The Labor Department’s weekly reports on unemployment claims are relying on “inappropriate” methods and has “improperly presented” data on the number of claimants as a result, according to a report by the Government Accountability Office, The Hill reported. In normal times, DOL uses the number of initial jobless claims that states report each week to estimate the total number of overall claimants in a given week. But since the pandemic upended the U.S. economy, that method has led to an inaccurate tally, which is likely overstating the number of people collecting unemployment insurance. “[B]ecause backlogs in processing a historic volume of claims have led to individuals claiming multiple weeks of benefits at a time for previous weeks of unemployment, as well as other data issues, these traditional estimates have not been appropriate in the context of the pandemic,” GAO found. In other words, if a single person submits multiple claims over the course of a reporting period — something that would be rare in normal times — the DOL’s methods would count each claim as a separate individual claimant. A claimant jumping from one program to another in a piecemeal system could get counted multiple times.
U.S. employees started heading back to the office in greater numbers after Labor Day but that pace is stalling now, delivering another blow to economic-recovery hopes in many cities, the Wall Street Journal reported. The recent surge in COVID-19 cases across the country has led to an uptick in Americans resuming work at home after some momentum had been building for returning to the workplace, property analysts said. Floor after floor of empty office space is a source of great frustration for landlords and companies, which have invested millions of dollars in adapting building plans and developing new health protocols to make employees comfortable with a shared location. About a quarter of employees had returned to work as of Nov. 18, according to Kastle Systems, a security firm that monitors access-card swipes in more than 2,500 office buildings in 10 of the largest U.S. cities. That rate is up sharply from an April low of less than 15 percent, which largely consisted of building-maintenance and essential workers. The office return rate climbed steadily during the summer and early fall, but it has flattened out after reaching a high point of 27% in mid-October, Kastle said. The rate for last week was down even more sharply than in previous weeks but likely reflected the Thanksgiving Day holiday.
British tycoon Philip Green’s Arcadia fashion group has collapsed into administration, putting over 13,000 jobs at risk and becoming the country’s biggest corporate casualty of the COVID-19 pandemic so far, administrator Deloitte said yesterday, Reuters reported. Arcadia owns the Topshop, Topman, Dorothy Perkins, Wallis, Miss Selfridge, Evans, Burton and Outfit brands, trading from 444 leased sites in the UK and 22 overseas. Deloitte said that the stores will remain open, or reopen when permitted under the government’s COVID-19 restrictions, and no redundancies were being immediately announced. “We will now work with the existing management team and broader stakeholders to assess all options available for the future of the group’s businesses,” said Matt Smith, joint administrator at Deloitte. He said Deloitte would rapidly seek expressions of interest and expected to identify one or more buyers to ensure the future of the businesses.
Amid the ongoing financial distress caused by the COVID-19 pandemic, bankruptcies are set to rise dramatically, according to a commentary in Fortune. The business busts will strike small firms disproportionately, which is bad news for more than just the business owners. It’s bad for the whole economy, because the surge of financial pain may overwhelm the bankruptcy system. The worrisome outlook emerges from new research by Robin Greenwood of the Harvard Business School, Benjamin Iverson of Brigham Young University’s Marriott School of Business, and David Thesmar of the MIT Sloan School of Management. Their findings are full of surprises, starting with the reality of bankruptcies in the pandemic so far, according to the commentary. Despite a parade of high-profile chapter 11 filings, especially in retail — J.C. Penney, Neiman Marcus, J. Crew, Brooks Brothers — overall bankruptcies through August were “actually 1% lower than in the same timeframe in 2019,” the authors report. It’s no illusion that big companies were more likely to file during the first eight months of 2020, but small businesses were much less likely to file. Maybe that’s because they still had some Paycheck Protection Program funds. Or maybe, as a Jeffries note to clients hypothesized, it’s because many small businesses were so strapped they couldn’t afford to hire a bankruptcy lawyer. In any case, the researchers argue that the numbers have to rocket. “We expect overall bankruptcies to increase by as much as 140 percent in the current year,” they write. “By all metrics, corporate financial distress is set to increase.” Economists don’t see bankruptcies as necessarily bad. When tough times strike, some businesses inevitably will struggle; the bankruptcy process helps sort out which should be given a second chance and which should be liquidated. The resulting reallocation of capital and labor, painful as it may be, helps to rebuild the economy. The danger in the pandemic crisis is that the process may not work as it should. That’s partly because “the balance sheets of small firms are hit the hardest by the current recession,” the researchers find, which is a problem because “small firms restructure very rarely.” Instead of working things out with their creditors, they mostly just fail. They’re less likely to get a second chance because some of their most valuable assets, such as the entrepreneur’s know-how, can’t be pledged to investors. Read more.
*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.
