Treasury Secretary Steven Mnuchin defended his decision to allow a suite of emergency lending programs to expire at the end of the year against criticism from Democrats who said he had misinterpreted the law that enabled them, the <em>Wall Street Journal</em> reported. Mnuchin said at a House oversight hearing yesterday that the $2 trillion Cares Act pandemic relief bill that Congress approved on a bipartisan basis in March didn’t allow him to extend five emergency loan programs. The Fed and Treasury had established those programs with some of the $454 billion Congress had made available in the law. “This was not a political decision. I was merely implementing the Cares Act,” Mnuchin said, echoing comments he made on Tuesday before the Senate Banking Committee. Mnuchin also said that the programs weren’t needed anymore and that the money he hadn’t approved for the programs, as well as other funds that wouldn’t be needed, would be better used on another pandemic relief bill.
The Paycheck Protection Program was the centerpiece of the federal government’s relief efforts to keep millions of small businesses afloat during the coronavirus pandemic. But new data shows what many had suspected all along: The money was shared unevenly, with the biggest sums going to a sliver of the companies in need, the New York Times reported. Detailed loan information released by the Small Business Administration late on Tuesday showed that a mere 1 percent of the program’s 5.2 million borrowers — those seeking $1.4 million and above — received more than a quarter of the $523 billion disbursed. About 600 businesses — including powerful law firms like Boies Schiller Flexner, restaurants like the steakhouse chain started by Ted Turner, as well as the operator of New York’s biggest horse tracks — received the maximum loan amount of $10 million, according to the data. It was the first full accounting of how federal money was spent through the program. Aimed at small companies — generally those with 500 or fewer workers — the program provided forgivable loans to desperate business owners who were faced with widespread shutdowns. But the program allowed businesses to take enough money to cover only a couple of months’ expenses, and it has come under criticism for its poorly defined rules and a hasty and haphazard rollout that allowed fraudsters to tap into the money, which will take years of litigation to sort out. The newly released data also includes details of loans made under the Economic Injury Disaster Loan system, a longstanding Small Business Administration program that was vastly expanded to offer relief to businesses affected by the pandemic. Together, the two programs spread more than $700 billion to struggling companies in just a few months.
Barneys New York will return early next year under its new owner, after plans to revive the storied luxury retailer were delayed due to the coronavirus pandemic, Bloomberg News reported. The first two stores are set to open in the first quarter, more than a year after Barneys declared bankruptcy and began shuttering its locations. One will be inside Saks Fifth Avenue’s flagship in Manhattan, and the other will be a small standalone shop in Greenwich, Conn. “We would’ve liked to have it open by now,” said Jamie Salter, chief executive officer of Barneys owner Authentic Brands Group LLC, at a conference yesterday. The store was supposed to come back in September as a boutique on the fifth floor of the Saks flagship, but the health crisis derailed those hopes. Fred’s, the restaurant within Barneys, will also be making its comeback in 2021, though Salter didn’t share additional details. Barneys filed for bankruptcy for the second time last year and liquidated its remaining merchandise through the holidays before closing its Madison Avenue flagship in February. The department store had become a cultural icon over its near-century-long history. Authentic Brands bought the assets and licensed the brand to Saks in North America, an alternative to reopening a network of large department stores in the U.S. Authentic Brands has six Barneys stores in Japan, plus outlets, and plans to expand it into China and Korea in the next two years.
Manhattan hasn’t had this much available office space since 2003, according to a report by Colliers International, Bloomberg News reported. The availability rate rose to 13.5 percent in November, with more companies looking to sublease their offices, Colliers said. The pandemic has emptied out Manhattan offices and prompted companies to reconsider how much space they need as they try to trim costs. That’s weighed on the shares of prominent New York building owners SL Green Realty Corp. and Vornado Realty Trust. Vornado is redeveloping the area around Pennsylvania Station, a bustling commuter hub that has largely gone quiet with many office workers staying home. The company said Tuesday it was cutting jobs and reducing compensation as it trims costs. For November, 790,000 square feet (73,400 square meters) was leased in Manhattan, down nearly 80 percent from a year earlier, according to Colliers. With space flooding the market, average asking rents have dropped more than 3 percent this year and are now at the lowest level since June 2018.
