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The Federal Reserve said yesterday that U.S. businesses saw limited evidence of a recovery in recent weeks, with economic activity continuing to decline amid the coronavirus pandemic, the Wall Street Journal reported. The labor market continued to deteriorate and consumer spending fell further as retailers and restaurants remained largely closed in most of the country through mid-May, the Fed said in its periodic report of anecdotes from businesses around the country known as the “beige book.” “Although many contacts expressed hope that overall activity would pick up as businesses reopened, the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery,” the central bank said. The latest edition of the beige book contains information through May 18, some two months after nonessential businesses around the country shut down to help contain the spread of the novel coronavirus. Leisure and hospitality continued to see the most severe effects of efforts to contain the pandemic.

Discount home furnishings retailer Tuesday Morning Corp. said that it has filed for bankruptcy, as the prolonged closure of its stores amid the COVID-19 pandemic created an "insurmountable financial hurdle," MarketWatch.com reported. The company said that it has obtained $100 million in debtor-in-possession financing so that it can continue operations during the bankruptcy. The company said that it plans to permanently close about 230 of its 687 total stores, or 33 percent, as part of the reorganization. Tuesday Morning said that it had initially closed all of its stores due to the pandemic, but has reopened about 80 percent of the stores, and over 7,300 employees have returned to work. 

A bankruptcy judge allowed J.Crew Group Inc. to pause paying rent for two months despite pleas from many large landlords to resume payments as its stores start to reopen, the Wall Street Journal reported. At a hearing on Tuesday, Judge Keith Phillips of the U.S. Bankruptcy Court in Richmond, Va., said only seven of J.Crew’s roughly 500 stores have reopened, while most of the company’s employees remain furloughed and vendors are going unpaid. Moreover, J.Crew has already filed a restructuring plan that provides for payment of back rent incurred bankruptcy when the company emerges from chapter 11, Judge Phillips said. J.Crew filed for chapter 11 protection in early May. It had been struggling for years and the coronavirus pandemic was the final straw, prompting it to close stores and scrap plans to raise cash by spinning off its Madewell chain. In mid-May, the retailer reopened seven stores in North Carolina, South Carolina and Texas, according to court papers. J.Crew expects to gradually reopen 476 of its roughly 500 stores by late June.

Fitness clubs rocked by Covid-19 closures face a swell of bankruptcies with more than $10 billion of revenue wiped out as clients ditch memberships, according to investment bank Harrison Co., Bloomberg News reported. In a Harrison survey of 1,000 fitness club users, more than a third said they have canceled or plan to terminate existing memberships. “There are 38,000 locations throughout the U.S., and about a third have a reasonably high probability of being shut down,” said Paul Byrne, an investment banker at Harrison who was formerly president at elliptical-maker Precor. A large number are “probably not going to make it through this.” Gyms already loaded with debt are facing long-term declines in revenue despite social-distancing measures to fight the spread of the coronavirus beginning to ease across the U.S. People are likely to continue shunning closely-packed fitness centers to avoid being in close proximity to other individuals even as the economy reopens, according to the report. The owner of the New York Sports Clubs chain and Gold’s Gym are among firms that have weighed bankruptcy or already filed. 

The more than a century old car rental firm Hertz Global Holdings Inc. filed for bankruptcy protection on Friday after its business was decimated during the coronavirus pandemic and talks with creditors failed to result in much needed relief, Reuters reported. Hertz’s board earlier in the day approved the company seeking chapter 11 protection in a U.S. bankruptcy court in Delaware, according to court records. Its international operating regions including Europe, Australia and New Zealand were not included in the U.S. proceedings, the company said. The firm, whose largest shareholder is billionaire investor Carl Icahn with a nearly 39 percent ownership stake, is reeling from government orders restricting travel and requiring citizens to remain home. A large portion of Hertz’s revenue comes from car rentals at airports, which have all but evaporated as potential customers eschew plane travel. With nearly $19 billion of debt and roughly 38,000 employees worldwide as of the end of 2019, Hertz is among the largest companies to be undone by the pandemic. The Estero, Florida-based company, which operates Hertz, Dollar and Thrifty car-rentals, had been in talks with creditors after skipping significant car-lease payments due in April. Forbearance and waiver agreements on the missed payments were set to expire on May 22. Hertz has about $1 billion of cash.

