Bankruptcy Brief

Default Crisis Dodged — for Now — with Dem/GOP Debt Accord​​​​​​

Senate leaders announced an agreement today to extend the government’s borrowing authority into December, temporarily averting an unprecedented federal default that experts say would have devastated the economy, the Associated Press reported. “Our hope is to get this done as soon as today,” Senate Majority Leader Chuck Schumer (D-N.Y.) declared as he opened the Senate. In their agreement, Republican and Democratic leaders edged back from a perilous standoff over lifting the nation’s borrowing cap, with Democratic senators accepting an offer from Senate GOP leader Mitch McConnell (R-Ky.). McConnell made the offer a day earlier just before Republicans were prepared to block longer-term legislation to suspend the debt limit and as President Joe Biden and business leaders ramped up their concerns that a default would disrupt government payments to millions of people and throw the nation into recession. The agreement sets the stage for a sequel of sorts in December, when Congress will again face pressing deadlines to fund the government and raise the debt limit before heading home for the holidays. The agreement will allow for raising the debt ceiling by about $480 billion, according to a Senate aide familiar with the negotiations who spoke on condition of anonymity to discuss them. That is the level that the Treasury Department has said is needed to get to Dec. 3. ​​

Weekly Jobless Claims Decline to 326,000​​​​​​

The total of Americans submitting jobless claims fell sharply last week as enhanced federal unemployment benefits wound down, the Labor Department reported today, according to CNBC.com. Initial filings for unemployment benefits totaled a seasonally adjusted 326,000 for the week ended Oct. 2, below the 345,000 Dow Jones estimate and a drop from the previous week’s 364,000 total. The weekly total was the lowest level since Sept. 4 and reverses a trend of rising claims over the past three weeks. However, the four-week moving average, which smooths weekly volatility in the numbers, edged higher to 344,000. Continuing claims, which run a week behind and total those who have filed for at least two weeks of benefits, also posted a healthy decline, dropping 97,000 to 2.71 million. ​​

Supply Crunch Hits Would-Be Homebuyers, Makes Renting Cheaper​​​​​​

Young workers flocking to America’s fastest-growing metropolitan areas in search of good jobs are finding it increasingly difficult to buy homes as decades of public policy decisions collide with a shorter-term supply-chain crisis, The Hill reported. The result is that for millions of Americans who live in the nation’s economic powerhouses, renting is now cheaper than buying a home: In about half of the country’s largest cities, median rent is less than the average monthly mortgage of a starter home. “Home prices are rising at double-digit growth in 90 percent of metro areas,” said Gay Cororaton, director of housing and commercial research at the National Association of Realtors. “It’s really the supply that’s constraining homeownership, not the desire to rent.” In cities like Austin, San Francisco, Seattle, Boston and Los Angeles, median rents are 40 percent or more lower than the monthly cost of buying a starter home, according to data from Realtor.com. Real estate firm Zillow, which monitors both home and rental costs, found that renting is cheaper than monthly mortgage payments in 22 of the top 100 metro areas. The higher costs of buying a home come from an overall shortage in inventory that has sent home prices soaring in recent years. Home builders are constructing fewer new homes than they were before the great recession more than a decade ago. The millennial generation is entering prime homebuying ages, and more older Americans are looking for second homes, adding to an increase in demand. ​​

Commentary: Pension Funds’ Silver Lining Has a Touch of Gray​​​​​​

There has been an unusual burst of good news for state pension plans in the past week, according to a Washington Post commentary. New Jersey, one of the shakiest plans in the country, reported a 28.6% return for the fiscal year ended June 30, the highest in more than 20 years. Other funds have reported or are estimated to have returns around 25%. The Pew Charitable Trust estimates that State and local pension funds have finally recovered from the 2008 market crash and are back up to 80% funded, meaning that assets currently in the fund could cover 80% of the benefits owed under optimistic assumptions about investment returns. Moreover, reforms adopted in the last decade, such as increasing taxpayer and employee contributions and limiting benefits for new hires, mean that funds as a group are now in “positive amortization,” with more cash being collected net of benefits than the present value of new benefits added, shrinking the funding gap. This proves many forecasters wrong when they predicted back in the depths of the March 2020 market crash that state pension fund systems might have been at the tipping point from which recovery would be impossible for the most troubled plans. A 65% gain in the S&P 500 Index while interest rates fell (meaning bond prices rose) moved funds from the critical list to, if not the full health of 100% funded under realistic assumptions, at least the walking-wounded state that has been the norm since the 2000 stock market crash. But every silver lining has a touch of gray. The bad news about the stock market rally is that it is only in stock prices; corporate revenues, profits and book values have not kept pace. As a result, the cyclically adjusted price earnings ratio (the best well-known measure of stock valuations) stands at 37.2 — far above the high of 31.3 just before the Black Friday stock market crash that was the harbinger of the Great Depression, and only exceeded by the 43.8 in 1999 that marked the top of the dot-com bubble. Unless there is a miracle recovery in actual business profits and economic growth, it seems inevitable that there will either be a major stock market crash, or at least a period of many years of mediocre stock market returns rather than the robust gains necessary to maintain pension plan funding levels. ​​