Norwegian Air proposed today to convert debt to equity, offload planes and sell new shares in an attempt to survive the COVID-19 pandemic, which has brought the company to its knees, Reuters reported. As part of the plan, the Oslo-based carrier, which recently applied for bankruptcy protection in an Irish court, aims to raise up to 4 billion Norwegian crowns ($455.4 million) from the sale of new shares or hybrid instruments, it said. “The company asks for the continued support of its shareholders to prepare for future capital increases in parallel with the restructuring of its balance sheet,” Norwegian said in a statement. It will also seek to only pay lessors for the use of the aircraft when they are actually in use, by the hour, until 2022. Before the pandemic, Norwegian helped transform transatlantic travel, expanding the European budget airline business model to longer-haul destinations, but also ran up losses each year from 2017 to 2019. By cutting its fleet and reducing its debt load, Norwegian believes it can make itself attractive to new shareholders and potentially attract financial support from Norway’s government, which has so far rejected calls for more aid.
Small business bankruptcies filed under the new subchapter V accounted for approximately 18 percent of all chapter 11 cases filed in 2020 through Oct. 31, according to calculations using Bloomberg Law Dockets and statistics from Epiq. Expanding Subchapter V eligibility could help even more small businesses by allowing them a more direct path to restructuring during this economic downturn. Last year, Congress made several changes to the Bankruptcy Code. One of those changes, the Small Business Reorganization Act (SBRA), created a new subchapter of chapter 11 — Subchapter V — providing a simplified, equity-friendly, and potentially less expensive route to bankruptcy reorganization for small business debtors. While no one could have predicted the nature and level of economic uncertainty encountered in 2020, the SBRA is proving to be a useful tool for struggling small businesses. According to Bloomberg Law Dockets, more than 1,300 debtors have elected to proceed under Subchapter V so far in 2020. This number includes approximately 120 debtors whose cases were filed prior to the Feb. 19, 2020, effective date of the SBRA but chose to amend their petitions to make the election. Furthermore, when the SBRA became effective, the liability limit to qualify as a small business debtor under the code was $2,725,625. But in March 2020, The Coronavirus Aid, Relief, and Economic Security (CARES) Act temporarily increased the debt limit to $7.5 million for one year. The case filings in the Bankruptcy Court for the District of Delaware, for example, reveal that of the 29 Subchapter V cases filed there, six (20 percent) had debtors who became eligible for Subchapter V as a result of the increased liability limit provided by the CARES Act. Another seven (24 percent) were re-designated when the debtor or an affiliate exceeded the statutory debt limit. If these patterns are typical of other courts and remain consistent, they could bolster arguments for extending the expiration date of the $7.5 million liability limit beyond March 2021 or even further increasing the debt limit. Read more.
SBRA: A Guide to Subchapter V of the U.S. Bankruptcy Code, written by distinguished judge Paul W. Bonapfel (U.S. Bankruptcy Court, N.D., Georgia), is a free ebook offering an analysis of the new Subchapter V of the Bankruptcy Code, as well as insights into the emerging case law. Download it here.
A bipartisan group of lawmakers yesterday introduced a coronavirus aid proposal worth about $908 billion, aiming to break a months-long partisan impasse over emergency federal relief for the U.S. economy amid the ongoing pandemic, the Washington Post reported. The new plan came amid a flurry of congressional jostling about the shape of economic relief, with House Democrats assembling a new proposal, Senate Majority Leader Mitch McConnell (R-Ky.) creating a new plan and President-elect Joe Biden calling for a massive government response. The plan circulated by the bipartisan group of senators is light on details but seeks to reach a middle ground on numerous contentious economic issues. It would provide $300 a week in federal unemployment benefits for roughly four months — a lower amount than the $600 per week Democrats sought, while still offering substantial relief to tens of millions of jobless Americans. The agreement includes $160 billion in funding for state and local governments, a key Democratic priority opposed by most Republicans, as well as a temporary moratorium on some coronavirus-related lawsuits against companies and other entities — a key Republican priority that most Democrats oppose. The measure also includes funding for small businesses, schools, health care, transit authorities and student loans, among other measures. Read more.
