Careers

By Debra Cassens Weiss

May 18, 2020, 2:59 pm CDT

Former Kirkland & Ellis bankruptcy partner Jeffrey Gettleman returned to the firm in late March, about a year and a half after retiring from the firm to pursue his musical interests.

The timing was right, Bloomberg Law reports.

Our department is extremely busy, Gettleman told the publication. Weve filed, I cant even tell you how many cases, since I started.

After Gettleman, 74, decided to leave the firm in December 2018, one of his first major projects in his new retirement was called War and the Human Heart. He had written the music while commuting to his Chicago office at Kirkland.

The production honored military veterans and dealt with the theme of waran important subject to Gettleman, as he spent time in Vietnam as a member of the U.S. Army. He also organized two chamber music concerts.

Its not the first time that Gettleman left law practice for music. The first time he worked in several orchestral positions. They included executive director of a suburban symphony orchestra in Illinois and director of marketing and public relations for the New Orleans Symphony Orchestra. He then joined Kirkland in 2002.

The COVID-19 pandemic put a damper on Gettlemans musical plans. He decided that the time was right to return to law practice as a bankruptcy lawyer.

I realized over the course of the year I was retired that I probably retired 10 years too early, Gettleman told Bloomberg Law. Im not a sit-on-the-rocking-chair-on-the-porch kind of guy.

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Bankruptcy partner returns to Kirkland after leaving to pursue musical interests - ABA Journal

Creditors risk losing important rights in bankruptcy cases if deadlines are not met. Unfortunately, sometimes the existence or relevance of a deadline is not obvious to a creditor. Indeed, bankruptcy notices can be indecipherable and tempting to ignore, but failing to abide by deadlines comes at a high price. A recent opinion from the U.S. Bankruptcy Court for the District of Massachusetts underscores the need for creditors to take timely action to preserve rights, which is especially noteworthy given the current coronavirus pandemic and the expected increase in bankruptcy filings.

Act Immediately to Assert Administrative Expense Claims

The deadline at issue arose under Section 503(b)(9) of the Bankruptcy Code. That section provides a supplier of goods the ability to assert an administrative expense claim for the value of goods sold to a customer in the ordinary course of business during the 20-day period prior to the customers bankruptcy filing. This statutory provision provides suppliers with a meaningful bankruptcy right an opportunity to convert some portion of a pre-petition general unsecured claim into an administrative expense claim. Pre-petition general unsecured claims are typically paid only cents on the dollar, if anything, while administrative expense claims must be paid in full before any payment to general unsecured creditors. A copy of the Bankruptcy Court decision, which was entered in the chapter 11 proceedings of In re Interra Innovation, Inc., is available here.

Four Key Factors for Warranting Time Extensions

Federal Rule of Bankruptcy Procedure 9006(b)(1) gives bankruptcy judges discretion to extend a filing deadline in Chapter 11 cases where a party filed late because of excusable neglect. In Pioneer Investment Services Company v. Brunswick Associates Limited Partnership, the Supreme Court established that a bankruptcy judges determination of excusable neglect is inherently an equitable one and adopted the following guiding factors that impact whether such a time extension is warranted: (1) the danger of prejudice to the debtor; (2) the length of the delay and its potential impact on judicial proceedings; (3) the reason for the delay, including whether it was within the reasonable control of the movant; and (4) whether the movant acted in good faith.

In the Interra case, all creditors received a notice of the case commencement that included the deadline for filing requests for administrative expense claims under Section 503(b)(9). A creditor failed to timely file a request and instead requested that the court accept its late filing citing its unfamiliarity with bankruptcy law and procedure. The creditor argued that its failure to meet the deadline constituted excusable neglect under the Pioneer Investment Services standard. The Bankruptcy Court disagreed, stating that the deadline on the notice was conspicuous, and that if the significance of the deadline was unclear then the creditor should have requested assistance from outside counsel. As a result of the decision, a substantial portion of the creditors claim will be treated as a general unsecured claim as opposed to the more favorable status of an administrative expense.

Whats Next?

With an expected rise in bankruptcy cases on the horizon, the Courts decision is a reminder to all those dealing with distressed counterparties. If you receive a bankruptcy notice of any type and are not sure of the exact implications, seek assistance from experienced counsel familiar with creditors rights and bankruptcy law. Time is money especially in bankruptcy.

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Received a Bankruptcy Notice During the Pandemic? Dont Delay - JD Supra

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YOU WILL get business failures on a grand scale. So declared James Bullard, president of the Federal Reserve Bank of St Louis, on May 12th. Peter Orszag, a former official in Barack Obamas White House and now with Lazard, an investment bank, warned that the American economy could face a significant risk of cascading bankruptcies. How bad will things really get for America Inc?

The country has already seen a surge of corporate bankruptcies among big firms that puts 2020 on track to be the worst year since 2009, at the height of the global financial crisis. In recent weeks well-known firms ranging from Neiman Marcus, a department-store chain, and J Crew, a clothing retailer, to Golds Gym, a glitzy workout group, have gone bust. Hertz, a giant car-hire firm, and Chesapeake Energy, a pioneer of Americas shale industry, are both on the brink of bankruptcy.

As the American economy sinks further in the coming months, many more firms are sure to get into trouble. This raises three questions. What early-warning signs might reveal the scale of the coming wave of bankruptcies? How does the looming disaster compare to the pain endured during the financial crisis? And are there meaningful alternatives to outright bankruptcy?