SEC’s Gensler Aims to Save Investors Money by Squeezing Wall Street​​​​​​

Wall Street’s new overseer has outlined an aggressive regulatory agenda that threatens to squeeze the financial industry’s profit margins, the Wall Street Journal reported. Securities and Exchange Commission Chairman Gary Gensler is working on tougher rules for high-speed trading firms, private-equity managers, mutual funds and online brokerages. Mr. Gensler, less than six months on the job, says he wants to make the capital markets less costly for companies raising money as well as for ordinary investors saving for retirement. His main targets are what he says are profits and salaries earned above what a purely competitive market would allow, known as economic rents. “I hope that we address, and try to lower, the economic rents in our capital markets,” Mr. Gensler said. He noted that finance as a share of U.S. economic output had more than doubled since the 1950s to roughly 8% of today’s gross domestic product. “If we ever got back to what it was,” he said, “that’s a lot of savings.” The regulatory push risks shaking up some of Wall Street’s most lucrative business models. Some Republicans accuse him of overreach. People close to the industry say Mr. Gensler’s plans are likely to spark opposition. But because the SEC hasn’t issued formal proposals for most of the items on his agenda, few industry representatives have been willing to publicly criticize it. (Subscription required.) ​​

Justice Department Sets Up National Cryptocurrency Enforcement Team​​​​​​

The U.S. Justice Department is creating a national cryptocurrency enforcement team to tackle investigations and prosecutions of criminal misuses of cryptocurrency and to recover the illicit proceeds from these crimes, Deputy Attorney General Lisa Monaco said yesterday, the Wall Street Journal reported. The creation of the National Cryptocurrency Enforcement Team, which would be under the supervision of Assistant Attorney General Kenneth Polite Jr., will focus on crimes committed by virtual currency exchanges and mixing and tumbling services, the DOJ said in a statement. The team also would help trace and recover assets lost to fraud and extortion, the DOJ said. A virtual currency “mixer” or “tumbler” charges customers a fee to send cryptocurrencies to a designated address in a manner designed to conceal the source or owner of the currency. NCET would strengthen the DOJ’s capacity “to dismantle the financial entities that enable criminal actors to flourish — and quite frankly to profit — from abusing cryptocurrency platforms,” Monaco said. “As the technology advances, so too must the department evolve with it so that we’re poised to root out abuse on these platforms and ensure user confidence in these systems,” she said. (Subscription required.) ​​

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

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

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Analysis: Controversy over Debt Limits: Is the U.S. at Risk of Bankruptcy?​​​​​​

The U.S. Treasury Secretary is skeptical about the country’s future: Janet Yellen is appealing to Congress to make a decision to raise the debt limit as soon as possible, according to an analysis in the Weston Forum. In an opinion piece in the Wall Street Journal, Yellen wrote that if the U.S. could not meet its obligations, it would trigger a historic financial crisis. “We will emerge from this crisis as a permanently weak country,” she wrote. U.S. creditworthiness has so far been a strategic advantage. She said that “sometime in October” the U.S. government would not be able to meet its payment obligations if no decisions were made by then. But neither Democrats nor Republicans seem to want to be solely responsible for raising their legal debt limit again. While Democrats are firing on Donald Trump for amassing an additional $8 trillion in debt during his tenure, Republicans are firing at Joe Biden as an unhealthy spendthrift. Democrats could have solved the problem on their own by increasing their spending bill. This does not require Republican approval. But they also want to bind the opposing party — just as they have done under Trump. Republicans, on the other hand, don’t want to get into that. With a Democratic president, a Democratic House, and a Democratic Senate, Democrats have all the tools they need to raise the debt ceiling. The crisis caused by a U.S. government default would exacerbate the economic damage caused by the ongoing coronavirus pandemic, moving markets and plunging the U.S. economy into recession. Yellen believes that millions of jobs will be lost and that interest rates will rise permanently.​​

