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The Federal Reserve’s historic foray into the credit market has benefitted auto companies the most, supporting an industry that’s borrowed its way through the pandemic and is starting to show signs of recovery, Bloomberg News reported. The central bank can only buy shorter-dated debt of companies that mostly employ Americans, making notes linked to car manufacturers prime candidates. The Fed bought another $224 million of debt tied to auto companies since its last update on July 10, the most of any sector. That debt is now the second-heaviest exposure overall, according to a CreditSights analysis of Fed data released on Monday. Among the Fed’s biggest holdings are the U.S. finance arms of German manufacturers Daimler AG and Volkswagen AG, Japan’s Toyota Motor Co. and Ford Motor Co., strategists led by Jeff Khasin said in a report. While the Fed’s bond investments aim to replicate the broader credit market, the purchases nonetheless support one of America’s biggest home-grown industries. The sector supports nearly 10 million U.S. jobs, and contributes about 3 percent to the domestic economy each year, according to lobbying group the Alliance of Automobile Manufacturers. Outside of financial companies, consumer-cyclical firms, a category that includes car makers, have been the most active issuers of new investment-grade bonds this year, according to data compiled by Bloomberg.

The U.S. Chamber of Commerce yesterday asked the Treasury Department to answer “significant questions” raised by President Trump’s executive order allowing a deferral of payroll taxes, The Hill reported. In a letter yesterday to Treasury Secretary Steven Mnuchin, the largest lobbying group for U.S. businesses asked the department to clear up uncertainty about how Trump’s order could be implemented by firms, their employees and payroll processors. “While the recently issued Executive Order (EO) on payroll tax deferral is well-intended to provide relief, it has raised serious concerns for both employers and employees,” wrote Caroline Harris, the Chamber’s vice president of tax policy and economic development. Trump this week signed an order directing the Treasury Department to defer payment of Social Security payroll taxes collected from employee paychecks through the end of the year for those making under roughly $100,000. The start date for the planned deferral period is listed as Sept. 1. While Trump’s executive order may be a backdoor way of securing the payroll tax deferral, the lack of clear guidance as to how it would be implemented, who would be responsible for doing so and what would happen to deferred payments has raised major concerns among lawmakers and tax policy experts. The order also raises a slew of questions about how to handle bonuses, the pay of seasonal workers and employees who leave before the deferral period, Harris wrote.

Governor Phil Murphy (D) can sell as much as $9.9 billion in debt to plug a revenue hole from the coronavirus, New Jersey’s highest court ruled amid a looming budget deadline and as states across the country grapple with their finances. The decision by the New Jersey Supreme Court allows one of the most financially strapped U.S. states to increase bonded debt — long-term debt with payments made over decades — by 22%, Bloomberg News reported. New Jersey Republicans had challenged the bond sale, saying it violated the state’s constitution by bypassing voters, while Murphy said that the pandemic was a crisis that gave him the power to act. “The pandemic has caused a health emergency, a broad-based economic one that has devastated many individuals and families, and a fiscal crisis for the state,” Chief Justice Stuart Rabner wrote for the seven judges in yesterday’s unanimous decision. “The present ‘emergency caused by disaster’ extends to all three areas.” The court did limit the size of the offering to the budget gap, requiring New Jersey to certify its revenue projections and the size of the shortfall before the sale. Should the hole be $7 billion, the state would be allowed to borrow only that amount. If it goes in the other direction, however, $9.9 billion — the projected revenue shortfall the state treasurer reported in May — is still the limit.