First, to harbingers of doom. One is the upheaval in the market for speculative grade (or junk) bonds. In America, two-thirds of non-financial corporate bonds are rated junk or BBB, the level just above junk. In April, Goldman Sachs, another investment bank, predicted that over $550bn of investment-grade bonds will fall to junk status by October (adding roughly 40% by current value to the junk-bond market).

Edward Altman of NYU Stern Business School reckons that about 8% of all firms whose debt is rated speculative grade (about 1,900 in all) will default in the next 12 months. This figure could reach 20% over two years. He expects at least 165 large firms, those with more than $100m in liabilities, to go bankrupt by the end of 2020.

A measure known as the distress ratio also highlights the problem. Distressed credits are junk bonds with spreads of more than ten percentage points relative to US Treasuries. S&P Global, a credit-rating agency, reckons that distressed credits as a share of total junk bonds in America had grown to 30% by April 10th, up from 25% on March 16th. Of the 32 worldwide junk-bond defaults in April, a level not seen since the financial crisis, 21 took place in America. S&P Global estimates that the 12-month trailing default rate for junk bonds in America increased to 3.9% in April, from 3.5% in March. In Europe it rose to 2.7% from 2.4%.

A wave of defaults might unfold with varying severity across different industries. Thanks to the collapse of the oil price as well as other troubles in the shale patch, almost 70% of the speculative-grade debt in the oil-and-gas industry is at distressed levels. Five other sectors have ratios of 35% or higher: retail and restaurants, mining, transport, cars and utilities (see chart).

The upshot is that a second, bigger wave of bankruptcies is on the cards. How would that compare to past troubles? At the peak of the financial crisis, the global default rate for junk bonds was 10%. Moodys, a credit-rating agency, predicts that if the current crisis is more severe than the financial crisis, as now seems likely, the default rate could rise to 20.8% (see chart). The coming bankruptcy wave could be worse than during the financial crisis because it will be more widespread, reckons Debra Dandeneau, a bankruptcy specialist at Baker McKenzie, a law firm. But she thinks it will take some months to arrive: Were in the eye of the hurricane now.

Another big difference to the financial crisis arises from uncertainty. The nature of this pandemic makes it impossible to know when the economy might return to normal. As William Derrough, a restructuring specialist at Moelis & Company, points out, Its very hard to value a company that doesnt have clear cashflow and visibility on its future markets. Jared Ellias at the University of California at Hastings argues that lenders dont know whether to restructure out of court, grant forbearance or insist on Chapter 11 bankruptcy when you have no idea when a firm will make money again. Worried about the coming deluge of cases, he organised a group of experts that last week petitioned Congress to appoint more bankruptcy judges and increase budgets for law clerks and other staff.

It will be very difficult for courts to keep up with the onslaught, says Judith Fitzgerald, a former bankruptcy judge now at Tucker Arensberg, a law firm in Pittsburgh. Amy Quackenboss of the American Bankruptcy Institute, an industry body, reports that members are busy, which will translate into more filings later on. Larry Perkins of Sierra Constellation Partners, a restructuring firm, thinks a legal bottleneck is absolutely possible unless courtrooms evolve to digest it. Vince Buccola of Wharton business school thinks part of the solution lies in embracing faster pre-packaged bankruptcy deals and debt exchanges (lenders agreeing to swap less onerous new debt for old unserviceable debt) done out of court.

A looming wave of bankruptcy cases points to the third question: how viable are the alternatives? There is good and bad news. The financial crisis saw a massive liquidity crunch and financial-sector implosion. But as Bruce Mendelsohn of Perella Weinberg Partners, an investment bank, observes, this crisis is the opposite. Capital markets are strong and open with many firms able to access capital from government or from markets, butthe fundamental operations of businesses are disrupted.

There is a flurry of activity among investors pouring money into so-called rescue funds. According to Preqin, a data firm, distressed-debt funds are looking to raise nearly $35bn. General Atlantic, a private-equity firm, is in the midst of raising nearly $5bn to invest in otherwise-healthy businesses squeezed temporarily by shutdowns. Bill Ford, General Atlantics boss, thinks that outside the retail sector, where many business models will prove unviable, most firms will try to avoid bankruptcy and seek rescue capital instead.

All restructuring firms are hiring, notes Michael Eisenband of FTI Consulting. He observes that there are more types of creditor today than during the financial crisis, so there is more opportunity to get liquidity into firms in different ways. He reckons few want to force liquidation because if you can kick the can down the road, maybe a vaccine comes andthere is a better chance of getting a recovery for creditors. Many hedge funds and non-traditional lenders (though not stodgy banks) are opting for debt-for-equity exchanges. That is so they get the upside when the economy recovers, says Thomas Salerno of Stinson, a bankruptcy lawyer.

So the good news is that many squeezed firms staring at bankruptcy might be saved through restructuring. Mr Derrough, a veteran of financial crises, explains that this involves five steps: stopping the bleeding; evaluating the injuries; performing the necessary surgery; rehabilitating the victim; and returning it to health. The bad news is that America Inc is at the start of phase one. As he puts it, Most of what we are doing is blood transfusions. We havent even gotten to stopping the bleeding.

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This article appeared in the Business section of the print edition under the headline "Chapter 11s new chapter"

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America Inc faces a wave of bankruptcies - The Economist

As more Americans lose all or part of their incomes and struggle with mounting debts, another crisis looms: a wave of personal bankruptcies.

Bankruptcy can discharge or erase many types of debts and stop foreclosures, repossessions and wage garnishments. But our research shows the bankruptcy system is difficult to navigate even in normal times, particularly for minorities, the elderly and those in rural areas.