Commentary: America Risks an ‘Evergrande Moment’*​​​​​​

Global investors suffered a bad moment earlier this week when they belatedly started to worry the financial fiasco engulfing Chinese property developer Evergrande Group might spread beyond the country’s borders. After a one-day drop in the Dow Jones Industrial Average, they got over their unease — but only because most observers view this situation entirely the wrong way, according to a Wall Street Journal commentary. The question is not whether an exploding debt bomb at a Chinese company will spread financial shrapnel abroad. It won’t. The explosion would detonate within the concrete bunker of China’s closed financial system, which will dampen, if not entirely mute, any shock waves. The better question is whether similar explosives lie ticking in other developed economies. The answer is that there’s probably some version of Evergrande in most of them. China’s dysfunctions are not as unique as outsiders want to believe. Most folks already seem to be forgetting that from Beijing’s perspective, Evergrande’s potential implosion is as much a solution as a problem. There’s a reason the Chinese government was willing to set in motion such a predictable series of events by cracking down on property-related debt. The problem Beijing needs to solve, stated in its simplest form, is this: An aging and potentially shrinking population finds itself fantastically overreliant on property-linked borrowing to fuel current economic growth, and on the underlying property as a store of savings from which to finance the middle class’s needs in its impending retirement. Endless complications arise from that basic dynamic, according to the commentary. The most interesting is that chronic redirection of the economy’s savings into property “investment” saps productivity growth over time because real estate is a less productive asset than a factory or a research-and-development lab. Because of the mismatch between properties’ relatively muted productivity and the rising property prices on which middle-class savers have come to rely, governments face constant pressure to find new mechanisms to sustain high prices. This often means encouragement of ballooning debt levels.​​



*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.

Commentary: Stay the Course, Oklahoma: Takeaways from the Proposed J&J ‘Global’ Opioid Settlement*​​​​​​

Talk about a bad deal. Johnson & Johnson recently announced a national settlement aimed at ending all its opioid litigation. J&J would pay a total of $4.65 billion over 9 years to settle all the opioid claims against it in the United States. This sounds like a lot of money. For Oklahoma, though, it’s not, according to a commentary in The Oklahoman. This settlement was negotiated in secrecy, without Oklahoma at the table. Other states and J&J agreed that Oklahoma would get only $13.5 million as part of this backroom deal, and there is nothing to stop J&J from deploying some shifty bankruptcy strategy afterward — which they threatened to do in response to the talc litigation. Putting that $13.5 million in perspective, Oklahoma’s public health experts say it will cost $17.7 billion to clean up the mess J&J made in Oklahoma. The cost of the opioid epidemic nationally is more than $500 billion annually. Meanwhile, Oklahoma won a landmark judgment against J&J that’s now worth around $520 million. The national settlement is only worth less than 3% of what Oklahoma won at trial. Wisely, Oklahoma did not take this deal. Thanks to the foresight and courage of State leaders, Oklahoma has already won over $800 million in its fight to rectify the opioid crisis. This includes $270 million from Purdue Pharma — about $200 million of which is already at work funding a world-class addiction research and treatment center in Oklahoma; $85 million from Teva; $8.5 million from McKinsey; and $9.75 million from Endo. J&J has so far paid nothing other than the $832 million they spent on litigation costs in 2019 alone. No other state has recovered a dime from Purdue, the Sacklers, Teva or Endo. Oklahoma’s strategy to aggressively litigate and negotiate these cases separately has worked so far, making Oklahoma the most successful state in the country in terms of securing funds to reverse the opioid crisis. No other state can boast a record like Oklahoma. No other state had the courage to even start a trial with J&J, according to the commentary.​​



*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.

