Disaster Loans Provided a Lifeline. Now Small Businesses Owe Billions in Late Fees​​​

The Small Business Administration provided $390 billion in COVID-19 disaster loans to nearly 4 million small businesses and nonprofits during the pandemic. The loans provided a lifeline for many small businesses. For some borrowers who have defaulted on their loan payments, the bill is now coming due—and it is larger than they expected, WSJ Pro Bankruptcy reported. The SBA has referred 860,000 delinquent Covid disaster loans totaling more than $59 billion to the Treasury Department for collection. Some borrowers say their businesses are still struggling or have closed their doors, while others say they inadvertently missed loan payments, or never intended to repay their debts. In a typical year, the SBA charges off about 650 disaster loans made to small businesses, said Benjamin Collier, an associate professor at Temple University who has studied the performance of disaster loans issued between 2005 and 2017. A charge-off is an accounting figure that includes Treasury referrals and other circumstances such as bankruptcy, fraud or the death of the borrower. The SBA said that it is currently servicing about 3.2 million outstanding Covid disaster loans and that it has charged off roughly 20% of its $390 billion Covid disaster-loan portfolio. A Treasury spokesperson said Congress mandated the federal debt-collection program but didn’t provide any funding for it, and instead authorized the Treasury to charge a fee for administering the program. The Treasury charges federal agencies a 30% collection fee for debts that have been delinquent for two years or less and a 32% fee for older debts. A Treasury spokesperson said these fees are in line with what debt-collection agencies charge their customers. SBA officials said it is standard practice for agencies to pass along the Treasury collection fee to the borrower. The SBA and other agencies are also responsible for providing borrowers with information about the accrual of interest, penalties and costs, the Treasury spokesperson said. Dianna Seaborn, a former SBA official, said Congress, the SBA and Treasury need to look for other ways to manage the collection process, given the special circumstances of the pandemic. “A good collection would be: Give me the principal back and we’ll consider reducing or waiving the fees,” she said. “Somebody needs to come up with a Plan C,” said Seaborn, previously director of the SBA’s Office of Financial Assistance when she left the agency last year. (Subsciption required.) Read more.

Guests Join Latest Episode of ABI's "Reframing Mediation" Podcast to Discuss Key Mediation Topics​​​

Kara E. Casteel of ASK LLP and Luke Murley of Saul Ewing LLP join hosts Edward L. Schnitzer of Womble Bond Dickinson LLP (New York) and Connor Bifferato of The Bifferato Firm (Wilmington, Del.), co-chairs of ABI's Mediation Committee, to discuss a host of key mediation topics. Listen here. 

Report: Office Loan Defaults Near Historic Levels, with Billions on the Line​​​

Defaults are reaching historic levels in the office market, as a growing number of owners capitulate to persistently high interest rates and weak demand, the Wall Street Journal reported. More than $38 billion of U.S. office buildings are threatened by defaults, foreclosures or other forms of distress, according to data firm MSCI. That is the highest amount since the fourth quarter of 2012 in the aftermath of the 2008-2009 financial crisis. Office owners are paying back their loans at a much slower rate. As recently as 2021, more than 90% of office loans that were converted into commercial-mortgage-backed securities were paid off when they became due, according to Moody’s. Last year, that figure fell to 35%, the worst payoff rate in the history of the data, which goes back to 2007. Today’s high interest rates are particularly problematic because commercial-property owners typically borrow at least half of a building’s cost. Most of the mortgages that are coming due now were made when interest rates were much lower than now. In a normal office market, many landlords would be able to pay the higher rates. But since COVID-19, the office market has been far from normal. Demand has nosedived as many businesses are allowing employees to work from home and reconsidering the amount of workspace they need. Tenants signing new leases are closely scrutinizing their landlords’ financial health. They want to be sure the owner isn’t going to lose its property to creditors and has the money to add promised amenities. Read more. (Subscription required.)

Don't miss the abiLIVE webinar on May 22 hosted by ABI's Real Estate Committee featuring a commercial real estate economic outlook presentation by Martin Lavelle, senior business economist with the Federal Reserve Bank of Chicago. Register for FREE!

FBI Report: Scammers Stole More than $3.4 Billion from Older Americans Last Year​​​

Scammers stole more than $3.4 billion from older Americans last year, according to an FBI report released Tuesday that shows a rise in losses through increasingly sophisticated criminal tactics to trick the vulnerable into giving up their life savings, the Associated Press reported. Losses from scams reported by Americans over the age of 60 last year were up 11% over the year before, according to the FBI's report. Investigators are warning of a rise in brazen schemes to drain bank accounts that involve sending couriers in person to collect cash or gold from victims. “It can be a devastating impact to older Americans who lack the ability to go out and make money,” said Deputy Assistant Director James Barnacle of the FBI’s Criminal Investigative Division. “People lose all their money. Some people become destitute." The FBI received more than 100,000 complaints by victims of scams over the age of 60 last year, with nearly 6,000 people losing more than $100,000. It follows a sharp rise in reported losses by older Americans in the two years after the 2020 coronavirus pandemic, when people were stuck at home and easier for scammers to reach over the phone. Barnacle said investigators are seeing organized, transnational criminal enterprises targeting older Americans through a variety of schemes, like romance scams and investment frauds. The most commonly reported fraud among older adults last year was tech support scams, in which criminals pose over the phone as technical or customer service representatives. In one such scam authorities say is rising in popularity, criminals impersonate technology, banking and government officials to convince victims that foreign hackers have infiltrated their bank accounts and instruct them that to protect their money they should move it to a new account — one secretly controlled by the scammers. Read more.

