Moody's: PE-Backed Firms Suffering Higher Default Rates​​​

Companies owned by private-equity firms are landing in default more frequently than other speculative-grade borrowers, according to a report from Moody’s Ratings, Bloomberg News reported. Private-equity-backed companies defaulted at a rate of 17% between January 2022 and August of this year, twice the rate of non-private-equity-backed companies, Moody’s said in the report released Thursday. Among the 12 largest private-equity sponsors — as ranked by Moody’s — the default rate was slightly lower at around 14%. Private-equity-backed companies tend to have more debt and lower credit ratings than their peers, contributing to the higher default rate, Moody’s said. Higher interest rates have also weighed on corporate balance sheets, especially among borrowers with floating-rate debt, which many financial sponsors prefer for flexibility. Distressed-debt exchanges accounted for most of the defaults, according to Moody’s. Private-equity sponsors have favored distressed-debt exchanges in recent years as a way to preserve their equity and exploit loose governing provisions to claw financing from some lenders at the expense of others. Private-equity firms have also borrowed against their funds’ combined assets, tapped private credit and utilized payment-in-kind features to manage diminishing cash flow, Moody’s said in the report. Moody’s also highlighted how private equity has turned to tapping more debt to fund dividends, a strategy that allows them to return cash to shareholders as the market for traditional exits like mergers, acquisitions and initial public offerings has shriveled. That strategy hasn’t led to many defaults, because most of those deals are made by higher-rated portfolio companies, Moody’s said. Read more.

Subchapter V Experiences to Share? ABI Wants to Hear from You!

ABI is continuing its study of Subchapter V, and it needs your help! We are particularly interested in learning more about the real-world impact of Subchapter V. So our question is, do you have a story about a distressed business or creditor who has used or benefited from the subchapter? If so, could that case still happen under the lower debt cap for Subchapter V debtors? Any and all responses are welcome. Submit your story at https://abi.org/subvstories.
 

U.S. Weekly Jobless Claims Surge Amid Hurricane Helene Distortions​​​

The number of Americans filing new applications for unemployment benefits surged last week, partially boosted by Hurricane Helene and furloughs at Boeing amid a nearly four-week-old strike at the U.S. planemaker, Reuters reported. Initial claims for state unemployment benefits increased 33,000 last week to a seasonally adjusted 258,000 for the week ended Oct. 5, the Labor Department said on Thursday. There were large increases in unadjusted claims in North Carolina and Florida, and claims also rose in Washington state. Helene, which tore through Florida and devastated large swaths of the U.S. Southeast in late September, is likely to continue distorting claims data in the weeks ahead. Though striking workers are not eligible for unemployment benefits, their industrial action is rippling through the supply chain and other businesses dependent on Boeing, causing temporary layoffs. Boeing has announced temporary furloughs of tens of thousands of employees. The number of people receiving benefits after an initial week of aid, a proxy for hiring, increased 42,000 to a seasonally adjusted 1.861 million during the week ending Sept. 28, the claims report showed. Read more.

Housing Inflation Eased in September in 'Sharp Reversal' from Previous Month​​​

September's Consumer Price Index (CPI) report came in hotter than analysts expected, but the data offered one major point of optimism: Shelter cost increases came down during the month, flashing an encouraging economic signal that the most stubborn contributor to inflation may finally be giving ground, YahooFinance.com reported. According to data from the Bureau of Labor Statistics released Thursday, shelter costs — which along with food contributed over 75% of the monthly increase in consumer prices — ticked up 0.2% month over month in September, lower than August's 0.5% increase. On an annual basis, shelter cost increases rose 4.9% in September, down from August's year-over-year gain of 5.2%. "The sharp reversal in shelter inflation allays fears that it could reaccelerate after the jump in August and brings the trend back toward the gradual disinflation that we continue to expect," said Parker Ross, global chief economist at Arch Capital Group. For over a year, the stickiness of rent prices reflected in the CPI report have confounded policymakers even as separate data has shown that rents have come down from their 2022 highs. Economists have expected a slowdown in rent increases as the Federal Reserve's tightening campaign eased pricing pressures across the economy. Part of the discrepancy can be explained because BLS collects rent data every six months. Read more.

Analysis: Carrying a Credit Card Balance Has Gotten Way More Expensive​​​

Americans can’t remember a time when it cost as much to carry a credit card balance. Banks have been raising interest rates on credit cards for years, and some are lifting them higher still to recoup the revenue they fear losing from a new cap on late fees. That means cardholders struggling to pay their bills might not see much relief, if any, even with the Federal Reserve expected to continue lowering rates, the Wall Street Journal reported. The average credit card interest rate was 21.5% in May, hovering around its highest level in Fed data going back to 1994. The average balance that people carry was around $6,300 in the second quarter, up 31% from the same period in 2021, according to a TransUnion report. The Consumer Financial Protection Bureau finalized an $8 cap on late fees earlier this year, saying that banks are exploiting a loophole to get around a ban on excessive fees. Fees can be as much as $41 when a payment is even a couple of hours late, the agency said. Banking and business groups sued to block the cap, and a Texas judge halted its implementation in May just before it was set to go into effect. The rule remains tied up in the courts, but card issuers and banks have already been raising rates and charging new fees to offset any potential losses. (Subscription required.) Read more.

