The Chicago City Council yesterday approved a $16.7 billion budget for 2022 designed to help the city recover from losses sustained during the pandemic, through measures including one of the biggest guaranteed basic income programs in the country, Bloomberg News reported. Mayor Lori Lightfoot’s plan relies on both federal aid and higher property tax revenues, among other sources of income. That revenue is helping to cover higher pension fund and labor costs. She closed a $733 million deficit in the city’s $4.9 billion corporate fund, which pays for basic operations and services. Chicago’s budget represents a turnaround from 2020, when the city was concerned about the impact the pandemic could have on its credit rating. Now it is embarking on a plan to sell as much as $4.4 billion in debt in 2022, and this week Fitch Ratings boosted the city’s outlook to stable from negative.
San Francisco is the only U.S. apartment market that hasn’t seen a full recovery to pre-pandemic rents, landlord Equity Residential said in its earnings call yesterday, Bloomberg News reported. A halting return of employees to their offices is still weighing down demand for apartments in the city. That’s limiting how much Equity Residential can raise rents, Chief Operating Officer Michael Manelis said. Once local firms set formal return dates — likely in 2022 — rents in San Francisco are set to improve, he said. The San Francisco region had just 25% of employees back in their offices in the week ended Oct. 20, the lowest share among 10 U.S. metropolitan areas, according to swipe-card data from security firm Kastle Systems. An index measuring national returns was at 37%.
Mexico's Grupo Posadas has filed for chapter 11 protection in a U.S. court, the hotel chain said yesterday, after its business was hit by the global coronavirus pandemic, Reuters reported. The pre-packaged chapter 11, filed in the Southern District of New York, is expected to be complete in about 60 days, Posadas, one of Mexico's biggest hotel groups, said in a statement to the Mexican stock exchange. The debt restructuring, first announced two months ago, is part of Posadas's efforts to "maximize our financial flexibility and better manage the challenges related to COVID-19," chief executive Jose Carlos Azcarraga said in the statement. The company said its hotels will continue to operate without interruption.
Avianca Holdings SA asked a judge for permission to exit bankruptcy under a plan that the airline says will eliminate about $3 billion in debt and preserve over 10,000 jobs, Bloomberg News reported. Latin America’s second-largest airline before the pandemic presented its restructuring plan at a hearing in New York Tuesday. If approved, the 102-year-old company is eyeing an exit from bankruptcy this year. U.S. Bankruptcy Judge Martin Glenn appeared to side with the company when a handful of objectors claimed the proposal wrongly favored some creditors over others. Judge Glenn asked the objecting creditors to file court papers by Thursday evening listing facts related to their complaints. He did not say when he would decide whether to approve the plan. The company said it plans to exit bankruptcy soon after winning final court approval. “We remain focused on moving forward with this process as efficiently as possible,” Avianca said in an emailed statement. Under the plan, Avianca will roll over roughly $1.6 billion of loans it raised during the bankruptcy process and raise $200 million of new equity, according to a regulatory filing. Certain lenders and noteholders, including United Airlines; Kingsland Holdings, which is controlled by Salvadoran mogul Roberto Jose Kriete Avila; and Citadel LLC, the hedge fund founded by billionaire Ken Griffin, will get 72% of the airline’s equity in exchange for canceling more than $900 million of debt, according to court papers.
Federal Reserve officials face a ticking clock in their ability to ignore high inflation and are now navigating between their own senses of patience and risk, and a U.S. economy stymied by tangled supply chains, slow hiring and strong consumer demand, Reuters reported. The combination of supply bottlenecks and a surge in household incomes fueled by pandemic-related government aid pushed the personal consumption expenditures price index, a key measure of inflation, to a 30-year high on a year-on-year basis in August. Policymakers still largely expect the pace of price increases to ease without the Fed nudging the process by raising interest rates sooner and higher than expected. Yet that judgment now hinges on a race, in effect. Will disruptions, such as the 100-ship backup at the Los Angeles-Long Beach port complex in California, disappear before households run out of an estimated $2 trillion in excess savings accumulated during the pandemic? And will that happen before recent price hikes show up in public expectations about future inflation? The latter may already be starting. A Fed index of inflation expectations tracked by top officials at the U.S. central bank has risen for an unprecedented five straight quarters. At 2.06%, it is above the Fed's 2% target, and likely rising. Consumer expectations have jumped, too. The Conference Board reported on Tuesday that its one-year consumer inflation expectations survey for October hit 7.0%, the highest since July 2008. Bond markets, also anticipating more inflation, are pricing an earlier start and faster pace to Fed interest rate hikes. "Early on, patience was easy," Fed Governor Randal Quarles said last week. "The fundamental dilemma that we face ... is this: Demand, augmented by unprecedented fiscal stimulus, has been outstripping a temporarily disrupted supply." Yet the economy's "fundamental capacity" remains intact, and Fed officials want to keep interest rates low as long as possible to let employment rise.
