Corporate America Faces a Bankruptcy Boom​​​

New data shows that 2023 is shaping up to be the biggest year for chapter 11 filings in over a decade, as a potent brew of economic troubles is hitting financially weakened companies, according to the New York Times DealBook blog. More than 230 American companies have filed for bankruptcy through April, according to S&P Global, the highest level over the first four months of any year since 2010. That number — which counts public companies with at least $2 million in assets or liabilities and private companies with $10 million in publicly traded debt — doesn’t include more recent cases, like Vice Media, Cox Operating and the K.K.R.-backed Envision Healthcare. (On a slightly rosier note: Researchers at Jefferies, the investment bank, have tracked 1,440 bankruptcies of all sizes during the same period, which is below its trend line dating back to 2013.) Struggling companies began laying off workers a year ago in an effort to reduce costs. But they are now “running out of time,” S&P analysts wrote in a research note on Wednesday. “Firms that were struggling well before the pandemic and the end of ultra-low interest rates have now gone to their breaking point.” Consumer discretionary companies have been the busiest filers, according to S&P. That sector includes retailers and restaurants, typically among the businesses that are most sensitive to challenging economic conditions. Among the most notable chapter 11 cases in that area: Bed Bath & Beyond and David’s Bridal. ​​​Read more.
 

Pause on Student Loan Payments About to End for Millions in Coming Months​​​

The Biden administration has given its clearest indication yet that the years-long pause of student loan repayments will come to an end in the coming months, The Hill reported. Optimism that the White House would keep offering borrowers relief from making their payments ended last week when Education Secretary Miguel Cardona told a Senate panel that the payments would officially resume due to the pandemic emergency being over. That means that borrowers, who have been jolted around since March 2020 with last-minute extensions and uncertainty over exactly when they should expect payments to start up again, will finally have to make payments — many for the first time. President Biden said in November that payments would resume either 60 days after the Supreme Court rules on his student loan forgiveness plan — which would permanently eliminate some debt — or 60 days after June 30, whichever came first. But student loan groups had been optimistic the president was bluffing again, hoping for another extension from Biden amid his 2024 reelection campaign. Advocates have pointed to research from the administration showing that many borrowers will default on their student loans if they resume this summer, particularly if the Supreme Court blocks Biden’s relief plan. Concerns also have been raised that student loan student loan servicers are not ready to turn back on the accounts. ​​​Read more.
 

Proposed Education Dept. Rule Targets College Programs that Leave Students with ‘Unaffordable Debt or Insufficient Earnings’​​​

The Education Department announced Wednesday it was proposing a rule that would take away federal money from for-profit colleges and certificate programs where data shows graduates don’t make enough to pay back their student debts or the debt is excessively high, The Hill reported. The rule, which was first brought up under the Obama administration, is commonly known as gainful employment. It was bulldozed under former President Trump’s administration as Republicans argue it unfairly targets for-profit colleges. The proposal by the Department of Education would make it so all for-profit schools and select certificate programs at nonprofit colleges would have to go through two tests to determine whether students will be burdened with “unaffordable debt or insufficient earnings.” For a program to pass the first test, a graduate’s average student loan payments can’t exceed 20 percent of their discretionary income or 8 percent of their total income. To pass the second, more than half of the graduates from the college program need to make more than others in their state who have only a high school degree. If a program fails one test, it would have to tell students their program is at risk of losing federal money. If a program fails both tests twice in a three-year period, it would get federal money taken away. ​​​Read more.
 

Student Loan Borrowers May Be Spared the Worst if U.S. Fails to Raise Debt Ceiling​​​

If Washington’s debt ceiling fight leaves the U.S. government unable to pay all of its bills, that would disrupt payments to millions of Americans, including students receiving federal loans and grants. But the timing of the current conflict could, in the short term, spare students and schools from the worst consequences. For most student aid recipients, school is out for the summer, so most tuition payments and related fees won’t be due for months, the Wall Street Journal reported. Treasury Secretary Janet Yellen said again on Monday that the U.S. could become unable to pay all of its bills on time as soon as June 1 if Congress doesn’t first raise the federal government’s borrowing limit. In that case, the Treasury could have to immediately halt many types of payments, such as to contractors and recipients of Social Security and veterans’ benefits, which could quickly crimp their abilities to pay their own bills. (Subscription required.) ​​​Read more.
 