COVID-19 is exacerbating the existing challenges of accessing bankruptcy at a time when these vulnerable groups who are bearing the brunt of both the economic and health impact of the coronavirus pandemic may need its protections the most.

If Americans think about turning to bankruptcy for help, they will likely find a system that is ill-prepared for their arrival.

There are many benefits to filing bankruptcy.

For example, it can allow households to avoid home foreclosure, evictions and car repossession. The automatic stay triggered at the start of the process immediately halts all debt collection efforts, garnishments and property seizures. And the process ends with a discharge of most unsecured debts, which sets people on a course to regain some financial stability.

The process helps the average household erase approximately US$50,000 in unsecured debt such as payday loans and credit card and medical bills.

We know from our empirical research, however, that filing for bankruptcy comes with costs. In a Chapter 7 case, known as a liquidation when a debtors property is sold and distributed to creditors, households may be required to surrender some of their assets. The post-bankruptcy path to financial stability is often bumpy.

In a Chapter 13 reorganization case, households must commit to making monthly payments equal to their disposable income for three to five years. But the majority of people, unfortunately, are unable to keep up with their payments for that long and do not end up eliminating their debts.

Monetary costs can also be substantial. Attorney fees average $1,225 to $3,450. Court fees are over $300. And of course, there are also other downsides, such as social stigma, negative credit and lower future earnings.

Nonetheless, struggling Americans may find bankruptcy one of few viable options to address their worsening money problems, particularly as the pandemic shows no signs of ending soon.

Yet, as a consequence of nationwide shelter-in-place orders, consumer bankruptcy filings have declined significantly in recent weeks.

In the last 10 days of March, when states began issuing such orders, we found that Chapter 13 filings fell 45% compared with the last 10 days of March 2019, based on a docket search on Bloomberg Law. Filings in all of April when most states were under lockdown plunged 60%, while Chapter 7 filings were down 40%.

This suggests that theres pent-up demand for bankruptcy protection in terms of what wed normally expect on top of the impact from the coronavirus recession.

The current limited physical access of many bankruptcy courts presents additional problems, especially to already vulnerable groups. There is significant variation in how courts are handling the situation, but most require access to technology. This means that ethnic and racial minorities, seniors and people living in rural areas face systemic barriers to filing because of their more limited access to transportation and technology.

Self-represented filers, who navigate bankruptcy alone to avoid the hefty attorneys fees, face additional challenges and make up approximately 9% of bankruptcy cases. These filers typically have lower income and fewer assets and thus are less able to afford the benefits of having an attorney and are more likely to be black.

In some districts, only attorneys can file electronically, so people handling the process themselves must mail in their petition or find some other way of getting it to the courts, such as via physical drop boxes.

But such methods still assume access to technology. A computer, the internet and a printer are needed to access and print the petition. Libraries and other institutions that traditionally provide technology access for those who do not have it are, for the most part, closed.

Some courts are allowing initial email submission of the petition from those without attorneys, but petitioners are still required to follow up by sending original documents via the mail or drop boxes. Access to a computer, the internet and a printer remains necessary.

Finally many states require wet signatures on bankruptcy petitions. That is, people have to sign their names in ink, as opposed to using an electronic signature. To smooth filings while courts are physically closed, several states have waived this requirement for those using an attorney.

But even then, access issues still abound. People must first send their attorney the vast array of documents needed for filing typically amounting to dozens of pages. Filers still need to be able to copy, scan and email documents. For those without computer access, they have to mail original documents, a somewhat risky proposition when important papers could get delayed, stolen or lost.

In other words, the middle of a pandemic is not the best time to file for bankruptcy.

But with limited debt forbearances, over 30 million out of work and insufficient employment aid, we expect to see a great deal more distress both financial and otherwise in the coming months.

And without more aid to individuals soon, U.S. bankruptcy courts will likely face a tsunami of filings, not only from average Americans but companies as well. This will clog up the system, which is why many experts are calling on Congress to shore up bankruptcy courts with more judges and funding.

But a first priority should be shoring up individuals, for whom bankruptcy is seen as a last resort. If more aid isnt forthcoming, the bankruptcy system may be too overwhelmed to handle even that.

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Bankruptcy courts ill-prepared for tsunami of people going broke from coronavirus shutdown - The Conversation US

WASHINGTON Despite record unemployment numbers, consumer bankruptcies declined last month by more than 30 percent compared with last year, according to American Bankruptcy Institute data.

Thats because federal courts largely have closed and consumers usually file for bankruptcy after theyve hit rock bottom, not in the middle of a crisis, said Bob Lawless, a law professor at the University of Illinois.

People are probably going to use consumer credit to smooth over the problems they have right now, he said. It doesnt make sense to file bankruptcy if you are just going to continue to pile up debts.

If Congress fails to act soon, bankruptcy courts could be overwhelmed by a record number of newly jobless consumers looking to shed crushing debts, said Raymond Kluender, an economist at the Harvard Business School.

More than 20 million people filed for unemployment in April.

Some research indicates there could be 10 or more bankruptcy cases for each additional 1,000 job losses meaning 200,000 people eventually could end up filing for bankruptcy based on Aprils numbers alone, Kluender said.

If the economic crisis continues, bankruptcy filings could eclipse those sparked by the Great Recession, which peaked at more than 1.5 million filings in 2010.

The actual capacity of the court system to process and adjudicate bankruptcy filings is quite fixed, and we have to start to think about what 20 or 30 million unemployed is going to mean, Kluender said.

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Earlier this month, the Administrative Office of U.S. Courts requested more than $36 million in additional appropriations.

