%1

At least 4 million private-sector workers have had their pay cut during the pandemic, according to data provided to the Washington Post by economists who worked on a labor market analysis for the University of Chicago’s Becker Friedman Institute. Workers are twice as likely to get a pay cut now than they were during the Great Recession, according to the group’s analysis of data from the payroll processor ADP. Salary cuts are spreading most rapidly in white-collar industries, which suggests a deep recession and slow recovery since white-collar workers are usually the last to feel financial pain. Companies have also trimmed employee hours, leaving many hourly wage workers with leaner paychecks as well. More than 6 million workers have been forced to work part time during the pandemic even though they want full-time work, Labor Department data show. Widespread pay cuts are highly unusual. In downturns, firms typically lay off workers rather than dealing with the administrative challenges and morale effects of slashing pay across the board. But as the United States faces the worst economic crisis since the Depression era, some business leaders have tried to save jobs by cutting pay between 5 and 50 percent. The median wage reduction was 10 percent, economists who worked on the Becker Friedman Institute study found.

Frac-sand supplier Covia Holdings Corp. has filed for bankruptcy as part of a plan to cut more than $1 billion in debt and shed its railcar leases after taking a beating from the economic disruption sparked by the coronavirus pandemic and lower energy prices, WSJ Pro Bankruptcy reported. The Independence, Ohio-based company filed for chapter 11 protection in the U.S. Bankruptcy Court in Houston on Monday after reaching a restructuring support agreement with a group of holders of a majority of its secured debt. Under the plan, Covia’s creditors would own the reorganized company once it emerges from bankruptcy. The current majority owner of the publicly traded company is Belgian mining company SCR-Sibelco NV, which holds 65 percent of its shares. Covia has debt of about $1.6 billion, court papers show. The company said its cash reserves of about $250 million will provide liquidity to fund its U.S. operations and manage the reorganization process. Its international units, including those in Canada, Mexico and Denmark, aren’t included in the bankruptcy filing.

The world’s dairy farmers are facing an existential crisis as they’ve dumped millions of gallons of milk, slowed output and sold off older cows amid the COVID-19 pandemic, Bloomberg News reported. Global governments stepped in with stimulus cash that provided some much-needed temporary relief, helping benchmark Chicago milk futures to almost double in two months. But once the aid money starts to dry up, many producers will confront tough choices again: suffer through losses, or pack it all in and shut the farm. While lockdown restrictions are easing, slower economic growth means consumers will be cutting back on dining out and even home-delivery orders. That’s a hit the dairy industry won’t be able to sustain. Even with billions in stimulus, the contraction for U.S. herds will likely match record levels this year, according to the National Milk Producers Federation. Declines are also expected in Europe and Australia, two other regions key to global exports. Dairy is one of the world’s most important food markets. The sector accounts for about 14 percent of global agricultural trade and more than 150 million farmers keep at least one milk animal, according to the United Nations. The industry is valued at about $700 billion, but it’s facing a reckoning. For years, milk demand has been on the decline in developed countries. That’s only accelerated recently as more consumers turned to plant alternatives amid climate concerns. When coronavirus lockdowns went into place, dairy markets were among the hardest hit in the food world. It turns out, consumers the world over eat a lot more cheese and butter when they’re dining out than they do at home. As restaurants shuttered, farmers were left with an overwhelming glut. Hundreds of millions of pounds of milk got dumped.

Home decor retailer Old Time Pottery announced Monday morning that it has started chapter 11 bankruptcy proceedings in order to restructure its finances, the Murfreesboro (Tenn.) Daily News Journal reported. Based in Murfreesboro, Tenn., the company said that the move was due to the COVID-19 pandemic. "Prior to COVID-19, Old Time Pottery was growing profitability at a near-record pace. When COVID-19 hit in March 2020, the company experienced a sudden and precipitous decline in sales that lasted for six weeks with mandates to close numerous store locations in accordance with state and local government regulations," according to a company news release. As part of the chapter 11 effort, Old Time Pottery will close stores in Fayetteville, N.C., North Charleston, S.C., Rockford, Ill., and Orlando. No reductions in staffing or other closures are expected at other stores, distribution centers or store support centers, the release said. Old Time Pottery operates 43 stores in 11 states, according to its website.

Some specialty finance companies that lend to midsize businesses are confronting the threat of a funding squeeze just as the coronavirus pandemic is causing defaults to rise, a potential one-two punch that could curtail their activities, the Wall Street Journal reported. In the past seven weeks, two prominent companies that lend to middle-market businesses, Bain Capital Specialty Finance Inc. and Golub Capital BDC Inc., have both raised money by completing stock sales at significant discounts to their net asset values. Such a sale is typically seen as a sign of stress in the industry. BCSF revealed in its latest earnings report that a March 31 amendment to one of its bank facilities made it an event of default if a stock offering by the company wasn’t in the works by the end of June 22. BCSF declined to comment. The firm is also among a handful of middle-market lenders that have recently issued bonds at high interest rates. Others include Antares Holdings LP and FS KKR Capital Corp. The pressure on publicly traded business-development companies, or BDCs, and private-debt funds that often invest alongside them comes after years of rapid growth that was driven in large part by investors’ search for returns in an era of ultralow interest rates. Total assets under management in private-debt and direct-lending funds had grown to more than $740 billion by the end of September from about $125 billion in 2006, according to Preqin, a research firm.