Analysis: Don’t Expect Student Loan Forgiveness for Every Borrower​​​​​​

At a virtual student loan debt summit this week, Senate Majority Leader Chuck Schumer (D-N.Y.) criticized President Joe Biden for not enacting wide-scale student loan cancellation, according to an analysis in Forbes. Schumer repeated his call for Biden to cancel up to $50,000 of student loan debt for borrowers “with the flick of a pen,” referring to what Schumer believes is Biden’s legal authority to enact mass student loan cancellation through an executive order. Schumer says that cancelling student loans will stimulate the economy and help a generation of student loan borrowers have extra money to get married, start a family, buy a home, save for retirement and start a business. However, here’s the thing: As much as student loan cancellation is pitched, the reality is that every student loan borrower won’t get student loan cancellation, according to the analysis. Student loan forgiveness has been loosely talked about in a binary way: Either Biden cancels student loan debt, or no one gets student loan forgiveness. Since becoming president, Biden has cancelled nearly $10 billion of student loans. This includes student loan forgiveness for disabled student loan borrowers, as well as student loan cancellation for student loan borrowers under the borrower defense to repayment rule. Despite the high headline number, some say that on a relative basis, targeted student loan forgiveness is welcomed, but the student loan forgiveness to date only constitutes less than 1% of total student loan debt of $1.7 trillion. Student loan cancellation may help more student loan borrowers, but that doesn’t mean Biden will cancel everyone’s student loan debt. While Biden asked the U.S. Department of Education in March to opine on his legal authority, that legal memorandum hasn’t been made public. Biden will continue to cancel student loan debt, but most student loan borrowers won’t have all their student loan debt discharged.​​

Analysis: America’s Cash Might Stay on the Sidelines​​​​​​

If Americans ever feel comfortable again, they have a lot of money that they can spend, according to an analysis in the Wall Street Journal. But who knows when that comfort will come? The Federal Reserve on Thursday reported that the net worth of U.S. households was $134 trillion in the second quarter — up from $128.4 trillion in the first quarter. That figure stood at $110 trillion in the fourth quarter of 2019, before the pandemic took hold. Including nonprofits, accumulated household net worth in the second quarter hit a record $141.7 trillion. Much of that increase in wealth came about from gains in stock prices and the value of people’s homes, but what may be most notable is how much more money people have lying around in cash. The amount of cash and cash equivalents on household balance sheets rose to $16.5 trillion in the second quarter, from $16.3 trillion in the first quarter and $12.7 trillion at the end of 2019. It is a reflection of both how much people reduced spending, particularly in the early stages of the pandemic, and the substantial relief that the federal government has provided. Chances are that cash has continued to build up since the end of June: The latest data from the Commerce Department show that in July people hung on to 9.6% of their after-tax income, which compares with an average personal saving rate of 7.4% in the five years ended 2019.​​

U.S. Jobless Claims Tick Up from Near a Pandemic Low​​​​​​

The number of Americans applying for unemployment aid rose last week for a second straight week to 351,000, a sign that the delta variant of the coronavirus may be disrupting the job market’s recovery, at least temporarily, the Associated Press reported. Thursday’s report from the Labor Department showed that jobless claims rose by 16,000 from the previous week. As the job market has strengthened, unemployment aid applications, which generally track layoffs, have tumbled since topping 900,000 early this year, reflecting the economy’s reopening after the pandemic recession. The four-week moving average of claims, which smooths out week-to-week swings, registered its sixth straight drop — to a pandemic low of 336,000. Jobless claims still remain somewhat elevated: Before the virus tore through the economy in March 2020, they generally numbered about 220,000 a week. In a research report, Contingent Macro Advisors concluded that the recent jump in applications for unemployment benefits — especially so last week in California and Virginia — likely reflected a technical problem in processing the claims. America’s employers have rapidly increased their hiring since they slashed 22 million jobs in March and April 2020 as the pandemic — and the shutdowns that were meant to contain it — brought economic activity to a near-standstill. Since then, the economy has recovered about 17 million jobs as the rollout of vaccines encouraged businesses to open and expand hours and Americans to go back out to shop, travel and dine out. But hiring, which has averaged more than 585,000 jobs a month this year, slowed to just 235,000 in August as the delta variant disrupted the recovery. Overall, 2.8 million Americans were receiving unemployment benefits during the week of Sept. 11, up by 131,000 from the week before.​​

ABI's Views from the Bench Program Returns Tomorrow!​​​​​​

ABI’s popular Bankruptcy 2021: Views from the Bench program is taking place tomorrow and will feature the views of more than 20 sitting and retired bankruptcy judges during a full day of high-quality CLE and networking opportunities. Attendees will have the option of attending the program either in person at the JW Marriott in Washington, D.C., or virtually via an innovative online platform. This year’s program will examine a number of current issues related to bankruptcy case confirmation, the changing real estate landscape, small business reorganization and much more. Attendees have the chance to earn up to 6/7.2 hours of CLE/CPE credit and up to 1.2 hours of ethics. Click here to register!

