Consumer Bankruptcy

Report: 1 in 4 Rural Hospitals Is Vulnerable to Closure



A new report from the Chartis Center for Rural Health puts the situation in dire terms: 2019 was the worst year for rural hospital closures this decade, with 19 hospitals in rural America shutting their doors, Vox.com reported. Nearly one out of every four open rural hospitals has early warning signs that indicate they are also at risk of closing in the near future. Since 2010, 120 rural hospitals have closed, according to University of North Carolina researchers. And today, 453 of the 1,844 rural hospitals still operating across the country should be considered vulnerable for closure. The Chartis researchers sought to identify key risk factors that precipitated rural hospital closures, then used those indicators to project which hospitals are at risk of closing soon. Some of the criteria were obvious, like changes in revenue or how many beds are occupied on average. But there was one other leading indicator that has an obvious political explanation and that should be entirely avoidable: whether the hospital is in a state that expanded Medicaid under Obamacare. According to Chartis, being in a Medicaid expansion state decreases by 62 percent the likelihood of a rural hospital closing. Conversely, being in a non-expansion state makes it more likely a rural hospital will close. The states that have experienced the most rural hospital closures over the last 10 years (Texas, Tennessee, Oklahoma, Georgia, Alabama and Missouri) have all refused to expand Medicaid through the 2010 health care law, and it seems their rural hospitals are paying the price. Of the 216 hospitals that Chartis says are most vulnerable to closure, 75 percent are in non-expansion states. Those 216 hospitals have an operating margin of negative 8.6 percent.

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Commentary: A $145,000 Surprise Medical Bill and a Glimpse into the American Health Care System



A couple who received a bill for their child’s hospital stay that totaled $145,000 taught them tough lessons about the American health care system, according to a New York Times commentary. The bill in question was for a procedure that had been scheduled months before. The couple had consulted with the provider, who, indeed, was out of network, but the doctors had assured them that the total cost would nevertheless require nothing but a modest co-payment. But it appeared that the doctors were wrong and the couple was looking at a hefty “surprise medical bill.” About 20 percent of Americans receiving elective surgery are now on the receiving end of these bombshells, according to the commentary. The couple contacted the doctor the day after they received the $145,000 bill and was informed that even when procedures are pre-authorized (as the child’s was), insurers often deny them anyway. His understanding was that insurance companies often respond to pre-approved claims with denial and delay, hoping that consumers will somehow just give up. Fortunately for the family, the child’s doctors did not give up, as the bill was fixed, and the family was not financially wiped out. Two pieces of legislation in the House of Representatives have been proposed recently to address crises like the one now facing the family. The Ban Surprise Billing Act, sponsored by Rep. Lloyd Doggett (D-Texas), would require hospitals to notify patients and get consent if they will be receiving any out-of-network treatment. And last week, the Ways and Means Committee sent the Consumer Protections Against Surprise Medical Bills Act to the House floor. This would also flag potential out-of-network costs for patients, and require insurers and providers to settle disputes through arbitration.

Dealerships Give Car Buyers Some Advice: Just Stop Paying Your Loan



Joyce Parks was struggling to afford her Kia Soul when, she says, the dealership where she had bought it pitched her an unconventional idea: Stop making the payments, the Wall Street Journal reported. Parks said that employees told her that she couldn’t trade in the Soul, but that she could buy another car. To get rid of the Soul, the dealership told her, she should have the lender repossess it, Parks said. The trade-in, where a buyer hands a car back to a dealership and uses it as credit toward another one, is often a crucial step in car buying. But some dealerships are instead telling buyers to give their old cars back to their lenders — and selling them new ones — in a practice known as “kicking the trade.” It is difficult to estimate how often this happens. Auto-sales veterans say the practice is an open secret in some showrooms. Broadly, vehicles are getting more expensive and Americans are struggling to afford them. Dealerships now make more money arranging financing than selling vehicles. If a car loan goes bad, it typically isn’t the dealership on the hook — it is the borrower or lender. The National Automobile Dealers Association said there is no evidence to suggest that the practice of “kicking the trade” is prevalent, but consumer lawyers say that they have seen more such cases. Five years ago, “it happened two or three times per year,” said Daniel Blinn, a Connecticut-based attorney who has sued dealerships and auto lenders. “Now, we hear it at least once per month.” Credit-reporting firm TransUnion calculates that nearly 24 million U.S. vehicle loans were originated in 2018. About 300,000 of those vehicles were repossessed within 12 months, up 17 percent from 2014. Such a quick souring of the loan can be a signal of some sort of auto fraud. (Subscription required.)

