America’s economic rebound is about to get a lot tougher after an initial series of gains from the depths of the pandemic, Bloomberg News reported. Applications for regular state unemployment benefits continue to number more than 800,000 each week and chances in Congress diminished for additional support for the jobless and businesses on Thursday. What’s more, funding for the temporary supplemental jobless benefit payments authorized by President Donald Trump in early August is running out. Applications for jobless benefits continue to number in the hundreds of thousands. With the help of fiscal stimulus -- from aid for small businesses to an extra $600 a week in jobless benefits -- the U.S. economy has rebounded faster than many economists expected. Sustaining a robust pace, however, could prove challenging given the elevated unemployment rate, absence of additional government support and persistent spread of the coronavirus. The recovery right now is “fragile, and barring additional stimulus, the recovery will be more susceptible to downside risks,” said Gregory Daco, chief U.S. economist at Oxford Economics. “There’s no doubt that the full expiry of the unemployment benefits will weigh on household income and in turn deter consumer spending.” Matthew Luzzetti, chief U.S. economist at Deutsche Bank AG, said consumer spending could recede over the coming months without help from Congress. Aneta Markowska, chief U.S. financial economist at Jefferies, expects the pinch to be felt in October, with “significant risk” of softer data just a month before the election if there is no additional stimulus.
U.S. corporate bankruptcies are on their way to hitting a decade-long high, underlining the economic pain inflicted by the COVID-19 pandemic and efforts to limit the disease’s spread, MarketWatch.com reported. Total bankruptcies announced by U.S. companies so far this year stand at 470, the most for any comparable year-to-date period since 2010, according to S&P Global Market Intelligence. S&P’s analysis took into account both public and private companies with public debt. Most of the bankruptcies were concentrated in retail, energy and manufacturing, with larger defaults such as J.C. Penney and Chesapeake Energy occurring exclusively in these industries. Analysts say many of these businesses were already facing significant headwinds before the coronavirus struck. Much of the resilience among companies with access to public capital markets is down to the Federal Reserve swiftly deploying its emergency lending facilities. The U.S. central bank’s support helped to prop up bond issuance, allowing companies to raise cash to get through the coronavirus crisis. But companies more reliant on bank lending and other forms of credit have been left in the cold as financial institutions retrenched to protect their balance sheet, according to an August report from the Bank of International Settlement.
Mall owners Simon Property Group Inc. and Brookfield Property Partners LP agreed to acquire J.C. Penney Co. out of bankruptcy for $800 million, keeping the beleaguered department-store chain alive amid the coronavirus pandemic, WSJ Pro Bankruptcy reported. Simon and Brookfield, J.C. Penney’s landlords, have reached an agreement in principle to buy the chain, which filed for chapter 11 in May after the pandemic shut down nonessential shopping across the country. If approved in bankruptcy court, the deal will prevent the closure of hundreds of locations across malls and shopping centers that face rising vacancies due to COVID-19 restrictions. A group of lenders including H/2 Capital Partners LLC, Sculptor Capital Management Inc., Brigade Capital Management LP and Sixth Street Partners have signed on, betting that J.C. Penney can make money selling clothing, cosmetics and cookware despite the stark challenges facing American retail. The landlords will own about 490 of J.C. Penney’s remaining 650 stores outright, a person familiar with the matter said. They will lease 160 other stores plus distribution centers from the lenders, which will own those assets in return for forgiving some of J.C. Penney’s $5 billion in debt. The company had about 850 locations at the time of its bankruptcy filing and has closed some for good.
The COVID-19 outbreak has skewed everything from revenues and expenses to cash flows and net income, making it harder than usual to create a believable model of what a company might be worth. Estimates by bankrupt companies and their bondholders or shareholders differ wildly — half a billion dollars, in one case, according to a Bloomberg News commentary. This matters for junior creditors, because it determines whether they’ll get some recovery, or perhaps nothing at all, on their busted holdings. That’s setting off battles among investors, armed with spreadsheets as their weapon of choice. The brawls are playing out in court cases from hospital operators like Quorum Health Corp. to tobacco companies like Pyxus International Inc., and there are likely more on the way. “Right now we’re in a particularly volatile phase in terms of what value is going to look like,” said Peter Friedman, head of the bankruptcy litigation practice at the law firm O’Melveny & Myers. “There are often huge amounts of money at stake — I would expect parties that can’t consensually resolve outcomes will be ready to litigate valuation.” 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.
