Business Bankruptcies Jump as Slow Wave of Failures Speeds Up​​​

This week is tied for the busiest three-day period for major corporate bankruptcies on record, according to data compiled by Bloomberg. If the pace continues through Saturday, the week will top the end of April 2009, when 16 big companies went bankrupt just as the U.S. was climbing out of the Great Recession. Total bankruptcies — including consumer, small business and big corporates — have been climbing steadily for 20 months, said Michael Hunter, vice president at Epiq, a legal services company that tracks insolvency filings. The trend reflects higher interest rates and a pullback in consumer spending, he said in a statement. Since Sunday, nine companies have filed big chapter 11 cases, including two telecommunications and two pharmaceutical companies. Five of the cases were filed in Delaware, which is one of the main hubs for restructuring cases, in part because so many companies are incorporated there. At least three of the cases — a window-maker backed by SoftBank and two telecommunications companies — negotiated deals with lenders before seeking bankruptcy. Such pre-bankruptcy deal-making has become standard in corporate restructurings and is designed to cut costs and reduce the time a company must remain under court supervision. A jump in business cases doesn’t necessarily mean the economy is in trouble, however, said bankruptcy lawyer Derek Abbott of Morris, Nichols, Arsht & Tunnell. Abbott has seen a jump in restructuring work in recent months, even though the U.S. has managed to dodge predictions it would fall into a recession as the Federal Reserve hiked interest rates. “We have such a broad and diverse economy that even when there is good stuff happening overall, there is a portion of the business sector that is still struggling,” he said. Telecom, retail and pharmaceutical companies are all facing headwinds today, Abbott said. Commercial insolvencies jumped 43% in the first three months of 2024, compared with the same quarter last year, according to Epiq. Read more.

Click here to read ABI and Epiq's press release on Q1 2024 bankruptcies. 
 

Concerns Continue to Mount for Commercial Real Estate as Loans Come Due​​​

More than $900 billion in loans backing office buildings, retail centers, hotels, warehouses and more will come due this year — and analysts who track commercial real estate are already worried that this slice of the economy could soon threaten regional banks and municipal finances, the Washington Post reported. That hefty amount — roughly 20 percent of all commercial real estate loans on the books nationwide — faces deadlines for repayment this year. But coming on the heels of a dismal 2023, when hundreds of billions of loans coming due got short-term extensions, experts are on high alert that 2024 might not go any better. The near-failure earlier this month of New York Community Bancorp, and its rescue through $1 billion in new investments led by former treasury secretary Steven Mnuchin’s private-equity firm, reignited concerns about regional banks that began after two firms collapsed in spring 2023. Midsize banks underwrite a huge volume of loans for commercial real estate, so if developers and property owners have a hard time paying them off, that could set off a chain reaction in the financial sector, too. The office market could bring the most serious issues. For example, more than $17 billion of commercial mortgage-backed security (CMBS) office loans are coming due in the next 12 months, double the 2023 volume. Among those, 75 percent have certain characteristics that could make them hard to refinance, according to estimates from Moody’s. That can include properties with canceled leases, vacant buildings or other cash-flow problems. Read more.

ABI will present a program April 30-May 2 that will address CRE exposure: the 2024 Distressed Real Estate Symposium, to be held in Ojai, Calif. Click here to register!
 

