PE-Owned Health Care Saw Bankruptcy Surge as Playbook Failed​​​

Private equity-owned businesses accounted for a high number of bankruptcies in the health care sector last year, and another wave of distress looms, according to a new report from an advocacy group that monitors the sector, Bloomberg News reported. PE-backed firms accounted for at least 17, or about a fifth, of the 80 bankruptcies of health care companies last year, the Private Equity Stakeholder Project said in a report due to be released Wednesday. It called 2023 a “record year” for large health-care bankruptcies. Also, venture-capital-backed companies made up another 12, or 15%, of the filings, it said in a study that looked at companies with liabilities of more than $10 million. “The health care default and bankruptcy wave is projected to continue in 2024 as companies are increasingly facing credit rating downgrades and potential defaults — and most of the companies at the highest risk are owned by private-equity firms,” PESP wrote. Two of the largest bankruptcies last year were KKR Group Co.-owned staffing company Envision Healthcare Corp. and cancer-treatment-provider GenesisCare. Another KKR-backed company, Global Medical Response, has more than $4 billion in debt due next year and had launched talks about amending and extending those obligations, Bloomberg has reported. Read more.
 

Housing Market Slumps as Mortgage Rates Top 7%​​​

The U.S. housing market is coming under renewed pressure, buffeted by mortgage rates that rose above 7% again and uncertainty over changes to the commission system for buying and selling a home, the Wall Street Journal reported. The average rate on the standard 30-year fixed mortgage jumped by nearly a quarter percentage point to 7.1%, according to a survey of lenders released today by mortgage-finance giant Freddie Mac. That is the highest level since late 2023 and the largest weekly increase in nearly a year. Existing home sales in March, meanwhile, posted their biggest monthly drop in more than a year, the National Association of Realtors said Thursday. The 4.3% decrease from February was the largest percentage decline on a monthly basis since November 2022, NAR said. The housing market’s recent turbulence is cutting short a positive start to the year. Sales tumbled to their lowest level in nearly 30 years in 2023. But they rose during the first two months of this year as a number of buyers took advantage of a decline in mortgage rates to resume their home search. Active listings ticked higher and real estate showings picked up in January. Mortgage rates started to rise again in February, weighing on March sales. The recent spike in borrowing costs could drag affordability back to the historic lows it reached last year. Home prices are near record highs. Other costs to own a home, such as insurance premiums, property taxes and maintenance, have skyrocketed, too. (Subscription required.) Read more.
 

ABI Applauds Introduction of Bipartisan Legislation Providing a Two-Year Extension to Maintain Greater Access to Bankruptcy for Struggling Small Businesses and Consumers​​​

ABI supports the recently introduced S. 4150 by Sen. Richard Durbin (D-Ill.) to extend key provisions of the “Bankruptcy Threshold Adjustment and Technical Corrections Act” that were due to sunset on June 21 for an additional two years to 2026. S. 4150, cosponsored by Sens. Lindsey Graham (R-S.C.), Sheldon Whitehouse (D-R.I.), Chuck Grassley (R-Iowa), Christopher Coons (D-Del.) and John Cornyn (R-Texas), would maintain the debt limit at $7.5 million for small businesses electing to file for bankruptcy under subchapter V of chapter 11. The bipartisan measure also maintains the debt limit for individual chapter 13 filings to $2.75 million and removes the distinction between secured and unsecured debt for that calculation. "We commend Sen. Durbin and the co-sponsors on the introduction of this important legislation and look forward to working with members of Congress to have it signed into law so that struggling small businesses and consumers continue to have greater access to bankruptcy and achieve a financial fresh start," said ABI President Soneet Kapila. “Maintaining the $7.5 million eligibility limit is consistent with the findings of ABI’s Subchapter V Task Force to help more small businesses keep their doors open, save jobs and benefit the overall economy.” ABI’s Subchapter V Task Force will be releasing its Final Report tomorrow at the Annual Spring Meeting. It reveals that nearly 30% of all chapter 11 bankruptcy cases filed since the enactment of the SBRA have been subchapter V cases. Significantly, the Task Force found that more than 25% of these subchapter V debtors would have been ineligible for subchapter V relief under the lower cap. Read more.

Members of the Subchapter V Task Force will be presenting the Final Report tomorrow at the Annual Spring Meeting. Walk-ups are welcome!
 

