Commercial Property Losses Hammer Banks on Three Continents​​​

Investors have wondered when the pain from the downturn in commercial property would hit banks. The past 24 hours have shown that it is happening right now, with lenders on three continents disclosing damage and two bank leaders resigning, the Wall Street Journal reported. Tokyo-based Aozora Bank shares fell more than 20% on Thursday, the maximum allowed on a single day under stock market rules, after it said losses in its U.S. office-loan portfolio will likely lead to a net loss for the year ending in March. It would be its first annual loss in 15 years. Its president will step down on April 1, the bank said. In Switzerland, private bank Julius Baer said Chief Executive Philipp Rickenbacher resigned after the company took a roughly $700 million provision on loans it said it may not get back from Austrian property landlord Signa Group. The group said it would shut down the unit that made the loans. The setbacks overseas came after New York Community Bancorp, which took over assets of failed Signature Bank last year, reported surging loan losses, including from an office building. Its shares plunged 38% on Wednesday. What ties them together is that the banks are big lenders to real estate owners and developers, putting them on the front line of the downturn in office building use and falling valuations. The risks are particularly acute for small and regional lenders, which have far higher chunks of their loan portfolios in commercial real estate than big banks. Pain has been slow to unfold. While changes in office habits that have hollowed out downtowns are nearly four years old and rates began rising over two years ago, landlords have been cushioned by rent from tenants on long-term leases that have been gradually burning off. Also on Thursday, Deutsche Bank said it increased loss provisions in its U.S. commercial loan book nearly fivefold from 2022’s fourth quarter to 123 million euros, equivalent to $133 million. In all, more than $2.2 trillion of U.S. commercial property loans are set to come due by 2027, according to data-tracker Trepp. Many banks have given short extensions to loans that were due to expire over the past two years, putting the day of reckoning off to some point in the future. (Subscription required.) Read more.  

ABI will be presenting a program that will address CRE exposure: the 2024 Distressed Real Estate Symposium, to be held April 30-May 2 in Ojai, Calif. Information and registration will be posted soon at abi.org/events.

Latest "Unordinary Course" Podcast Unpacks the Collapse of SVB and the Current State of the American Banking Sector​​​

The latest episode of "Unordinary Course," brought to you by ABI's Business Reorganization Committee, examines key events in SVB's demise, regional banking distress last year and the current state of the American banking sector. Host Lee Pacchia of ICR (New York) talks with Marshall S. Huebner, co-head of restructuring at Davis Polk & Wardwell LLP (New York) and counsel to the ad hoc group of SVB's senior noteholders. Click here to listen to the podcast. 
 

Analysis: SDNY Amends Guidelines for Prepackaged Chapter 11 Cases​​​

Chief Bankruptcy Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York entered General Order M-621 on Jan. 22 adopting amended procedural guidelines governing prepackaged chapter 11 cases, according to an analysis prepared for JDSupra.com by Hon. Robert Drain (ret.) and Moshe Jacob of Sadden, Aprs, Slate, Meagher & Flom LLP. The guidelines provide a comprehensive framework for the administration of prepackaged chapter 11 cases in the district. Among other things, they recognize and address “Rapid Prepackaged Chapter 11 Case[s],” defined as cases “where the Debtor seeks confirmation of the plan to be granted between one (1) and fourteen (14) days after the petition date.” The new guidelines, albeit advisory only, provide bankruptcy practitioners guidance on practical matters pertaining to prepacks that often are addressed only indirectly or in piecemeal fashion by the Bankruptcy Code, Bankruptcy Rules and/or local rules. These guidelines will facilitate the use of prepacks as a tool that can greatly reduce the time, expense (including professional and U.S. Trustee fees) and risks of a chapter 11 case. Read more.  
 

U.S. Job Cuts More than Double in January​​​

Job cut announcements in January increased to their highest level in 10 months as employers in the financial and technology sectors launched restructuring efforts, a report released today showed, Reuters reported. Announced layoffs reached 82,307 in January, a 136% surge from December’s 34,817, according to data released by outplacement firm Challenger, Gray & Christmas, which helps companies with the offboarding process for employees. It was the highest monthly total since March 2023. On a yearly basis, announced job cuts overall fell 20% from January 2023. Employers in the financial industry announced 23,238 job cuts, more than double the number from a year earlier. The financial and technology sectors announced the most job cuts in January, the firm said, with employers most frequently "restructuring" and the closure of plants, units or stores as reasons for layoffs. The earnings reporting season that got underway in January saw a number of companies announce jobs cuts, including United Parcel Service unveiling plans to shed 12,000 jobs. Read more.

