Analysis: Reports of a “Debtor Bar” for PPP Loans Have Been “Exaggerated”

by Thomas J. Salerno Stinson, LLP (Phoenix)

In my learned colleague Bill Rochelle’s June 24 Rochelle’s Daily Wire, the headline blares, “Fifth Circuit Bars Debtors from Receiving ‘PPP’ Loans Under the CARES Act.” Bill’s headline is not unique; many law firm blogs have been reporting the same thing. Yet as my good colleague acknowledged, the headline (while certainly eye-catching, as headlines are wont to be) fails to tell the whole story. As reported accurately by Bill Rochelle: “In record time, the Fifth Circuit granted a direct appeal and reversed the bankruptcy court on June 22, ruling that the Small Business Act bars the bankruptcy court from entering an injunction that requires the Small Business Administration to grant a so-called PPP loan to a company in bankruptcy.” While the Paycheck Protection Program (PPP) was set to expire on June 30, that very night the Senate introduced legislation to extend it another six weeks, as there is a whopping undisbursed $130 billion still left in the federal giveaway grab bag. The House voted on July 1 to approve the extension to Aug. 8. The June 22, 2020, three-page decision by the Fifth Circuit did not hold that debtors were barred from the PPP Loan program, nor did the Fifth Circuit give judicial blessing to the now infamous April 24, 2020, regulation promulgated by the Small Business Administration (SBA) that automatically disqualified debtors from participating in the PPP (the “SBA Bankruptcy Rule”). Rather, the court ruled on the very narrow issue of whether the bankruptcy court in Hidalgo (the first court in the country to issue the injunction in question) could enjoin the SBA. As stated by the Fifth Circuit: “The issue at hand is not the validity or wisdom of the PPP regulations and related statutes, but the ability of a court to enjoin the Administrator, whether in regard to the PPP or any other circumstance. Because, under well-established Fifth Circuit law, the bankruptcy court exceeded its authority when it issued an injunction against the SBA Administrator, we VACATE its preliminary injunction.” 

U.S. Unemployment Rate Decreased to 11.1 Percent in June

The jobless rate fell to 11.1 percent in June as the U.S. regained 4.8 million jobs, continuing a labor market rebound from the economic shock caused by the coronavirus pandemic, the Wall Street Journal reported. Job growth in June followed May’s payroll gain of 2.7 million and showed that people are getting back to work faster than anticipated. Still, the U.S. labor market is operating with about 15 million fewer jobs than in February, the month before the pandemic struck the U.S. economy, and a recent coronavirus rise could hamper the job market’s recovery. The June unemployment rate was down from 13.3 percent in May, even though there were significantly more workers who were accurately counted as unemployed in June compared with previous surveys during the pandemic, according to the Labor Department. The jobless rate is still at historically high levels. Until March, before the coronavirus drove the U.S. into a deep recession, the unemployment rate had been hovering at around a 50-year low of 3.5 percent. Some states are reversing or pausing reopening plans as coronavirus infections surge in the South and West. Today’s jobs report, which is based on survey data largely collected in mid-June, doesn’t reflect those recent government-mandated business closures and related layoffs. Employers in sectors such as retail, health care and manufacturing added jobs in June. Companies recalled workers who were temporarily laid off due to the pandemic, helping drive down the number of unemployed Americans on temporary layoff by about 5 million from May to June. Meanwhile, the number who permanently lost their jobs increased by about 600,000 over that period. (Subscription required.)



In a separate Department of Labor report, an additional 1.427 million Americans filed for unemployment benefits in the week ending June 27, YahooFinance.com reported. The prior week’s figure was revised slightly higher to 1.482 million from the previously reported 1.480 million. Weekly jobless claims have decelerated for 13 consecutive weeks; however, more than 48 million Americans have filed for unemployment insurance over the past 15 weeks. Closely watched continuing claims, which lag behind initial jobless claims data by one week, totaled 19.29 during the week ending June 20, up from 19.23 million in the prior week. Pandemic Unemployment Assistance (PUA) program claims, which include those who were previously ineligible for unemployment insurance such as self-employed and contracted workers, were also closely monitored in today’s report. PUA claims totaled 839,563 on an unadjusted basis in the week ending June 27, down from the prior week’s 881,242.

Senate Democrats Offer Plan to Extend Added Jobless Benefits During Pandemic

Senate Democrats yesterday unveiled legislation to extend a generous federal increase of weekly unemployment benefits that would continue as long as the coronavirus pandemic affects the economy, The Hill reported. The American Workforce Rescue Act, introduced by Senate Democratic Leader Charles Schumer (N.Y.) and Senate Finance Committee ranking member Ron Wyden (D-Ore.), would extend the $600 federal increase in weekly unemployment benefits beyond July 31, when the current federal enhancement of benefits is due to expire. That initial federal boost to weekly state unemployment benefits was included in the CARES Act signed into law in late March, but it has come under fierce criticism from Republicans, who say the benefit is so generous that it has created a disincentive for workers to return to low- and middle-income jobs. The Schumer-Wyden proposal would extend the $600 increase in weekly unemployment insurance (UI) benefits past July 31 until a time when a state’s three-month average total unemployment rate falls below 11 percent. The federal benefit would drop from $600 a week by $100 for every percentage point decrease in the state’s unemployment rate, until that rate falls below 6 percent, according to a summary of the proposal provided by their offices.