New York Fed Says Quantitative Tightening Could Stop in 2025​​​

The U.S. central bank could halt the unwinding of its balance sheet in 2025, according to Federal Reserve Bank of New York projections, Bloomberg News reported. In two scenarios published Wednesday in an annual report, the New York Fed’s trading desk estimated balance-sheet reduction — a process known as quantitative tightening — could end in early or mid-2025, with bank reserves falling to about $2.5 or $3 trillion by the following year. Fed officials began discussing a plan to begin slowing balance-sheet reduction at last month’s policy meeting, though no decisions were made at the gathering. Minutes of the meeting showed that policymakers decided it would be appropriate to take a cautious approach given market turmoil in 2019 — the last time the Fed tried to shrink its portfolio — and judged it would be prudent to begin slowing the pace of runoff of maturing assets “fairly soon.” In the “higher reserves” scenario outlined in the New York Fed report, the balance sheet would be wound down to around $6.5 trillion, while in the “lower reserves” scenario, it would fall to $6 trillion. The Fed has been reducing its holdings of Treasuries and mortgage-backed securities at a rate of as much as $95 billion per month. Wall Street strategists expect the central bank to slash the size of its runoff cap for Treasuries to $30 billion from $60 billion, while keeping its limit for mortgage-backed securities unchanged. Read more.
 

U.S. Weekly Jobless Claims Remain at Low Level​​​

The number of Americans filing new claims for unemployment benefits was unchanged at a low level last week, pointing to continued labor market strength, Reuters reported. Labor market resilience, which is driving the economy, together with elevated inflation have led financial markets and some economists to expect that the Federal Reserve could delay cutting interest rates until September. A few economists doubt that the U.S. central bank will lower borrowing costs this year. "Overall, layoffs remain low. We expect a continuation of the current trend, with a further adjustment in the labor market coming from a moderation in hiring rather than a surge in firings," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. Initial claims for state unemployment benefits were unchanged at a seasonally adjusted 212,000 for the week ended April 13, the U.S. Labor Department said on Thursday. Unadjusted claims declined 6,756 to 208,509 last week. Filings in California jumped by 3,063. There were also notable increases in claims in Connecticut, Georgia and Oregon. Read more.
 

Leveraged Loans Are Next to Face Higher-for-Longer Rates Stress​​​

The U.S. leveraged loan market, as yet unruffled by the shift to a higher-for-longer view on interest rates, may soon join in the pain being felt in other asset classes, Bloomberg News reported. The floating-rate investments, which typically lag behind other assets, have delivered returns of 2.69% so far this year. But some borrowers in the market, often highly leveraged companies owned by private-equity firms, are likely to see a cooling in demand as forecasts for a Federal Reserve rate cut are pushed further into the future. The loan market has been buffeted by unexpected shifts in lending risk in the past. In a high-profile case two years ago, a group of banks had provided financing for Elon Musk’s buyout of Twitter, the company he renamed X, only to have the $12.5 billion debt package remain on their books when the Fed raised rates and prospective investors balked. Junk bond average spreads have widened to a two-month high of 329 basis points from 292 basis points last week, when a hotter-than-expected March Consumer Price Index reading caused yields to climb. The S&P 500 Index is down more than 2% since the inflation report. The current higher rate environment is putting pressure on corporate balance sheets, and debt interest coverage has been deteriorating. Adding to the stress is that leveraged loan borrowers haven’t hedged effectively in the past. For now, borrowers continue to find demand, though lenders are taking the precaution of sounding out investors before bringing a loan deal, including those at the riskiest end of the rating scale. Read more.
 

Memorial Service Details for Hon. Kevin J. Carey​​​

A memorial service for Hon. Kevin J. Carey, who passed away suddenly on April 11, will be held on Wednesday, April 24, 2024, at Saint Thomas of Villanova Church (800 E. Lancaster Ave., Villanova, PA 19085). Visitation will begin at 9:00 a.m., with Mass to begin at 10:30 a.m. Luncheon to immediately follow at the Inn at Villanova University/Montrose Mansion.

In lieu of flowers, the Carey family asks that donations be made to the “Kevin J. Carey Memorial Scholarship Fund.” To make a donation in support of the Kevin J. Carey Memorial Scholarship, please send a check to Villanova University at 299 North Spring Mill Road, Villanova, PA 19085, with “The Kevin J. Carey Memorial Scholarship” in the memo, or you can visit www.villanova.edu/memorialgift. From there, select “Other/Your Choice” to write in “The Kevin J. Carey Memorial Scholarship.” The Kevin J. Carey Memorial Scholarship will be awarded to academically talented students enrolled in the Charles Widger School of Law at Villanova University with demonstrated financial need.

Please find the obituary assembled by his caring family via the following link.
 

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!

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. 

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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