fund the opposition, while Pritzker, the billionaire heir to the Hyatt hotel empire, gave $58 million in support. “The citizens of Illinois have delivered a clear message to our political leaders in Springfield,” Griffin, the billionaire head of the Chicago-based hedge fund, said in an emailed statement on Wednesday. “Now is the time to enact long overdue reforms to save our state from fiscal ruin.” The loss adds a new challenge to the Democratic governor’s efforts to steady the finances of Illinois, whose rising pension-fund costs and chronic budget shortfalls left it with the lowest bond rating among U.S. states even before the pandemic struck. Failure of the measure won’t automatically trigger a downgrade to junk. The three major rating companies, which all consider Illinois the lowest level of investment grade, said they’ll be watching for the state’s backup plan. “There will be cuts and they will be painful,” Pritzker said during a press conference yesterday. Without the additional revenue from the graduated income tax, the state will look at various options, including cuts potentially for public safety, education and health services and may have to rely on its “regressive” tax system for more revenue, he said.

ABI’s Consumer Bankruptcy Forum Set to Take Place Next Wednesday; International Insolvency Forum Scheduled for Nov. 18-20

Consumer and business practitioners will not want to miss these two upcoming marquee ABI events:

Consumer Bankruptcy Forum, Nov. 11

Featuring content from the National Association of Bankruptcy Trustees (NABT), National Association of Consumer Bankruptcy Attorneys (NACBA), National Association of Chapter 13 Trustees (NACTT), National Conference of Bankruptcy Judges (NCBJ), and ABI’s Hon. Eugene R. Wedoff Seventh Circuit Consumer Bankruptcy Conference and Hon. Steven W. Rhodes Consumer Bankruptcy Conference, the Forum will provide the perfect way for consumer bankruptcy practitioners to stay on top of the latest industry trends — all from the comfort of your home or office for the low price of $100! This program is eligible for 6.25/7.5 hours of general CLE/CPE credit, including 1.25 hours of mental health/professionalism and 1.25 hours of diversity and inclusion. Click here to view the sessions and register.

International Insolvency Forum, Nov. 18-20

Insolvency experts from around the world will virtually gather to provide their insights on key issues and timely topics pertaining to international practice at ABI’s 2020 International Insolvency Forum. The three-day online conference brings together ABI’s annual International Insolvency & Restructuring Symposium partners — International Insolvency Institute (III), American College of Bankruptcy, TMA Europe, INSOL and IWIRC — and ABI's annual Cross-Border Insolvency Program. Experts will be examining the global restructuring landscape and providing an outlook on the year ahead. The Forum will be a "one-stop shop" for attendees looking for technical sessions covering current international insolvency issues and light-hearted networking opportunities — all from the comfort of your home or office! This program is eligible for up to 10.75/12.5 hours of general CLE/CPE credit. Click here to view the sessions and register.

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UPCOMING EVENTS
Consumer Bankruptcy Forum November 11, 2020 Online Conference
ABI Virtual Happy Hour November 11, 2020 Online Networking
abiLIVE: Collateral Disputes: Experts Weigh In on Recent Transactions November 12, 2020 Online Webinar
abiLIVE: Recent Trends & Issues with DIP Financing, Focusing on Committee, Debtor, and Lender Perspectives November 17, 2020 Online Webinar
International Insolvency Forum November 18-20, 2020 Online Conference
ABI Endowment Virtual Wine Tasting December 2, 2020 Online Benefit and Networking
Winter Leadership Conference December 3-4, 2020 Online Conference
Click here for Full calendar
BLOG EXCHANGE

New on ABI’s Bankruptcy Blog Exchange: In Year of PPP, Big Banks Tap Brakes on SBA Lending 

Wells Fargo, JPMorgan Chase and others cut back on 7(a) lending to focus on originating Paycheck Protection Program loans. Smaller banks such as Live Oak and Byline gained market share by targeting niche industries and originating bigger loans, according to a recent blog post. 

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

 
© 2020 American Bankruptcy Institute
All Rights Reserved.
66 Canal Center Plaza, Suite 600
Alexandria, VA 22314
 

Hospital Bankruptcy Surge Looms as Virus Rages, Stimulus Lapses

ABI Bankruptcy Brief

October 29, 2020

 
ABI Bankruptcy Brief
 
 
NEWS AND ANALYSIS

Hospital Bankruptcy Surge Looms as Virus Rages, Stimulus Lapses

Hospitals and other health care providers are bracing for a bankruptcy wave as the government stimulus aid that gave a lifeline to the industry dries up, Bloomberg Law reported. Even before the COVID-19 pandemic, providers were pushed to their breaking points, especially those in rural areas. At least 30 hospitals entered bankruptcy in 2019, and at least three dozen have done the same so far this year, according to data compiled by Bloomberg. Chapter 11 filings had been poised to go higher with the coronavirus inflating costs for protective equipment and impeding revenue-generating elective procedures. The CARES Act and accelerated Medicare advance payments helped to forestall the anticipated increase. The stopgap assistance allowed struggling hospitals to stay out of bankruptcy and remain open for patients, said health care transactions lawyer Bobby Guy of Polsinelli PC. But Congress and the Trump administration have been unable to agree on further coronavirus relief, and health care bankruptcies and out-of-court restructurings could accelerate early next year, attorneys say. “If there’s not more stimulus, we’re going to see a lot of cash crunches,” Guy said. “The bill will come due.”