That would include funds to turn 14 temporary bankruptcy judgeships into permanent spots and to extend deadlines so courts can handle an expected increased caseload.

The economic impact of the COVID-19 pandemic in some respects exceeds that of the 2008 Great Recession, the office said in a letter to congressional leaders.

Congress so far has stayed quiet on the issue, outside of a proposal by Democratic Sens. Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio. The pair last month called for the next coronavirus relief package to include changes that would make consumer bankruptcy a more accessible, affordable option.

In a letter posted to Medium, the two senators called for lowering filing fees, reducing paperwork, getting rid of in-person requirements, and allowing student loan debt to be discharged in bankruptcy proceedings.

But Senate Majority Leader Mitch McConnell questioned the need for another pandemic relief package.

Were basically assessing what weve done already, he told reporters Monday, saying he was in constant communication with the White House.

If we decide to go forward, well go forward together. And in the meantime, I dont think we have yet felt the urgency of acting immediately. That time could develop, but I dont think it has yet.

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Congress may be forced to deal with wave of bankruptcies - The Gazette

Rental car giant Hertz is on the brink of bankruptcy, Bloomberg reported earlier in May. It looks like the rental company has already started to unload some of its fleet, as it's just flooded the market with a bunch of cheap Corvette Z06s.

Originally spotted by Jalopnik, this flood of Z06s is the result of Hertz's partnership with Chevy. While the automaker has made many yellow-and-black Corvettes over the years for Hertz, they've usually been base models. But to celebrate its 100th birthday, Hertz commissioned a fleet of Hertz Corvettes based on the Z06 (albeit, inexplicably, without the aggressive front splitter). Those cars were built for 2019 only and are the most extreme Corvettes to ever be rented out by Hertz. Since specialty cars haven't been hit as hard by the decline in used car prices, Hertz probably figured these would still fetch good money.

That being said, they're still priced to go quickly. With a quick AutoTrader search, you can find a couple dozen examples available. All are priced between $58,000 for the higher-mileage examples and $63,000 for the "Hertz Certified" cars. That makes them all pretty cheap for Z06s, though it's still new Corvette Stingray money. Since those are hard to come by these days, though, this might be your best way to get a mean, like-new Corvette for this price.

If Hertz is forced into bankruptcy, several hundred thousand more used cars could pour into the used car market in America. This would be bad news for automakers and used car prices in general. It's unclear if this Z06 fire sale is due to the potential looming bankruptcy.

Via Jalopnik.

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Hertz Is Unloading a Ton of Corvette Z06s While Reportedly Trying to Avoid Bankruptcy - RoadandTrack.com

J.C. Penneyis planning to file for bankruptcy in the next day, people familiar with the matter tell CNBC.

Its advisors are currently working on a bankruptcy filing that could come late Thursday night or early Friday morning, they said. They cautioned there is still a chance that final negotiations between the retailer and its lenders spill into the weekend and delay the filing.

J.C. Penney employed roughly 90,000full-timeandpart-time employees as of February. It is working on a plan that would contemplate closing 180 to 200 stores while in bankruptcy. The retailer had 846department stores as of February.

ThePlano, Texas-based retailer is planning on filing for bankruptcy inCorpus Christi, Texas, the people said. It has been negotiating with itsfirst lien lenders a $450 million loan to finance the bankruptcy, which would require the troubled retailer to hit certain goals to receive the second half of it, CNBC previously reported.

Because it is working so quickly to finalize its bankruptcy documents, it may not get them all done in time to draw from the initial funds its first day in bankruptcy. As such, it may need to wait until a June 2 court hearing to begin drawing from the loan, the people said.

The people requested anonymity because the information is confidential. A spokesperson for J.C. Penney declined to comment.

In filing for bankruptcy, J.C. Penney will join fellow department stores Neiman Marcus and Stage Stores as victims of the pandemic, which has forced their doors shut but whose ailments far predated the virus. Department stores have struggled to maintain a foothold in U.S. retail, as brands sidestepped them by selling to shoppers directly, and shoppers have abandoned the mall in which many are based.

Sales at J.C. Penney have fallen annually since 2016. Its roughly 846 store footprint is less than a quarter of its store base in 2001, and its nearly $11 billion in sales the last fiscal year are almost a third of its sales that year.

The retailer dates back to 1913, when James Penney converted a chain of 34 stores into the J.C Penney company. J.C. Penney offered rural America their first depot, providing farmers and others a one-stop-shop to buy essential goods at bargain prices. The retailer broke ground by eschewing credit, based on Penney's belief it is better to charge customers what they could afford without them having to take on debt.

By 1928, it worked its store base up to 1,000 stores a year before the company went public, and the Great Depression.

In the 1960s, it sets its eyes on suburban America and headed to the mall, where suburban America was shopping. It pushed into affordable fashion, which it promoted in 1,000-page catalogs it launched 1963, decades after then-rival Sears had come out with its own.

By 1994, the retailer had $20.4 billion in retail sales, with net income nearing $1 billion.

In later years, though, it struggled to compete against Walmart's rise. As a department store, it never quite caught up to Macy's. When activist investor Bill Ackman disclosed a stake in the company in 2010, he believed he could cement the retailer's role as a department store power player.

Ackman joined the board and brought in Ron Johnson, who previously oversaw Apple's retail division, as CEO. Many of Johnson and Ackman's ideas, like creating "store-within-a-store" concepts proved visionary, but they were rolled out too quickly, analysts said at the time. Customers abandoned the retailer. J.C. Penney reported a nearly $1 billion loss during Ron Johnson's first full year in the role.