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Report: 44 Percent of U.S. Small Businesses Have Less than 3 Months' Worth of Cash​​​​​​

More than 18 months into the pandemic, bakery owner Letha Pugh is so low on cash that she's afraid to spend it on anything other than paying her employees. She's hardly alone: 44% of U.S. small businesses have less than three months of cash reserves, leaving them vulnerable to another shutdown due to COVID-19 or other financial emergencies, according to a Goldman Sachs survey of more than 1,100 small businesses, CBSNews.com reported. An even greater share — 51% — of Black-owned small businesses have less than three months' cash on hand, according to the same survey. While federal loan programs were crucial in keeping many small businesses afloat until COVID-19 restrictions were eased, some owners are concerned by the level of debt they've taken on. According to Goldman, 41% of small business owners and 55% of Black-owned businesses say the new debt could undermine their financial stability. Only 31% of small businesses say they could access funding if they needed additional capital. Even fewer Black-owned businesses — just 20% — report confidence in their ability to raise money.​​

Jobless Claims Plummet in Final Week of Federal Unemployment Aid​​​​​​

New applications for unemployment benefits dropped sharply last week just days before several pandemic jobless aid programs were set to expire, according to data released today by the Labor Department, The Hill reported. In the week ending Sept. 4, seasonally adjusted initial claims for unemployment insurance totaled 310,000, falling by 35,000 to the lowest level since March 14, 2020. Claims are now less than 100,000 above the 225,500 total seen in the final week before COVID-19 upended the global economy. On a non-seasonally adjusted basis, claims totaled 284,287, falling 8,005 from the previous week. Another 96,198 workers applied for Pandemic Unemployment Assistance (PUA) last week, a pandemic jobless aid program for gig workers and contractors. The new claims data comes shortly after roughly 9 million people lost their federal unemployment benefits Monday with the expiration of PUA, the $300 weekly supplement offered through Federal Pandemic Unemployment Compensation (FPUC), and an additional 53 weeks of benefits offered through Pandemic Emergency Unemployment Compensation (PEUC) for those whose state benefits ran out.​​

Analysis: How Asbestos Saved the Sackler Family from Bankruptcy​​​​​​

A long legal chapter in America’s opioid epidemic at last came to an end on September 1st when a federal judge in New York approved the bankruptcy plan of Purdue Pharma, which developed and manufactured OxyContin, a highly addictive painkiller, according to an analysis in The Economist. The deal settled thousands of lawsuits against the firm filed by states, localities, tribes and individuals. Purdue will be reorganized as a public-benefit company called Knoa Pharma, and its future profits will go toward alleviating the damage done by opioid addiction. Members of the Sackler family, who own Purdue, will relinquish control of the firm and contribute $4.5 billion to the settlement. But nine states and Washington, D.C., opposed the final deal, and some will appeal it. Their objections stem from a legal arrangement known as nondebtor releases, which shield parties associated with bankrupt companies from liability. It originated in the 1980s to protect insurers in bankruptcies arising from asbestos liability, and was codified by Congress as a protection in those cases. As a result of the settlement, the Sacklers (not all of whom were involved in the management of the company) will not relinquish most of their fortune, estimated at $11 billion. Richard Sackler, Purdue’s former president and chairman, last month told a court that neither he nor his family nor the company is responsible for America’s opioid crisis. The use of a nondebtor release has also been mooted in the reorganization of two groups that filed for bankruptcy amid child-abuse lawsuits, the Boy Scouts of America and USA Gymnastics. Some Democrats want to ban the arrangement, which they say has been expanded beyond its original intent. In July a group of senators, including Elizabeth Warren of Massachusetts, introduced a bill to close what they call a loophole used by “bad actors.” In the case of Purdue, the settlement does at least mean that money will be disbursed. But those who had hoped the family would have to pay more will be disappointed. The settlement will probably survive an appeal, bringing an unsatisfying legal resolution to a long chapter of a painful public-health crisis. (Subscription required.)​​