U.S. States Face Biggest Cash Crisis Since the Great Depression

Nationwide, the U.S. state budget shortfall from 2020 through 2022 could amount to about $434 billion, according to data from Moody’s Analytics, the economic analysis arm of Moody’s Corp., the Wall Street Journal reported. The estimates assume no additional fiscal stimulus from the federal government, further coronavirus-fueled restrictions on business and travel, and extra costs for Medicaid amid high unemployment. That’s greater than the 2019 K-12 education budget for every state combined, or more than twice the amount spent that year on state roads and other transportation infrastructure, according to the National Association of State Budget Officers. Deficits have already prompted tax hikes and cuts to education, corrections and parks. State workers are being laid off and are taking pay cuts, and the retirement benefits for police, firefighters, teachers and other government workers are under more pressure. Even after rainy-day funds are used, Moody’s Analytics projects 46 states coming up short, with Nevada, Louisiana and Florida having the greatest gaps as a percentage of their 2019 budgets. Louisiana said it didn’t expect its shortfall to be as large as Moody’s projected. (Subscription required.)

U.S. Economic Growth Shatters Record at 33.1 Percent, but Fails to Snap Coronavirus Recession

The U.S. economy grew at a record-setting pace in the third quarter as businesses reopened from the coronavirus shutdown, but the nation remains in a deep hole from the COVID-induced recession, FoxBusiness.com reported. Gross domestic product, the broadest measure of goods and services produced across the economy, surged by 33.1 percent on an annualized basis in the three-month period from July through September, the Commerce Department said in its first reading of the data today. The previous post-World War II record was a 16.7 percent increase in 1950. However, the economy contracted at an annual revised rate of 31.4 percent in the previous quarter, the sharpest decline in modern American history. Looking at the quarterly data, the nation's GDP grew 7.4 percent from the second to the third quarter, compared with a 9 percent decline between the first and second quarters. The economy remains 3.5 percent smaller than at the end of 2019.

Weekly Unemployment Claims Dip Slightly in Last Report Before Election

Another 751,000 people applied for jobless claims last week, down about 40,000 from the week before, in what is the final unemployment report released before the election, the Washington Post reported. Claims for Pandemic Unemployment Assistance, for gig and self-employed workers, went up slightly, to 359,000. All told, there were about 22.6 million people claiming some form of unemployment insurance for the week ending Oct. 10, the most recent week of statistics for that measurement. Economists continue to warn about the effect on the economy from the White House’s and Congress’s inaction on another round of stimulus. The economy has begun to flash more warning signs in recent weeks. Companies announcing layoffs in recent weeks include aerospace giant Raytheon, financial services company Charles Schwab, and Disney World. An increasingly large group of people are transitioning off regular state unemployment insurance to a temporary federal program for people whose state benefits have expired — a sign of the growing duration of joblessness for many.

Opinion: Movie Theaters Won't Recover from COVID*

As the COVID-19 pandemic wears on and drives permanent changes to entertainment culture, Hollywood giants such as Walt Disney Co. and Comcast Corp.’s Universal Pictures appear to be turning their backs somewhat on movie theaters, according to a Bloomberg commentary. The largest among the cinema chains, AMC Entertainment Inc., is teetering on the brink of bankruptcy at the same time that it celebrates its 100th anniversary. Just a few short months ago, it seemed inconceivable that the business of filmmaking could carry on without the box office and surrender almost entirely to online streaming apps. But now it’s clear that Hollywood and audiences can get along without cinemas, according to the commentary. More than $7 billion of market value has vanished from AMC, Cineworld Group Plc and Cinemark Holdings Inc. this year. Although the financial picture is less bleak at Cinemark, Cineworld has hired advisers to help with its balance sheet, and AMC may run out of funds before the new year. “AMC’s cash burn could worsen beyond $115 million a month, while its cash reserves are only about $418 million,” Amine Bensaid, an analyst for Bloomberg Intelligence, wrote in a report last week. No one would have predicted that a sudden pandemic would cripple the entertainment industry all at once. But clouds were forming over movie theaters long ago, and companies like AMC failed to prepare, according to the commentary. Disney’s blockbusters had almost single-handedly propped up the box office in recent years, and rising ticket prices helped mask traffic trends. Disney’s Avengers: Endgame grossed $2.8 billion in 2019, making it the biggest film of all time. Still, 162 million fewer tickets were sold in North America that year compared with 20 years ago, according to The Numbers, a box-office data provider. Theater owners responded by renovating auditoriums, improving snack options, installing reclining seats and — buying one another.