Johnson eventually stepped down, and J.C. Penney took out a $2.25 billion loan to shore up its finances.

Over the next decade, J.C. Penney has fought to stabilize its balance sheet, all the while competing with changes in shopping behavior as Americans abandoned the mall.

It brought in Jill Soltau, former CEO ofJo-Ann Stores in October 2018. Soltau had begun to try to revitalize J.C. Penney and bring it back to its roots: focusing on customer service, apparel and low prices.

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JC Penney is planning to file for bankruptcy in the next day, sources say - CNBC

PHOENIX The franchise owner of Alamo Drafthouse's three dine-in movie theaters in Arizona confirmed Thursday that he has filed for bankruptcy protection, citing the economic impacts as a result of the COVID-19 pandemic.

"Im sad to confirm that due to the impact of the COVID-19 shutdowns, our three Alamo Drafthouse franchise locations in the Phoenix area have been forced to file for Chapter 11 bankruptcy protection," said Craig Paschich, owner of Paschich Alamo Holdings LLC, in a statement to ABC15, released through a PR agency.

Alamo Drafthouse has three locations in Arizona: Chandler, Gilbert, and Tempe. The Chandler theater opened in 2016, followed by Tempe in 2018, and, most recently, Gilbert in 2019. The theater chain's headquarters are based in Austin, Texas.

News of the bankruptcy, which was filed in Arizona on Wednesday, was first reported Thursday by the Arizona Republic.

"Our intention is to use this opportunity to reorganize our finances and plan for the road ahead. Were also currently working closely with the corporate team in Austin to determine our next steps," Paschich said. "Weve been privileged to have spent the past four years sharing the films we love with our friends in the Phoenix region, and we hope that taking these steps will put us on track to open in the future."

Movie theaters in Arizona, like restaurants and bars, were ordered to close in March as efforts to slow the spread of coronavirus in the state were amplified. In the last two weeks, Arizona Gov. Doug Ducey has begun to lift some of those restrictions, allowing stores, restaurant dining rooms, hair salons, barbershops, massage therapists, community pools, and fitness centers to reopen.

Related: Indoor shopping malls around Phoenix to reopen Saturday: What you need to knowRelated: When can you expect pools, water parks to reopen around the Valley?Related: Salt River Tubing to reopen on May 16: Here are the changes they're making

Ducey said this week that the state's stay-at-home order would be allowed to expire on Friday, May 15, but said people should continue to follow CDC guidelines, including washing their hands and practicing social distancing. When the order expires, movie theaters can technically reopen, a spokesperson for the governor's office confirmed to ABC15 reporters. Additional guidance is expected to be released this week.

However, even with the OK to reopen, no movie theaters, big or small, have announced plans to quickly reopen.

Harkins said it does not plan to reopen until sometime in the summer, especially when the big movie studios begin to once again release films in theaters (as it stands now, Tenet is set to be released on July 17, following by Disney's Mulan on July 24, and Wonder Woman 1984 on August 14).

"Although we are not planning to reopen our theatres now, we are anxious for the day that we can safely and responsibly welcome guests back into our theatres to watch movies on the big screen, where they are meant to be seen," Harkins said in a statement "As we make plans for our expected summer reopening, the health and well-being of our guests and team members remains our highest priority."

Harkins has, however, been selling large bags of popcorn and nacho kits curbside at some of its theaters on weekends for curbside pickup. Details on that can be found on its Facebook page.

Michael Pollack, who owns Pollack Tempe Cinemas, a small discount movie theater in Tempe, also said he does not plan on reopening his theater until "we feel comfortable that we can do it safely."

"Our number one priority has never been about profit or loss. It has always been about delivering a unique fun family experience at a very affordable price. The safety of our employees and our valued customers is not something that we take lightly and when we feel comfortable with a realistic plan that can accomplish our goals we will consider reopening," he said in a statement.

AMC, Roadhouse Cinema, and Regal Cinema, which all have at least one location in Arizona, have not announced their reopening plans or responded to our request for comment.

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Arizona's three Alamo Drafthouse movie theaters have filed for bankruptcy, cite COVID-19 impacts - ABC15 Arizona

A few weeks ago, my father,afarmer in Southern California, stopped picking mid-harvest because of disruptions in produce distribution lines due to the coronavirus pandemic. My sister, concerned about families across the country that were struggling to feed their children, personally handpicked and boxed 1,600 pounds of the unpicked produce foralocal food bank.

While I was proud of my sisters herculean efforts, one rancher alone cant addressacrisis of this magnitude. Thankfully, the state of California stepped in to expand the Farm to Family program, an initiative that connects farmers with food banks.

This is an example of government at its best mobilizing resources and people power to save lives, meet basic human needs, and address the inequities were seeing in our communities. But atamoment when state and local governments are stepping up to protect our health and safety, theyre also staring down enormous budget deficits and not everyone wants our state and local governments to succeed.

At the end of April, Senate Majority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellMcConnell: 'High likelihood' that Congress will need to pass fifth coronavirus bill McConnell says Obama administration 'did leave behind' pandemic plan Rubio seen as possible successor to Burr as Intelligence chairman MORE (R-Ky.) said states and cities whose budgets have been decimated by COVID-19 should be allowed to go bankrupt. And since then, Congress hasnt even debated the idea of funding cities and states that are already being forced to lay off thousands of workers.

Bankruptcy or massive budget cuts would undercutour first responders, teachers, sanitation crews, and public health workforce the very people who have been on the frontlines of our response to COVID-19. And it would decimate our parks and recreation areas, libraries, housing and food assistance programs, clean-air monitoring, and much more all things that support health, safety, and wellbeing in our communities.

