%1

Treasury Secretary Steven Mnuchin yesterday endorsed an optimistic prediction that the U.S. economy might reopen in May, even as more Americans die from COVID-19 and Federal Reserve Chair Jerome Powell warned against trying to return to normal too quickly, Politico reported. During an appearance on CNBC, host Jim Cramer asked Mnuchin if he believed there was a possibility, "if the doctors let us, that we could be open for business in the month of May." "I do, Jim," Mnuchin said. The comments from the Trump administration's top economic official come as other White House advisers press for commerce to resume quickly — an aim that appears to contradict more cautious messages coming from medical experts. Businesses across the country have closed their doors over the past month as the U.S. tried to slow the spread of the pandemic. White House economic adviser Larry Kudlow has also said he believes the economy can open sooner than many predict, telling Politico on Tuesday that it was possible "in the next four to eight weeks."

Demand for riskier bonds and loans has been so intense that companies selling them are able to move valuable assets beyond the reach of creditors, the Wall Street Journal reported. And investors continue to make it easier for them to do so by agreeing to terms in new debt sales that offer them fewer and fewer protections. PetSmart Inc., for instance, earlier this year transferred a minority stake in Chewy.com, its fast-growing e-commerce unit, to a special subsidiary that would likely be protected from its existing bondholders in a bankruptcy, and more shares to a parent holding company even further removed from its creditors. Retailer Neiman Marcus Group Ltd. said in September that it had moved its entire MyTheresa internet unit to a parent holding company, having first transferred the website to its own special subsidiary. Bondholders and other lenders have traditionally enjoyed the right to sell a company’s core assets or take ownership of them if it enters bankruptcy. The recent moves challenge that tradition and highlight the risks for investors in the next economic downturn. “When a lender is deciding to lend money to a [debt] issuer, they generally are thinking they’re getting credit support from all of the assets of the issuer,” said Anthony Canale, global head of research at Covenant Review, a research firm. “They don’t understand that when you read the fine print, the issuer actually has the ability to move assets.”

Any PG&E Corp. bankruptcy filing could come down to a fight between bondholders who lent the company money and property owners whose homes were scorched by wildfires, according to a Bloomberg commentary. The utility company has $18 billion of bonds that are unsecured, meaning the debt would have equal priority to get repaid in a bankruptcy as the roughly $30 billion in potential liabilities that analysts have estimated from 2017 and 2018 California wildfires. PG&E recently completely drew down its credit lines. The company hasn’t said that it plans to file for bankruptcy, and is still rated investment grade. But some analysts say that it may have to eventually reorganize under court protection to clear its fire-linked liabilities. There is a trick that PG&E could use to improve investors’ status in bankruptcy, according to Andy DeVries, a CreditSights analyst. If PG&E were to take on at least $5 billion of new debt secured by PG&E’s assets, rules governing the existing bonds state that the unsecured notes would also become secured, he said. “It’s an odd situation where the bondholders might want the company to issue more secured debt if it puts them ahead potentially of wildfire claims,” DeVries said. 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.

Since filing for Chapter 11 bankruptcy, Sears Holdings Corp. has been trying to convince suppliers to keep shipping it merchandise by touting the $300 million in financing it has secured so that its business can continue operating through the holidays, the Associated Press reported. But a growing number of manufacturers who themselves got hurt or watched others get burned by Toys ‘R’ Us’s quick demise don’t want to take a chance. Many manufacturers have already been keeping Hoffman Estates, Illinois-based Sears on a tight leash over the past few years as they watched its fortunes spiral downward. But their reluctance to work with the retailer heading into the holiday shopping season is a major blow to its survival. The fate of Sears, which also operates Kmart, depends on a critical flow of goods to its stores. “Toys ‘R’ Us was a game changer,” said Kenneth Rosen, a partner at Lowenstein Sandler, which represents several Sears’ vendors. “My clients want to work with Sears. They very much want to see Sears survive. At the same time, they don’t want to get burned twice.” Read more.

One of the worst outcomes for a business owner is having a major customer file for bankruptcy and leave behind a large unpaid account receivable. ABI's Business Creditor’s Guide to Distressed Vendors, Debt Collection and Bankruptcy provides an insider’s look into the options available to help screen a business’s customers, plan for worst-case scenarios, and, if the situation does arrive, efficiently handle the fallout. 

Takata Corp.'s bankruptcy filing last month was meant to draw a line under the auto industry's biggest safety recall, but last week's announcement of more air bag inflator recalls suggests automakers could face fresh liabilities in the future, Reuters reported yesterday. In late 2015, U.S. regulators gave Takata until the end of 2019 to prove that its air bag inflators — which now have a drying agent to combat moisture that can degrade the ammonium nitrate compound in its inflators, with potentially lethal results — are also safe. If Takata fails that test — and some industry consultants, explosives experts and former employees question whether the workaround guarantees safety over the long term — it may have to recall all its ammonium nitrate-based inflators. That could include the around 100 million inflators already slated for recall, and 100 million inflators Takata has produced to date with a drying agent. Takata says a third of those desiccated inflators have been used as replacements in the ongoing recall, with the rest going to automakers as part of regular supply contracts. Takata's automaker customers, which have so far borne much of the estimated $10 billion cost of replacing faulty bag inflators, could be on the hook for future liabilities in the event that Takata fails to prove that the desiccant workaround is sufficient.