Senior Living and Care Leads Record-Breaking Distress in Health Care Sector Bankruptcy Filings​​​

Distress levels in health care, as measured by the number of bankruptcy filings, had another record-breaking quarter, led by the senior living and care sector, according to the latest Polsinelli-TrBK Distress Indices Report, McKnight’s Senior Living reported. The Health Care Index reached the highest level of distress in the report’s history for the fifth consecutive quarter, according to the Second Quarter 2024 Chapter 11, Healthcare and Real Estate Distress Indices report. Data show that the current level of chapter 11 filings is almost 50% higher than health care distress at the height of the Great Recession in 2008-2009. Real estate distress also reached its highest level in 11 years. “We are continuing to see significant turmoil across various sectors and are now really starting to see data similar to the Great Recession or higher,” said Jeremy R. Johnson, a restructuring attorney at Polsinelli and co-author of the report. “We are seeing unprecedented levels of distress across the board, and there are no signs that it is slowing down.” For senior living and care settings — independent living, assisted living, memory care, continuing care retirement communities (CCRCs) and nursing and skilled nursing facilities — chapter 11 bankruptcy filings have comprised approximately half of the distress in the health care data set for the past several years, Johnson told McKnight’s Senior Living. The problems in the senior living and care industry, he said, are extensive, particularly in CCRCs. Those large communities did not all recover from the COVID-19 pandemic, Johnson said. The biggest problems involve debt, with bond facilities outsized in comparison with the value and the cash flow generated by the underlying industry, as well as labor costs that are 30% to 40% higher than projected. Companies expanding too fast are at the heart of the problem in long-term care, Johnson said. The Distress Indices Report, he explained, is a snapshot of distress based on bankruptcy filings for the past four quarters, which are converted into a distress number. The past four quarters have shown high distress numbers, particularly for health care. And although Johnson doesn’t expect the number to remain at that high, he also said it is not going to go down substantially. Read more.

Analysis: The Dramatic Turnaround in Millennials’ Finances​​​

Millennials are now wealthier than previous generations were at their age. They can’t believe it, either, according to a Wall Street Journal analysis. Fifteen years ago, Andy Holmes was a college graduate living with his parents, mowing lawns and digging ditches for extra income. He and his college pals who could only get low-paid jobs wondered if they would have a shot at the success their parents had. Today, Holmes is a chief financial officer in Kansas City, Mo., on track to retire at 52. “I’m in a place financially that I couldn’t have imagined coming out of college,” he said. “At age 37, my net worth is closer to what I thought it’d be at 47.” The change in fortune for Holmes’s generation, now between 27 and 44 years old, was recent and swift. The median household net worth of older millennials, born in the 1980s, rose to $130,000 in 2022 from $60,000 in 2019, according to inflation-adjusted data from the Federal Reserve Bank of St. Louis. Median wealth more than quadrupled to $41,000 for Americans born in the 1990s, which includes the generation’s youngest members, born in 1996. The turnaround has been so dramatic that millennials — mocked at times for being perpetually behind in building wealth, buying homes, getting married and having children — now find themselves ahead. In early 2024, millennials and older members of Gen Z had, on average and adjusting for inflation, about 25% more wealth than Gen Xers and baby boomers did at a similar age, according to a St. Louis Fed analysis. Ana Hernández Kent, a senior researcher at the St. Louis Fed and a millennial herself, spent years examining whether her cohort was a “lost generation.” “They’re no longer lost,” she said. “They’re found.” In the first quarter of 2024, the collective wealth of millennials and older Gen Z stood at $14.2 trillion, up from $4.5 trillion four years earlier, according to the Federal Reserve. The biggest driver of that increase was real estate. Read more.

Analysis: Why Falling Mortgage Rates Aren’t a Quick Fix for Frustrated Homebuyers​​​

Mortgage rates are at the lowest level in more than a year, but for millions of Americans, it will take a lot more than that to make homeownership affordable, according to an analysis in the Wall Street Journal. Despite the recent drop, mortgage rates are unlikely to return to anywhere near the levels they were at before the Federal Reserve started to raise interest rates in early 2022. They might not move enough to make a huge difference soon, leaving home buyers to contend with record housing prices, limited inventory and renewed fears of a recession. “These things take time,” said Peter Federico, chief executive of AGNC Investment, a real-estate investment trust. “Rates need to go down and stay down.” Signs of a cooling economy have prompted more bets that the Fed will start to cut its benchmark interest rate as soon as next month. That has put downward pressure on the government-bond yields that mortgage rates tend to follow. The average rate on the standard 30-year fixed mortgage was essentially flat this week, around 6.5%, after logging its sharpest decline of the year last week. That rate is more than a percentage point lower than its peak last year of nearly 8%. Mortgage bankers have pinned hopes on lower rates to bring home buyers and sellers back to the market after U.S. home sales last year plummeted to the lowest level in decades, but millions of Americans have been priced out of the market, where it has become less affordable than just about ever to buy a home. Many Americans locked in much lower rates before the Fed started its rate-hike campaign, making them reluctant to move. That dynamic has locked up the market and driven prices even higher. 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 benefitted 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.
 