Small Business Administration Will Soon Exhaust Disaster Loan Funds​​​

Small Business Administration officials warned on Tuesday that the agency would “very soon” exhaust its funding for new disaster loans for homeowners and businesses in the wake of Hurricane Helene, the New York Times reported. The agency has less than $100 million for new disaster loans, according to the officials, and will continue to process incoming loan applications after the money runs out, but Congress will have to approve additional funding for it to make new loan offers and cut checks. The issue comes at a precarious time for the country. Federal and state officials are preparing for the fallout from Hurricane Milton, the strongest storm in the Gulf of Mexico since 2005, after it made landfall in Florida late Wednesday into early Thursday. Officials are also still responding to the devastating impact of Hurricane Helene in several Southeastern states. “Our ability to fully support all of our disasters is going to be diminished, and that includes Milton,” Isabel Guzman, the agency’s administrator, said in an interview on Tuesday evening. It is unclear whether lawmakers will approve additional funding before the agency exhausts the money, however. Congress is not set to reconvene until Nov. 12. Ms. Guzman said the money would “definitely run out” before then, adding that she hoped lawmakers would return to Washington sooner to replenish the agency’s disaster loan funds. The lack of funds could “delay a family’s ability to rebuild their home and get back in safely,” or a business owner’s ability to “quickly clean up” and “get their employees back to work,” she said. Read more.

Health Care Premiums Are Soaring Even as Inflation Eases, in Charts​​​

Inflation is easing across much of the economy. For health care? Not yet. The cost of employer health insurance rose 7% for a second straight year, maintaining a growth rate not seen in more than a decade, according to an annual survey by health care nonprofit KFF, the Wall Street Journal reported. The back-to-back years of rapid increases have added more than $3,000 to the average family premium, which reached roughly $25,500 this year. Businesses absorbed this year’s higher premium costs — one of several signals in recent years that employers are sensitive to the limits of what workers can afford, said Matthew Rae, associate director of the KFF health care marketplace program and an author of the survey. Employers spent about $1,880 more this year, bringing their average cost for family premiums to $19,276. Workers’ share of the average family premium dropped by roughly $280 from last year to $6,296. Businesses can’t keep that up, said Shawn Gremminger, chief executive of the National Alliance of Healthcare Purchaser Coalitions, an employer group. And workers ultimately bear those higher costs in other ways, he said, including smaller raises or job cuts. “That’s adding real stress to the economy,” he said. (Subscription required.) Read more.

Second Circuit Accepting Applications for E.D.N.Y. Bankruptcy Judgeship​​​

The U.S. Court of Appeals for the Second Circuit invites applications from qualified candidates for a 14-year appointment as U.S. Bankruptcy Judge for the Eastern District of New York. For more information, please click here.​​​​​​

Access All Current ABI Titles Through ABI’s New Digital Book Subscription!​​​

One of the best collections of bankruptcy books is now available as an annual digital subscription! ABI’s bankruptcy library opens the door to a constantly evolving area of the law, and our books are continually being updated by top industry professionals. Auto-renewing annual subscriptions guarantee immediate access to this invaluable resource, which is comprised of fully searchable content that’s always available on any digital device. Convenient pricing plans for individual and institutional subscribers offer immediate and unlimited access to our entire digital library of books — nearly 100 treatises! Plus, you get advanced access to new and revised books as soon as they are published — all included in your annual subscription. Learn more!

Have an Idea for a Topic for an ABI Conference Session? Submit Your Proposal via ABI’s “Call for Abstracts” Page!​​​

ABI has launched an online portal for professionals to submit proposals for educational sessions at future ABI conferences. Submitters can describe their proposed topic, outline the session’s focus and learning goals, suggest speakers, and provide contact information via the portal’s detailed form. The portal can be accessed here.

All submissions will be reviewed by an internal Education Committee, which will contact the submitter to ask questions as needed and to discuss the status of the proposal. Submissions will be reviewed on a rolling basis.

Sign up Today to Receive Rochelle’s Daily Wire by E-mail!
Have you signed up for Rochelle’s Daily Wire in the ABI Newsroom? Receive Bill Rochelle’s exclusive perspectives and analyses of important case decisions via e-mail!

Tap into Rochelle’s Daily Wire via the ABI Newsroom and 'X' (Formerly known as Twitter)!