A growing number of governors are calling for another round of coronavirus-relief legislation from Washington, D.C., saying that they are unable to provide additional funds to small businesses amid budget shortfalls, the Wall Street Journal reported. The issue is gaining urgency as money from federal relief passed earlier this year runs out ahead of a year-end deadline to spend it. States have funneled hundreds of millions of dollars in federal aid into everything from personal-protective equipment and hazard pay for front-line health-care workers to schools and food banks. Businesses, which generally got a smaller slice of the aid than programs directly tied to the public-health emergency, are in a particularly precarious spot. In addition, federal loans to businesses during the shutdown earlier this year — known as the Paycheck Protection Program — have since run out. The crunch is tough in the Midwest, where some of the nation’s strongest coronavirus restrictions have been implemented amid increases in COVID-19 cases, hitting businesses just ahead of the holiday season.
Sycamore Partners is finalizing a plan to buy assets of bankrupt Ascena Retail Group Inc., including the Ann Taylor and Loft brands, Bloomberg News reported. The private equity firm is offering to buy the brands from Ascena before the company asks for court permission to confirm its bankruptcy plan. The offer would need court and creditor approval. Ascena’s bankruptcy plan left room for a potential bidder to emerge through a sale process while also allowing lenders to take control of the business if a buyer didn’t materialize. A hearing to confirm the company’s chapter 11 reorganization plan was delayed to tomorrow when U.S. Bankruptcy Judge Kevin R. Huennekens will be asked to approve and finalize the plan in court. Ascena recently got court permission to sell its Justice brand to an entity formed by licensing firm Bluestar Alliance LLC for about $90 million. Bluestar had the highest and best offer over lower bids from an entity called Premier Brands Justice and an affiliate of WHP Global, Bloomberg reported.
Francesca’s Holdings Corp. is preparing to file for bankruptcy, Bloomberg News reported. The boutique-style women’s clothing chain could file as soon as this week, though the timing and plan could still change. Francesca’s problems predate the disruption that came in the wake of the pandemic. It posted two years of losses and scrapped a strategic review last year after top executives departed. The Houston-based retailer named Andrew Clarke as its new chief executive officer in February after a delayed search. Clarke earlier headed the Loft chain of Ascena Retail Group Inc., which has also made a trip to bankruptcy court this year. Francesca’s said in September that it had hired advisers to explore strategic alternatives, including bankruptcy. Last week, it announced that it would permanently close about 140 of its 700 stores and seek bankruptcy protection if it couldn’t raise more capital.
A Houston judge has given Fort Worth-based Lilis Energy Inc. the go-ahead on its bankruptcy plan, the Houston Business Journal reported. Under the plan, Lilis intends to sell all its assets, distribute the remaining cash to its creditors and wind up operations, according to a press release. The company has already announced a deal selling its assets to Ameredev Texas LLC for $46.6 million. The company had previously said that deal would close some time in December, but it is now saying that it will reach the end of its bankruptcy — which means that deal will have already been done — on Dec. 1. Any assets remaining when Lilis exits bankruptcy would be contributed to a trust that would liquidate them and distribute the proceeds, the company said. Lilis and its subsidiaries will dissolve when the bankruptcy ends. Lilis, an oil and gas producer, originally filed for bankruptcy in the Southern District of Texas in June. At the time, it had an agreement in place with creditors that would restructure the balance sheet via an equity investment from one of them — Värde Partners Inc. — for $55 million, according to court documents. That plan shifted later in the summer when Värde decided not to move forward on the equity deal after all, leaving Lilis to fall back on a backup plan to sell all its assets. Read more.
Since COVID-19 sparked government-ordered shutdowns in March, judges have dismissed more than four times as many business-interruption lawsuits as they’ve allowed to proceed, according to a preliminary analysis by the University of Pennsylvania Law School. But some plaintiffs are finding weak spots in the industry’s legal defenses, Bloomberg News reported. Christopher Walker, an Orlando doctor, is one of them. Though his policy — like many — contained a provision that Sentinel Insurance Co. contends excluded virus claims, Walker’s lawyer argued that the language used was ambiguous. A federal judge agreed, keeping the case alive after Sentinel sought a dismissal of the suit brought on behalf of Walker’s practice, UroGyn Specialists of Florida. The stakes are high for thousands of businesses. The outbreak has led to a surge in U.S. bankruptcies, including rental-car company Hertz Global Holdings Inc. Century 21 Stores said that it couldn’t survive after its insurer denied its business-interruption claim. But the pandemic is also squeezing insurers. In the second quarter — after the initial shutdowns — Chubb Ltd. reported $1.16 billion in COVID-19 losses. Munich Re said this month that coronavirus losses keep growing. Overall, the industry could face at least $100 billion in total underwriting losses from the pandemic, Lloyd’s of London predicted in May.