Commentary: Mortgage Rates Are Down. Do Buyers Care?​​​

Mortgage rates fell two weeks ago, then climbed steadily again last week. Is it enough to motivate any new seller activity, or are we looking at 2025 before home sales finally recover? From a total inventory perspective, we haven’t seen any pickup in demand in the past couple of weeks as mortgage rates fell under 7%, according to a Housingwire commentary. This is a bit surprising. We expected to be able to measure some pickup in demand with cheaper money. Two factors are at play here. It could be that rates haven’t fallen far enough or stayed there long enough. It was expected that under 6.75 to 6.5 would be a threshold for buyers to start moving. We hit 6.5 10 days ago. But rates didn’t stay there long and climbed all last week. The other reason we haven’t measured any pickup in demand with lower rates is seasonal timing. For falling rates to motivate buyers to take action, we’d need buyers actively shopping. We could be witnessing homebuyers totally checked out for 2024, waiting to see where rates are, what the economy is doing, and who is president next spring. Whatever the reasons, we are not yet measuring any increase in demand for this dismal 2024 housing market. There are now 693,000 single-family homes on the market. That’s a 1.3% increase for the week, a slightly bigger increase than the week-by-week seasonal model estimated. There are almost 41% more homes on the market now than last year. Rising mortgage rates slowed homebuyers near the end of August last year, and inventory rose unseasonably fast. The previous year’s inventory had been rising 1-2% per week through the end of October​​​. Read more.

*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 Fall 7,000 to 227,000 in Sign of Resilience in Job Market​​​

The number of Americans applying for unemployment benefits fell last week, another sign that the job market remains resilient in the face of high interest rates, the Associated Press reported. Jobless claims dropped by 7,000 to 227,000 last week, the Labor Department reported today. The four-week average of claims, which smooths out week-to-week ups and downs, fell by 4,500 to 236,500. In the week that ended Aug. 3, 1.86 million Americans were collecting jobless benefits, down by 7,000 from the week before. Weekly filings for unemployment benefits, which are a proxy for layoffs, remain low by historical standards. From January through May, claims averaged a rock-bottom 213,000 a week. But they started rising in May, hitting 250,000 in late July and adding to evidence that high interest rates are taking a toll on the U.S. job market. But claims have since fallen two straight weeks, dispelling worries that the job market was deteriorating rapidly rather than just slowing. The Federal Reserve, fighting inflation that hit a four-decade high just over two years ago, raised its benchmark interest rate 11 times in 2022 and 2023, taking it to a 23-year high. Inflation has come down steadily — from 9.1% in June 2022 to a three-year low of 2.9% last month. Despite higher borrowing costs, the economy and hiring kept cruising along, defying widespread fears that the U.S. would sink into recession. Read more.

Retail Sales Beat Expectations, Easing Concerns About the Economy​​​

Retail sales in July came in above expectations, the government reported today, painting an optimistic picture of consumer spending that could ease concerns about the strength of the economy, the New York Times reported. The better-than-expected results, pointing to continued economic sturdiness, drove stocks higher. The S&P 500 jumped more than 1 percent, on track for its sixth daily gain in a row. The tech-heavy Nasdaq also rose. Retail sales increased 1 percent in July from the previous month, the Commerce Department said, well above the 0.4 percent rise that economists were expecting. A bounce-back in auto sales as cyberattack-related disruptions faded probably intensified the jump in overall retail sales, analysts said. But sales excluding autos and gasoline, a calculation that can be more indicative of spending trends, also beat expectations, rising 0.4 percent. Consumer spending is a key driver of the U.S. economy, accounting for roughly two-thirds of gross domestic product. The retail sales report, which is not adjusted for inflation, pointed to resilience in consumer spending and provided reassurance after recession fears, tied to weaker-than-expected employment numbers, catalyzed a market sell-off early this month. Based on the “solid” retail sales data, consumer spending is on track for 3.5 percent growth in the third quarter, according to Kathy Bostjancic, the chief economist of Nationwide. That would propel overall economic growth to a healthy rate of more than 2 percent for the quarter, she wrote in a research note. Many forecasters have been warning of an economic downturn since the Federal Reserve started raising interest rates two years ago to combat surging inflation. The retail sales numbers are the latest in a string of data points this week that have allayed economic worries. Read more.

Latest "Party in Interest" Podcast Features Prof. Melissa Jacoby of UNC Chapel Hill​​​

The latest episode of ABI's "Party in Interest" podcast features ABI Executive Director Amy Quackenboss talking with Melissa B. Jacoby, the Graham Kenan Professor of Law at the University of North Carolina at Chapel Hill and soon to be a visiting professor at Harvard Law School in the fall. ABI’s Resident Scholar for the spring 2016 semester, Prof. Jacoby recently released her first book, Unjust Debts, which received a starred review from Publisher’s Weekly and made the Financial Times’ best economics books list. Click here to listen.

Nomination Deadline is Sept. 6 for ABI's International Matter of the Year Award!

ABI’s International Committee is accepting nominations for its Third Annual ABI International Matter of the Year Award. For criteria, eligibility and other information on the award, please click here.

All nominations must be received by Sept. 6.
 

Get Your Copy of The Purdue Papers — Now Updated with the Supreme Court’s Ruling!​​​

The Purdue Pharma L.P. case, overturned at the end of June by the U.S. Supreme Court, generated a mountain of commentary in the form of amicus briefs, petitions and other related background material. Guided by editor David R. Kuney (who represented one group of amicus filers), ABI has gathered together all of this material in a fully searchable form — more than 3,500 pages worth! This digital book includes the final Supreme Court decision, a commentary by ABI Editor-at-Large Bill Rochelle, and a transcript of ABI’s July 2 webinar discussing the implications of the decision. It’s an invaluable resource for anyone working in the area of third-party releases, whether as a practitioner, an academic or just an interested party. Get your digital copy for only $25!

Pick Up Your Copy of Driving the Recovery Bus​​​

Make sure to pick up your copy of Driving the Recovery Bus: Augmenting Creditor Recoveries Through Claims Brought by a Litigation Trustee. Written by Gordon Z. Novod, this book is not only for litigation trustees, but also for creditors who serve on official committees of unsecured creditors, attorneys and other professionals who frequently represent official committees of unsecured creditors, and others with a general interest in the pursuit of causes of action by litigation trustees. Get your copy of Driving the Recovery Bus. 
 

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.

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