The list is growing: JCPenney, Neiman Marcus, Diamond Offshore Drilling, Alta Mesa Resources, Echo Energy, Alta Petroleum, TriPoint Oilfield Services, Sheridan Holding and Stage Stores. More Texas businesses are filing for bankruptcy this year than did during the Great Recession or anytime in the past two decades, and legal experts said the wave of insolvencies and restructurings is still far from breaking or hitting their peak, the Houston Chronicle reported. Between Jan. 1 and May 5, more than 545 Texas companies have filed for protection from creditors under chapter 11 of the U.S. Bankruptcy Code — up from 234 such filings during the same period in 2019, or a 133 percent jump, according to new data provided exclusively to The Texas Lawbook by Androvett Legal Media research. And bankruptcy courts in the Southern District of Texas — specifically Houston — are the epicenter for the historic number of corporate restructurings expected to be filed this year. So far in 2020, five times more business bankruptcies have been filed in Houston than in any of the other three federal district courts in the state. “There is a tsunami coming,” said Foley bankruptcy partner Holly O’Neil. “For tens of thousands of retailers and restaurants and other businesses, their incoming revenue completely stopped, but their expenses kept coming. The options for many of these businesses are running out.”

Dozens of J.Crew Group Inc.’s landlords, including some of the biggest mall owners in the country, are seeking rent payments from the retailer’s stores as they reopen, according to court filings, WSJ Pro Bankruptcy reported. The chain’s landlords — including Simon Property Group Inc., CBL & Associates Management Inc. and Brookfield Property REIT Inc. — say that they deserve to be paid rent on stores as malls and shopping centers reopen. Many states are gradually easing restrictions on retailers that were forced to close stores to slow the spread of the new coronavirus, and have issued guidelines for restarting operations. J.Crew has asked the bankruptcy court to allow it to stop paying rent on all its stores for 60 days — until July 6 — saying that it needs to preserve cash after closing about 500 locations in March. J.Crew filed for chapter 11 protection in early May after struggling for years before the coronavirus pandemic prompted it to close stores and scrap plans to raise cash by spinning off its Madewell chain. A committee representing J.Crew’s unsecured creditors has also objected to the retailer’s request to defer rent payments, pointing out the company hasn’t promised to pay back the deferred rent.

For a half-century, J.C. Penney Co.’s store count grew along with American malls, eventually earning the company the crown as the most ubiquitous retailer anchoring those centers. It now operates about a fifth of all the anchor stores in U.S. malls. But when the department-store chain filed for bankruptcy on May 15, it said it would close more than a quarter of its 846 stores, Bloomberg Businessweek reported. That retrenchment reflects a dire financial position: J.C. Penney’s $8 billion debt burden was simply too heavy to bear. But it also signals a growing realization among brick-and-mortar retailers that the relentless pursuit of growth in number of stores hasn’t served them particularly well for years. The amount of merchandise sold per available square foot of selling space in stores has fallen in recent years, while rents have continued upward. And the explosion in online shopping means fewer consumers trek to malls. Now Covid-19 could finally force a reckoning for overstored America. One result: As the lights come on after an almost total shutdown of national chains, many retailers are deciding some of their stores will stay dark forever. “I think for the first time, companies don’t have to decide which stores to close, they have to decide which stores to open,” says Simeon Siegel, retail analyst at BMO Capital Markets. “They will find that they have been forced to make decisions that they probably have been putting off.” It’s much more than a Penney problem. The U.S. is the leader in two categories: most retail selling space per capita of any country, but also lowest sales per square feet, according to commercial real estate company Cushman & Wakefield. It says the U.S. has 25 retailing square feet per capita that brings in about $500 in sales, compared with China, which has less than 5 square feet per capita that accounts for $1,000 in sales.

Hertz Global Holdings Inc. is at loggerheads with a key group of creditors just hours before a Friday deadline to cut a deal to address missed debt payments, Bloomberg News reported. The deadlock between the car-rental company and creditors, including holders of asset-backed securities tied to fleets of vehicles, comes as some investors have grown more confident they’ll be made whole if Hertz files for bankruptcy and is forced to sell the cars backing their bonds, the people said. Hertz is running out of time to either extend a forbearance agreement or make around $400 million of lease payments. If no deal can be reached, Hertz may need to seek court protection in the coming days. Top shareholder Carl Icahn could still swoop in with a last-minute rescue to protect a $1.6 billion investment, now worth about $170 million as of yesterday’s close, according to sources. An uptick in used vehicle prices from the dismal levels seen in March and April have given ABS holders less incentive to extend the forbearance period for Hertz a second time. Back in April, lenders were more willing to be lenient to avoid selling the vehicles backing the ABS into a deeply-depressed market.