As 'Buy Now, Pay Later' Surges, a Third of U.S. Users Fall Behind on Payments​​​​​​

A third of U.S. consumers who used "buy now, pay later" (BNPL) services have fallen behind on one or more payments, and 72% of those said their credit score declined, a new study published by personal finance company Credit Karma showed, Reuters reported. The study, conducted by software firm Qualtrics, surveyed 1,044 adult consumers in the U.S. last month to measure their interest in BNPL and found that 44% had used these services before. The usage figure was slightly up from a similar survey conducted by Credit Karma for Reuters in December, while missed payments were down from 38%. The latest survey found that younger consumers were more likely to miss payments. More than half of Gen Z or millennial respondents — those born between the early 1980s and mid-to-late 1990s — said they had missed at least one payment. That compares with 22% of Gen X, who were born in the early 1960s to early 1980s, and 10% of Baby Boomers, those born between the mid-1940s and 1980. There has been a surge in usage of BNPL services, which allow consumers to easily split payments for purchases into installments. The boom in volumes by providers such as Klarna, Affirm Holdings, AfterPay Ltd. and PayPal Holdings Inc., has been driven in part by online shopping growth during the coronavirus pandemic. The explosive growth has led to more dealmaking and competition. Earlier this week, PayPal announced it would acquire Japanese BNPL firm Paidy, while last month rival Square Inc. agreed to acquire AfterPay.​​

Deals Spree Puts Banks on Track for Busiest-Ever Year​​​​​​

Companies worldwide embarked on an unprecedented deal spree this year, emerging from the depths of the pandemic looking to bulk up and address the vulnerabilities it exposed. Simultaneously, buyout firms and blank-check companies have been deploying hundreds of billions of dollars at a feverish pace, the Wall Street Journal reported. In the first eight months of 2021, companies have announced mergers and acquisitions worth more than $1.8 trillion in the U.S. and more than $3.6 trillion globally, according to data provider Dealogic. Both figures are the highest at this point in a year since at least 1995, when Dealogic started keeping records. Deals are on track to surpass their record set in 2015. The merger wave is minting money for Wall Street. At big banks and boutique advisory firms alike, deal-advisory revenue reached new heights in the first half of the year. Goldman Sachs Group Inc., the top deal-making shop on Wall Street, brought in more than $1 billion in fees in each of the three last quarters. It surpassed that level only once in the decade before the pandemic. Advisory revenue should continue to fuel banks through the rest of 2021. Bankers are paid when a deal closes, and many of the year’s biggest transactions are pending. It is one reason bank stocks have kept rising: Goldman is up 56% this year, the best performer in the Dow Jones Industrial Average. (Subscription required.)​​

Next Tuesday's FREE abiLIVE Webinar to Provide Facilitation Skills for Subchapter V Trustees​​​​​​

Subchapter V trustees, who are likely to be lawyers, accountants or financial advisors, often don't have any formal training in facilitation. A special abiLIVE webinar hosted next Tuesday by ABI’s Mediation Committee will feature subchapter V trustees, lawyers and a retired judge with years of experience in bankruptcy and mediation covering the fundamentals of facilitation — including its purpose — and basic skills trustees may wish to employ in their work.

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COVID-19 Resurgence Crimps Spending, Travel Recovery​​​​​​

A COVID-19 resurgence this summer has caused consumers to turn cautious, while investors trim their investments in a travel sector still struggling to recover, the Associated Press reported. Retail sales dipped a surprising 1.1% in July as consumers spent less on clothing, furniture and sporting goods. At the same time, investors have been retreating from cruise lines, airlines and other travel-related stocks as those companies face another potential stall in activity as cases of COVID-19 are surging because of the highly contagious delta variant. Some of the pullback in consumer spending on goods was expected as people increased spending on services. The services sector, including restaurants, started to bounce back with growth accelerating to a record pace in July, according to The Institute for Supply Management. Several airlines have warned that the virus surge could ground their recoveries. Southwest Airlines no longer expects to be profitable in the third quarter, after recovering enough to post a profit during the second quarter. Spirit Airlines has said that a service meltdown that started in late July and a rise in COVID-19 cases are causing more last-minute cancellations and softer bookings. Major retailers have not yet signaled concerns over the resurgent virus keeping shoppers at home; both Walmart and Target have given investors an upbeat forecast for the remainder of the year. Investors are signaling more caution, however. The S&P 500’s consumer discretionary sector, which includes clothing companies and other retailers that rely on discretionary spending and in-person services, is down nearly 1.5% in August after gaining only 0.5% in July. The sector rose just under 3.8% in June.​​

