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The generous U.S. unemployment benefits rolled out to blunt the economic harm caused by the coronavirus could have an unintended effect: it may actually be an incentive for companies to choose layoffs rather than keep staff on their books, Reuters reported. That’s at odds with a government-backed loan forgiveness program set to launch for small and medium-sized firms that opt against job cuts, so long as the bulk of the money is used to keep staff on at full salary. The number of Americans filing for unemployment benefits last week shot up to more than 6 million, a record high, Labor Department data on Thursday showed. Millions more are set to claim in the coming weeks as major parts of the United States economy remain shut down until the death toll from the virus shows signs of abating. The CARES Act passed by Congress a week ago was designed to keep businesses and workers from economic free-fall. For workers losing their jobs, an unprecedented expansion in unemployment benefits until the end of July was put in place. “Unemployment insurance, at least short term, is quite generous so the firms may decide that that’s a better way to go,” said former Federal Reserve Chair Janet Yellen at a Brookings Institute event earlier this week. A blanket provision of a $600 weekly unemployment benefit on top of each state’s replacement rate of lost wages, which averages about 45 percent up to a certain salary cap, was implemented by Congress to quickly make more workers whole on their lost paychecks.

Troubled companies behind on their bills or already in bankruptcy may be out of luck when it comes to getting federal funds from the U.S. stimulus package, Bloomberg News reported. Current law blocks the government from making loans to companies that have either filed for chapter 11 bankruptcy or fail an insolvency test, according to lawyers who’ve studied the new legislation. In that scenario, it would be nearly impossible for such borrowers to access financing from the Federal Reserve. Some businesses angling for government relief “may discover a rude awakening” if those standards still apply to the new Coronavirus Aid, Relief and Economic Security Act, said Vincent Indelicato, a partner specializing in restructuring and bankruptcy law at Proskauer Rose. “This bill may not be the economic life preserver companies and their lenders were hoping for.” The size of the $2 trillion stimulus is unprecedented, surpassing the approximately $800 billion package that passed after the 2008 financial crash. The coronavirus plan provides about $500 billion in loans and assistance for big companies, provided they retain most of their employees and don’t buy back stock. Airlines are eligible for grants in exchange for giving the government equity stakes. There is a separate pool of about $350 billion for small business loans, which won’t have to be paid back if used for staff compensation, mortgage interest and rent. But the Federal Reserve doesn’t typically lend to insolvent borrowers — those who have trouble meeting their financial obligations or paying down debt when it comes due. Restrictions were put in place in 2015 after some companies bailed out under previous rescue packages wound up stiffing the federal government. In 2009, for example, middle-market lender CIT Group Inc. filed bankruptcy less than a year after getting billions in federal aid, wiping out the preferred stock sold to the U.S. Treasury.

In a single week in March, as financial markets convulsed and major parts of the economy began shutting down, banks made over $240 billion in new loans to companies — twice as much in new lending as they would ordinarily extend in a full year, the New York Times reported. American companies are reeling from the body blow dealt by the pandemic. As revenues dwindle, travel slows and production lines halt, companies have begun to furlough or lay off employees, slash investment in operations and buy less from their suppliers. With no way to tell when the economy will restart, they are racing to conserve money and tap as much credit as possible. The new reality, say bankers and analysts, will be tough for companies that had grown accustomed to the easy money of the past decade. Enticed by ultralow interest rates, they borrowed trillions of dollars in new debt in the belief that banks would keep lending and the debt markets would always be open. Now many indebted companies, even those whose business has not taken a direct hit from the outbreak, are finding that they have to adapt to an era in which cash is suddenly much harder to raise. Consumers “are not spending money on a long list of things,” said Susie Scher, co-head of the financing group at Goldman Sachs. “If you sell or service that long list of things, if you had a weaker balance sheet to begin with, you’re going to find yourself in a deteriorating liquidity position as the economic crisis goes on,” she said, referring to a position from which obtaining cash is difficult.