*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. 

Means Test Numbers Set to Update on November 1

The Department of Justice has provided a table for cases filed on or after Nov. 1 for median family income data that has been reproduced in a format designed for ease of use in completing Bankruptcy Forms 122A-1 and 122C-1. Click here to view the table.

Highlighting ABI’s International Insolvency Forum on Nov. 18-20: A Conversation with President Bill Clinton!

Insolvency experts from around the world will virtually gather to provide their insights on key issues and timely topics pertaining to consumer bankruptcy practice at ABI’s 2020 International Insolvency Forum. The Forum will be highlighted by a conversation between Bill Clinton, 42nd President of the United States, and Bill Brandt (Development Specialists, Inc.) covering global economics, international bankruptcy issues and more. The three-day online conference brings together ABI’s annual International Insolvency & Restructuring Symposium partners — International Insolvency Institute (III), American College of Bankruptcy, TMA Europe, INSOL and IWIRC — and ABI's annual Cross-Border Insolvency Program. Sessions at the International Insolvency Forum include:

•  America Now!
•  Canadian Cross-Border Insolvency Legislation to Recognize U.S. Filings
•  One Year into COVID-19: What Are the Implications for Restructurings Around the Globe in 2021? 

•  Panel by the International Committee of the American College of Bankruptcy
•  Panel presented by IWIRC
•  Emerging from the COVID-19 Disruption: The Need for a National Emergency Restructuring Entity
•  The New Europe: The Reality of Working Together

•  Troubled Non-U.S. Airlines Landing in Chapter 11: The Inside Story
•  The New Indian Insolvency Act
•  Cross-Border Restructuring and COVID-19 

Click here to register.

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New on ABI’s Bankruptcy Blog Exchange: Small Businesses Need More Aid to Keep Employees, SBA Chief Says

SBA Administrator Jovita Carranza said that small businesses need a new round of loans and aid from the government to keep employees working as the pandemic continues to spread, according to a recent blog post.

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

 
© 2020 American Bankruptcy Institute
All Rights Reserved.
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Alexandria, VA 22314
 

Analysis: Things for Businesses to Be Aware of When Applying for PPP Loan Forgiveness

ABI Bankruptcy Brief

October 22, 2020

 
ABI Bankruptcy Brief
 
 
NEWS AND ANALYSIS

Analysis: Things for Businesses to Be Aware of When Applying for PPP Loan Forgiveness

U.S. lenders issued more than 5 million forgivable loans through the federal government’s coronavirus aid initiative for small businesses, the Paycheck Protection Program. The Small Business Administration in August started accepting applications to have the loans forgiven, and it began approving them this month. The Wall Street Journal has prepared a few things for businesses to be aware of when applying for PPP loan forgiveness:

- PPP borrowers should apply for forgiveness through the lender that issued the loan.
- To have the full amount forgiven, borrowers must spend at least 60% of their loan on payroll costs and may use the remainder of the funding for other eligible costs, such as mortgage interest, rent and utilities.
- The SBA and Treasury Department have issued three different application forms, and which one borrowers should use depends on the nature of their business, their loan size and whether they reduced employee head count or salaries and wages.
- A lender has 60 days to review the borrower’s application and submit it to the SBA. The agency then has up to 90 days to review the submission and issue a decision.
- Amid contentious negotiations in Washington over more coronavirus aid, many PPP lenders and small-business advocates are lobbying the Trump administration and Congress to further simplify the forgiveness process for loans under $150,000.


U.S. Jobless Claims Decline After California Resumes Reporting

The number of Americans filing for unemployment benefits fell for the third time in four weeks, suggesting that the labor market is still gradually recovering while remaining far from its pre-pandemic health, Bloomberg News reported. The progress last week was broad-based across states, and California resumed reporting after a pause, offering figures that improved the overall jobs picture. Initial jobless claims in regular state programs declined to 787,000 in the week ended Oct. 17, according to Labor Department data released today. Without adjustments for seasonal fluctuations, claims dropped by about 73,000. Continuing claims — the total pool of Americans on ongoing state unemployment benefits — fell by 1.02 million to 8.37 million in the week ended Oct. 10, although the number of Americans on extended unemployment benefits rose. That reflects people who exhausted regular state benefits. California reported that claims fell to 158,877 on an unadjusted basis, the first updated figures from the state since it paused processing for two weeks to whittle down a massive backlog and improve fraud prevention. The new numbers put national jobless claims on a lower path than previously reported, with initial filings for the week ended Oct. 10 revised down to 842,000 from 898,000.

