Job Cuts from Bankruptcies Hit Highest Level Since 2005

Job Cuts from Bankruptcies Hit Highest Level Since 2005

ABI Bankruptcy Brief

January 2, 2020

ABI Bankruptcy Brief

Job Cuts from Bankruptcies Hit Highest Level Since 2005

Data by global outplacement firm Challenger, Gray & Christmas Inc. found that the number of job cuts announced in 2019 due to companies filing for bankruptcy protection hit the highest level in more than a decade, the Wall Street Journal reported. More than 62,100 job losses have been announced by U.S.-based employers in the past 12 months due to bankruptcy, according to the report. That number is higher than the annual totals for bankruptcy-related job cuts any year since 2005, when 74,200 were announced. Bankruptcy was one of the leading causes of job cuts, along with restructuring, trade difficulties and tariffs, in the past year, Challenger found. Employers said they were going to slash more than 592,500 jobs for various reasons, with the retail industry leading the way with nearly 77,500 cuts. About 10.5 percent of all job cuts announced through year-end 2019 were attributed to bankruptcies. In December alone, there were more than 5,500 job cuts due to bankruptcy, Challenger’s data show. There were more job cuts related to bankruptcy in 2019 than during the recession years. More than 62,100 jobs were affected due to bankruptcy in 2008, while about 50,900 were cut in 2009. (Subscription required.)

Financial Tug-of-War Emerges over Fire Victims' Settlement

A financial tug-of-war is emerging over the $13.5 billion that the nation's largest utility has agreed to pay to victims of recent California wildfires, as government agencies jockey for more than half the money to cover the costs of their response to the catastrophes, the Associated Press reported. Pacific Gas & Electric declared bankruptcy nearly a year ago as it faced about $36 billion in claims from people who lost family members, homes and businesses in devastating wildfires in 2017 and 2018. The utility acknowledged that its power lines ignited some of the fires. Those claims were settled as part of the $13.5 billion deal that PG&E reached last month with lawyers representing uninsured and underinsured victims. Meanwhile, insurers had been threatening to try to recover roughly $20 billion in policyholder claims that they believe they will end up paying for losses from those fires. PG&E settled with the insurers for $11 billion. PG&E must keep working on its broader bankruptcy exit plan to meet the approval of state regulators and a bankruptcy judge by June, as planned. In the meantime, the $13.5 billion settlement leaves open just how much would be used to compensate victims, their lawyers, and federal and state agencies for the money they spent on rescue and recovery operations.

Sales-Tax Ruling Strains Small Online Sellers

Eighteen months after the Supreme Court gave states the green light to tax online transactions, small companies that sell things as diverse as recycled yarn and gold bullion are struggling to adjust, the Wall Street Journal reported. In its June 2018 ruling, the Supreme Court held that states had the authority to make online retailers collect sales taxes even if they didn’t maintain a store, warehouse or other physical presence. Before the decision, consumers were supposed to pay what is known as use tax on out-of-state purchases, but most didn’t. The decision came in a lawsuit filed by South Dakota against home-furnishings retailer Wayfair Inc. and other online sellers. What is taxed and how often those taxes are paid varies from state to state. Some states, such as Colorado, allow localities to administer their own taxes. Some states share definitions and procedures to make it easier for companies to comply, but some of the biggest jurisdictions have their own rules. “Small businesses are definitely the ones that are really adversely affected,” said Clark Calhoun, a state and local tax attorney in Atlanta. “A bigger business is typically going to have more robust sales-tax software,” he said, as well as “a better sense of where their products are going and will be well over the sales thresholds every single year.” Verenda Smith, deputy director of the Federation of Tax Administrators, which represents state taxing authorities, said the state laws were never intended to affect small businesses. But “the fairness issue is equally on the table, and it can be at odds with the burden issue,” she said. Most states have tried to limit the impact on the smallest companies, with many following the lead of South Dakota, which exempted out-of-state sellers with $100,000 or less in sales or fewer than 200 transactions in the state a year. But limits vary, with a threshold of $500,000 in California and none in Kansas. (Subscription required.)

Corporate Debt Issuers to Kick Off Sales with Up to $35 Billion

Sales of U.S. high-grade bonds will total between $30 billion and $35 billion next week, according to an informal survey of dealers at some of Wall Street’s biggest banks, Bloomberg News reported. The market remains inviting for potentially supercharged debt-issuance, with funding costs at the best levels ever for the start of a year and incentive to get ahead of potential U.S. election-induced volatility beginning in March. About $120 billion is forecast for January, an increase of 9 percent from last year. The high-grade bond spread, the added premium over U.S. Treasuries that investors get paid to hold riskier debt, fell to 93 basis points on Tuesday, the tightest level since February 2018. Meanwhile, there is about $78 billion in U.S. high-grade corporate bonds coming due or that may be called in January, according to data compiled by Bloomberg.

Americans Are Taking Cash out of Their Homes — And It Is Costing Them

Many U.S. homeowners who need cash are taking it out of their properties, but the trade-off is higher interest rates, according to a Wall Street Journal analysis. Over the past two years, a big chunk of homeowners took on higher interest rates when they refinanced to tap into their home equity. These cash-out refinancings, as they are known, free up money that homeowners can use to pay down credit card debt, renovate or invest in a new property. Nearly 60 percent of cash-out refinancings in 2018 came with higher interest rates, the biggest share since before the financial crisis, according to Black Knight Inc., a mortgage-data and technology firm. This year, that number fell to around 44 percent of cash-out deals, but it remains at more than three times its average between 2009 and 2017. This corner of the mortgage market illuminates the crosscurrents in the U.S. economy: After roughly a decade of rising home prices, homeowners are flush with record amounts of home equity they can tap. But many Americans remain short on cash and are increasingly relying on debt to fund their lives. “There’s something in their life that is causing them to need money,” said Sam Polland, a mortgage-loan officer at Sandy Spring Bank in Rockville, Md. “They are willing to go up in rate to get the equity out of their house.” (Subscription required.)

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Bloomberg Law

Gavin / Solmonese




New on ABI’s Bankruptcy Blog Exchange: Supreme Court Set to Hear Passive Stay Violation Case

Seeking to resolve a 5-3 split among the courts of appeals, the Supreme Court will consider whether a creditor that passively retains property of the estate violates the automatic stay. Case No. 19-357, City of Chicago v. Fulton. The Second, Seventh, Eighth, Ninth and Eleventh Circuits have ruled that retaining possession or control of property of the debtor violates the stay. The Third, Tenth and D.C. Circuits have held that passive retention of property is not an "act" to exercise control over property of the estate.

For further analysis of this case, be sure to read Rochelle's Daily Wire.

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

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