Senate Republicans were confident yesterday that most GOP colleagues would vote to support a narrower coronavirus aid package, a move aimed to highlight party unity as lawmakers grew increasingly pessimistic about any deal with Democrats before the election, the Wall Street Journal reported. The GOP’s $300 billion scaled-back version of their earlier $1 trillion stimulus plan includes jobless aid, liability protections for businesses and school funding, among other measures. But facing Democratic opposition, the “skinny” bill wasn’t expected to clear its first procedural hurdle in the Senate today or spur any immediate breakthrough in stalled negotiations with Democratic leaders and the White House. Senate GOP leaders hadn’t held a vote on their earlier proposal, which divided Republicans. The less-expensive bill, which lawmakers said should bolster vulnerable party senators during the final stretch of fall campaigning, is expected to get support from at least 51 GOP senators. Republicans currently have a 53-47 majority in the Senate, but control is seen as up for grabs in the November election. Democrats have said the earlier GOP plan came up short of the needs raised by the pandemic’s health and economic effects, and the new one even more so. The new bill includes about $650 billion in spending, offset by $350 billion in savings elsewhere for a total cost of around $300 billion, according to GOP aides. The new GOP bill includes $300 in weekly federal unemployment payments through Dec. 27, establishes legal protections for businesses and health-care facilities, provides $29 billion in health-care funding, $105 billion for schools and permits the U.S. Postal Service to not repay a $10 billion loan set up in a previous aid package. It also includes a second round of the popular Paycheck Protection Program for businesses that have demonstrated a revenue loss. The proposed bill aims to resume assistance to small businesses under the PPP, which expired on Aug. 8. Under the plan, businesses with 300 or fewer employees can apply for a second PPP loan if they can demonstrate a reduction of at least 35% in their quarterly revenue from the same quarter in 2019. Such loans will be equal to 2.5 times the company’s average monthly payroll cost, with a maximum loan value of $2 million. As under the previous rule, at least 60 percent of the funds must be used on payroll. Read more. (Subscription required.)
With the Senate poised to vote today on a slender GOP coronavirus relief bill that’s certain to fail, chances for a bipartisan deal on new economic stimulus look more remote than ever. This impasse has prompted top White House officials to consider a new round of executive actions that they hope could direct funding to certain groups amid fears that the nascent economic recovery could fail to gain momentum, the Washington Post reported. White House officials have discussed efforts to unilaterally provide support for the flagging airline industry while also bolstering unemployment benefits, according to two people aware of the deliberations who spoke on the condition of anonymity to share internal policy discussions. The White House has also discussed moving without Congress to direct more money for school vouchers and changing President Trump’s recent payroll tax changes to make it more effective. Typically, such actions require congressional approval. In August, Trump signed four executive actions meant to provide more unemployment aid, eviction protections, student loan relief and to defer payroll tax payments. The moves have had mixed success and came as political talks faltered on Capitol Hill. Read more.
JPMorgan Chase & Co. found that some of its employees improperly applied for and received Covid-relief money that was intended for legitimate U.S. businesses hurt by the pandemic, Bloomberg News reported. The bank discovered the actions, all of which were tied to the Economic Injury Disaster Loan program, after noticing that suspicious amounts of money had been deposited into checking accounts owned by bank employees, said the person, who asked not to be identified because the information is private. The findings prompted an unusual all-staff message from JPMorgan Tuesday that puzzled many across the industry for its candid admission of potentially illegal acts by some of its own while not describing what they had done. The Small Business Administration’s disaster loan program had been expanded significantly after the pandemic led to rolling shutdowns across the country, leaving many small enterprises in need of a cash lifeline. Unlike with the Paycheck Protection Program, banks didn’t issue or underwrite the disaster loans and grants. Instead, loans or grants came directly from the SBA. The findings of employee misconduct came in a broader sweep of individual accounts that received business aid, said a source, noting the bank fired people it believes improperly tapped the money. The SBA warned banks July 22 to be on the lookout for suspicious deposits or activity as part of the EIDL program. The agency’s inspector general has since flagged evidence of fraud in the program, saying that it identified more than $250 million in aid given to potentially ineligible recipients as well as $45.6 million in possibly duplicate payments. A Bloomberg Businessweek analysis of SBA data last month identified $1.3 billion in suspicious payments. The nation’s largest bank sent a memo to roughly 256,000 employees on Tuesday in which senior leaders said they were probing whether any staffers helped people misuse aid programs including “Paycheck Protection Program Loans, unemployment benefits and other government programs.” The firm had said that it identified conduct by customers that didn’t meet its principles and “may even be illegal” and that some employees had fallen short on ethical standards, too.
