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Tuesday Morning Corp. has struck a settlement with investment firms that had tried to convince fellow trade creditors of the bankrupt off-price retailer to vote against a restructuring proposal, resolving the dispute as the company prepares to exit chapter 11, WSJ Pro Bankruptcy reported. The firms led by Invictus Global Management LLC agreed to drop an appeal, vote in favor of Tuesday Morning’s chapter 11 plan and encourage fellow unsecured creditors to do the same, according to the settlement outlined in papers filed yesterday in U.S. Bankruptcy Court in Dallas. The two sides reached the deal just days after the judge overseeing Tuesday Morning’s bankruptcy ruled the firms published false and misleading information to rally creditor opposition to the restructuring plan and ordered them to be sanctioned. The materials, including the website rejectTuesdayMorningPlan.com, claimed that trade debt would likely get repaid at a higher interest rate if creditors voted against the restructuring plan. Other creditors and Tuesday Morning said that was misleading because the materials didn’t include cautionary information disclosing risks associated with rejecting the plan that was described in official information distributed by the company.

Although AMC Entertainment Holdings received a $100 million lifeline last week, it still needs $750 million more to make it through next year. Some of its lenders are thinking it may not be worth it. Three of its creditors are urging the theater operator to declare bankruptcy, The Motley Fool reported. If it agrees to do so, they will provide AMC with $1 billion of debtor-in-possession (DIP) financing. Such an arrangement allows the lenders to jump to the front of the line of all creditors who now control the company. AMC said in a regulatory filing that it has held discussions with a number of its lenders and those who hold second-tier status are supporting the theater's efforts at arranging financing to continue as a going concern. Certain first-lien creditors, however, are pushing the bankruptcy option and are dangling the DIP financing as a carrot. The New York Post identified Apollo Global Management, Canyon Capital Advisors, and Davidson Kempner Capital Management as AMC's first-lien debtholders pushing the company to go the bankruptcy route.

Children’s arcade and pizza chain Chuck E. Cheese failed to persuade a bankruptcy judge to delay or cut rent obligations due to COVID-19-related restrictions on the business, WSJ Pro Bankruptcy reported. The ruling yesterday from Judge Marvin Isgur of the U.S. Bankruptcy Court in Houston sounds a warning note for retailers and restaurants trying to survive a pandemic-driven drop in revenue, while comforting commercial landlords trying to do the same. The question of rent cuts and delays for businesses hurt by COVID-19 has come up in other bankruptcy cases, including that of Ruby Tuesday Inc. which like Chuck E. Cheese resorted to chapter 11 protection as fear of infection and government regulations kept customers away. Judge Isgur said that U.S. bankruptcy laws limit how much help he can extend to Chuck E. Cheese when it comes to the rent obligations owed on six restaurants in North Carolina, Washington and California. According to the ruling, varying degrees of health restrictions constricted the business, which is built around giving children a place to play as part of family dining. However, the Bankruptcy Code only allows the company to delay rent payments for 60 days, and nothing in state law or the terms of the leases changes that, according to the ruling. Leases are governed by their own provisions and by the laws of the states where the restaurant is located.

By Chloe, the fast-casual chain known for its vegan burgers and salads, filed for chapter 11 protection with plans to sell itself after the COVID-19 pandemic hampered liquidity, Bloomberg News reported. Since February, By Chloe has seen its revenue drop 67 percent, and the chain was forced to lay off or furlough more than half its staff. Three of its locations, including its original restaurant in the West Village, remain closed while others are operating at reduced capacity. A group of investors have agreed to provide By Chloe with a $3.25 million debtor-in-possession loan to help the company keep operating in bankruptcy, according to court filings. The chain is seeking to sell itself by mid-February. Prior to the pandemic, the chain operated 14 restaurants in the U.S. and was planning to add two more. It also licensed its names to operators who opened locations in Toronto and London, according to court papers.

Regulators, insurers and experts are warning airlines to take extra care when reactivating planes left in extended storage during the COVID-19 pandemic, citing potential pilot rustiness, maintenance errors and even insect nests blocking key sensors, Reuters reported. The unprecedented number of aircraft grounded as coronavirus lockdowns blocked air travel —at one point reaching two-thirds of the global fleet — has created a spike in the number of reported problems as airlines return them to service. The number of “unstabilised” or poorly handled approaches has risen sharply this year, according to the International Air Transport Association (IATA). Such mishaps can result in hard landings, runway overshoots or even crashes. Worried by IATA’s data, insurers are questioning airlines about whether they are doing extra pilot training to focus on landings, said Gary Moran, head of Asia aviation at insurance broker Aon PLC.

A bipartisan group of lawmakers is splitting its $908 billion coronavirus relief proposal into two packages as it prepares to release text today, The Hill reported. The plan will include a $160 billion proposal that ties together the two most controversial elements: more money for state and local governments and protections against coronavirus-related lawsuits. The second proposal will total $748 billion and include ideas that garner broader support, including another round of Paycheck Protection Program funding for small businesses, unemployment benefits, and more money for vaccine distribution, testing and schools. Members of GOP leadership, while saying the bipartisan group has been helpful at finding common ground, argue that a final agreement will need to be hashed out by Senate Majority Leader Mitch McConnell (R-Ky.) and House Speaker Nancy Pelosi (D-Calif.). Democrats view state and local money as a top priority, and the Senate GOP leader has long called including protections against coronavirus lawsuits a "red line." Read more. 