Big companies are going bankrupt at a record pace, but that’s only part of the carnage. By some accounts, small businesses are disappearing by the thousands amid the COVID-19 pandemic, and the drag on the economy from these failures could be huge, Bloomberg News reported. “Probably all you need to do is call the utilities and tell them to turn them off and close your door,” said William Dunkelberg, who runs a monthly survey as chief economist for the National Federation of Independent Business. Nevertheless, closures “are going to be well above normal because we’re in a disastrous economic situation,” Dunkelberg said. Yelp Inc., the online reviewer, has data showing more than 80,000 permanently shuttered from March 1 to July 25. About 60,000 were local businesses, or firms with fewer than five locations. About 800 small businesses did indeed file for chapter 11 bankruptcy from mid-February to July 31, according to the American Bankruptcy Institute, and the trade group expects the 2020 total could be up 36 percent from last year. Firms with fewer than 500 employees account for about 44 percent of U.S. economic activity, according to a U.S. Small Business Administration report, and they employ almost half of all American workers. Chapter 11 bankruptcy gives a business protection from its creditors while the owners work out a turnaround plan. For smaller companies, though, the extra time might not make any difference. “Bankruptcy cannot create more revenue,” said Robert Keach, a restructuring partner at New England-based Bernstein Shur and former president at the American Bankruptcy Institute. Some owners fear bankruptcy could scar their credit reports and hurt their future chances to rebuild. Bankrupt businesses have a nearly 24 percentage point higher likelihood of being denied a loan, according to the SBA, and a filing can show up on a credit report for 10 years.

A report by law firm Haynes and Boone yesterday revealed that another 16 U.S. energy firms filed for protection from creditors last month, reflecting crude oil prices below levels that are profitable for many companies, Reuters reported. More than 50 oil and gas firms have filed for bankruptcy since oil prices crashed in March, led by exploration and production companies with 29 filings. The amount of debt held by these companies, $49.69 billion, is nearly twice the debt held by energy bankruptcy filers all of last year, the law firm’s data showed. Oil prices have fallen by about a third from above $60 a barrel at the start of the year as the COVID-19 pandemic crushed fuel demand. They briefly turned negative in April.

Bankrupt Brooks Brothers Group Inc. agreed to be bought Authentic Brands Group LLC and an entity it owns with mall landlord Simon Property Group Inc. after getting the bidders to pay an added $20 million for the two-century-old men’s clothing retailer, Bloomberg News reported. Authentic Brands and Sparc Group LLC will pay $325 million and expects to keep at least 125 locations open. Authentic recently bought Barneys New York out of bankruptcy and specializes in turning around beaten-down apparel brands. Simon, one of the biggest U.S. mall operators, needs tenants like Brooks Brothers to attract shoppers. The duo had previously disclosed they were bidding $305 million in a court-supervised auction for Brooks Brothers’ global business operations. WHP Global, owner of the Joseph Abboud and Anne Klein brands, dropped out after saying Brooks Brothers had discouraged it from making a higher bid. Brooks Brothers said on July 8 when it filed for bankruptcy that it had about 500 stores worldwide in 45 countries, with 200 in North America.

Experts said that U.S. President Donald Trump’s weekend attempt to sidestep stalled congressional negotiations over the next coronavirus aid package will do little to boost the economy, experts said, Reuters reported. Trump’s executive order and presidential memoranda, introduced on Saturday, would temporarily extend enhanced unemployment benefits at a reduced amount of $400 a week, defer payroll taxes for some workers, suspend federal student loan payments and potentially provide eviction relief. Even if he can overcome the legal questions surrounding his actions, the efforts may not pack much punch, economists say. Mark Zandi, the chief economist at Moody’s Analytics, calculated the orders could provide just over $400 billion in total relief. JPMorgan Chase economist Michael Feroli wrote in an email note on Monday that the initiatives could contribute “less than $100 billion” in stimulus. That’s versus the $1 trillion aid package proposed by the Republican-led Senate or the more than $3 trillion aid bill passed by the Democrat-led House of Representatives. Altogether, the president’s orders would add up to 0.2 percent of GDP, a “negligible amount,” according to estimates from Lydia Boussour, senior U.S. economist for Oxford Economics. Millions of jobless Americans could be financially squeezed this month after the expiration of a $600 weekly supplement to unemployment benefits, the winding down of eviction moratoriums across the country and the end of the Paycheck Protection Program, which supported small businesses.