Eviction Crisis Sparked by Pandemic Disproportionately Hitting Minorities

The eviction crisis exacerbated by the pandemic is hitting minorities much harder than other Americans, and experts are concerned the problem will only get worse in the coming months as the coronavirus recession drags on, The Hill reported. A review of more than 8,000 eviction cases by the Center for Public Integrity found that almost two-thirds of the tenants lived in areas with above-average minority representation with a median household income below $42,000. The thousands of evictions filed spanned late March to early July, primarily in Florida and Georgia. The Princeton Eviction Lab, which tracks evictions across 17 cities in the country, has recorded more than 60,000 evictions during the pandemic, with more than 1,500 happening over the past week. An August study by the Aspen Institute projected that anywhere from 30 million to 40 million Americans could be at risk of being evicted if nothing changes by Dec. 31, when the moratorium from the Centers for Disease Control and Prevention (CDC) expires. At the end of September, the National Council of State Housing Agencies released a report that says the debt that renters nationwide will collectively owe by the end of the year could be as high as $34 billion. During most of the pandemic, the federal government has had in place an eviction moratorium, first through the CARES Act and then through a policy implemented by the CDC. That policy is slated to expire at the end of the year, and experts say the jury is still out on how effective the moratorium between now and the end of year will be.

Senate Bill Would Outlaw Bank Discrimination for the First Time

Democrats in Congress have introduced legislation that would make it illegal for banks and other financial firms to discriminate against their customers because of their race, religion, sexual orientation and other characteristics — an effort meant to close a loophole in the Civil Rights Act, the New York Times reported. The Fair Access to Financial Services Act, introduced yesterday by members of the Senate Banking Committee, would explicitly outlaw discrimination against bank customers. Currently, it is legal for banks and some other businesses to treat some customers differently as long as those customers eventually receive the services they are seeking. That means, in practical terms, that banks can racially profile their customers and delay their transactions, or ask them to take extra steps to prove their legitimacy, without risking penalties as long as they eventually do business with those customers. The loophole stems from the specificity of the Civil Rights Act of 1964, which lists the kinds of businesses — including movie theaters, restaurants and hotels — where discrimination is prohibited. Courts have ruled that the law does not apply to any businesses not on the list. That leaves customers who say they have been mistreated with little recourse, especially in states like Georgia, where there are no statewide anti-discrimination laws. The bill stipulates that “all persons shall be entitled to the full and equal enjoyment of the goods, services, facilities, privileges and accommodations of financial institutions.” It is sponsored by Sens. Sherrod Brown of Ohio, Tina Smith of Minnesota, Cory Booker and Robert Menendez of New Jersey, Elizabeth Warren of Massachusetts and Chris Van Hollen of Maryland.

Means Test Numbers Set to Update on November 1

The Department of Justice has provided a table for cases filed on or after Nov. 1 for median family income data that has been reproduced in a format designed for ease of use in completing Bankruptcy Forms 122A-1 and 122C-1. Click here to view the table.

Amy Coney Barrett’s Supreme Court Nomination Advanced by Senate Committee

The Senate Judiciary Committee advanced Amy Coney Barrett’s nomination to the Supreme Court as Republicans unanimously voted to recommend that the full Senate approve her, paving the way for her confirmation next week, the Wall Street Journal reported. The tally was 12-0. All 10 Democrats on the panel declined to appear at the proceedings to protest the Republican plan to fill the position just ahead of a presidential election. The committee action clears the way for a full Senate vote that is expected on Monday. Senate Majority Leader Mitch McConnell (R-Ky.) is expected to take the rare step of keeping the chamber in session over the weekend in order to limit the opportunities for Democrats to delay the vote. (Subscription required.)

Insolvency 2020 Virtual Summit Sessions Conclude with Look at What Trends May Lie Ahead for Bankruptcy Filings

The Insolvency 2020 Restructuring, Insolvency and Distressed Debt Virtual Summit concludes next Tuesday with a final session sponsored by Epiq examining current filing trends and what practitioners should expect moving forward. Upcoming events include:

Tomorrow!
• ABI Talks
• Municipal Insolvency in the Time of COVID-19
• Sensible Alternatives to Reorganization 


Oct. 26
• A Walk on the Lit Fi Side: A Live Case Study on How the Litigation Finance Deal Process Really Works, sponsored by Burford

•  Premier Sponsor Showcase: CohnReznick 

Oct. 27
• Bankruptcy by the Numbers: The Next Chapter in Filing Trends, sponsored by Epiq 
• Summit Closing Ceremony 


Don’t miss great programming from Summit partners NCBJ, American College of Bankruptcy, CLLA, ABC, NYIC and ABA!

Sixteen leading insolvency organizations are participating in the Virtual Summit to bring thought leaders from the worlds of restructuring, insolvency and distressed debt for insightful online programming and engaging networking via a state-of-the-art virtual platform. With more than 50 hours of educational content, you will be able to meet your 2020 CLE needs! Replays of the panel sessions are available through March 2021. For more information and to register, please click here.

