Tuesday Morning has declined to sell itself and will instead seek other paths for its financial reorganization, according to court filings, RetailTouchPoints.com reported. The retailer had planned to close on a sale of all its assets by today, but will now push back its hearing date until Nov. 6 as it considers alternatives. Tuesday Morning filed for bankruptcy protection in May 2020 with plans to close 230 of its 687 stores. The retailer was hit hard by the pandemic, which forced the temporary closure of all its locations. However, the company had hoped to fuel a turnaround after it began resuming brick-and-mortar operations on April 24, with sales at reopened stores up 10 percent year-over-year during the first month.
Many small businesses are using a new part of the Bankruptcy Code to discharge their debts amid the COVID-19 crisis, and bankruptcy experts are encouraging other ailing small businesses to consider the option instead of shutting down entirely, CFO.com reported. More than 1,000 small businesses have elected to file under subchapter V, established this year by the Small Business Reorganization Act, in 2020 according to statistics cited yesterday in a session of Insolvency 2020 Virtual Summit. Part of the reason might be the enhancement to Subchapter V in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. CARES temporarily raised the ceiling on a filer’s aggregate secured and unsecured non-contingent and liquidated debt to $7.5 million from $2.7 million. The higher debt limit is scheduled to end on March 27, 2021. “[Subchapter V] is tailor-made for small businesses that can survive COVID and come out on the other end,” said Deirdre O’Connor, a managing director at Epiq Global. The bankruptcy bar and the courts are expecting more such cases to be filed in 2020, as Paycheck Protection Program funds are exhausted. Read more.
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With few avenues for spending and big purchases on hold, many Americans are saving more and paying off debts, helped by loan deferrals and relief aid, according to a New York Times analysis. Forced into lockdown mode by the coronavirus, people put big purchases on hold and scaled back their spending. Around the same time, mortgage lenders, student loan collectors and other creditors offered struggling borrowers a break on payments. Since April, consumer savings have increased, credit scores have surged to a record high and household debt has dropped. The billions of dollars that banks set aside at the start of the crisis to cover anticipated losses on loans to customers have been largely untouched. “Everything was upside down,” said John Hecht, an analyst at the investment bank Jefferies. Usually, in times of distress and unemployment, more people find themselves with deteriorating credit and are forced to seek high-interest, or subprime, loans, Hecht said, but not this year. The pain may still be coming. Banks and other consumer lenders are bracing for financial stress next year, as millions of people remain out of work and the labor market’s rebound shows signs of stalling. A third surge of coronavirus cases has taken hold in the U.S., and lawmakers in Washington, D.C. are mired in fights about the terms of additional stimulus. The number of people in America living in poverty has grown by eight million since May — though their financial woes often aren’t captured by credit and loan data because they’re out of the financial mainstream. And longer-term consequences like wage stagnation, reduced entrepreneurship and the accumulated cost of interest-bearing debt could linger for decades. But for now, households are weathering the turmoil largely because of the unusual nature of the current downturn. Read more.
In related news, consumers are spending money as if the coronavirus recession is over. But they are also paying down old debts and avoiding new ones in case the pandemic lasts a while, the Wall Street Journal reported. That is the discordant picture of the U.S. economy that emerged from third-quarter earnings reports from some of the country’s largest credit-card issuers. Capital One Financial Corp., Discover Financial Services DFS and Synchrony Financial SYF reported last week that, starting in September, the volume of purchases made by their customers increased from the relevant period a year earlier, a first since the coronavirus forced swaths of businesses to close their doors in March and a severe recession took hold. The buying continued well after laid-off workers stopped receiving $600 a week in extra unemployment benefits at the end of July. Although retail spending accelerated at the end of the third quarter, consumers still shied away from borrowing to finance everyday expenses and shopping binges. End-of-September credit-card balances at Capital One, Discover, Synchrony and American Express Co. were below their 2019 levels. Late-payment and defaults rates also decreased at those banks from prior quarters, even after programs that gave borrowers a reprieve on repayments ended, suggesting that consumers are willing and able to get out from under existing debt. Read more. (Subscription required.)
After filing for chapter 11 protection in June, BarFly Ventures LLC, the parent company of Grand Rapids, Mich.-based craft beer and bar food chain HopCat, has sold its assets as part of months-long financial restructuring, the Detroit Metro Times reported. The sale, which was announced Tuesday, was made to Congruent Investment Partners and Main Street Capital for a whopping $17.5 million. All of the assets, including Stella's Lounge and Grand Rapids Brewing Co., have now been acquired through a newly formed operating company, Project BarFly LLC. Both companies were previous lenders to HopCat in 2015. Before the pandemic forced Michigan restaurants to close for dine-in service, HopCat had its sights on expanding locally and nationally. Since filing for chapter 11, however, the focus has been on safely reopening and maintaining growth among the company's surviving 11 locations.
Independent producers behind some of the country’s most popular movies and TV shows are turning to K Street for the first time as the coronavirus pandemic threatens to reshape the entertainment industry, <em>The Hill</em> reported. Smaller production companies like MRC Entertainment, which was behind the blockbuster film “Knives Out” and the Netflix series “Ozark,” have banded together to form the American Coalition for Independent Content Producers (ACICP). They’re seeking financial relief from Congress like the kind extended to other major industries. While the pandemic has delayed production for both big and small studios, independent companies say they desperately need Congress to pass a coronavirus relief package that has been stalled for months.