With bankruptcy already on the table, calls for privatization cant be far behind. U.S. taxpayers are propping up airlines and the hotel industry, even as the U.S. Postal Service is being left to wither and die. As families adjust to home-schooling, how long will it take for someone to call for large-scale vouchers to private online learning institutions, thus draining more resources from our public schools? And when locales run out of money and their biggest assets are their land, how do we make sure our parks and open spaces dont get auctioned off to the highest bidder?

Take away public agencies and public funds and ideas like connecting farmers with people who are hungry are simply non-starters. These are community-centered efforts, not profit-making enterprises, because they focus on meeting the needs of the most vulnerable among us. Corporations dont havethemandate to support our health they haveamandate to increase the wealth of their shareholders. Time and time again, weve seen powerful industries like the tobacco industry, firearm manufacturers, oil and gas companies, and alcohol distributors put profits over our health.

Privatization can also exacerbate inequities.The privatization of prisons and immigrant detention centers has gone hand in hand withincreasedhealth and safety risks for people in detention tied to cost-cutting on staff training, medical care, and quality food, not to mention corporate support for public policies that keep prisons and immigration detention centers at maximum capacity. As is so often the case, the people who shoulder the real costs of privatization are people who are poor and people of color.

Privatizing public services and resources also means giving up accountability in the process and shrinking the sphere for public action. While government delivery of services is far from perfect, at least we can hold our government accountable when it falls short. We have the right to demand better. When public services are privatized, we dont even have the right toknow.

What weve learned the hard way during this pandemic is that there are some things that only government is able or willing to do and that holds true during less extraordinary times as well.Though the story of COVID-19 is still unfolding, Im convinced that right now we are atafork in the road, with important choices to make and human lives hanging in the balance. Thats why we need to speak out now for the role that good government and only good government can fulfill.

Instead of going down the path of bankruptcy and privatization, we can invest in the health of our communities. To encourage creative solutions to the new problems the pandemic has created and to longstanding problems the pandemic has exacerbated we need to fund our state and local governments.

RachelA.Davisis the executive director ofPrevention Institute,apublic health nonprofit with offices in Oakland, Los Angeles, Houston, and Washington, DC.

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Bankruptcy and privatization will not lead us to recovery | TheHill - The Hill

Despite record unemployment numbers, consumer bankruptcies declined last month by more than 30 percent compared with last year, according to American Bankruptcy Institute data. Thats because federal courts have largely closed and consumers usually file for bankruptcy after theyve hit rock bottom, not in the middle of a crisis, said Bob Lawless, a law professor at the University of Illinois.

People are probably going to use consumer credit to smooth over the problems they have right now, he said. It doesnt make sense to file bankruptcy if you are just going to continue to pile up debts.

If Congress fails to act soon, bankruptcy courts could be overwhelmed by a record number of newly jobless consumers looking to shed crushing debts, said Raymond Kluender, an economist at the Harvard Business School.

More than 20 million people filed for unemployment in April. Some research indicates there could be 10 or more bankruptcy cases for each additional 1,000 job losses meaning 200,000 people could eventually end up filing for bankruptcy based on Aprils numbers alone, Kluender said. If the economic crisis continues, bankruptcy filings could eclipse those sparked by the Great Recession, which peaked at more than 1.5 million filings in 2010.

The actual capacity of the court system to process and adjudicate bankruptcy filings is quite fixed, and we have to start to think about what 20 or 30 million unemployed is going to mean, Kluender said.

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Congress may be forced to deal with coming wave of bankruptcies - Roll Call

NEW YORK, United States When Modells Sporting Goods filed for Chapter 11 Bankruptcy in March, it was supposed to be a standard liquidation: the New York-based retailer would conduct going-out-of-business sales at its 134 locations and then close the stores. The proceeds would go to creditors.

Just days later, many US states went into lockdown. Modells stores closed, making going-out-of-business sales impossible. On March 27, a New Jersey bankruptcy judge granted Modells a month-long reprieve, which was later extended to the end of May.

Retailers are caught in an unusual, if not unprecedented situation: they are starting to go bankrupt because the economy is shut down, but the bankruptcy process itself is a casualty of the lockdowns.

The repercussions go far beyond a few delays: in the US, companies use the bankruptcy process to reduce unmanageable debt loads, wiggle out of orders for unsellable clothes and cancel onerous store leases. Those benefits are difficult to realise when stores are closed and the legal system has slowed to a crawl.

In a normal bankruptcy process, the path forward is clear: theres reorganisation and a cleaned up balance sheet, said Matt Kaden, managing director at financial services firm MMG Advisors. So much of a bankruptcy is based on being able to liquidate assets, but what happens now when thats impossible?

In fashion, the list of bankrupt brands is growing longer by the day: it includes large retailers Neiman Marcus, plus smaller brands including True Religion, John Varvatos. A filing by J.C. Penney is expected soon. Credit agency Moodys is expecting the default rate for retail and apparel companies to surge between now and next year, from a pre-Coronavirus estimate of 6 percent to 17.2 percent.

J.Crew and Neiman Marcus both filed for Chapter 11 bankruptcy protection last week, complete with plans for how they could emerge from the process with healthy finances in the space of a few months.

Some financial experts argue that filing for bankruptcy makes more sense than ever as retailers can be protected from economic uncertainty for a few months. A backlogged bankruptcy court could mean that a judge would be more deferential toward the companys management decisions, said Susheel Kirpalani, partner at law firm Quinn Emanuel.