Large Investors Led 2022 Runs on Crypto Platforms, Study Finds​​​

Last year’s run on crypto platforms like lender Celsius Network were “spearheaded by customers with large holdings, some of which were sophisticated institutional customers,” according to research from the Federal Reserve Bank of Chicago, Bloomberg News reported. In the case of Celsius, 35% of all withdrawals in June — before the lender froze withdrawals and eventually filed for bankruptcy — were by owners of accounts of more than $1 million, according to Chicago Fed estimates. Owners of accounts with more than $500,000 in investments were the fastest to withdraw and withdrew proportionately more of their funding, the research said. The Chicago Fed used bankruptcy filings to characterize outflows of customer funds from lenders Celsius, BlockFi and Genesis Global Capital LLC, in addition to FTX and broker Voyager Digital, all of which went bankrupt last year, leaving hundreds of thousands of retail investors in a lurch. It also said the platforms’ run risk and planning for a potential rush of withdrawals was inadequate in the lead-up to the collapse of FTX and the Terra-Luna ecosystem. Customers withdrew a quarter of their investments held by FTX within just one day, the Chicago Fed found. Voyager lost nearly 39% of its holdings in the June 12-July 2 run, after losing nearly 14% to outflows in May. ​​​Read more.
 

House Republicans and Democrats Disagree on How to Regulate Stablecoins​​​

Republicans and Democrats on the House Financial Services Committee are at odds over how stablecoins should be regulated, YahooFinance.com reported. Those divisions were on display at a hearing Thursday before a House subcommittee on digital assets. Democrats balked at giving states a prominent role in overseeing stablecoin issuers and asked for more protection of digital wallets. Both sides are floating competing versions of a new bill that would oversee stablecoins, which are cryptocurrencies linked to a currency like the U.S. dollar or short-term securities, as a way to mitigate the volatility of digital coins and maintain a stable value. These stablecoins are mostly used to trade in and out of cryptocurrencies, but are increasingly used for traditional banking products like savings accounts. There is currently little regulatory oversight or FDIC backing of such currencies. Regulators are worried that stablecoins could be vulnerable to runs — similar to the financial crisis of 2008, when investors rushed to redeem their stakes, forcing fire sales of fund shares. Thursday’s subcommittee hearing comes after Republicans put forth their own stablecoin bill to the surprise of Democrats. Rep. Maxine Waters (D-Calif.) suggested during a hearing last month that a stablecoin bill negotiated last fall was no longer valid, and that lawmakers may need to start from scratch. She has circulated her own draft version of a bill. ​​​Read more.
 

U.S. Weekly Jobless Claims Fall; Labor Market Defying Recession Fears​​​

The number of Americans filing new claims for unemployment benefits fell more than expected last week, with applications in Massachusetts decreasing sharply, suggesting the labor market remains tight, Reuters reported. The steep decline in weekly jobless claims reported by the Labor Department on Thursday reversed the surge in the prior week, which had boosted them to the highest level since Oct. 30, 2021. That increase was largely blamed on an unusual jump in applications for unemployment insurance in Massachusetts. The state's Department of Unemployment Assistance said last week it was "experiencing an increase in fraudulent claim activities in which people attempted to gain access to active UI accounts or file new UI claims using stolen personal information so they can fraudulently obtain unemployment benefits." Initial claims for state unemployment benefits declined 22,000 to a seasonally adjusted 242,000 for the week ended May 13. The drop was the largest since Nov. 20, 2021. ​​​Read more.
 

The Return to the Office Has Stalled​​​

When average city office-occupancy rates at the start of the year surpassed 50% for the first time during the pandemic, many landlords viewed this milestone as a sign that employees were finally resuming their former work habits. Those office-usage rates have barely budged, however, as most companies have settled into a hybrid work strategy that shows little sign of fading, the Wall Street Journal reported. About 58% of companies allow employees to work a portion of their week from home, according to Scoop Technologies, a software firm that developed an index monitoring the workplace strategies of close to 4,500 companies. The number of companies that require employees to be in the office full time has actually declined to 42%, from 49% three months ago, Scoop said. Employees at companies with hybrid strategies work an average of 2.5 days a week in the office. With employees spending only half the five-day workweek in the office, it isn’t surprising that office-return rates stalled out around half of pre-pandemic levels. The average office usage rate, which crossed 50% of pre-pandemic levels in late January, has remained around there ever since, according to Kastle Systems. Kastle tracks the return-to-office rates in 10 major U.S. markets by monitoring security-badge swipes. Other companies using different methods to track office usage show a slightly higher return rate, but they are also finding that attendance has leveled off. Placer.ai, which tracks mobile phone data, said that office visitations in 11 cities as of late April were just over 60% of what they were in 2019, little changed from early February. (Subscription required.) ​​​Read more.
 

ABI’s New Subchapter V Task Force Needs Data from YOU!​​​

ABI’s Subchapter V Task Force, a nine-member expert panel established during last month’s Annual Spring Meeting to study and evaluate subchapter V of chapter 11 of the Bankruptcy Code, needs your help! The Task Force is seeking input from professionals who have worked or are working with the subchapter to study its effectiveness since it was enacted three years ago. The Task Force also intends to solicit input on subchapter V from the public via hearings and its forthcoming website, culminating in a final report to be delivered in April 2024. Please take a few moments to complete the survey. ​​​

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