September Commercial Chapter 11 Filings Down 31 Percent from Last Year; Total Filings Fall 4 Percent

Commercial chapter 11 filings totaled 308 in September 2018, a 31 percent decrease over September 2017’s total of 445 filings, according to data provided by Epiq Systems, Inc. Overall business filings decreased to 2,783 filings in September 2018, a 5 percent drop from September 2017’s total of 2,940 filings. Total U.S. filings registered 57,569 in September 2018, down 4 percent from last September’s total of 60,050. The 54,786 consumer filings in September 2018 also represented a 4 percent decrease from the September 2017 consumer total of 57,110. “Struggling businesses and consumers faced with increasing interest rates and global challenges may avoid bankruptcy due to high filing costs,” said ABI Executive Director Samuel J. Gerdano. “The recommendations of ABI’s Chapter 11 Commission and the ongoing efforts of the Commission on Consumer Bankruptcy provide paths to making bankruptcy more accessible for distressed businesses and households.”

Shopping Mall Vacancies Are Highest in Seven Years After Big-Box Closings
Retailers are anticipating a strong holiday season, boosted by a healthy economy and burgeoning consumer confidence, but an intensifying slump among shopping mall operators shows not all are benefiting from the recovery, the Wall Street Journal reported. Mall vacancy rates rose to 9.1 percent in the third quarter, their highest level in seven years. Many of the older shopping centers that lack trendy retailers, lively restaurants or other forms of popular entertainment continue to lose tenants, or even close down. Much of the retail sector has bounced back this year after years of losing out to online competitors that have decimated some of the industry’s biggest names, including department stores like Macy’s and retailers like Payless ShoeSource. But many lower-end malls are still struggling to benefit from the economic revival, especially in some of the more economically depressed areas in Pennsylvania, Ohio and Michigan, which suffer from a glut of shopping centers but not enough consumers. (Subscription required.)

Occupancy issues are at the heart of many significant retail cases, as detailed in the ABI publication Retail and Office Bankruptcy: Landlord/Tenant Rights, available at the ABI Store.

Commentary: The False Sense of Security Behind Corporate Debt*

Nonfinancial companies have been loading up on debt in the past few years, often to fund deals and share buybacks that in turn can boost stock-market values, according to a commentary in yesterday's Wall Street Journal. In the past decade, the total value of investment-grade U.S. corporate bonds has risen from $2.5 trillion to $6.3 trillion, while total nonfinancial U.S. corporate debt is more than $9 trillion. Debt has been cheap and plentiful, but companies may also have been encouraged to borrow by high and rising stock prices, according to the commentary. Steven Blitz, U.S. economist at TS Lombard, thinks public companies and their lenders have gotten too comfortable with high equity valuations when thinking about debt levels, rather than focusing on income or cash on hand. High equity values can make indebted companies appear healthy. Total debt at nonfinancial companies in the S&P 500 is worth less than 23 percent of their market capitalization, according to FactSet, and this month total debt fell to its lowest level since May 2008. This is like the loan-to-value measures that made mortgages look fine in the last housing boom — until households began struggling to service their debt and began defaulting in ever larger numbers.

*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.

IRS Tax Fraud Cases Plummet After Budget Cuts

The Internal Revenue Service pursues fewer cases of tax evasion than it did less than 10 years ago, the New York Times reported on Tuesday. Last year, the IRS’s criminal division brought 795 cases in which tax fraud was the primary crime, a decline of almost a quarter since 2010. Crimes only tangentially related to taxes, such as drug trafficking and money laundering, have come to account for most of the agency’s cases. “Due to budget cuts, attrition and a shift in focus, there’s been a collapse in the commitment to take on tax fraud,” said Chuck Pine, who used to be the third-ranking criminal enforcement officer at the IRS and is now a managing director at BDO Consulting. “I believe there are thousands of individuals who have U.S. tax obligations and are not complying with U.S. tax laws.” The result is huge losses for the government. Business owners don’t pay $125 billion in taxes each year that they owe, according to IRS estimates.

Fed Begins Work on Real-Time Payment System

The Federal Reserve announced yesterday that it is taking the first steps toward developing a real-time payment system, where consumers can access funds instantly on deposited checks or pay another individual on the spot using a smartphone, MarketWatch.com reported. At the moment, the U.S. payment system lags far behind other countries like Japan, Mexico or England, said Aaron Klein, a fellow at The Brookings Institution. The current system is regressive because U.S. families with cash-flow constraints spend billions in overdraft fees waiting for checks to clear over a weekend or holiday. The Fed yesterday advanced the first step toward a new real-time system. It invited public comment on actions it could take to support faster payments, specifically seeking views on the development of a service for real-time interbank settlements 24 hours a day, seven days a week. In addition, the Fed wants public comment on a liquidity-management tool that would enable transfers between Fed accounts at all times.

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Notice to All ABI Members

UNITE HERE Local 11 is a labor union based in southern California. They represent more than 20,000 workers in the hotel and restaurant industry. The union has been attempting to organize employees at the Terranea Resort, site of ABI’s 2019 Winter Leadership Conference (WLC). The union has repeatedly contacted ABI leadership, including members of the board and committee leaders, to urge ABI to cancel or move the WLC. ABI has no plans to move or cancel the event, which would result in substantial legal exposure. If you are contacted by phone or email by representatives of the union, ABI encourages you to ignore rather than engage or respond. ABI regrets this development and will continue to closely follow events at the property. This has no effect on the ABI’s 2018 WLC, set for Scottsdale, Ariz., this December.

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