A.I. Start-Ups Face a Rough Financial Reality Check​​​

Since mid-March, the financial pressure on several signature artificial intelligence start-ups has taken a toll, the New York Times reported. Inflection AI, which raised $1.5 billion but made almost no money, has folded its original business. Stability AI has laid off employees and parted ways with its chief executive. And Anthropic has raced to close the roughly $1.8 billion gap between its modest sales and enormous expenses. The A.I. revolution, it is becoming clear in Silicon Valley, is going to come with a very big price tag. And the tech companies that have bet their futures on it are scrambling to figure out how to close the gap between those expenses and the profits they hope to make somewhere down the line. This problem is particularly acute for a group of high-profile start-ups that have raised tens of billions of dollars for the development of generative A.I., the technology behind chatbots such as ChatGPT. Some of them are already figuring out that competing head-on with giants like Google, Microsoft and Meta is going to take billions of dollars — and even that might not be enough. “You can already see the writing on the wall,” said Ali Ghodsi, chief executive of Databricks, a data warehouse and analysis company that works with A.I. start-ups. “It doesn’t matter how cool it is what you do — does it have business viability?” While plenty of money has been burned in other tech booms, the expense of building A.I. systems has shocked tech industry veterans. Unlike the iPhone, which kicked off the last technology transition and cost a few hundred million dollars to develop because it largely relied on existing components, generative A.I. models cost billions to create and maintain. The cutting-edge chips they need are expensive and in short supply. And every query of an A.I. system costs far more than a simple Google search. Investors have poured $330 billion into about 26,000 A.I. and machine-learning start-ups over the past three years, according to PitchBook, which tracks the industry. That’s two-thirds more than the amount they spent funding 20,350 A.I. companies from 2018 through 2020. Read more.

U.S. Productivity Slows Sharply in First Quarter​​​

U.S. worker productivity growth slowed sharply in the first quarter, resulting in a surge in labor costs, but the trend in productivity remained solid, Reuters reported. Nonfarm productivity, which measures hourly output per worker, increased at a 0.3% annualized rate last quarter after rising at a 3.5% pace in the October-December period, the Labor Department's Bureau of Labor Statistics said on Thursday. Productivity advanced at a 2.9% pace from a year ago. Economists are keeping an eye on productivity to gauge how quickly labor costs can rise without re-igniting inflation. Labor costs and inflation surged in the first quarter. Read more.

Number of Americans Applying for Jobless Claims Remains Historically Low​​​

The number of Americans applying for unemployment benefits was unchanged last week and remains historically low as the labor market continues to show resiliency in the face of high interest rates and elevated inflation, the Associated Press reported. The Labor Department reported Thursday that the number of unemployment claims for the week ending April 27 was 208,000, the same as the previous week. That’s the fewest since mid-February. The four-week average of claims, which softens some of the weekly volatility, fell by 3,500 to 210,000. Weekly unemployment claims are considered a proxy for the number of U.S. layoffs in a given week and a sign of where the job market is headed. They have remained at historically low levels since the pandemic purge of millions of jobs in the spring of 2020. Read more.

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. The 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 pursuit of causes of action by litigation trustees. Get your copy of Driving the Recovery Bus.

Application and Nomination Period for ABI’s 2024 “40 Under 40” Class Open Through June 30 ​​​

The ABI "40 Under 40" annual program continues to highlight the best up-and-comers in the industry. If you are, or know of, a dynamic insolvency professional who is committed to growth and excellence both professionally and in your community, this is one opportunity not to be missed! Nominations and applications are due June 30. Click here for more information and to submit a nomination or application. 

Get Your Copy of The Purdue Papers to access Amicus Briefs and Commentaries Related to Purdue Pharma Case!​​​

A petition by the U.S. Trustee regarding the case of Purdue Pharma L.P. is currently being considered by the U.S. Supreme Court. Regardless of how the Court rules, the case has already generated a mountain of commentary in the form of amicus briefs, petitions and other related background material. ABI, guided by editor David R. Kuney (who represented one group of amicus filers), has gathered together all of this material in a fully searchable form — more than 3,000 pages worth! This collection will be updated with the final Supreme Court decision — expected later in 2024 — as well as a final commentary by ABI Editor-at-Large Bill Rochelle, who writes Rochelle’s Daily Wire. This collection is an invaluable resource for anyone working in the area of third-party releases, either as a practitioner, an academic or just an interested party. Get your digital copy for only $25!

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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