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Fed Officials Raised Concerns in June that U.S. Could Enter a Much Worse Recession Later this Year if Coronavirus Cases Continued to Surge

Federal Reserve officials raised concerns about additional waves of coronavirus infections disrupting economic recovery and triggering a new spike in unemployment and a worse economic downturn, according to minutes released yesterday by the central bank about its June 9-10 meeting, the Washington Post reported. Fed Chair Jerome H. Powell has repeatedly said that the path out of this recession, which began in February, will depend on containing the virus and giving Americans the confidence to resume normal working and spending habits. But the notes from the two-day meeting reveal how interconnected Fed officials view a prolonged economic recession and the pandemic’s continued spread — and why Powell often asserts that lawmakers will need to do more to carry millions of Americans out of this crisis. “In light of the significant uncertainty and downside risks associated with the pandemic, including how much the economy would weaken and how long it would take to recover, the staff judged that a more pessimistic projection was no less plausible than the baseline forecast,” the minutes read. “In this scenario, a second wave of the coronavirus outbreak, with another round of strict limitations on social interactions and business operations, was assumed to begin later this year, leading to a decrease in real GDP, a jump in the unemployment rate, and renewed downward pressure on inflation next year.”

Analysis: Companies Hit by COVID-19 Want Insurance Payouts; Insurers Say No

A cavalcade of restaurateurs, retailers and others hurt by pandemic shutdowns have sued to force their insurers to cover billions in business losses, the Wall Street Journal reported. Millions of businesses across the U.S. carry “business interruption” insurance. The pandemic, no question, interrupted their businesses. But insurance companies have largely refused to pay claims under this coverage, citing a standard requirement for physical damage. That is a legacy of its origins in the early 1900s as part of property insurance protecting manufacturers from broken boilers or other failing equipment that closed factories. The insurance is also known as “business income” coverage. More than half of property policies in force today specifically exclude viruses, although the firms filing the lawsuits mostly hold policies without that exclusion. Their argument for getting around the physical-damage requirement is that the coronavirus sticks to surfaces and renders workplaces unsafe. Lawyers have found past rulings that say events rendering a property unusable may constitute property damage. Hundreds of lawsuits have been filed, and lawyers anticipate many more. Some plaintiffs’ lawyers speculate the issue could deal losses to insurers rivaling their liability from asbestos litigation about 30 years ago, which was about $100 billion, according to A.M. Best Co. A Wells Fargo Securities analyst puts insurers’ worst-case business-interruption liability at $25 billion, which would match losses from some Category 5 hurricanes. (Subscription required.)

U.S. Farmers Scramble for Help as COVID-19 Scuttles Immigrant Workforce

The novel coronavirus delayed the arrival of seasonal immigrants who normally help harvest U.S. wheat, leaving farmers to depend on high school students, school bus drivers, laid-off oilfield workers and others to run machines that bring in the crop, Reuters reported. As combines work their way north from the Southern Plains of Texas and Oklahoma, farmers and harvesting companies are having a harder time finding and keeping workers. Any delays in the harvest could send wheat prices higher and cause a scramble to secure supplies to make bread and pasta. The United States is the world’s No. 3 exporter of wheat, a crop in high demand during the pandemic. A sustained labor shortage could further impact the soy and corn harvests that start in September. Farmers, who have been loyal supporters of U.S. President Donald Trump, have grown more reliant on immigrant labor in recent years. The Trump administration continues to issue agriculture visas while clamping down on tech workers, students and other groups. Custom harvesters, or companies hired to gather crops by small-scale farmers who do not own their own equipment, also employ migrants. They roll up to a thousand combines across the U.S. Great Plains and Midwest at harvest time, handling about 30 percent of the U.S. wheat crop. The number of H-2A visas granted for agriculture equipment operators rose to 10,798 from October through March, the typical hiring period for harvesters looking for a labor force that starts cutting wheat in May. That was up 49 percent from a year earlier, according to the U.S. Labor Department. But many of those workers were unable to make it to the United States by the time the harvesters set off on their annual trek, according to eight harvesting companies and farmers interviewed by Reuters. Travel restrictions, tighter border controls and virus fears around the globe have led to delays in workers getting out of their home countries.

Coronavirus Surge Strains Municipal Bond Market, but Investors Still Pile In

The recent surge in COVID-19 cases has brought more bad news for a municipal bond market already reeling from the impact of coast-to-coast shutdowns and record unemployment, the Wall Street Journal reported. The U.S. Virgin Islands Water and Power Authority yesterday narrowly avoided default. The utility got a badly needed reprieve when Chicago-based Nuveen LLC agreed to accept a $34 million payment due Wednesday on Aug. 31 instead. Analysts question whether the territory has enough money on hand to make the payment. The territory isn’t alone in facing pressure. Ten municipal borrowers defaulted for the first time in May and another 10 did in June, the highest for those months since 2012, when borrowers were still absorbing hits from the 2008 financial crisis, according to Municipal Market Analytics data. Many municipal borrowers are being crushed by the massive falloff in the collection of sales, income and hotel taxes, airport fees and other revenues. Even some investment-grade issuers are showing signs of serious strain in their abilities to pay future debts. Despite the pressure on issuers, some investors are seeing opportunity rather than a reason for panic. Even with coronavirus losses weighing heavily on the roughly $4 trillion municipal market, investors are piling back into municipal debt, hungry for yield and seeking more safety than the stock market can provide. Many fled munis in droves when the U.S. first shut down in March, but investors seem to have overcome their initial fears and have plowed about $11 billion back into muni mutual funds since mid-May, more than one-third of the amount withdrawn in March and early April, according to Refinitiv. (Subscription required.)

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