Spending cuts by state and local governments grappling with the coronavirus pandemic pose a headwind to the U.S. economic recovery as lawmakers consider how much federal aid to provide, the Wall Street Journal reported. State and local governments reduced spending at a 5.6 percent annual rate in the second quarter as they laid off workers and pulled back on services to offset plunging tax revenues. More cuts are on the way. Moody’s Analytics estimates that without additional federal aid, state and local budget shortfalls will total roughly $500 billion over the next two fiscal years. That would shave more than 3 percentage points off U.S. gross domestic product and cost more than 4 million jobs, said Dan White, head of fiscal policy research at Moody’s. Talks in Congress on another economic relief package have stalled, with assistance for state and local governments among the sticking points. Democrats are pushing for $950 billion. Republican leaders, who didn’t include aid for cities and states in their initial plan, have offered $150 billion. They cite concerns about growing U.S. deficits and debt, and they say some state budget woes predate the pandemic. Read more. (Subscription required.) 

In related news, the Federal Reserve said Tuesday it would reduce the rates it charges cities and states seeking short-term loans from an emergency lending program that has seen little takeup so far, the Wall Street Journal reported. Changes to the program must be agreed upon by the Treasury Department, which has approved $35 billion to cover losses on up to $500 billion in loans extended by the Fed. Municipal bond strategists and some Democratic lawmakers have expressed disappointment in recent weeks over the degree to which the Fed positioned the program as a backstop, though Fed officials say the mere announcement of the program in April helped reduce borrowing costs significantly for highly rated municipal issuers. With Tuesday’s changes, the Fed will reduce by 0.5 percentage point the interest-rate spread on tax-exempt notes, and it will also reduce the amount by which rates for taxable notes are adjusted relative to tax-exempt notes. Read more. (Subscription required.) 

Some national chains, both retail and restaurants, are closing outlets in New York City, which are struggling more than their branches elsewhere, the New York Times reported. In the heart of Manhattan, national chains including J.C. Penney, Kate Spade, Subway and Le Pain Quotidien have shuttered branches for good. Many other large brands, like Victoria’s Secret and the Gap, have kept their high-profile locations closed in Manhattan, while reopening in other states. Michael Weinstein, the chief executive of Ark Restaurants, who owns Bryant Park Grill & Cafe and 19 other restaurants, said he will never open another restaurant in New York. ImageA Uniqlo store on Fifth Avenue. Many businesses in Manhattan are struggling because of a lack of tourists and a relatively small number of office workers. Even as the city has contained the virus and slowly reopens, there are ominous signs that some national brands are starting to abandon New York. The city is home to many flagship stores, chains and high-profile restaurants that tolerated astronomical rents and other costs because of New York’s global cachet and the reliable onslaught of tourists and commuters.

The private-equity industry has been a little-noticed beneficiary of the Federal Reserve’s efforts to combat the economic fallout of the coronavirus pandemic, as central bank support has spurred a surge in junk-bond issuance by buyout firms, the Wall Street Journal reported. The second quarter saw one of the highest-ever levels of junk-bond issuance by private-equity-backed companies, at more than $31 billion, according to Dealogic, a data tracker. It was the sixth-highest level for any quarter on record and the highest since 2014, according to Dealogic’s data. The boom in private-equity debt is largely a case of a rising tide lifting all boats. The Fed’s March 23 announcement that it would launch a bond-buying program spurred huge new debt issuance. This is true even in areas, like junk bonds, where the central bank has bought a relatively modest amount of debt. Most attention has been paid to the Fed’s corporate-bond-buying program, under which it has loaded up on debt from blue-chip companies like AT&T Inc., Apple Inc. and Verizon Communications Inc. The Fed has bought about $12 billion of corporate bonds and exchange-traded funds through the end of July, based on data released Monday. The Fed has bought only about $1.1 billion of junk bonds. Unlike investment-grade debt, the Fed buys junk-rated debt only through ETFs, which invest broadly in the debt of many companies. But the Fed’s action has had a dramatic effect on the market. The central bank’s intervention unclogged markets that seized up due to the pandemic, which has helped lower-rated issuers and private-equity firms, said Gregg Gelzinis, a senior policy analyst for the Center for American Progress, a liberal think tank. unk-bond yields peaked at 11.38 percent on March 23, the day the Fed unveiled its stimulus plans, and immediately declined sharply, based on the ICE BofA US High Yield Index Effective Yield. The index was at 5.41 percent on Monday, roughly the same level as last December.