%1

California Pizza Kitchen Inc. is close to a settlement with its unsecured creditors that clears a path for the restaurant chain to sell itself or hand over ownership to lenders, WSJ Pro Bankruptcy reported. At a hearing on Thursday in the U.S. Bankruptcy Court in Houston, the company’s lawyer Matthew Fagen of Kirkland & Ellis LLP said California Pizza Kitchen is nearing a deal that ensures unsecured creditors will go along with its restructuring proposal. The company filed for bankruptcy in July hoping to find a buyer or hand ownership to top-ranking lenders. The sale process has begun, with bids due Oct. 2. Unsecured creditors that rank behind lenders in the repayment line have been in talks to increase the amount they will get under the plan, according to court filings. The coming settlement “gives California Pizza Kitchen the ability to choose its own destiny, whether it be an equitization…or a sale pursuant to our bidding procedures,” Fagen said at the hearing. Under the restructuring proposal, which requires court approval, CPK would cut its roughly $400 million in debt to $174 million. Unsecured creditors would get close to $2 million and 3.5 percent of the company’s shares if lenders take control of the equity. If the company is sold to an outside bidder, the unsecured creditors would get an additional $1.5 million in cash under the proposed settlement, court filings show.

U.S. businesses with COVID-19 outbreaks are facing an emerging legal threat from claims that workers brought coronavirus home and infected relatives, which one risk analysis firm said could cost employers billions of dollars, Reuters reported. The daughter of Esperanza Ugalde of Illinois filed in August what lawyers believe is the first wrongful death “take home” lawsuit, alleging her mother died of COVID-19 that her father contracted at Aurora Packing Co.’s meat processing plant. The cases borrow elements from “take home” asbestos litigation and avoid caps on liability for workplace injuries, exposing business to costly pain and suffering damages, even though the plaintiff never set foot on their premises. “Businesses should be very concerned about these cases,” said labor and employment attorney Tom Gies of Crowell & Moring, which defends employers. The lawsuit against Aurora alleges that Ricardo Ugalde worked “shoulder to shoulder” on the company’s processing line in April when Aurora knew it had a coronavirus outbreak at its facility and failed to warn employees or adopt any infection prevention measures. Between 7 percent and 9 percent of the roughly 200,000 U.S. COVID-19 deaths so far are believed to stem from take-home infections and the lawsuits could cost businesses up to $21 billion if the number of Americans fatalities reaches 300,000, according to Praedicat, a firm that evaluates risks for insurers.

More than 35,000 employees across the airline industry are set to be out of a job by Thursday due to the effects of the COVID-19 pandemic on travel, the Washington Post reported. It’s another devastating blow for an industry facing a crisis analysts say is already far worse than it experienced after the terrorist attacks of Sept. 11, 2001, and one that has already seen employment in air transportation decline by 100,000 jobs according to one measure. The employees facing furlough will be victims of the ongoing devastation the pandemic has inflicted on airlines, which have seen demand for travel drop precipitously since March, but also of a Congress that says it wants to protect their jobs with billions of dollars in aid and yet has been unable to reach agreement on a bill to do so. Lawmakers say they didn’t intend to create a precipice when they gave airlines an initial $25 billion in aid on the condition that they not lay off workers until October. Like many Americans, they expected the virus to be under control by now. Instead, it continues to spread and air travel is stuck at about 700,000 passengers a day, a third of its normal rate. Read more. 

In related news, American Airlines said on Friday that it has secured a $5.5 billion government loan and could tap up to $2 billion more in October depending on how the U.S. Treasury allocates extra funds under a $25 billion loan package for airlines, Reuters reported. Airlines have until Sept. 30 to decide whether to take the U.S. Treasury loans, which were authorized under the CARES Act coronavirus relief bill passed by Congress in March. American Airlines was originally allocated $4.75 billion, but carriers including Delta Air Lines and Southwest Airlines have already said they do not intend to take their share of the package, opening the door for the funds to be used by other airlines. Fort Worth, Texas-based American said it has already drawn down $550 million of the Treasury loan, which is backed by its loyalty program. The loans also require airlines to issue warrants and carry restrictions on executive compensation and buybacks. Among other carriers, United Airlines said last week it will tap the Treasury loans, but it was not clear whether the airline would only seek its $4.5 billion share or more. Read more. 

House Democrats have started drafting a stimulus proposal of roughly $2.4 trillion that they can take into possible negotiations with the White House and Senate Republicans, according to House Democratic officials, Bloomberg News reported. The bill could get passed by the House next week. While smaller than the $3.4 trillion package the House passed in May, it remains much larger than what Senate Republicans have said they could accept. President Donald Trump has indicated he’d be willing to go as high as $1.5 trillion. “When you are talking about $2.2 trillion and $1.5 trillion you are in deal-making territory” said Representative Dan Kildee (D-Mich.). House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer had earlier pressed the White House for a $2.2 trillion package. As the top-line figure remains well above what the Trump administration has favored, the new House bill may do little on its own to resolve the impasse in talks that’s persisted since August. Senate Republicans have been unable to coalesce around an earlier $1 trillion proposal, and instead backed a $650 billion plan that ended up getting blocked by Democrats as insufficient. The bill adds to the previous $2.2 trillion Pelosi-Schumer plan with help for the U.S. airline industry to avert massive job losses, which could start Oct. 1 when restrictions expire from a prior round of federal assistance. Also included is small-business aid and a bailout for restaurants. 