Companies may be able to count on their investors to keep them afloat by exchanging debt for increased ownership stakes, Kirpalani said. The investors would be gambling that their stakes would generate higher returns than the portion of their loans they would be able to collect from a bankrupt retailer.

J.Crew effectively handed the reins to its top creditors, including hedge fund Anchorage Capital, agreeing to convert $1.7 billion of debt into equity. Pier 1 Imports took this approach as well after the worsening pandemic dimmed the furniture retailers chances of finding a buyer in a bankruptcy auction.

Nothing is certain in bankruptcy, however, and the stakes are high. Companies must indicate a recovery is possible within six months of filing, or creditors can urge a bankruptcy judge to force a liquidation. Covid-19 has made this process even more unpredictable, as even the most meticulous recovery plans could be derailed if the economic climate turns out to be worse than expected, or new outbreaks force stores to close again.

The ultimate goal of a chapter 11 plan is to file a plan of reorganisation, which will be voted on by creditors, said Joseph Lemkin, partner at law firm Stark & Stark. In order to be approved by the court, the plan must be feasible. Given the uncertainty in retail, it may be difficult for retailers to come up with...a [feasible] proposed plan."

Get the Money Up Front

When a corporation files for Chapter 11 bankruptcy, it typically follows one of three scenarios: liquidation (Roberto Cavalli), reorganisation (J.Crew) or sale (Barneys New York), though some level of liquidation is likely to take place in every case.

In each scenario, companies need financing to keep operating while they work through the bankruptcy process. This money is known as a debtor-in-possession, or DIP, loan, typically backed by a retailers assets. Neiman Marcus, for example, was in negotiation with its lenders for weeks leading up to its filing on May 7. Before it had secured its current $675 million in financing, a challenger group of investors, including distress-focused investment firm Mudrick Capital Management L, submitted a $700 million DIP proposal pushing for Neiman to sell itself.

Retailers must normally liquidate some assets to secure DIP funding in order to guarantee the lenders at least some of their cash back. Often part of any bankruptcy proceeding, brands and store operators have to monetise their existing inventory in order to continue operating during the bankruptcy. Rent, for instance, is still an expense during the course of restructuring. Liquidation will be hard to do as long as stores are closed.

Early bankruptcy filers have another advantage though: banks still have plenty of money to lend to distressed retailers. That may not be true if a wave of large brands file for Chapter 11 all at once.

Retailers, healthy and distressed alike, have tapped their credit lines with banks, which are now overextended and cautious about the sector, said Danielle Garno, the head of the fashion, beauty and luxury goods practice at law firm Cozen OConnor.

If everyone files at the same time, theyll be fighting for the same fewer dollars, she said.

It might be smart to file for bankruptcy sooner rather than later to avoid the crush, according to Kirpalani. In the airline industry, those that were in bankruptcy early and emerged early were on a stronger footing maybe itll be similar in retail, he said.

The Takeover Opportunity

Hedge funds with existing stakes in struggling retailers see bankruptcy as a way to acquire companies at bargain prices, such as in the case of J.Crew and its hedge fund debtor, Anchorage Capital. Neiman Marcus has a similar arrangement where creditors have exchanged its $5 billion of debt for equity in the company, though its unclear which types of firms are leading the deal.

Many funds were already in the market for acquisitions, and they see opportunities in the plunging valuations for once-hot direct-to-consumer brands and struggling mall retailers alike.

Hedge funds have been sitting on a fair amount of cash and now they figure the returns they can generate by providing fairly secure financing [to bankrupt retailers] exceeds what they can get in other places, said Kirpalani of Quinn Emanuel.

Bankruptcies Upon Bankruptcies

Investors will likely have their pick of retailers to buy.

When a big box retailer like J.C.Penney goes under, there will be a ripple effect in the retail landscape, starting with vendors and neighbouring stores in the mall.

People can hate on J.C.Penney all they want but that is an anchor store at a mall, and the mall will be a dead mall unless they add something else to fill that space, said Gabriella Santaniello, founder of consultancy A Line Partners.

Some vendors rely on one retailer for the bulk of their business. When that business is unable to pay its bills and liquidates, these suppliers find themselves at the back of the line for repayment, behind DIP lenders.

This kind of loss could trigger bankruptcies of their own. After Barneys went bankrupt, for instance, a number of emerging jewellery brands lost 50 percent or more of their business.

The Survivor Opportunity

As more incumbents fail to measure up, those that do adapt to the new normal will end up thriving, said Mickey Chadha, vice president of Moodys Investors Service. Theyll also benefit from having fewer competitors. Case in point? The demise of Barneys paved the way for Saks Fifth Avenue and Neiman Marcus to be the only two national luxury retail department store chains in the US.

The stronger players going into the crisis will take more market share when they come out, he said.

For some retailers, bankruptcy may be the only path to joining the ranks of survivors. Neiman Marcus and J.Crew are both successfully refinanced their debt and are on the restructuring trajectory, rather than liquidation. Because of the uncertainties in retail ahead and the temporary impossibility of liquidation, stakeholders in the industry have reason to be optimistic about recovery, according to Jonathan Treiber, chief executive of retail management platform RevTrax.

Sometimes the situation is so bad that the retailer actually has leverage, and right now I think thats true because theyre facing unprecedented risk, he said. This requires lenders to be much more flexible than before, when liquidation was still an option.

Were tracking the latest on the coronavirus outbreak and its impact on the global fashion business. Visit ourlive blogfor everything you need to know.

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What the Bankruptcy Onslaught Means for the Future of Retail - The Business of Fashion

Iconic retailer J.C.Penney, which has missed a debt payment last week of $17 million, has until tomorrow to pay a $12 million payment is skipped in April.