Analysis: Senior Housing Rebounds as Boomers Move In​​​

The outlook is finally improving for investors in the senior-housing market, many of whom bet billions of dollars that the aging of the baby boomers would send rents and occupancies soaring, the Wall Street Journal reported. That hope was upended by the pandemic. Vacancies rose as deaths mounted at senior communities. Even after safety protocols were adopted, photos of residents cut off from loved ones with faces pressed up to windows became some of the lasting images of COVID-19. Now occupancy rates at private-pay senior-housing communities are closing in on where they were before the pandemic. In the fourth quarter of 2023, the average rate was at 85.1% in the 31 largest U.S. markets, according to the National Investment Center for Seniors Housing & Care (NIC), an industry organization. While that is still 2 percentage points below the first quarter of 2020, it is way up from its pandemic low point: 77.8% in the first half of 2021. Rent increases, meanwhile, have been outpacing inflation, with independent living costing an average initial rate of $4,126 a month in December and the more intensive assisted-living units costing $6,422, NIC said. Senior-housing owners still face a bit of a slog. Many face staffing shortages because of the tight labor market. High interest rates have hurt the value of senior-housing communities just as they have with office buildings, apartments and other types of commercial real estate. Higher borrowing costs in the debt-intensive business translates into lower prices that buyers are willing to pay. Moreover, demand for independent-living units that include little or no health care continues to show weakness. Seniors considering such housing have more discretion than candidates for assisted living, and 88% of adults 50 to 80 years old want to remain in their homes as long as possible, according to a 2022 University of Michigan poll. (Subscription required.) Read more.
 

U.S. Layoffs Reach 14-Month High Amid Government, Tech Cutbacks​​​

U.S. layoff announcements rose 7% in March to their highest level since January 2023, led by technology and government-sector job eliminations, although cuts announced year to date are down 5% from a year ago amid a still-strong job market, a report out on Thursday showed, Reuters reported. Job cut announcements increased to 90,309 in March from 84,638 in February, outplacement firm Challenger, Gray & Christmas said. On a yearly basis, the level increased slightly by 0.7% from the 89,703 cuts announced in March 2023. The technology industry continued to outpace other sectors in jobs cuts through the first quarter of this year, announcing 14,224 in March and 42,442 since the year began. The U.S. government was the top job-cutter last month, accounting for 36,044 announced layoffs, the highest since September 2011 and occurring largely within Veterans Affairs and the U.S. Army. Through the first three months of the year, companies have announced 257,254 layoffs, down from 270,416 in last year's first quarter, another indication of a job market that continues to hold up in the face of high interest rates. A report from payroll processor ADP on Wednesday indicated a greater-than-expected 184,000 private-sector jobs were created last month, and the government on Friday is expected to report that about 200,000 payroll jobs overall were added in March. Employers most frequently cited cost-cutting and restructuring efforts as reasons for job eliminations, Challenger said. Read more.

In related news, the number of Americans filing new claims for unemployment benefits increased more than expected last week as labor market conditions are gradually easing, Reuters reported. Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 221,000 for the week ended March 30, the Labor Department said on Thursday. Claims had bounced around between 212,000 and 210,000 for much of March. There were 1.36 job openings for every unemployed person in February compared to 1.43 in January, government data showed this week. Read more.

Deepfakes Are Coming for the Financial Sector​​​

Deepfakes have long raised concerns in social media, elections and the public sector. But now with technology advances making artificial intelligence-enabled voices and images more lifelike than ever, bad actors armed with deepfakes are coming for the enterprise, the Wall Street Journal reported. “There were always fraudulent calls coming in. But the ability for these [AI] models now to imitate the actual voice patterns of an individual giving instructions to somebody with the phone to do something — these sorts of risks are brand new,” said Bill Cassidy, chief information officer at New York Life. Banks and financial services providers are among the first companies to be targeted. “This space is just moving very fast,” said Kyle Kappel, U.S. Leader for Cyber at KPMG. How fast was demonstrated earlier this month when OpenAI showcased technology that can recreate a human voice from a 15-second clip. Open AI said that it would not release the technology publicly until it knows more about potential risks for misuse. Among the concerns are that bad actors could use AI-generated audio to game voice-authentication software used by financial services companies to verify customers and grant them access to their accounts. Chase Bank was fooled recently by an AI-generated voice during an experiment. The bank said that to complete transactions and other financial requests, customers must provide additional information. Deepfake incidents in the fintech sector increased 700% in 2023 from the previous year, according to a recent report by identity verification platform Sumsub. Read more. (Subscription required.)

Issues surrounding AI and bankruptcy will be discussed on panels at ABI's Annual Spring Meeting, taking place in two weeks in Washington, D.C. Are you registered? 
 

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. 

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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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