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New on ABI’s Bankruptcy Blog Exchange: OCC Undermines Own CRA Rule by Putting Key Metric on Hold

Delaying a proposed benchmark for grading banks' performance in Community Reinvestment Act exams to appease critics of its initial proposal will make it harder to gauge the final rule’s impact, according to a recent blog post.

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

 
© 2020 American Bankruptcy Institute
All Rights Reserved.
66 Canal Center Plaza, Suite 600
Alexandria, VA 22314
 

U.S. Jobless Claims Rose to 898,000 Last Week

ABI Bankruptcy Brief

October 15, 2020

 
ABI Bankruptcy Brief
 
 
NEWS AND ANALYSIS

U.S. Jobless Claims Rose to 898,000 Last Week

The number of new applications for unemployment benefits rose last week to the highest level since late August, as persistent layoffs are holding back the economic recovery, the Wall Street Journal reported. Claims increased to 898,000 last week, holding above the pre-pandemic high point of 695,000, according to today’s Labor Department report. After steadily declining from a peak of near 7 million in March, claims have clocked in between 800,000 and 900,000 for more than a month as companies readjust their head counts. The number of people collecting unemployment benefits through regular state programs, which cover most workers, decreased to about 10 million in the week ended Oct. 3 from 11.2 million the prior week, according to the Labor Department. So-called continuing claims declined throughout the summer, indicating employers have continued to hire workers. Still, some of the recent declines in continuing claims represent individuals who have exhausted the maximum duration of payments available through regular state programs and are now collecting money through a federal program that provides an extra 13 weeks of benefits. About 2.8 million people were receiving aid through this extended-benefits program in the week ended Sept. 26, representing the largest number since the program began this spring, Labor Department data shows. An increasing number of individuals relying on extended benefits suggests that many Americans are experiencing long spells of unemployment. The extended-benefits program is set to expire at the end of this year, however. (Subscription required.)

Trump Says He's Willing to Raise Stimulus Offer to over $1.8 Trillion

President Trump said today that he is willing to go higher than his current $1.8 trillion offer for the next coronavirus stimulus package as the White House continues negotiations with Democrats, The Hill reported. “Absolutely, I would. I would pay more. I would go higher. Go big or go home,” Trump said during a phone interview on Fox Business today. Trump, who did not specify a dollar amount, said that he had directed Treasury Secretary Steven Mnuchin to offer a larger figure to House Speaker Nancy Pelosi (D-Calif.) but said “so far he hasn’t come home with the bacon.” Trump also said that he was not willing to agree to Pelosi’s own $2.2 trillion offer, claiming as he has repeatedly said that the top Democrat is seeking “bailouts” for cities run by Democrats that are cash-strapped for reasons unrelated to the coronavirus pandemic. The president insisted that Republicans are on board for a larger stimulus package, despite objections among GOP senators to the $1.8 trillion offer that Mnuchin proposed to Pelosi last week. Trump also claimed that the U.S. would force China to pay for the additional stimulus, without providing an explanation of how he would do so, as he blamed Beijing for the coronavirus pandemic.

Lower-Income Workers Face Tax Burden Equal to 70 Percent When Adjusted for Loss of Gov. Benefits, According to Fed Researchers

Federal Reserve Bank of Atlanta researchers say that millions of low-income Americans are locked into poverty thanks to U.S. tax policy, Bloomberg News reported. About a quarter of lower-income workers effectively face marginal tax rates of more than 70 percent when adjusted for the loss of government benefits, a study led by Atlanta Fed Research Director David Altig found. That means for every $1,000 gained in income, $700 goes to the government in taxes or reduced spending. In some cases, there are no gains at all. Poorer families may rely on Medicaid insurance, welfare payments, food stamps, housing vouchers and tax credits that are based on family incomes. Small increases in wages can bring big losses of benefits, reinforcing a negative cycle in which workers aren’t rewarded if they improve their skills or pay. “This is a perverse incentive that says you shouldn’t try to make yourself better,” said Atlanta Fed President Raphael Bostic. "It’s on us to actually change those incentives so that people understand what the potential is and move forward towards opportunity.” According to the U.S. Census Bureau, 34 million Americans lived below the poverty line last year. The Atlanta Fed has developed online tools it calls “dashboards” that allow career centers across the U.S. to advise workers on how to increase their pay in ways that minimize or compensate for the loss of benefits. Career advisers can enter specific details — for example, a mother with three kids along with their various government programs — and suggest ways to make lasting pay gains. The bank is in serious discussions with local partners in states throughout the Southeast, as well as New York, Connecticut, Colorado, Oklahoma and Wisconsin — sometimes in conjunction with the Richmond Fed and Kansas City Fed.