Lawmakers on a top banking panel largely agree that the Federal Reserve’s Main Street lending program has fallen short. But they’re debating whether or how to change the rules and allow the Fed to make more, albeit riskier, loans to struggling businesses, the Washington Post reported. At a Senate Banking Committee hearing yesterday, policymakers differed over whether the Main Street program can be strengthened with a new structure and relaxed loan terms, or if more direct aid from Congress is needed to help companies fighting for survival during the pandemic. As of last Thursday, the Main Street lending program had completed $1.2 billion in loans, just a fraction of the $600 billion pot. “I am still concerned that incorporating widespread restrictions in these facilities could render the facilities ineffective and leave businesses and their employees without critical resources they desperately need,” said Sen. Mike Crapo (R-Idaho), chairman of the Banking Committee. The program could have wider reach if the Fed bought 100 percent of all Main Street loans from banks, instead of 95 percent, according to Jeffrey D. DeBoer, president of the Real Estate Roundtable, and Hal S. Scott, president of the Committee on Capital Markets Regulation, who testified at the hearing. Since the current structure leaves banks with some skin in the game, many lenders have shied away from making riskier deals. DeBoer and Scott also recommended that companies should be given a longer timeline before having to pay back the loans. Lawmakers also highlighted trouble in the commercial real estate industry, which has taken a beating from lockdown measures and rent deferrals. The Main Street program’s restrictive terms have made it hard for commercial real estate companies to get help, DeBoer said, which has rippling consequences for the broader economy, from jobs to housing to state and local taxes. A core issue is how much risk the Fed and Treasury Department can take under the Cares Act, since any losses are ultimately covered by taxpayers. In an interview last week, Eric Rosengren, president of the Federal Reserve Bank of Boston, said that is “completely appropriate” to want to limit the amount of risk to protect taxpayer dollars. But any number of rules on the terms sheet could be relaxed to expand the program’s reach, Rosengren said.
Energy Alloys LLC filed for bankruptcy protection Wednesday, its business of supplying specialty metals to the oil-and-gas industry tattered by distress in the sector, WSJ Pro Bankruptcy reported. The bankruptcy involves the U.S. and Canadian operations of a private-equity-backed company that also does business in Asia, Europe and the Middle East providing carbon, alloy, stainless steel and nickel solid bar and tube-based products to global oil-field service manufacturers. Most of the debt is on the U.S. and Canadian businesses, which also felt most of the pain from falling oil prices and coronavirus pandemic disruption that sent the oil-and-gas sector staggering, restructuring executive Bryan Gaston said in a court filing. Energy Alloys’ U.S. and Canadian operations have been winding down since May, as the company, in agreement with lenders, sold equipment and inventory to pay down debt. Energy Alloys plans to sell its businesses in Asia, Europe and the Middle East, and its remaining U.S. assets to pay off the rest of what it owes, court papers say.
The Canadian owner of 322 Garage and Dynamite women’s clothing and accessories stores has filed for bankruptcy in the U.S. and plans to close some of its locations after struggling with fallout from the coronavirus pandemic, the Wall Street Journal reported. Montreal-based Groupe Dynamite Inc. filed its chapter 15 petition on Tuesday in response to “the refusal of certain landlords to negotiate and agree on a Covid-19-adjusted rental model,” Andrew Lutfy, executive chairman, said in a sworn declaration filed with the U.S. Bankruptcy Court in Wilmington, Del. The company, which is undertaking similar legal proceedings in Canada, said that it expects its business to continue to suffer until a vaccine is available. One of the goals of the retailer’s restructuring is to free itself from a minority of its leases that are deeply unprofitable, Lutfy said. But the business also wants to renegotiate leases of other unprofitable stores, and, if those talks fail, those locations could close as well, he said. Groupe Dynamite has been able to renegotiate 22 of its 322 leases, Lutfy said. Read more. (Subscription required.)