All signs point to the company filing for Chapter 11 bankruptcy protection.

Multiple reports indicate that the retailer also is poised to close some 200 of its 850 stores as it hopes to climb out of the hole that it is in, made deeper by having to close during the COVID-19 pandemic.

As of February, JCPenney had $386 million in cash on hand, plus the roughly $1.25 billion it tapped from its $2.35 billion revolving credit line two months ago. A bankruptcy filing could give the company the opportunity to save money on imminent debt payments and rework some of its finances.

And according to Footwear News, in a filing with the Securities and Exchange Commission over the weekend, JC Penney announced it had granted a cash award of $4.5 million to CEO Jill Soltau, while CFO Bill Wafford, chief merchant Michelle Wlazlo and chief human resources officer Brynn Evanson each received $1 million.

The bonuses are subject to repayment if the executive is terminated or resigns before January next year and if certain performance goals are not achieved. (The repaid funds will then be used to pay severance to employees who did not receive cash awards.) In exchange for the bonuses, the executives are giving up their previously granted equity worth more than $10 million for Soltau alone.

The company has reportedly asked for $450 million debtor-in-possession financing before its bankruptcy filing.

For fiscal year 2019 that ended on Feb. 1 of this year, JC Penney had sales of $10.72 billion, down 8% from the $11.66 billion from a year earlier. It also posted a loss of $8 million.

As of Feb. 1, the company had nine stores in Mississippi, with two stores in Northeast Mississippi Tupelo and Starkville.

Link:

JC Penney poised to file for Chapter 11 bankruptcy protection - Northeast Mississippi Daily Journal

While state and federal officials continue to discuss and debate stimulus plans, municipalities like Vicksburg continue to flounder in an economy brought to a halt by the COVID-19 pandemic.

Early last week, Mayor George Flaggs Jr. and city officials itemized nearly $3 million in projected revenue losses. They not only discussed the losses, but drastic steps the city might be forced to take especially making deep cuts to the citys personnel numbers to in some way offset the loss of revenue tied to sales taxes and the currently shuttered casino industry.

But that was last week, and those possible solutions might not be enough.

Thursday, Flaggs said the losses have continued to mount, while the options to keep from significantly cutting city services have started to narrow, especially if stimulus money from the state and federal governments is further delayed.

One option at the disposal of Flaggs and other city leaders throughout the state is bankruptcy, particularly Chapter 9 bankruptcy.

It is an option. It is a progressive option, Flaggs said. What do you do when you want to protect your assets and make sure you have enough flexibility to move around so that you can make the best decisions for the city? To lose the kind of revenue that we have lost has not happened in the history of this state.

The estimated and itemized losses as of last week for the city were $2.8 million, but that was before officials with the Miss Mississippi Corporation announced both the annual teen pageant and Miss Mississippi Competition would be postponed until 2021. According to figures from the Vicksburg Convention Center, the Miss Mississippi event alone provides a $2.3 million economic impact to the city.

Flaggs said that cancellation and the loss of sales tax revenues connected to participants, along with friends and families, not coming to Vicksburg has since raised the projection of lost revenues to $3.5 million.

Flaggs said he is not ready to move ahead with bankruptcy just yet.

I have not spoken to anyone in the city about Chapter 9. I havent gotten a legal opinion or talked with anyone. I just know as a former legislator the options that are available to municipalities when you are under dire financial stress, he said. I am not just speaking for one city, I am speaking for all cities. This is nothing like Katrina. Katrina and other incidents was isolated. I dont know a city or county in this state that has not been devastated by the loss of revenue.

According to U.S. bankruptcy law, Chapter 9 bankruptcy is a reorganizational option for municipalities and school districts that allows a financially-distressed municipality protection from its creditors while it develops and negotiates a plan for adjusting its debts.

It protects the city from its creditors and allows you the opportunity to move money around, refinance, restructure so you can not have to reduce services, Flaggs said. That is probably the last thing you would ever want to do in government, but it is an option; so too is tapping into the reserve fund, laying off people, moving to 32-hour work weeks and furloughs.

Flaggs knows discussing the option of bankruptcy is a shock to some, but he said it is vital for everyone to know just how serious this matter is.

I am trying to convey to the Legislature that this is a very serious issue and the Legislatures responsibility to step in and help us, he said. We have casinos that are closed, we have tourism, our economy is based on revenue from tourism. We have a local 2 percent sales tax on our hotels and restaurants to fund our sports complex. You dont think we have been impacted?

Even though bankruptcy is an option, Flaggs is confident today that it will likely not be needed and that state and federal governments will act.

I feel confident the Legislature and that the federal government will help us by way of the White House and the Congress, Flaggs said, adding that on Monday he presented a letter to Lt. Gov. Delbert Hosemann, Speaker of the House Phillip Gunn and Gov. Tate Reeves outlining the citys itemized and projected revenue losses. He also said that, since Monday, Hosemann had followed up to get updated lost revenue figures and other expenses related to the losses.

Flaggs admits, though, that even if the city and other municipalities get stimulus money from state and federal governments, that it will not be a long-term solution. It will get us out of this fiscal year, Flaggs said.

I am trying to minimize the cost without devastating this local government or reduce any services, he said. This pandemic was not a result of anybodys mistake and the Congress and the Legislature have got to understand and they have to do something. I am confident we are going to get there.

Read more from the original source:

Flaggs floats bankruptcy as possible solution for city 'devastated by the loss of revenue' - The Vicksburg Post - