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President Donald Trump said that he was open to more stimulus spending for pandemic relief in stalled talks with congressional Democrats, Bloomberg News reported. Trump, at a White House press conference yesterday, said that he liked “the larger numbers” in a compromise $1.5 trillion stimulus proposal from a bipartisan group of House lawmakers that was an effort to break a months-long deadlock over bolstering the U.S. economy amid the coronavirus pandemic. The plan from a 50-member group of House Democrats and Republicans has a bigger total spending figure than the administration previously endorsed. It’s also higher than what Senate GOP leaders say would be acceptable to Republicans. But Trump, on Twitter earlier yesterday, urged Republican lawmakers to accept a higher level of spending than the last proposal made by the Senate GOP. After initially proposing a $1 trillion stimulus at the end of July, Senate Republicans attempted to advance a bill providing $650 billion in economic aid, without the direct payments to individuals that the president — and Democrats — want.

About one million homeowners have fallen through the safety net Congress set up early in the coronavirus pandemic to protect borrowers from losing their homes, according to industry data, potentially leaving them vulnerable to foreclosure and eviction, the Wall Street Journal reported. Homeowners with federally guaranteed mortgages can skip monthly payments for up to a year without penalty and make them up later. They must call their mortgage company to ask for the relief, known as forbearance, though they aren’t required to prove hardship. Many people have instead fallen behind on their payments, digging themselves into a deepening financial hole through accumulated missed payments and late fees. They could be at risk of losing their homes once national and local restrictions on evictions and foreclosures expire as early as January. “Some borrowers are falling through the cracks that we’re not picking up,” said Lisa Rice, president and chief executive of the National Fair Housing Alliance. About 1.06 million borrowers are past due by at least 30 days on their mortgages and not in a forbearance program, according to mortgage-data firm Black Knight Inc. Of those, some 680,000 have federally guaranteed mortgages and thus qualify for a forbearance plan under a March law. The rest have loans that aren’t federally guaranteed, and their lenders aren’t required to offer forbearance, though many have chosen to do so. Lenders and consumer groups said the number of past-due mortgages that aren’t in forbearance could grow as several million people who are in forbearance reach the six-month point of their plans by the end of October. An extension of up to six months is possible, but homeowners must ask for it. Lenders said they are reaching out to these borrowers before their forbearance periods expire.

Federal Reserve Chair Jerome Powell said that the Fed will be making some changes to its Main Street Lending Program, which is aimed at helping small- to mid-sized companies and nonprofits that have struggled during the pandemic, Bloomberg News reported. Despite many private businesses struggling economically because of shutdowns or a drop in customers during the pandemic, the fund hasn’t seen a large take-up. Currently banks that make the loans in the program, and subsequently sell 95 percent of each loan to the Fed, are applying the same underwriting standards that they would to their regular loans, Powell said. The Fed is working to make sure that banks understand the terms of the program clearly and that it’s meant for borrowers that don’t have access to borrowing under normal terms right now. “We expect that they will do some underwriting; we also want them to take some risk, obviously because that was the point of it. The question is how do you dial that in? It’s not an easy thing to do,” Powell said in a press conference following the Fed’s September policy meeting on Wednesday. “We’re continuing to work to improve Main Street, to make it available pretty much to any company that needs it and can service a loan.” Powell said that the program has now bought about $2 billion in loans, which still represents just 0.3 percent of the total capacity of $600 billion. He added that companies are not citing credit constraints as a top problem right now. The Fed is also constrained, under Section 13(3) of the Federal Reserve Act, to only lending to solvent companies. “For many borrowers, they’re in a situation where their business is still relatively shut down and they won’t be able to service a loan so they may need more fiscal support,” Powell said. Read more.

In related news, the Federal Reserve yesterday announced that it would keep interest rates near zero percent amid growing concern about the slowing pace of the recovery from the coronavirus recession, The Hill reported. The Fed’s policymaking Federal Open Market Committee (FOMC) said yesterday that it would leave the baseline interest rate range at zero to 0.25 percent, the level set in March as the economy buckled due to the pandemic. Read more.

The owner of New York Sports Clubs and Lucille Roberts gyms is preparing to sell itself out of bankruptcy to lenders that have agreed to supply the financing needed to keep the fitness chains open, WSJ Pro Bankruptcy reported. Town Sports International Holdings Inc. said in a bankruptcy-court hearing yesterday that it is working out a deal with a group of lenders and private-equity firm Tacit Capital LLC for them to serve as the lead bidder, or stalking horse, for the assets. The offer would come in the form of debt forgiveness of no more than $85 million, setting a minimum price for other bidders to beat. Town Sports selected the Tacit-led group over a competing offer from lender Kennedy Lewis Investment Management LLC, which holds 45 percent of the company’s debt. The Tacit-led group agreed to allow Town Sports to use cash collateral pledged to the lenders to cover operating costs, pending the negotiation of a larger financing package to carry the company through bankruptcy. Town Sports filed for chapter 11 bankruptcy on Monday after facing debt coming due this fall as well as reduced cash flow and liquidity due to coronavirus-related closures.