Jobless Claims Rise Slightly with Benefits Cliff Looming​​​​​​

New applications for jobless benefits rose slightly last week on a seasonally adjusted basis, but declined without seasonal adjustment, according to data released today by the Labor Department, The Hill reported. In the week ending Aug. 21, initial claims for unemployment insurance totaled 353,000 after seasonal adjustments, rising 5,000 from the previous week’s revised total of 348,000. The four-week moving average of claims, however, declined by 11,500 to 366,500, the lowest level since March 14, 2020. Without adjusting for the 15,864-claim decline the Labor Department attributed to seasonal factors, claims totaled 297,765 last week, falling by 11,699. Even so, claims for Pandemic Unemployment Assistance (PUA) rose for the second consecutive week, increasing by 9,628 to 117,709. Claims for PUA, a temporary program created for the pandemic, are not seasonally adjusted. Roughly 12 million people were on some form of jobless aid as of Aug. 7, but that number is set to drop dramatically when pandemic unemployment programs expire on Labor Day. More than 7.5 million jobless workers are set to lose their benefits upon the expiration of PUA and additional weeks of unemployment insurance on Sept. 6. Millions more will lose a substantial portion of their unemployment support when the $300 weekly boost to benefits also expires after Labor Day.​​

SPACs Are Having Their Day — in Court​​​​​​

Blank-check companies are booming again—in the courts. Two law professors are aiming at high-profile targets, filing suits that question the legality of a specific type of special-purpose acquisition company (SPAC), the Wall Street Journal reported. Among them are billionaire William Ackman’s $4 billion Pershing Square Tontine Holdings Ltd.; Go Acquisition Corp., co-founded by veteran entrepreneur Noam Gottesman; and E.Merge Technology Acquisition Corp. Another line of legal attack is more typical, focusing on SPACs whose shares suffer big falls. These are targeting once-hot companies like electric truck maker Nikola Corp., whose class-action suits claim defrauded investors. So far this year, there have been 19 of these more typical class-action lawsuits concerning SPACs filed in federal court. Five were filed in all of 2020, according to insurance brokerage Woodruff Sawyer & Co. In 2019, before the SPAC boom lit up the markets, there were two suits. SPACs were a more popular target for federal class-action lawsuits in the first half of this year than other hot-button litigation areas, such as COVID-19 or cryptocurrencies, according to consulting firm Cornerstone Research. This sharp uptick is likely just the beginning, insurance brokers and lawyers say. (Subscription required.)​​

The Pandemic Is Testing the Federal Reserve’s New Policy Plan​​​​​​

When Jerome H. Powell speaks at the Federal Reserve’s biggest annual conference tomorrow, he will do so at a tense economic moment, as prices are rising rapidly while millions of jobs remain missing from the labor market. That combination promises to test the meaning of the quiet revolution the central bank chair ushered in one year ago, the New York Times reported. Powell used his remarks at last year’s conference, known as the Jackson Hole economic symposium and held by the Federal Reserve Bank of Kansas City, to announce that Fed officials would no longer raise interest rates to cool off the economy just because joblessness was falling and inflation was expected to heat up. They first wanted proof that prices were climbing sustainably, and they would welcome gains slightly above their 2 percent goal. He was laying the groundwork for a far more patient Fed approach, acknowledging the grim reality that across advanced economies, interest rates, growth and inflation had spent the 21st century slipping lower in a strength-sapping downward spiral. The goal was to stop the decline. But a year later, that backdrop has shifted, at least superficially. Big government spending in response to the pandemic has pushed consumption and growth higher in the U.S., and inflation has rocketed to levels not seen in more than a decade. The labor market is swiftly healing, though it has yet to fully recover. Now it falls to Powell to explain why full-blast support from the Fed remains necessary. Investors initially expected Powell to use Friday’s remarks at the Jackson Hole conference to lay out the Fed’s plan for “tapering” — or slowing down — a large-scale bond-buying program it has been using to support the economy. Fed officials are debating the timing of such a move, which will mark their first step toward a more normal policy setting. But after minutes from the central bank’s July meeting suggested that the discussion remained far from resolved, and as the Delta variant pushes coronavirus infections higher and threatens the economic outlook, few now anticipate a clear announcement.​​