In related news, ongoing revelations about how big businesses and chains were able to secure hundreds of millions of dollars in funding from the Paycheck Protection Program are shaping discussions in Congress about which employers should be eligible if another $300 billion is approved under another proposed stimulus package. Two leading senators on small-business issues, Marco Rubio (R-Fla.) and Ben Cardin (D-Md.), agree that a new round of funding should permit businesses to receive a second PPP payment. More funding would also likely require businesses to show that they’ve lost income due to the pandemic to receive loans, which turn into grants if used properly. Read more. 

Additionally, House Majority Leader Steny Hoyer (D-Md.), indicated yesterday that Democratic House leadership was open to accepting a COVID-19 relief deal with Senate Majority Leader Mitch McConnell (R-Ky.) that doesn't include aid to state and local governments, The Hill reported. "I mean, I think we need to get an agreement, and we need to get this bill passed," Hoyer told CNN's Abby Phillip during an interview on "Inside Politics." He added, "If we can get [state and local assistance], we want to get it, but we want to get aid out to the people who are really, really struggling and are at great risk." Read more. 

About 40 days after it filed for chapter 11 protection, Lehigh Valley Mall co-owner PREIT has completed its financial restructuring and emerged from bankruptcy, the Allentown, Pa., Morning Call reported. PREIT, the largest mall owner in Philadelphia, filed for chapter 11 on Nov. 1 with a pre-packaged plan to bolster its financial flexibility and restructure its debt, after the coronavirus pandemic wreaked havoc on the brick-and-mortar retail world. Following the expedited process, PREIT said Friday it now has access to up to $130 million of new capital to support its operations. The company’s debt maturity schedule also has been extended.

Economic indicators are pointing to a second wave of bankruptcy for businesses of all sizes as well as households, likely to hit in the second half of next year, according to Ed Altman, the finance professor and bankruptcy guru, WSJ Pro Bankruptcy reported.A number of signs suggest a coming surge in defaults for nonfinancial companies, which picked up with the onset of the COVID-19 pandemic but have been somewhat muted thanks to unprecedented support for financial markets from the Federal Reserve. Chief among the indicators pointing to another bankruptcy wave ahead is the ratio of nonfinancial corporate debt to gross domestic product, which spiked to an all-time high of close to 57 percent in the first half of 2020, Altman said. Between 1985 and January 2020 that ratio never climbed above 47 percent, according to data presented by Mr. Altman, a professor at New York University’s Stern School of Business. “Every time we had a spike in the ratio of nonfinancial corporate debt to GDP, we also had a spike in default rates within 12 months to crisis levels,” he said. Corporate default rates followed that pattern in the past four recessions, including those that occurred in 2008-2009 and 2000-2001. Crisis-level default rates are around 8 percent to 10 percent or more, according to Altman, known for inventing the so-called Z-score, a mathematical formula used to predict corporate bankruptcies. Altman forecast that default rates for nonfinancial companies will reach 7.5 percent by the end of 2021 from less than 6 percent currently. That compares with 2.7 percent at the end of 2019 and the historical average for corporate defaults of 3.3 percent.

The attempt to draw up a pandemic relief package hit another roadblock yesterday as Senate Majority Leader Mitch McConnell’s top lieutenants said key portions of a compromise proposal from a bipartisan group of lawmakers aren’t likely to get backing from a majority of Republicans, Bloomberg News reported. Senator John Thune, the chamber’s No. 2 Republican, said the group of GOP and Democratic senators trying to forge a compromise likely cannot produce a solution to limiting the liability of employers in connection with COVID-19 infections that will satisfy Republicans. Democrats probably won’t like the result either, he added. The bipartisan group yesterday removed one of the last remaining hurdles to a complete stimulus framework when they agreed on a needs-based formula to distribute $160 billion in state and local aid, according to two congressional aides. But they are still haggling over the liability shield for employers that Republicans have demanded as part of the package. The group is discussing an enhanced pause in COVID-19 lawsuits, combined with a process for developing a future liability standard along with a standard that would apply now. Read more. 

In related news, a second round of Paycheck Protection Program (PPP) loans that lawmakers hope to include in the next COVID-19 relief package would expand eligibility and provide more flexibility for businesses, a top GOP lawmaker said yesterday, The Hill reported. Rep. Steve Chabot (R-Ohio), the ranking member on the House Small Business Committee, said that components of a $908 billion bipartisan coronavirus relief proposal circulated this week would accommodate businesses with very few employees, create new eligibility requirements for a second loan and simplify the loan forgiveness process. “We’re close to having a second round of PPP loans available, and there would be a set-aside there for microbusinesses, those that have 10 or fewer employees,” Chabot said. “A lot of them weren’t sophisticated enough to get in the first round. We want to make sure that those who didn’t get one in the first round or businesses who maybe did get one but really need a second loan, that they’re both eligible.” Read more.