Coal supplier Murray Energy Corp. said its business has taken a severe hit from “historically bad” coal markets and the coronavirus pandemic, pushing the bankrupt company close to liquidation, WSJ Pro Bankruptcy reported. To stay afloat, the nation’s largest private coal company sought permission on Monday from the U.S. Bankruptcy Court in Columbus, Ohio, to stop paying roughly $6 million a month in retiree medical costs. Murray said in court papers that unless it can suspend those health care obligations, it “may be faced with no choice” but to liquidate, likely costing roughly 4,900 employees their jobs. Lenders including Fidelity Management & Research Co. and Bain Capital Credit LP have been financing the company since it filed for chapter 11 protection in October, positioning themselves to acquire Murray in exchange for the forgiveness of $1.2 billion in debt. The lead bid, which requires court approval, covers Murray’s thermal coal mines, its metallurgical coal operations and its stakes in coal supplier Foresight Energy LP and trading house Javelin Global Commodities Holdings LLP.

The bankrupt company behind the Logan’s Roadhouse and Old Chicago restaurant chains has fired most of its 18,000 employees, adding to the swelling ranks of unemployed in the U.S. as the economic fallout from the coronavirus pandemic continues, the Wall Street Journal reported. CraftWorks Holdings Inc., which had planned to sell itself out of bankruptcy before the pandemic’s crushing impact on consumer activity, fired the bulk of its workforce yesterday and terminated employee-benefit plans. Employees have been furloughed since early March, when the casual-dining company idled its restaurants and brewpubs amid widespread restrictions on social gatherings. The Nashville-based CraftWorks, which private-equity firm Centerbridge Partners LP created after rolling up a number of other eateries. Consumer-facing companies such as restaurants, retailers and movie theaters are broadly ratcheting down their operations in response to government guidelines on social distancing, cutting employees’ hours and resorting to furloughs and layoffs to control costs. CraftWorks entered bankruptcy with 338 restaurant locations under brands including Logan’s Roadhouse, Old Chicago Restaurants, Gordon Biersch, Rock Bottom Restaurant and Brewery, Big River Grille & Brewing Works, The ChopHouse and A1A Ale Works. The company also owns Ragtime Tavern, Seven Bridges Grille and Brewery and the Big Bang at Sing Sing.

The unemployment rate in the U.S. could reach a staggering 32.1 percent in the second quarter as 47 million workers are laid off amid the coronavirus outbreak, according to estimates published in a blog by the Federal Reserve Bank of St. Louis, USA TODAY reported. That would be the highest jobless rate on records dating to 1948 and easily top the 25 percent rate during the Great Depression. “These are very large numbers by historical standards, but this is a rather unique shock that is unlike any other experienced by the U.S. economy in the last 100 years,” St. Louis Fed economist Miguel Faria-e-Castro wrote in the blog. Millions of Americans already have been laid off as states and localities shut down nonessential businesses and Americans avoid public gathering spots to contain the spread of the virus. About 3.3 million people filed for unemployment benefits for the first time during the week ending March 21, reflecting layoffs in the economy. The latest unemployment estimate is even worse than the 30 percent jobless rate St. Louis Fed President James Bullard projected earlier in March. Faria-e-Castro says he arrived at his figures by combining data in two other blogs by his colleagues at the St. Louis Fed. One estimates that 66.8 million Americans work in occupations at a high risk of a layoff, including sales, production and food preparation and services.

Macy’s and Gap said yesterday that they planned to furlough much of their work forces, a stark sign of how devastating the coronavirus will be for major retailers and their workers who sell clothing, accessories and other discretionary goods, the New York Times reported. Macy’s, which said the cuts would affect the “majority” of its 125,000 workers, lost most of its sales after the pandemic forced it to close stores. Gap, which also owns Old Navy and Banana Republic, said it would furlough nearly 80,000 store employees in the United States and Canada. The announcements followed similar actions by other name-brand chains with products considered nonessential. When a national emergency was declared earlier this month, a number of retailers announced stores would close but vowed to keep offering pay and benefits to employees for at least two weeks. As the odds of reopening stores quickly became increasingly unlikely, many extended workers’ pay into April. But now, it appears the money is drying up. A large part of the retail industry that is not involved in selling groceries, toilet paper or disinfectant simply has very little cash coming in. L Brands, which owns Victoria’s Secret and Bath & Body Works, said it would furlough most store staff and “those who are not currently working to support the online businesses or who cannot work from home” starting April 5. Nordstrom said last week that it would furlough “a portion of corporate employees” on April 5 for six weeks. Buzzy start-ups are also under pressure: Rent the Runway laid off its retail employees through a call via Zoom on Friday, while Everlane laid off or furloughed nearly 300 of its workers.