Small-Business Owners Carrying Bigger Debt Loads than They Did Pre-Pandemic​​​

Some small businesses are increasingly being weighed down by bigger debt loads, adding to a list of persistent challenges, the Orlando Business Journal reported. While about 28% of small businesses report they have no outstanding debt — roughly the same as the 29% in 2019 — about 39% of small-business owners reported having more than $100,000 in debt. That's a notable increase from the 31% that reported more than $100,000 in debt in 2019. About 40% of business owners reported between $1 and $100,000 in debt in 2019, a number that fell to 32% in 2023, according to the 2024 Report on Employer Firms: Findings from the 2023 Small Business Credit Survey, released on March 7 by the 12 Federal Reserve banks. Higher levels of debt for some businesses may stem from the roughly $390 billion in Covid-19 Economic Injury Disaster Loans authorized by Congress and handed out by the Small Business Administration largely in 2020 and 2021. Those loans, at 3.75%, carry a 30-year term, but the SBA has repeatedly offered deferments, hardship payment plans and more options for the growing number of small businesses struggling to repay. About 44% of small-business owners reported they had received an EIDL loan, while overall 28% said they still had an outstanding balance. In January, the SBA offered 60-day collections effort deferments as part of its bid to get business owners back on track. The SBA said at the time that about $30 billion worth of Paycheck Protection Program and EIDL loans under $100,000 had been "charged off" by the agency — about 2.5% of the $1.2 trillion loaned out under both programs. Increased debt loads and higher interest rates from repeated Federal Reserve rate hikes in 2022 are causing some owners to struggle, according to the report. About 34% said that making debt payments was a challenge for them. Fifty-four percent of small businesses said higher interest rates have pushed their debt costs up, while 37% said higher interest rates have delayed their expansion plans. About 22% said they had difficulty refinancing existing debt (customers were able to choose more than one issue). In response to these challenges, 54% of businesses said they have raised prices, while about 53% said they used personal funds and 51% said they used cash reserves to meet their challenges (business owners could choose more than one). About 40% said they obtained funds that must be repaid, while 23% said they made a late payment or did not pay at all. Read more.

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!

Wall Street Braces for Commercial Real Estate Time Bomb​​​

Remarks last week by Federal Reserve Chair Jerome Powell about a spate of coming bank failures related to the faltering commercial real estate sector have sent shockwaves through the financial world, leading some investors to run for cover and others to look for opportunities, The Hill reported. With the typical U.S. commercial lease ranging from three to five years, the clock is ticking for office and retail property owners and their creditors in the financial sector as remote work has taken off and prompted changes in urban land use. Office vacancy rates have climbed sharply in the wake of the pandemic after falling steadily in the decade before, reaching a record 13.1 percent last year, according to data from the Treasury Department’s Financial Stability Oversight Council (FSOC), citing analytics firm CoStar. “At the midpoint of the third quarter of 2023, the national office vacancy rate hit a record high of 13.2 percent, a full 370 basis points higher than at the end of 2019,” CoStar analyst Phil Mobley wrote in a third-quarter analysis. “The recent reset in office demand has rocked U.S. markets,” he added. Delinquency rates for commercial mortgage-backed securities are on the rise in recent months, though they’re still well below the highs reached in the immediate aftermath of the pandemic and the fallout from the 2008 financial crisis. “The decline in office property demand may take time to stabilize as tenants navigate remote-work decisions and adjust how much space they need,” Treasury’s latest FSOC report says. “In addition, a slow return to densely populated urban office centers could reduce the desirability of office properties located there and even nearby retail space.” Powell delivered much the same message to the Senate Banking Committee last week, going so far as to declare that there will be failures among smaller and regional banks that have made commercial real estate loans. “This is a problem we’ll be working on for years more, I’m sure. There will be bank failures,” he said. “It’s not a first-order issue for any of the very large banks. It’s more smaller and medium-sized banks that have these issues. We’re working with them. We’re getting through it. I think it’s ‘manageable,’ is the word I would use,” Powell said. Read more.