Fed Vice Chair: U.S. Economy Will Take Years to Fully Recover from Coronavirus

Federal Reserve Board Vice Chairman Richard Clarida said yesterday that it could take the U.S. economy years to fully recover from the coronavirus pandemic and would likely require further fiscal support from President Trump and Congress to make it out of the woods, The Hill reported. Clarida said that it would likely take another year for the country's gross domestic product (GDP) to recover to its peak in 2019 and even longer for the unemployment rate to fall back down to its pre-pandemic level of 3.5 percent. “While economic recovery since the spring collapse has been robust, let us not forget that full economic recovery from the COVID-19 recession has a long way to go,” Clarida said. “It will take some time to return to the levels of economic activity and employment that prevailed at the business cycle peak in February, and additional support from monetary — and likely fiscal — policy will be needed.”

Auto Debt Complaints Have Been Soaring During Pandemic

Consumers struggling to keep up with their auto debts filed a record number of complaints with a key federal consumer watchdog agency in the first five months of the pandemic, according to a new analysis of government data released yesterday, MarketWatch.com reported. The report found that the Consumer Financial Protection Bureau (CFPB) received 2,844 complaints by borrowers, or pleas for help, on auto-related disputes from March to July, the highest of any five-month period since the CFPB started collecting consumer complaints in 2012. The complaints showed that borrowers have been hard-hit by COVID-19 after a booming decade for auto financing, but also pointed to a potentially bigger crisis brewing in the months since auto debt relief was left out of the $2 trillion CARES Act, passed by Congress in March. “In the first months of the pandemic, many auto lenders … offered relief programs to their customers. But without federal requirements for relief programs, those programs have been inconsistent,” wrote the report’s co-authors, a team from the U.S. PIRG Education Fund and its research affiliate Frontier Group. What’s more, auto debt complaints were piling up even as many households received one-time $1,200 stimulus checks and before $600 a week in additional unemployment benefits expired at the end of July. While the report said that earlier relief efforts “prevented or at least delayed a massive wave of automobile delinquencies and repossessions,” it also warned that “strains caused by COVID-19 threaten to turn a situation that is already damaging to many consumers into a full-blown crisis.” Click here to read the full report.

Additionally, Prof. Pamela Foohey recently released a paper arguing that power imbalances between auto lenders and consumers have widened and likely will continue to widen, to consumers’ detriment. Click here to access her paper.

ABI Sessions Coming Up at the Insolvency 2020 Virtual Summit: What the Outcome of the Presidential and Senate Races Might Mean for the Economy, Mass Tort Claims, Municipal Insolvency, ABI Talks and More!

ABI sessions continue next week at the Insolvency 2020 Restructuring, Insolvency and Distressed Debt Virtual Summit to examine the key issues facing the commercial bankruptcy landscape. Panels include:

Tomorrow!
• Getzler Henrich Roundtable
• “What Happens After the Election? What the Outcome of the Presidential and Senate Races Might Mean for the Economy, Key Industries and Municipalities,” sponsored by Squire Patton Boggs and featuring former Speaker of the U.S. House of Representatives John Boehner, former Congressman and Chairman of the Democratic Caucus Joseph Crowley, former Congressman Bill Shuster and former Secretary of Transportation Rodney Slater.


Oct. 19
• Trends in Restaurant Restructuring, sponsored by Grant Thornton 

•  Who Went Broke? Trivia Game
• Virtual Soirée, with Guests Chef Gio Osso, Brian Day O’Connor, Comedian Bob Howard

Oct. 20
• Tuesday Training Demo: How to Leverage Digital Marketing for Your Practice in a Virtual World, sponsored by Glantz Design
• Networking Event: All About Cheese (and Wine…) 


Oct. 22-23
• Views from the Bench: Mass Torts, ABI Talks, plus 9 other sessions 
• Networking Hour sponsored by Solutions Health Care Management 


Don’t miss great programming from Summit partners NCBJ, American College of Bankruptcy, CLLA, ABC, NYIC and ABA throughout the week!

Sixteen leading insolvency organizations are participating in the Virtual Summit through Oct. 27 to bring thought leaders from the worlds of restructuring, insolvency and distressed debt for insightful online programming and engaging networking via a state-of-the-art virtual platform. Click below to learn more about how the Insolvency 2020 platform provides attendees with an enhanced online conference experience:



For more information and to register, please click here.

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New on ABI’s Bankruptcy Blog Exchange: USAA's Regulatory Troubles Now Include OCC Fine, CRA Downgrade 

The $85 million penalty and the bank’s “needs to improve” rating on its Community Reinvestment Act exam were tied to alleged violations of the Military Lending Act and Servicemembers Civil Relief Act, according to a recent blog post.