In related news, the number of Americans filing for jobless benefits rose last week to the highest level in 11 weeks, although layoffs remain at historically low levels, the Associated Press reported. Applications for unemployment benefits climbed to 224,000 for the week ending Jan. 27, an increase of 9,000 from the previous week, the Labor Department reported Thursday. The four-week average of claims, a less volatile measure, rose by 5,250 to 207,750. Overall, 1.9 million Americans were collecting jobless benefits during the week that ended Jan. 20, an increase of 70,000 from the previous week. That's the most since mid-November. Read more.
 

SEC’s SPAC Rules to Limit Rosy Projections that Fueled Mania​​​

At the height of the SPAC boom, liberated startups capitalized on the ability to tout lofty goals about the years ahead without much of a risk of legal fallout. Now, the U.S. Securities and Exchange Commission’s new rules tightening SPACs’ disclosure requirements are set to clamp down on such forecasts when they come into force as soon as later this year, Bloomberg News reported. In hindsight, some companies that merged with blank-check vehicles during the pandemic-era boom may wish they hadn’t talked up their fortunes so optimistically. Companies marketing SPAC mergers under the new rules would no longer have the same legal protections they were afforded in the past, and many in the industry say it’s just the beginning of a new, stricter era for blank-check companies. “These rules are the first step in the SEC’s tightening of the reins for SPACs,” said Shivani Poddar, a litigation partner at Herrick, Feinstein LLP. “The parties involved in SPACs will assume more liability than ever before with these increased disclosure requirements.” Read more.  
 

Commentary: Risky Borrowers Storm Loan Market for Once ‘Unthinkable’ Savings​​​*

Chief financial officers strongly dislike second-lien loans because they’re really expensive — about 2 percentage points more, give or take, in annual interest-rate costs than traditional first-lien debt, according to a Bloomberg News commentary. Which explains companies’ sudden rush to take advantage of the booming leveraged loan market and issue new first-lien debt — at falling yields, no less — to help pay down the pricier obligations. Among those reaping the savings are 1-800 Contacts Inc. and human resources software company UKG Inc. Both are replacing lower-ranked loans (which get paid later in the event of bankruptcy) with higher-priority ones, saving themselves tens of millions of dollars in interest over the life of the debt. More than a dozen companies did something similar last month, and market-watchers say this activity is only getting started as additional firms look to swap out expensive loans coming due in the next couple years. “It’s a sign of things that were unthinkable 12 months ago, but where people are happy to put pen to paper in 2024,” said Andrzej Skiba, head of BlueBay US fixed income at RBC Global Asset Management. “Any creative ways to address the maturity wall in 2025 will be considered. When the music is playing, people get creative.” With leveraged loan demand surging to start the year as interest from collateralized loan obligations — the biggest buyers of the debt — ramps up, firms that once had limited options now see an opening. UKG sold an upsized $5.385 billion leveraged loan Wednesday to refinance its first-lien term loans and partially refinance second-lien debt. KKR-backed 1-800 Contacts sold an upsized $565 million loan to pay back a $315 million second-lien loan and fund a distribution to its shareholders. The direct-to-consumer company was also among the many borrowers in the market to reprice their first-lien debt, negotiating the removal of a leverage-based interest-rate step-down feature. 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.

Don't Miss the Second Episode of the "Directors' Duties Across Borders in the Insolvency Zone" Webinar Series on Feb. 14

ABI's International Committee will be hosting the second in a series of webinars covering key jurisdictions around the globe, focusing on developments you and your clients need to consider when thinking about bankruptcy-type proceedings in foreign jurisdictions. In this next installment on Feb. 14 at 12:00 noon EST, the panelists will be examining the situation in Brazil, Canada, the Caymans and Mexico. Register here for FREE!

Volunteer Today to Become a Preliminary-Round Judge or Brief Grader for the Duberstein National Bankruptcy Moot Court Competition!

The Duberstein National Bankruptcy Moot Court Competition, now in its 32nd year and widely recognized as one of the nation’s preeminent moot court competitions, will be held in New York on March 2-4, 2024. Fifty-three teams from law schools across the country will compete through written briefing and oral argument. Please find the fact pattern by clicking here. 

Volunteers are needed for brief graders (please sign up by Feb. 9) and judges for the preliminary rounds (please sign up by Feb. 10) of the Competition. Click here for more information and to volunteer!

Asset Sale of the Year Award Application Now Available!

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. Nominations are due February 16; 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, who 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, although please note that abstracts to be considered for the upcoming Annual Spring Meeting, being held April 18-20, 2024, at the Marriott Marquis in Washington, D.C., were due on December 31, 2023. 

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