Big Bankruptcies Sweep the U.S. in Fastest Pace Since May 2009

Big Bankruptcies Sweep the U.S. in Fastest Pace Since May 2009

ABI Bankruptcy Brief

May 28, 2020

ABI Bankruptcy Brief

Big Bankruptcies Sweep the U.S. in Fastest Pace Since May 2009

In the first few weeks of the pandemic, it was just a trickle: Companies like Alaskan airline Ravn Air pushed into bankruptcy as travel came to a halt and markets collapsed. But the financial distress wrought by the shutdowns only deepened, producing what is now a wave of insolvencies washing through America’s corporations. In May alone, some 27 companies reporting at least $50 million in liabilities sought court protection from creditors — the highest number since the Great Recession. They range from well-known U.S. mainstays such as J.C. Penney Co. and J. Crew Group Inc. to air carriers Latam Airlines Group SA and Avianca Holdings, their business decimated as travelers stayed put. In May 2009, 29 major companies filed for bankruptcy, according to data compiled by Bloomberg. And year-to-date, there have been 98 bankruptcies filed by companies with at least $50 million in liabilities — also the highest since 2009, when 142 companies filed in the first four months. Few people believe bankruptcies have by any means hit a peak. “I think we’re going to continue to see filings of at least the level we’re seeing for a while,” said Melanie Cyganowski, a former bankruptcy judge now with the Otterbourg law firm. The wave of insolvencies is seemingly at odds with U.S. credit markets, which are busier than ever: Investment-grade corporations were able to cushion their balance sheets by borrowing nearly $1 trillion in the first five months of the year, the fastest pace on record. No such luck for weaker companies. Their revenues have evaporated, straining their ability to keep up with debt payments and all but forcing them to seek refuge in bankruptcy court.

U.S. House Approves Bill Lengthening Coronavirus Small-Business Loan Terms

The U.S. House of Representatives today approved (417-1) legislation increasing the amount of time, to 24 weeks from the current eight-week deadline, for small businesses to use Paycheck Protection Program loans spurred by the coronavirus outbreak, Reuters reported. The program was created in March to help support small businesses during the pandemic and encourage them to retain their employees. Last week, senators were working on a bipartisan bill extending the time frame to 16 weeks, instead of the eight weeks currently in the law or the 24 weeks embraced by the House. If the Republican-controlled Senate passes a bill that varies in any way from the Democratic-led House’s, the two chambers would have to reconcile their differences before legislation could be sent to Republican President Donald Trump for signing into law.

Click here to view the text of H.R. 7010, the "Paycheck Protection Program Flexibility Act of 2020."

Another 2.1 Million File Jobless Claims, but Total Unemployed Shrinks

First-time claims for unemployment benefits totaled 2.1 million last week, the lowest total since the coronavirus crisis began, though it is indicative that a historically high number of Americans remain separated from their jobs, reported. The total represented a decrease of 323,000 from the previous week’s upwardly revised 2.438 million. Continuing claims, or those who have been collecting for at least two weeks, numbered 21.05 million, a clearer picture of how many workers are still sidelined. That number dropped sharply, falling 3.86 million from the previous week. That decline in continuing claims “suggests that the reopening of states is pushing businesses to rehire some of the people let go when the virus hit,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. However, Shepherdson noted that some of the data, particularly from California, remains noisy and may not be an accurate representation of some states’ situations. The insured unemployment rate, which is a basic calculation of those collecting benefits vs. the total labor force, came down sharply to 14.5 percent from 17.1 percent the previous week. The four-week moving average, which helps smooth out weekly volatility, rose to 22.72 million, an increase of 760,250 from the previous week.

Analysis: Reopening Has Begun, but No One Is Sure What Happens Next

Politicians and public health experts have sparred for weeks over when, and under what circumstances, to allow businesses to reopen and Americans to emerge from their homes. But another question could prove just as thorny: How should this be done? Because the restart will be gradual, with certain places and industries opening earlier than others, it will be complicated. The U.S. economy is a complex web of supply chains whose dynamics don’t necessarily align neatly with epidemiologists’ recommendations. Georgia and other states are beginning the reopening process. But even under the most optimistic estimates, it will be months, and possibly years, before Americans again crowd into bars and squeeze onto subway cars the way they did before the pandemic struck. “It’s going to take much longer to thaw the economy than it took to freeze it,” said Diane Swonk, chief economist for accounting firm Grant Thornton. South Carolina, for example, looks likely to be among the first states to allow widespread reopening of businesses. But if a manufacturer there depends on a part made in Ohio, where the virus is still spreading, it may not be able to resume production, regardless of the rules. The White House released a plan this month for a phased reopening of the economy, with restrictions easing as states meet public health benchmarks. States have begun to develop their own road maps. Gov. Andrew M. Cuomo of New York said Tuesday that parts of the state that had fewer coronavirus cases might be allowed to reopen more quickly than New York City and other hard-hit areas.