In related news, U.S. airlines would receive $17 billion for four months of payroll support under a new $908 billion bipartisan Senate COVID-19 relief proposal, Reuters reported. A bipartisan group of lawmakers announced a package of $45 billion in transportation assistance, and the offices of Senators Mitt Romney and Mark Warner said the plan includes $15 billion for transit systems, $4 billion for airports, $8 billion for private buses and $1 billion for passenger railroad Amtrak. The $45 billion in transportation assistance is designed to provide assistance for four months. Congress and President-elect Joe Biden can decide next year if more funds should be approved beyond March, Senator Joe Manchin (D-W.Va.) said. The White House has not yet said it supports the plan, and neither have Congressional leaders. A separate Senate Republican leadership relief plan summary sent to lawmakers later on Tuesday had no reference to additional transportation assistance. Read more.
Additionally, Senate Majority Leader Mitch McConnell (R-Ky.) yesterday circulated a new coronavirus relief proposal that could garner support from the White House among Senate Republicans, The Hill reported. McConnell said that he had been speaking with Treasury Secretary Steven Mnuchin and White House chief of staff Mark Meadows about what President Trump could sign. Congress is quickly running out of time to pass lame-duck legislation with the House poised to leave as soon as next week. Congress faces a Dec. 11 government funding deadline and McConnell said any coronavirus relief will ride on that. McConnell previously twice offered a roughly $500 billion coronavirus relief bill that was rejected by Democrats. McConnell's new proposal would provide protections against coronavirus-related lawsuits, extend unemployment insurance for roughly a month and provide another round of Paycheck Protection Program (PPP) small business assistance. It would also provide more money for the Postal Service, schools, testing and vaccine distribution. If Congress is going to pass additional relief, McConnell said he expected it would be folded into a must-pass government funding bill. Read more.
More than half of the money from the Treasury Department’s coronavirus emergency fund for small businesses went to just 5 percent of the recipients, according to data on more than 5 million loans that was released by the government yesterday evening in response to a Freedom of Information Act request and lawsuit, the Washington Post reported. According to data on the government’s Paycheck Protection Program (PPP), about 600 mostly larger companies, including dozens of national chains, received the maximum amount allowed under the program of $10 million. Officials from the Treasury Department and the Small Business Administration (SBA) have argued that the program primarily benefited smaller businesses because a vast majority of the loans ― more than 87 percent ― were for less than $150,000, as of August. But the new data shows that more than half of the $522 billion in the same time frame went to bigger businesses, and only 28 percent of the money was distributed in amounts less than $150,000. The newly released data comes after a federal lawsuit filed by news organizations under the Freedom of Information Act challenging the SBA’s refusal to release records on borrowers and loan amounts. A federal judge ordered the release of the data by yesterday and the agency did not appeal.
There’s an unusual asset up for grabs in Century 21 Stores’ going-out-of-business sale: a stake in its long-shot legal fight against insurers, Bloomberg News reported. The New York department store company, which filed for bankruptcy in September, claims it’s owed more than $175 million from business interruption policies because COVID-19 devastated its operations, according to court papers. The claim is the most valuable possession that the doomed chain has left, and proceeds from selling it would help repay creditors after Century 21 closes for good. Thousands of businesses across the U.S. — including more than a dozen professional baseball teams and an iconic Hollywood restaurant — began similar legal battles against insurers after the virus crushed the global economy this year. But insurance companies have mostly prevailed, arguing that diseases can’t cause the physical damage needed to trigger a payout, or pointing to clauses that exclude viruses. Still, Century 21’s legal claim has found a buyer. Precisely who isn’t clear — lawyers for the chain have asked the bankruptcy judge to keep the identity a secret. The exact sale price wasn’t disclosed either, but the proceeds would be at least enough to pay off Century 21’s secured debt, which totaled more than $50 million at the time of the bankruptcy filing. A hearing is scheduled for today in New York.