Analysis: CLOs Seek Flexibility for Distressed Assets Amid Lender Competition



U.S. collateralized loan obligations (CLOs) are increasingly seeking flexibility to provide rescue financing to distressed companies after other lenders have been able to swoop in and offer lifelines to borrowers and often obtain a senior claim on assets in the process, Reuters reported. CLO managers can be prohibited from participating in restructuring or workout scenarios due to constraints in their deal documents, so when sales and marketing firm Acosta reworked its debt late last year, their funds were essentially forced to sit on the sideline. The result could impact returns to CLO investors, especially in the next downturn when recovery rates are already predicted to be more than 20 percent lower than the historical average. In November, some investors agreed to provide $250 million of equity capital to Acosta as part of a restructuring that wiped out about $3 billion of the company’s debt. CLOs, forced to the wings, have started to push for the ability to either provide companies with rescue financing or increased flexibility to receive equity in a workout situation in order to be able to participate in future reorganizations.

Wednesday’s abiLIVE Webinar Explores the HAVEN Act and How to Approach Military or VA Benefits in Bankruptcy



The HAVEN Act was signed into law last year to correct the Code to exclude VA benefits from the current monthly income used in the means test. Members of ABI’s Task Force on Veterans and Servicemembers Affairs worked diligently to have the bill introduced and signed into law to help financially struggling veterans and servicemembers. Find out about the key points of the HAVEN Act, and get pointers on how to approach cases involving military or VA benefits, during a special abiLIVE webinar on February 26. Members of the Task Force, along with top practitioners, will be providing their perspectives. Click here to register for FREE.

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Coronavirus Fallout Poses Challenges for Most Vulnerable U.S. Retailers



Lenders and analysts say that the weakest U.S. retailers will face the biggest risks from the coronavirus epidemic if Chinese factories overseas remain understaffed and customers at home stay away from brick-and-mortar stores, the Wall Street Journal reported. Luxury chain Neiman Marcus Group Ltd., fabric and craft supplies chain Jo-Ann Stores Inc., and apparel seller J.Crew Group Inc. are among the junk-rated retailers that are exposed to the potential fallout from the coronavirus outbreak, they said. China’s efforts to contain the epidemic have weighed on its manufacturing sector as small private factories and larger state-owned facilities endure extended shutdowns. U.S. retailers have varied exposure to the manufacturing contraction, depending on how much of their inventory comes from China or other affected regions. Economists say that it is too soon to know how much the virus might affect consumer spending but that it could upend supply chains and cause some product shortages, especially as retailers run out of Chinese-made goods already stocked in warehouses. The biggest risk facing weaker retailers is a possible pullback in demand as the virus spreads in the U.S., spooking consumers, said Moody’s Investors Service managing director Mickey Chadha. But if production in China doesn’t return to normal levels by late April, U.S. retailers also could face challenges stocking up in time for the back-to-school and holiday shopping seasons, said Thomas O’Connor, a senior director and research analyst for supply chains at Gartner Inc. (Subscription required.)