The coronavirus recession tipped dozens of troubled companies into bankruptcy, setting off a rush of store closures, furloughs and layoffs. But several major brands, including Hertz Global, J.C. Penney and Neiman Marcus, doled out millions in executive bonuses just before filing for chapter 11 protection, according to a Washington Post analysis of regulatory filings and court documents. Since the pandemic took hold in March, at least 18 large companies have rewarded executives with six- and seven-figure payouts before asking bankruptcy courts to shield them from landlords, suppliers and other creditors while they restructured, the Post review found. They collectively meted out more than $135 million, documents show, while listing $79 billion in debts. Labor experts and bankruptcy attorneys say that the payouts are particularly egregious — and unjustifiable — during an economic crisis, and were timed to bypass a 2005 law passed specifically to prevent executives from prospering while their companies failed. Many companies have homed in on retention to justify bonuses because they cannot be attached to traditional motivators such as sales targets or stock valuations during bankruptcy. Experts said retaining executives — even those who may have overseen a company’s decline — is often seen as a way to maintain consistency and raise the chances that the company will successfully emerge from bankruptcy. The rise of pre-bankruptcy bonuses corresponds with the passage of 2005 legislation meant to stamp out such payouts during reorganization, attorneys say. The Post’s review found that companies typically awarded bonuses within weeks — or days in several cases — of filing for chapter 11 protection. “It’s become a standard solution: Pay the bonus before bankruptcy, so bankruptcy law doesn’t apply,” said Adam Levitin, a Georgetown University law professor whose work focuses on bankruptcy and financial regulation.
More and more, bondholders are fighting for pennies on the dollar as companies go belly up, Bloomberg News reported. Bankruptcy filings are surging due to the economic fallout of COVID-19, and many lenders are coming to the realization that their claims are almost completely worthless. Instead of recouping, say, 40 cents for every dollar owed, as has been the norm for years, unsecured creditors now face the unenviable prospect of walking away with just pennies — if that. While few could have foreseen the pandemic’s toll on the economy, the depth of investors’ pain from corporate distress was all too predictable. Desperate to generate higher returns during a decade of rock-bottom interest rates, money managers bargained away legal protections, accepted ever-widening loopholes, and turned a blind eye to questionable earnings projections. Corporations, for their part, took full advantage and gorged on debt that many now cannot repay or refinance. Ultralow rates helped risky companies sell bonds with fewer safeguards, which creditors seeking higher returns were happy to accept. Now, amid a new bout of economic pain, the effects of those policies are coming to bear. Debt issued by the owner of Men’s Wearhouse, which filed for court protection in August, traded this month for less than 2 cents on the dollar. When J.C. Penney Co. went bankrupt, an auction held for holders of default protection found the retailer’s lowest-priced debt was worth just 0.125 cents on the dollar. For Neiman Marcus Group Inc., that figure was 3 cents.
A lawyer for J.C. Penney Co.’s top lenders accused a rival creditor group of “economic terrorism” during a court hearing on the escalating battle between hedge funds seeking bigger shares of the beleaguered department-store chain, WSJ Pro Bankruptcy reported. Andrew Leblanc, who represents the company’s top lenders, said a competing group of investors including Aurelius Capital Management LP was trying to tie up a planned sale of the company’s retail assets “so they can extract a premium.” Aurelius, Carlson Capital LP and other dissenters are challenging Penney’s preferred path out of bankruptcy, which is backed by top lenders and involves placing the retail operations and most of the company’s stores in the hands of mall owners Simon Property Group Inc. and Brookfield Property Partners LP. Under the restructuring proposal, the remaining stores and distribution centers would be transferred to top lenders including H/2 Capital Partners LLC, Sculptor Capital Management Inc. and Brigade Capital Management LP in exchange for $1 billion in debt forgiveness. At a hearing held via videoconference in the U.S. Bankruptcy Court in Corpus Christi, Texas, a judge authorized Penney to begin soliciting votes from creditors on the proposed restructuring, but not before pointed exchanges between lawyers for the two investor groups. The objecting group, which holds a minority of Penney’s first-priority loans, has said the credit bid is artificially low and designed to overpay the deal participants while siphoning value from the rest of Penney’s creditors.
U.S. senators departed the Capitol for a pre-election break yesterday, making the logistics for passing a fiscal stimulus package by next Tuesday practically impossible, even as the coronavirus continues to infect tens of thousands of Americans daily and inflict economic damage, Bloomberg News reported. “We’ll come back in November. The question might be, will there be something then?” Senate Appropriations Chairman Richard Shelby (R-Ala.) said yesterday. The chances of a coronavirus relief bill before Nov. 3 are “very, very slim,” he added, referring to Election Day. The Senate’s departure after the confirmation vote for Amy Coney Barrett to join the Supreme Court left House Speaker Nancy Pelosi (D-Calif.) and Treasury Secretary Steven Mnuchin to continue haggling over a package. After their latest call yesterday, agreement remains pending on both the size — the Trump administration was last at $1.9 trillion, with the Democrats at $2.4 trillion — and language of a bill. Failure to reach an accord carries human and economic as well as potential political costs. The coronavirus has strengthened its grip across much of the U.S. with record numbers of cases, and the economy remains fragile. The realization that any new stimulus would almost certainly have to await the election contributed to the worst selloff in U.S. stocks since early September on Monday. Even in the unlikely event Pelosi and Mnuchin could come to terms, writing a complex bill and pushing it through House and Senate procedures before Election Day would be an all but impossible task.