Elliott Management Corp.’s Travelport Worldwide Ltd. is nearing a restructuring settlement that would unwind a disputed $1 billion shareholder rescue package and end a standoff with some of Wall Street’s biggest debt buyers, WSJ Pro Bankruptcy reported. The settlement, if completed, would cool tensions between Travelport’s top lenders and its private-equity backers Elliott and Siris Capital Group LLC, resolving one of the highest-profile fights to break out between investors in companies hit hard by the COVID-19 pandemic. Elliott declined to comment. U.K.-based Travelport tried to weather the coronavirus with a financing package supplied by its owners, which had taken it private in 2018 and were eager to protect their stakes. One of Elliott’s biggest private-equity bets, Travelport competes with Amadeus IT Group SA and Sabre Corp. to link airlines with booking websites and travel agents, a business that has slowed amid government-imposed travel restrictions and passengers’ fear of contagion. To secure the rescue loan, the company shifted intellectual-property assets out of the lenders’ grasp to serve as collateral for Elliott and Siris. Although Travelport got much-needed cash to help survive the pandemic, lenders including Blackstone Group Inc., Bain Capital LP and Mudrick Capital Management LP were upset about losing access to valuable corporate assets.

U.S. consumer spending slowed in August, with a key retail sales gauge unexpectedly declining, as extended unemployment benefits were cut for millions of Americans, offering more evidence that the economic recovery from the COVID-19 recession was faltering, Reuters reported. The report from the Commerce Department on Wednesday ramped up pressure on the White House and Congress to restart stalled negotiations for another fiscal package. At least 29.6 million people are on unemployment benefits. Consumer spending accounts for more than two-thirds of the U.S. economy. The Federal Reserve yesterday kept interest rates near zero, noting that the pandemic “will continue to weigh on economic activity” in the near term, “and poses considerable risks to the economic outlook over the medium term.” Fed Chair Jerome Powell told reporters more fiscal support is likely to be needed. “Consumers are being increasingly cautious with their spending,” said Gregory Daco, chief U.S. economist at Oxford Economics in New York. “If Congress is unable to extend fiscal aid to households in the coming weeks, the economy will be particularly susceptible to a cutback in consumer spending, especially from the lowest-income families.” Retail sales excluding automobiles, gasoline, building materials and food services dipped 0.1% last month after a downwardly revised 0.9 percent increase in July. These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have advanced 1.4 percent in July.

The prognosis for Dave & Buster’s Entertainment Inc., a chain of entertainment centers that offer food, drinks and arcade games, looked increasingly dire this week as the coronavirus economy took a massive bite out of revenue and the company looked to lay off hundreds of workers, FoxBusiness.com reported. The company warned yesterday that it may need to file for bankruptcy if it can’t reach a deal with its lenders amid the coronavirus’ squeeze on the industry, WSJ Pro Bankruptcy reported. That’s after Dave & Buster’s second-quarter revenue plummeted 85 percent this year compared to last, the company announced last Friday — falling from $344.6 million in 2019 to just $50.8 million. In the first quarter, revenues were down to $159.8 million in 2020 from $363.6 million last year. The chain also plans to lay off more than 1,300 employees across seven states, Restaurant Business Online, a trade publication, reported yesterday. D&B will reportedly try and rehire workers from that pool once it is allowed to expand its reopening. The company reached a short-term debt-relief deal with its lenders until Nov. 1, according to the WSJ report, but if that isn’t extended the chain is warning that it may need to file for bankruptcy.

One of Manhattan’s most prolific condo developers is facing potential foreclosure on four properties, after years of laggard sales — and a lender finally fed up waiting for returns, Bloomberg News reported. An $89.5 million slice of junior mezzanine debt tied to projects by Ziel Feldman’s HFZ Capital Group will be sold at a public auction on Nov. 12, according to brokerage Newmark Knight Frank, which is promoting the offering. Public sales are typically ordered for loans that are in default. The debt up for auction is backed by four Manhattan rental buildings that HFZ bought in 2013 and redeveloped into pricey condos: The Astor on the Upper West Side, 88 and 90 Lexington Ave. in NoMad and 301 W. 53rd St. in Hell’s Kitchen. Buyers of the junior debt on those properties would potentially be in a position to pay off senior lenders and assume full ownership. HFZ’s condos piled onto the market in 2015, a time when high-dollar offerings in brand new towers were already in plentiful supply. Wealthy homebuyers saw no rush to commit to a purchase amid so many choices. Three years later, while HFZ was still working to offload those units, it listed $3 billion worth of condos in two additional projects, essentially competing against itself. 

The next big wave of U.S. bankruptcy filings won’t happen until mid-2021, when companies that borrowed heavily to survive COVID-19 hit a wall, Bloomberg News reported. A distressed debt surge in the second or third quarter of 2021 will include bankruptcies and restructurings, said bankruptcy attorney James Sprayregen of Kirkland & Ellis. Debt-for-equity swaps will also leave some companies with new owners, he said. After a boom in corporate distress when economies shut down to deal with the pandemic, 2020 had been expected to be the biggest bankruptcy year ever. The pace of bankruptcies was widely expected to pick up after last month, which was slower than May-July, but still the worst August on record. In the past week there were just four filings by companies with more than $50 million in liabilities, including iconic New York department store chain Century 21 Stores. That’s down from six filings a week, on average, from April to July, but in line with August’s weekly average. There have been 187 bankruptcy filings year-to-date by companies with more than $50 million in liabilities, according to data compiled by Bloomberg. That’s the most for any comparable period since 2009, when there were 271 in the full year, the data show. Global corporate defaults picked up after slowing in August, with five issuers added to the default tally last week, according to a Sept. 11 report from S&P Global Ratings, which highlights risk in CCC rated debt. “So far in 2020, 152 out of 171 defaults, or nearly 90%, were from entities rated CCC and below before default,” said Sudeep Kesh, head of S&P Global Credit Markets Research. Read more. 

Sprayregen will be among the speakers at the Insolvency 2020 Virtual Summit kicking off today. Click here for more information and to register.