ABI is presenting 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: Private Equity Sets Its Sights on Consumer Debt​​​

Private fund managers such as Apollo, Ares, Blackstone and KKR have grown to dominate corporate finance over the past decade. Now they are targeting the biggest prize in the global economy: the U.S. consumer, the Wall Street Journal reported. The firms are pushing aggressively into “asset-based finance” — including auto loans, credit cards, real estate mortgages and loans backed by such equipment as fiber-optic networks. If asset-based finance by private funds grows as quickly as corporate lending did, consumer, equipment and specialty lending by private funds could rise to $900 billion over the next few years from $350 billion currently, according to research by Atalaya Capital Management. The estimate doesn’t include residential and commercial mortgages, which many of the funds also buy. Private-equity firms began replacing banks as the go-to providers of corporate loans after the 2008 financial crisis and began edging into asset-based finance in recent years. Banks still provide the lion’s share of the debt, but they have been scaling back. Rising interest rates hit banks with heavy losses starting in 2022, triggering failures last year at such institutions as Silicon Valley Bank and a subsequent regulatory crackdown. Fintech companies, such as Upstart, that make consumer and mortgage loans also took a hit because they borrow money from banks and credit unions. That gave private fund managers an opening at a critical time. The firms had raised $1.5 trillion from their clients to invest in private debt by the end of 2022, but $434 billion of the money was sitting idle, according to financial data company PitchBook. (Subscription required.) Read more.

Informative Debate on 4 Key Mediation Issues the Focus of New "Reframing Mediation" Podcast​​​

The latest episode of the ABI Mediation Committee’s "Reframing Mediation" podcast features an informative debate on four key issues in mediation practice. Listen as ABI Mediation Committee Co-Chairs Edward L. Schnitzer of Womble Bond Dickinson LLP (New York) and Connor Bifferato of The Bifferato Firm (Wilmington, Del.) volley viewpoints on the following issues:

- Remote vs. In-Person Mediation
- Joint Caucuses vs. Private Sessions Only
- Openings vs. No Openings
- The Role of Mediators to Be ‘Evaluative’ vs. ‘Facilitative’

Listen here.

The points debated in the podcast are the personal views of the hosts for informative purposes only and not the official positions of their respective firms or ABI. 

U.S. Retail Sales Rebound in February​​​

Retail sales rebounded in February after seeing their steepest decline in nearly a year during the month prior, YahooFinance.com reported. Retail sales rose 0.6% in February from the previous month, according to Census Bureau data. January retail sales previously posted a surprise 1.1% decrease. February sales, excluding auto and gas, increased by 0.3%, in line with estimates. Building materials and garden equipment led the gains by category, rising 2.2%. Sales gained 1.6% at motor vehicle and parts dealers, while electronics and appliance stores added 1.5%. The largest decline occurred in furniture and home furnishing stores, where sales fell 1.1%. Read more.

Number of Americans Filing for Jobless Benefits Remains Low in a Thriving Labor Market​​​

The number of Americans applying for jobless benefits last week inched up but largely stayed at historically low levels as the labor market continues to thrive despite elevated interest rates, the Associated Press reported. The Labor Department reported today that filings for unemployment claims for the week ending March 9 ticked down by 1,000 to 209,000 from the previous week's 208,000. The four-week average of claims, which evens out some of the weekly volatility, came in at 208,000, a decrease of 500 from the previous week. In total, 1.81 million Americans were collecting jobless benefits during the week that ended March 2, an increase of 17,000 from the previous week. Last week's number, which had been the most since November, was revised down by 112,000. Weekly unemployment claims are considered a proxy for the number of U.S. layoffs in a given week. They have remained at historically low levels since the pandemic purge of millions of jobs in the spring of 2020. In February, U.S. employers added a surprising 275,000 jobs, again showcasing the U.S. economy’s resilience in the face of high interest rates. At the same time, the unemployment rate ticked up two-tenths of a point in February to 3.9%. Though that was the highest rate in two years, it is still low by historic standards. And it marked the 25th straight month in which joblessness has remained below 4% — the longest such streak since the 1960s. Read more.
 

Applications for ABI’s Diversity Mentoring Program Due Tomorrow!

ABI's Diversity and Inclusion Mentoring Program (June 2024 – June 2025) seeks to build personal and professional relationships while promoting diversity and leadership within ABI. The goal of the Mentoring Program is to expose mentees to the many aspects of the restructuring profession, including becoming involved in ABI and interacting with mentors’ colleagues, peers and networks. Guided by the DWG Mentoring Subcommittee, there will be bi-monthly meetings or programming to address a variety of topics, with resources from ABI and members of the restructuring community, including judges, trustees, attorneys and financial professionals. These structured events will occur between April 2024 – June 2025 and will provide opportunities to interact with other experienced insolvency professionals while providing an educational program and fostering opportunities to discuss important topics in the mentees’ professional development. For more information, including eligibility requirements and how to apply, please click here.

Asset Sale of the Year Award Nominations Due Monday!

ABI’s Asset Sales Committee is seeking nominations for its Annual ABI Asset Sale of the Year award. Any bankruptcy sale that closed between January 1 and December 31, 2023, and involved at least one professional who is a member of ABI’s Asset Sales Committee is eligible. The nomination deadline has been extended to March 18; please send your nominations to Matt LoCascio and Leyza Blanco. For more information, please click here.

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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