A judge ruled on Monday that a group of Westchester County, N.Y. landlords cannot sue in federal court to block Gov. Andrew Cuomo’s temporary moratorium on evictions in response to the COVID-19 pandemic, Law.com reported. U.S. District Chief Judge Colleen McMahon of the Southern District of New York said in a 37-page opinion that federal courts do not have jurisdiction to determine whether Cuomo violated New York state law by enacting his May 7 executive order pausing evictions through Aug. 19. In any event, she said, the order did not constitute a physical or regulatory taking by the government that would give rise to claims under the Fifth Amendment to the U.S. Constitution. The lawsuit, filed in White Plains, sought to undo two provisions of the order, which temporarily blocked landlords from pursuing eviction proceedings and gave renters the option to put their security deposit toward their rent payment.

Grupo Aeromexico SAB, Mexico’s second-largest airline, filed for bankruptcy in the U.S., becoming the latest in a string of Latin American carriers to seek court protection after the COVID-19 pandemic caused a severe downturn in travel, Bloomberg News reported. The carrier will “continue operating and use chapter 11 as a way to strengthen its financial position and liquidity,” according to a statement to the Mexican stock exchange yesterday. Aeromexico said that the goal will be “protecting and preserving its operations and assets and implementing the necessary operational adjustments to face COVID-19-related impact.” Aeromexico saw the number of passengers it carried plummet more than 90 percent as governments grounded flights and travelers stayed home. The airline struck deals with labor groups and suppliers in May to cut costs by more than half to around $50 million a month, while offering its employees unpaid leave. Latin American airlines, unlike their counterparts in the U.S. and Europe, have received scant government support even as travel demand plunged and the coronavirus prompted countries to seal borders. The region’s largest carrier, Latam Airlines SA, filed for chapter 11 bankruptcy in May just weeks after Avianca Holdings SA, Colombia’s biggest airline.

A stalking-horse bid for Cirque du Soleil Entertainment Group was dismissed as inadequate by lenders during a Quebec court hearing yesterday into the company’s restructuring, Reuters reported. Canada’s once high-flying Cirque received initial protection from its creditors, after the COVID-19 pandemic forced the famed circus operator to cancel shows and lay off artists. Montreal-based Cirque, which grew from a troupe of street-performers in the 1980s to a company with global reach, has slashed about 95 percent of its workforce and suspended shows due to the pandemic. The company filed for bankruptcy protection on Monday. The company has signed an agreement with its existing investors private equity fund TPG Capital, China’s Fosun International Ltd, and Canadian pension fund Caisse de depot et placement du Québec under which the consortium will take over Cirque’s liabilities and invest $300 million to support a restart. As part of the investment, government body Investissement Québec will provide $200 million in debt financing.

Twelve midsize to large corporations — all with more than $10 million in debt — filed for chapter 11 protection during the third week of June, another consequence of the coronavirus pandemic and continued trouble in America’s oil industry. The filings represent the highest weekly total of the year, and experts believe this is just the beginning of a bankruptcy tsunami that will wash over the country’s largest companies this summer and then drench both smaller businesses and individuals if government stimulus money dries up, USA Today reported. “I very much expect to see the numbers continue to rise” said Ed Flynn, a consultant for the American Bankruptcy Institute, a nonpartisan research organization. The types of companies affected are unsurprising. Since the start of the pandemic, they have included businesses that consumers have studiously avoided, from rental car companies, restaurants and department stores to gyms and health care companies offering elective surgeries and procedures. At least 24 oil and gas companies filed from April through June — nearly twice as many as during the first three months of the year, according to Haynes and Boone LLP, an international law firm based in Texas. Four of those companies — Texas-based NorthEast Gas Generation, Colorado-based Extraction Oil & Gas, and Chisolm Oil and Gas and Chesapeake Energy, which are both from Oklahoma — filed in the last two weeks of June. “This trend should continue through the remainder of 2020 and into 2021,” said Charles Beckham, a partner in Haynes and Boone's restructuring practice. “Unless commodity prices have a majestic increase, many producers will seek relief in bankruptcy court with the hope that will bring them back to a rational place where they can continue to produce and service their debt.” Melissa Kibler, senior managing director in the Chicago office of Mackinac Partners — a turnaround and restructuring firm — also believes the U.S. economy is at a turning point and bankruptcy courts will play a major role in determining the way forward. “Any time you have a significant disruption like this it’s going to create winners and losers and systemic change,” Kibler said. “We have industries that are evolving, and on top of that we have overlaid the COVID pandemic and that has forced a lot of changes.” Read more.

For weekly bankruptcy filings and analysis from ABI's Ed Flynn, be sure to visit ABI's Coronavirus Resources page.

The stimulus program that has both infuriated and sustained small-business owners since its launch in April is now set to close with more than $130 billion left unused, prompting lawmakers to consider how to repurpose the money for the still-ailing economy, the Washington Post reported. With the deadline to apply for the Paycheck Protection Program coming just before midnight tonight, Sens. Marco Rubio (R-Fla.) and Ben Cardin (D-Md.) are leading a group considering how best to use the remaining funds to help small businesses as they begin to reopen. Rubio is working on legislation that would create new programs to expand uses for the funds, such as allowing lobbying groups to apply as well as directing more money to certain businesses that prove they were affected by the pandemic. According to a draft copy of the bill that was obtained by the Washington Post, the legislation would also set aside $25 billion for businesses with fewer than 10 employees and formally prevent hotel or restaurant chains from receiving more than $2 million total. He would need to reach an agreement with House Democrats before any deal could be signed into law, however, and they have been calling for a range of other economic responses to the coronavirus pandemic. The PPP disbursed hundreds of billions of dollars to small businesses, but it also faced criticism because of some of its recipients. Publicly traded chains early on reaped millions, prompting more than $38 billion to be returned to the government after the administration condemned well-capitalized firms for taking funds. Asked yesterday whether the PPP deadline ought to be extended, Rubio said he would consider that but was leaning toward providing new programs to meet businesses’ changing needs as parts of the country are able to reopen.