Hospital Bankruptcy Surge Looms as Virus Rages, Stimulus Lapses

Hospital Bankruptcy Surge Looms as Virus Rages, Stimulus Lapses

ABI Bankruptcy Brief

October 29, 2020

ABI Bankruptcy Brief

Hospital Bankruptcy Surge Looms as Virus Rages, Stimulus Lapses

Hospitals and other health care providers are bracing for a bankruptcy wave as the government stimulus aid that gave a lifeline to the industry dries up, Bloomberg Law reported. Even before the COVID-19 pandemic, providers were pushed to their breaking points, especially those in rural areas. At least 30 hospitals entered bankruptcy in 2019, and at least three dozen have done the same so far this year, according to data compiled by Bloomberg. Chapter 11 filings had been poised to go higher with the coronavirus inflating costs for protective equipment and impeding revenue-generating elective procedures. The CARES Act and accelerated Medicare advance payments helped to forestall the anticipated increase. The stopgap assistance allowed struggling hospitals to stay out of bankruptcy and remain open for patients, said health care transactions lawyer Bobby Guy of Polsinelli PC. But Congress and the Trump administration have been unable to agree on further coronavirus relief, and health care bankruptcies and out-of-court restructurings could accelerate early next year, attorneys say. “If there’s not more stimulus, we’re going to see a lot of cash crunches,” Guy said. “The bill will come due.”

U.S. States Face Biggest Cash Crisis Since the Great Depression

Nationwide, the U.S. state budget shortfall from 2020 through 2022 could amount to about $434 billion, according to data from Moody’s Analytics, the economic analysis arm of Moody’s Corp., the Wall Street Journal reported. The estimates assume no additional fiscal stimulus from the federal government, further coronavirus-fueled restrictions on business and travel, and extra costs for Medicaid amid high unemployment. That’s greater than the 2019 K-12 education budget for every state combined, or more than twice the amount spent that year on state roads and other transportation infrastructure, according to the National Association of State Budget Officers. Deficits have already prompted tax hikes and cuts to education, corrections and parks. State workers are being laid off and are taking pay cuts, and the retirement benefits for police, firefighters, teachers and other government workers are under more pressure. Even after rainy-day funds are used, Moody’s Analytics projects 46 states coming up short, with Nevada, Louisiana and Florida having the greatest gaps as a percentage of their 2019 budgets. Louisiana said it didn’t expect its shortfall to be as large as Moody’s projected. (Subscription required.)

U.S. Economic Growth Shatters Record at 33.1 Percent, but Fails to Snap Coronavirus Recession

The U.S. economy grew at a record-setting pace in the third quarter as businesses reopened from the coronavirus shutdown, but the nation remains in a deep hole from the COVID-induced recession, reported. Gross domestic product, the broadest measure of goods and services produced across the economy, surged by 33.1 percent on an annualized basis in the three-month period from July through September, the Commerce Department said in its first reading of the data today. The previous post-World War II record was a 16.7 percent increase in 1950. However, the economy contracted at an annual revised rate of 31.4 percent in the previous quarter, the sharpest decline in modern American history. Looking at the quarterly data, the nation's GDP grew 7.4 percent from the second to the third quarter, compared with a 9 percent decline between the first and second quarters. The economy remains 3.5 percent smaller than at the end of 2019.

Weekly Unemployment Claims Dip Slightly in Last Report Before Election

Another 751,000 people applied for jobless claims last week, down about 40,000 from the week before, in what is the final unemployment report released before the election, the Washington Post reported. Claims for Pandemic Unemployment Assistance, for gig and self-employed workers, went up slightly, to 359,000. All told, there were about 22.6 million people claiming some form of unemployment insurance for the week ending Oct. 10, the most recent week of statistics for that measurement. Economists continue to warn about the effect on the economy from the White House’s and Congress’s inaction on another round of stimulus. The economy has begun to flash more warning signs in recent weeks. Companies announcing layoffs in recent weeks include aerospace giant Raytheon, financial services company Charles Schwab, and Disney World. An increasingly large group of people are transitioning off regular state unemployment insurance to a temporary federal program for people whose state benefits have expired — a sign of the growing duration of joblessness for many.