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

 
© 2020 American Bankruptcy Institute
All Rights Reserved.
66 Canal Center Plaza, Suite 600
Alexandria, VA 22314
 

Trump Says Stimulus Talks, $1,200 Checks Are Back in Play

ABI Bankruptcy Brief

October 8, 2020

 
ABI Bankruptcy Brief
 
 
NEWS AND ANALYSIS

Trump Says Stimulus Talks, $1,200 Checks Are Back in Play

President Trump and House Speaker Nancy Pelosi (D-Calif.) both said today that they’re still negotiating on broad economic relief legislation, the latest twist after five head-spinning days during which the White House has whipsawed between demanding a stimulus bill, then shutting down talks — only to renew them again, the Washington Post reported. Pelosi made her demands for a new package clear, nixing the idea of passing a stand-alone bill to solely help the airline industry. She said that such aid would only be considered if it's part of — or accompanied by — a larger relief bill to meet other economic needs. She said that she and Mnuchin were still talking. There appears to be a new sense of urgency from the White House and some congressional Republicans to reach some sort of agreement amid signs the economic recovery is weakening. Trump said in a Fox Business interview that economic relief talks are back on and could include a new round of $1,200 stimulus checks. This announcement came two days after he abruptly declared them over and ordered his deputies to stop negotiating with Pelosi. Pelosi and Mnuchin had been negotiating for about a week on a comprehensive relief bill with a price tag of between $1.6 trillion and $2.2 trillion. The deal under discussion would include new $1,200 stimulus checks, renew enhanced unemployment benefits, and provide $75 billion for coronavirus testing and tracing, among other provisions. When talks broke off Tuesday, Democrats were pushing for language ensuring a wide-scale testing strategy. Pelosi said today that they were still waiting to hear back on that issue.

U.S. Jobless Claims Remained Elevated Last Week

Applications for jobless benefits remained high last week, even as they have fallen swiftly from their peak of more than 6 million last spring, the New York Times reported. But that progress has recently stalled at a level far higher than the worst weeks of past recessions. That pattern continued last week, the Labor Department said today: More than 800,000 Americans filed new applications for state benefits before adjusting for seasonal variations, roughly in line with where the total has been since early August. “The level of claims is still staggeringly high,” said Daniel Zhao, senior economist at the career site Glassdoor. “We’re seeing evidence that the recovery is slowing down, whether it’s in slowing payroll gains or in the sluggish improvement in jobless claims.” That slowdown comes as trillions of dollars in government aid to households and businesses has dried up. The continued high level of jobless claims, combined with large monthly job gains, highlight the remarkable level of churn still roiling the U.S. labor market. Companies are continuing to rehire workers as they reopen, even as other companies cut jobs in response to still-depressed demand for goods and services.

Retailers Brace for a Black Friday Without Crowds

While shoppers may be wary about in-store shopping on Black Friday, American malls and stores are desperate to make the key shopping day happen, Bloomberg News reported. Traditional brick-and-mortar holiday shopping has been declining for a decade as consumers flock to e-commerce, and the COVID-19 outbreak and recession will only hasten its fall. The U.S. retail sector has been devastated after months-long shutdowns and dozens of bankruptcies, battering the survivors’ hopes that shopping patterns would get back to normal by retail’s busiest day. With barely seven weeks left, merchants are scrambling to prepare stores and websites to make up for lost time. The holiday playbook of opening stores right after family Thanksgiving feasts, lining the weekend with doorbuster sales, and cramming shops with inventory and workers has been thrown out the window. Stores will be reconfigured, with fewer racks on the floor and service stations spread farther apart. Online sales will take center stage. Supply chains will be strained like never before as businesses try to keep up with record e-commerce purchases, with distribution centers hiring tens of thousands more workers to package and ship orders. What’s more, the pandemic has made shoppers wary of going to crowded stores and left many tight on cash after mass layoffs in most industries. COVID-19 has already cost the U.S. retail industry billions of dollars. In a normal year, department stores and apparel sellers get about a quarter of their annual sales in November and December, according to Fitch Ratings. This year’s fourth-quarter shopping spree will be even more crucial; many sales were missed when stores were closed, and consumers refrained from buying gold necklaces, designer handbags, and other discretionary items. Almost $122 billion in U.S. retail sales has evaporated since the pandemic caused store shutdowns in March. Sales at clothing and accessories stores plunged 34.9 percent in the first eight months of 2020 from the same period in 2019, according to the U.S. Census Bureau.

Census Bureau: Nearly One-Fourth of American Households Facing Layoffs or Pay Cuts

Survey results released yesterday by the Census Bureau found that nearly a quarter of Americans expect someone in their household to lose their job or take a pay cut before Election Day, and nearly one-third expect to potentially lose their homes within the next two months, The Hill reported. The Census Bureau’s latest edition of the Household Pulse Survey found that 24 percent of Americans expect either themselves or someone they live with to suffer a loss of employment income within four weeks. The survey was conducted Sept. 16-28 through an online questionnaire. Roughly 32 percent of respondents said it is likely they will be evicted or foreclosed on within the next 60 days despite federal protections meant to prevent a widespread homelessness crisis, and another 6.8 percent said they do not expect to pay their next monthly rent or mortgage payment on time.