New Appetite for Mortgage Bonds that Sidestep Fannie and Freddie​​​​​​

Wall Street is diving back into the business of turning home loans into bonds, injecting new competition into a market long dominated by government-backed mortgage giants Fannie Mae and Freddie Mac, the Wall Street Journal reported. The so-called private-label mortgage market — in which financial firms serve the middleman role of creating giant pools of loans and selling them to investors — had more than $42 billion of issuance in the second quarter. That is the most since the pandemic started and almost the most for any quarter since the last financial crisis, according to Inside Mortgage Finance, an industry research firm. This market still made up a mere 4% of all mortgage bonds issued last quarter. Fannie Mae and Freddie Mac, which issue bonds that come with a federal guarantee that investors will get paid, remain the industry’s dominant players. But mortgage investors expect the private market to keep growing as a repository of loans that Fannie and Freddie can’t or won’t purchase, such as those tied to investment properties, super-expensive homes or self-employed borrowers. Recent issuers include Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co., as well as a growing array of banks and real estate firms. (Subscription required.)​​

Report: U.S. August Auto Sales Expected to Fall as Supply Constraints Continue​​​​​​

U.S. auto retail sales are expected to fall in August, as the global semiconductor shortage coupled with the fast spreading Delta variant of the coronavirus squeezed inventory at dealerships, consultants J.D. Power and LMC Automotive said, Reuters reported. Retail sales of new vehicles are expected to fall 14.3% to 987,100 in August from a year earlier, they said in a report released today. The chip shortage continues to weigh on manufacturing activity, with automakers cutting production despite strong demand for personal transportation during the COVID-19 crisis. "Global light vehicle demand remains under pressure from the severe inventory constraints caused by the semiconductor shortage as well as disruption from the COVID-19 Delta variant," said Jeff Schuster, president of Americas operations and global vehicle forecasts at LMC. Dealers currently have about 942,000 vehicles in inventory, compared with about 3 million two years ago, according to the report.​​

Companies Find It’s a Good Time to Push Pension Obligations Off Balance Sheets​​​​​​

Finance chiefs are stepping up their efforts to move pension obligations off company balance sheets through annuity purchases and other financial tools, taking advantage of well-funded plans and a respite from the scramble over the past year to deal with the COVID-19 pandemic, the Wall Street Journal reported. For years, sponsors of single-employer pension plans have purchased annuities from an insurer for all or some of their employees with vested benefits, thus shrinking a plan’s assets and liabilities and simultaneously strengthening a company’s balance sheet. Pension plans often fluctuate in size based on market volatility and interest rate changes that can create unexpected difficulties for chief financial officers. Companies spent $8.7 billion on annuitizations in the first half of the year, up nearly 30% from the prior-year period, according to consulting firm Mercer LLC. At the start of the pandemic, many companies paused these transfers as finance chiefs focused on preserving cash, operating remotely and generally addressing Covid. But funding levels at the plans have improved overall in recent months, due in part to the strength of the stock market. Also, a March law allowed some sponsors of single-employer plans to reduce the contributions they will have to make in coming years. The funded level of defined-benefit plans — those that pay out fixed sums to retirees for years — sponsored by S&P 1500 companies rose 14 percentage points to 93% as of July 31, compared with the prior-year period, Mercer data showed. The estimated aggregate deficit of the plans fell 68% to $178 billion from the prior-year period, due in part to a small rise in the high-quality corporate bond yield. (Subscription required.)​​

Next Wednesday's FREE abiLIVE Webinar to Examine Cryptocurrency Valuation Issues and Market Volatility​​​​​​

Three cryptocurrency industry experts — a lawyer, a technical consultant and an investment banker — on a special abiLIVE webinar next Wednesday will cover the complexity of valuing cryptocurrency, and will provide their expert views on the cryptomarket’s volatility, both currently and going forward. The panel, sponsored by ABI's Financial Advisors and Investment Banking Committee, will also offer their insights into the adoption of cryptocurrency in the U.S. and globally, and will address regulatory changes in banking as they relate to cryptocurrencies. Register for FREE​​!

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