Roughly $10 billion of a $46 billion pool of federal rental aid has made it to renters, landlords and utility companies after another $2.8 billion was disbursed by state and local governments in September, the Treasury Department announced yesterday, The Hill reported. Treasury said that funds from the Emergency Rental Assistance (ERA) program reached more than 510,000 households last month and more than 2 million since the initiative began this year. The department had distributed the entirety of the $46 billion to eligible state and local entities in May to help struggling renters avoid eviction upon the expiration of federal and state moratoria. The urgency to expedite the rental aid distribution process ramped up in August when the Supreme Court struck down the Centers for Disease Control and Prevention’s (CDC) eviction moratorium, which was imposed in September 2020. But despite months of pressure from Treasury and attempts to loosen red tape, nearly 75 percent of the rental assistance funds have yet to reach the intended recipients. Even so, the mass wave of evictions that many policymakers feared has not materialized thanks in part to state and local eviction bans, court backlogs and eviction diversion strategies, according to data from Princeton University's Eviction Lab.
Just a few months after filing for chapter 11, mall operator Washington Prime Group has emerged from bankruptcy, The Real Deal reported. When the real estate investment trust, which owns more than 100 malls across the country, filed for bankruptcy protection in June, it listed $4 billion in assets and $3.5 billion in debts. Through the process, the company has reduced its debt by nearly $1 billion. The company also announced that Lou Conforti is stepping down as chief executive officer. Mark Yale, the executive vice president and chief financial officer, and Josh Lindimore, the executive vice president and head of leasing, will serve as interim co-CEOs.
Two key groups of Latam Airlines Group SA creditors, frustrated by a bankruptcy process that has dragged on for almost 18 months, are asking for a mediator to help devise an exit plan for the Chilean carrier, Bloomberg News reported. The airline’s unsecured creditors and a consortium holding billions of dollars in claims complained on Thursday about the lack of progress and asked the court to order mediation. A mediator would facilitate talks about how creditors will be repaid and where existing shareholders fit into that plan. “It has become abundantly clear that the parties are in fundamental disagreement regarding key legal issues,” Rachael Ringer, a lawyer for a group of Latam creditors, said in court papers. A “massive economic gulf” exists that requires the help of a mediator, said Ringer, whose group included Strategic Value Partners and Sixth Street Partners as of early July. A key issue is whether Santiago-based Latam’s current shareholders are entitled to anything when the bankruptcy ends. In the U.S., where the bankruptcy is playing out, shareholders are dead last in line for repayment and usually get wiped out. But in Chile, shareholders have certain legal rights that may be at odds with U.S. rules. Latam’s major shareholders include the Cueto family, Delta Air Lines Inc. and Qatar Airways.
U.S. business activity increased solidly in October, suggesting economic growth picked up at the start of the fourth quarter as COVID-19 infections subsided, though labor and raw material shortages held back manufacturing, Reuters reported. Data firm IHS Markit said on Friday that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, rebounded to a reading of 57.3 in the first half of this month from 55.0 in September. A reading above 50 indicates growth in the private sector. A resurgence in coronavirus infections, driven by the Delta variant, weighed on demand for services in consumer-facing businesses like restaurants, hotels and air travel. Together with shortages across nearly all industries, the flare-up in infections curbed economic activity. Gross domestic product growth estimates for the third quarter are mostly below a 3% annualized rate. The economy grew at a 6.7% pace in the second quarter. The government is due to publish its snapshot of third-quarter GDP next Thursday.