Opinion: Movie Theaters Won't Recover from COVID*

As the COVID-19 pandemic wears on and drives permanent changes to entertainment culture, Hollywood giants such as Walt Disney Co. and Comcast Corp.’s Universal Pictures appear to be turning their backs somewhat on movie theaters, according to a Bloomberg commentary. The largest among the cinema chains, AMC Entertainment Inc., is teetering on the brink of bankruptcy at the same time that it celebrates its 100th anniversary. Just a few short months ago, it seemed inconceivable that the business of filmmaking could carry on without the box office and surrender almost entirely to online streaming apps. But now it’s clear that Hollywood and audiences can get along without cinemas, according to the commentary. More than $7 billion of market value has vanished from AMC, Cineworld Group Plc and Cinemark Holdings Inc. this year. Although the financial picture is less bleak at Cinemark, Cineworld has hired advisers to help with its balance sheet, and AMC may run out of funds before the new year. “AMC’s cash burn could worsen beyond $115 million a month, while its cash reserves are only about $418 million,” Amine Bensaid, an analyst for Bloomberg Intelligence, wrote in a report last week. No one would have predicted that a sudden pandemic would cripple the entertainment industry all at once. But clouds were forming over movie theaters long ago, and companies like AMC failed to prepare, according to the commentary. Disney’s blockbusters had almost single-handedly propped up the box office in recent years, and rising ticket prices helped mask traffic trends. Disney’s Avengers: Endgame grossed $2.8 billion in 2019, making it the biggest film of all time. Still, 162 million fewer tickets were sold in North America that year compared with 20 years ago, according to The Numbers, a box-office data provider. Theater owners responded by renovating auditoriums, improving snack options, installing reclining seats and — buying one another.

*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. 

Means Test Numbers Set to Update on November 1

The Department of Justice has provided a table for cases filed on or after Nov. 1 for median family income data that has been reproduced in a format designed for ease of use in completing Bankruptcy Forms 122A-1 and 122C-1. Click here to view the table.

Highlighting ABI’s International Insolvency Forum on Nov. 18-20: A Conversation with President Bill Clinton!

Insolvency experts from around the world will virtually gather to provide their insights on key issues and timely topics pertaining to consumer bankruptcy practice at ABI’s 2020 International Insolvency Forum. The Forum will be highlighted by a conversation between Bill Clinton, 42nd President of the United States, and Bill Brandt (Development Specialists, Inc.) covering global economics, international bankruptcy issues and more. The three-day online conference brings together ABI’s annual International Insolvency & Restructuring Symposium partners — International Insolvency Institute (III), American College of Bankruptcy, TMA Europe, INSOL and IWIRC — and ABI's annual Cross-Border Insolvency Program. Sessions at the International Insolvency Forum include:

•  America Now!
•  Canadian Cross-Border Insolvency Legislation to Recognize U.S. Filings
•  One Year into COVID-19: What Are the Implications for Restructurings Around the Globe in 2021? 

•  Panel by the International Committee of the American College of Bankruptcy
•  Panel presented by IWIRC
•  Emerging from the COVID-19 Disruption: The Need for a National Emergency Restructuring Entity
•  The New Europe: The Reality of Working Together

•  Troubled Non-U.S. Airlines Landing in Chapter 11: The Inside Story
•  The New Indian Insolvency Act
•  Cross-Border Restructuring and COVID-19 

Click here to register.

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New on ABI’s Bankruptcy Blog Exchange: Small Businesses Need More Aid to Keep Employees, SBA Chief Says

SBA Administrator Jovita Carranza said that small businesses need a new round of loans and aid from the government to keep employees working as the pandemic continues to spread, 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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