Miss last week's "COVID-19 Relief Funding & Reopening America: What's Really Happening in Congress" webinar panel featuring former House Speaker John Boehner and current senior U.S. Senator Joe Manchin (D-W. Va.)? Purchase a replay here.

Analysis: U.S. Corporate Bond Sales Smash Record, Soaring to over $1 Trillion

It began with a rush in mid-March, when a pair of U.S. corporate giants, Exxon Mobil Corp. and Verizon Communications Inc., braved the financial turmoil created by the coronavirus pandemic and sold a combined $12 billion of bonds in a single day. Others quickly followed, emboldened by the unprecedented support provided by the Federal Reserve, and before long, deals were being rushed out at a clip never before seen in the history of U.S. bond markets. On Thursday, that boom reached an astonishing milestone: $1 trillion worth of investment-grade corporate debt sales had been brought to market in the first 149 days of the year, Bloomberg News reported. In 2019, a fairly typical year in the bond market, that figure wasn’t reached until November. For the Fed, the borrowing binge is precisely the reaction it was looking for when it announced two months ago that it would prop up companies ravaged by the pandemic by providing a $750 billion promise to buy corporate debt. The Fed has yet to purchase even one individual bond, having only started buying some corporate debt through exchange-traded funds two weeks ago. But from the moment policymakers signaled their intentions, the floodgates opened, rebooting deal activity that had gone dormant earlier in the month and sparking a massive market rebound across nearly all asset classes. For companies, the cash has been a crucial lifeline that could help many of them make it through the economic collapse that the virus triggered. All of this new debt creates a new set of risks, though. U.S. companies were already highly leveraged coming into the crisis, and by helping them heap more debt onto their balance sheets, the Fed runs the risk of deepening the pain if many of them fail to survive the virus. “Leverage is going higher as cash flows are declining. Depending on how the recovery takes shape, this may weigh on credit quality and ratings,” said Steven Boothe, a high-grade debt portfolio manager at T. Rowe Price. “If it’s steep and long drawn out, that will be something to be mindful of.”

New on ABI's COVID-19 Page: Exclusive Snapshot and Analysis of Weekly Bankruptcy Filings!

Looking to see how bankruptcy filings are trending each week? Need insight into the trends and what the notable filings were for that week? ABI's COVID-19 web page now features an exclusive snapshot of weekly stats, along with special insights into the stats by ABI's Ed Flynn, appearing in the left-hand column under "Bankruptcy Statistics." Be sure to circle back to ABI's COVID-19 page to get the latest on weekly filing trends.

Don’t Miss the “COVID-19 Impact: Survival Considerations for Every Hospital” abiLIVE Webinar on June 4

A panel of experts on this special June 4 abiLIVE webinar will discuss the short- and long-term impacts and implications of COVID-19 on current and future hospital financial stability. ToneyKorf's pandemic impact mitigation strategy tool will be discussed as a way that can provide a more precise, data-driven projection of changes to hospital finances. Panelists will also explore the range of recovery and restructuring strategies to bring stability to the uncertain financial future created by this pandemic. Register for FREE.

Central States Virtual Bankruptcy Workshop to Feature Great Sessions, Networking at an Affordable Price!

While ABI had to cancel its in-person Central States Bankruptcy Workshop for 2020 due to the COVID-19 pandemic, some of the sessions designed for this year's program are being converted into a two-day virtual experience, to be held June 25-26. With two online educational sessions each day of the conference, ample networking opportunities both days and a price that is right ($100 for the entire program), it is easy to include the Central States Virtual Bankruptcy Workshop in your schedule this year! Click here to register. 

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New on ABI’s Bankruptcy Blog Exchange: Fed's Rosengren Sees Main Street Loans Within Next Two Weeks

Federal Reserve Bank of Boston President Eric Rosengren said he expects companies to begin receiving money through the central bank's long-awaited Main Street Lending Program within two weeks, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

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