Lenders Get Stuck with Busted Eateries After Bidders Get Scarce

Lenders are having a hard time unloading distressed and bankrupt restaurants amid the financial storm caused by the COVID-19 pandemic, Bloomberg News reported. California Pizza Kitchen Inc. on Tuesday canceled an auction to sell itself after no buyers bid for the company, making its bankers the likely new owners. Ruby Tuesday Inc. went bankrupt Wednesday and plans to hand itself over to its lenders. With federal stimulus talks shelved and colder weather putting an end to outdoor dining, the industry’s pain may start to get even worse in the coming months. “It is a difficult time to sell a casual dining brand,” said John Gordon, a longtime restaurant analyst with Pacific Management Consulting Group. Casual dining chains have been slammed this year both by government shutdowns and by consumer worries about catching COVID-19. Restaurant dining rooms across the U.S. were temporarily shuttered by the pandemic earlier this year. While most have reopened, capacity limits have put a cap on how much revenue they can actually generate. “This fear factor is material; it has an impact on the casual dining sales potential,” Gordon said in an interview. He added that locations that can’t reach annual sales of $4 million to $5 million won’t have the margins that entice investors. Casual dining has suffered for the past decade as consumer tastes diverged away from the sit-down experience of chains like Applebee’s and TGI Friday’s. Sales have instead flowed into local restaurants, fast-food chains like McDonald’s Corp., delivery-focused companies like Domino’s Pizza Inc., and fast-casual concepts like Chipotle Mexican Grill Inc. and Shake Shack Inc. With many diners opting against eating in restaurants since March, casual restaurants have been forced to improvise to hold on to sales. TGI Friday’s, for example, has tried to lure customers with outdoor dining tents, while others are selling meal kits and bulk food.

Companies Give Up Cash Cushions to Buy Back Debt

Companies in the U.S. and Europe are buying back bonds to reduce the cash piles they built up earlier this year, signaling expectations for more stable economic times ahead, the Wall Street Journal reported. This year has seen a 40 percent rise in the value of bonds bought back early by investment-grade firms in the U.S. and a 50 percent increase in the region that includes Europe, the Middle East and Africa, compared with last year, according to research from Deutsche Bank. Corporate debt issuance hit a record high in 2020, data from Dealogic showed. In the U.S., firms tapped the bond market for close to $1.5 trillion through September. Companies in Europe raised €486 billion, equivalent to $573 billion. Many firms rushed to set aside the money as a cushion in anticipation of a prolonged disruption to their operations during the pandemic. (Subscription required.)

ABI Sessions Next Week at the Insolvency 2020 Virtual Summit: Bankruptcy Issues Related to PPP Loans, Ethics, Keynote on the Pandemic’s Impact on Mental Health Now and in the Future, and More!

ABI sessions continue next week at the Insolvency 2020 Restructuring, Insolvency and Distressed Debt Virtual Summit to examine the key issues facing the commercial bankruptcy landscape. Panels include:

Oct. 12
• Premier Sponsor Showcase: Development Specialists, Inc. 


Oct. 13
• Bankruptcy Issues Related to PPP Loans and Other Pandemic Governmental Lending Programs
• Views from the Bench: Ethics


Oct. 14
• Networking Hour: A Martial Artist's Guide to Conflict Management 
• Keynote with Dr. Patrice Harris: The COVID-19 Pandemic: The Impact on Mental Health Now and in the Future 
• Networking Event: Spooktacular Mastering Mixology 

Oct. 15

• Trivia Night 

Oct. 16
• Premier Sponsor Showcase: Getzler Henrich
• Premier Sponsor Showcase: Squire Patton Boggs
• Premier Sponsor Showcase: Moelis & Company

Also, don’t miss great programing from Summit partners ABA, AIRA, IWIRC, NABT, NAFER and NCBJ and M&A Advisors throughout the week!


Sixteen leading insolvency organizations are participating in the Virtual Summit through Oct. 27 to bring thought leaders from the worlds of restructuring, insolvency and distressed debt for insightful online programming and engaging networking via a state-of-the-art virtual platform. Click below to learn more about how the Insolvency 2020 platform provides attendees with an enhanced online conference experience:



For more information and to register, please click here.

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BLOG EXCHANGE

New on ABI’s Bankruptcy Blog Exchange: Banks Urge Fed to Revise Liquidity Rule After Pandemic Shock 

The banking industry is warning regulators putting the finishing touches on the Net Stable Funding Ratio that the measure could exacerbate volatile market events like the spring selloff of Treasury securities, 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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