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IATA: Global Airlines Could Suffer Up to $113 Billion in Lost Revenue Due to Coronavirus Crisis



The International Air Transport Association (IATA) said in an updated analysis that passenger airline business could suffer losses between $63 billion and $113 billion because of the novel coronavirus, depending on the severity and length of the outbreak, the Washington Post reported. Alexandre de Juniac, IATA’s director general and CEO, said that the outbreak amounts to a “crisis” for the industry. The IATA had published on Feb. 20 an estimate that lost revenue would hit $29.3 billion, but that was based on a scenario confining the fallout to markets associated with China. “Since that time, the virus has spread to over 80 countries and forward bookings have been severely impacted on routes beyond China,” the industry body said. Airlines around the world have begun canceling flights due to lower demand and complicated travel restrictions amid the coronavirus outbreak, with airlines outside Asia suffering amid a global pullback. IATA said the range of its newest estimate was based on different scenarios, with the lower estimate reflecting the costs if the coronavirus is contained in current markets with over 100 cases as of March 2, and the higher end if the outbreak spreads further. The analysis noted that financial markets were already pricing in a shock to industry revenue greater than its worst prediction, with airline share prices falling nearly 25 percent since the outbreak began. Although falling oil prices may help airlines offset some of the cost, IATA suggested the industry would need government help.

In Restaurant Glut, Strategic Buyers Keep Bankrupt Chains Afloat



Decreased foot traffic, competitive marketing strategies and rising debt loads have choked the restaurant industry and led to a flurry of bankruptcy filings — but strategic buyers haven’t shied away from chains in distressed situations, Bloomberg News reported. Strategic buyers, usually restaurant groups that already own other brands, often get a good deal when purchasing a failing chain because they have existing operations like restaurant management to run additional locations. Private-equity firms, on the other hand, often have to carry that overhead themselves, meaning the risk is higher and the reasoning behind the purchase has to be stronger, said David Bagley, managing director at Carl Marks Advisors. At one time, private-equity firms including NRD Capital Management LLC, Sun Capital Partners Inc. and TriArtisan Capital Advisors LLC put a lot of capital into the restaurant space, buying brands including Ruby Tuesday, Boston Market and TGI Friday’s, respectively. The level of private-equity investment in restaurants, however, fell to $4.75 billion in 2019 compared to a decade high of $18.29 billion in 2017, according to data from Pitchbook. Private equity used to make money on restaurants by using high levels of capital to increase the number of locations, expanding brand presence and driving additional revenue, Bagley said. That old strategy doesn’t make sense anymore because there’s so much additional restaurant square footage while foot traffic is shrinking, he said. One of the major struggles for restaurant brands recently has been driving customer traffic in an environment where a few chains — those with strong investment in food innovation and marketing — are top-of-mind for the restaurant-goers.

Fifth Third Latest Bank in CFPB Crosshairs over Phony Accounts



The Consumer Financial Protection Bureau is continuing its crackdown on banks opening unauthorized accounts after Wells Fargo's phony-accounts scandal prompted the agency to investigate aggressive sales tactics at other institutions, American Banker reported. The latest institution in the bureau's crosshairs is Fifth Third Bancorp, which disclosed in a securities filing this week that the CFPB intends to file an enforcement action related to “alleged unauthorized account openings” at the Cincinnati-based bank. Last year, the CFPB began investigating whether Bank of America also violated federal law by opening credit card accounts without customer authorization. The $169 billion-asset bank says it plans to fight the action brought by the agency. Further details about the CFPB's allegations are unclear. Fifth Third spokeswoman Laura Trujillo said the bank will “fully cooperate with any regulatory and government inquiries,” but she would not say what types of accounts are under investigation by the CFPB.

Don't Miss the abiLIVE Webinar "Preference Update: SBRA’s Due Diligence Requirement" Next Thursday!



Hosted by ABI's Young and New Member Committee, the panel on next Thursday's webinar will discuss the Small Business Reorganization Act’s requirement that a trustee (or debtor-in-possession) take into account a defendant’s defenses before bringing an action. This amendment, which is applicable in all cases, requires the plaintiff to engage in reasonable due diligence regarding a defendant’s affirmative defenses before initiating a preference action. Click here to register for FREE!

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