As measured by employment and gross domestic product, the recession brought on by the COVID-19 pandemic has been the deepest since the Great Depression, according to a Bloomberg News commentary. Going by Bloomberg’s Corporate Bankruptcy Index, though, it’s a standard-issue downturn, nowhere near as bad as the recession of just over a decade ago. This index, which was heavily affected by a few large bankruptcies in 2008 and 2009 (Lehman Brothers, Washington Mutual, General Motors, CIT Group), is definitely not the only way to measure bankruptcy activity. Edward Altman, an emeritus professor at New York University’s Stern School of Business, favors counting the number of bankruptcies with liabilities of more than $1 billion, of which he says there have been 50 so far this year, breaking 2009’s full-year record of 49. Then again, the total number of business bankruptcies is actually down, according to the commentary. Federal courts data show business filings in the second quarter of this year (April through June) to be the lowest in more than a decade and nearly the lowest in four decades. Only the first two quarters after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect, raising the bar for both business and consumer filings, saw fewer. Trillions of dollars of aid from Congress and the Federal Reserve have clearly played a role here, as has the mostly exuberant state of financial markets (which is not unrelated to all that aid from the government), according to the commentary. U.S. corporate bond issuance through the end of August totaled $1.73 trillion, according to the Securities Industry and Financial Markets Association, breaking the full-year record of $1.67 trillion set in 2017. During the last recession, bond issuance fell 38 percent from 2007 to 2008. This year to date, it’s up 83 percent. Although that channel of financing has not been available to smaller businesses, many of them have been able to avail themselves of the government’s Paycheck Protection Program. Personal bankruptcies are down, too, with chapter 7 and chapter 13 filings through August of this year 27 percent lower than over the same period in 2019. On the whole, those with family incomes of $40,000 or less surveyed by the Federal Reserve reported being in slightly better financial shape in July than before the pandemic, according to the commentary. With additional federal help looking less and less likely before November’s election, and the economy showing some signs of stalling from its rapid early-summer rebound, these positive trends won’t necessarily persist. “Once the government and Fed stimuli end, I feel there will be a spike in all bankruptcies,” Altman predicts.

*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. 

Some publicly traded companies that received taxpayer-backed small business loans to pay their employees during the early weeks of the pandemic paid out millions to Wall Street investors in dividends and share buybacks, publicly available financial disclosures reviewed by the Washington Post show. Under the Small Business Administration rules, a PPP loan could be used only to meet payroll and pay mortgage interest, leases or utility bills. PPP loan recipients weren’t prohibited from paying investors with other funds, as long as the PPP funds were kept separate. Still, some advocacy groups believe companies that had enough cash on hand to pay millions in dividends and stock purchases were unlikely to qualify for the PPP program, which was designed to assist troubled companies in keeping employees on the payroll during weeks when they were unable to do business because of pandemic-related lockdowns. The issue of whether some undeserving businesses received PPP loans has arisen previously when it became known that scores of publicly traded companies received millions of dollars in loans, even though they had access to other sources of capital. The SBA’s initial rules allowed for businesses to self-certify that “current economic uncertainty” made the loan “necessary to support the ongoing operations of the applicant.” But in late April, after the news broke that many publicly traded companies had received loans, the SBA said firms with access to capital elsewhere were “unlikely” to qualify and asked that the loans be returned. Some returned the money, but many did not (SBA and Treasury officials have declined to say exactly how many did so).

As much as $380 billion from the U.S. Congress’ last big coronavirus aid package is unused and could help households and businesses if lawmakers approve, Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin said yesterday, Reuters reported. That is far short of the $500 billion to $1 trillion many economists had expected in new fiscal stimulus for the flagging recovery. But rising tensions between Republicans and Democrats have made a new relief package ahead of the Nov. 3 election look increasingly unlikely. The unused money, authorized by Congress in March as part of a $2.3 trillion aid package but not yet spent, could go a long way to tide over businesses and keep people who have lost work from losing their homes. The Treasury still has $200 billion in unused funds earmarked to backstop emergency programs launched by the U.S. central bank after the coronavirus outbreak, Mnuchin said. 

Noble Corp., an operator of offshore oil-and-gas drilling rigs, has settled multibillion-dollar litigation over its 2014 spinoff of Paragon Offshore PLC, a critical step in Noble’s path to exiting bankruptcy, WSJ Pro Bankruptcy reported. The settlement with a trust that benefits Paragon creditors sets up two options: Noble will either pay $10 million as part of a global settlement of the litigation or it will pay $7.5 million to resolve only the claim against the company and its affiliates, while allowing the lawsuit to proceed against insurance carriers covering its current and former directors and officers, according to papers filed Wednesday in the U.S. Bankruptcy Court in Houston. With a settlement in hand, Noble said it is well positioned to move ahead with a chapter 11 plan that cuts its debt and preserves about 1,600 jobs “during remarkably turbulent economic times.” The trust set up to represent Paragon creditors was seeking more than $2.6 billion in damages, accusing Noble of loading Paragon with old rigs and an unsustainable amount of debt before spinning it off. Paragon filed for chapter 11 protection less than two years after the spinoff. London-based Noble, which has denied the allegations, said the settlement is “exceptionally favorable” to Paragon and its creditors while avoiding the time and expense of a trial over the spinoff.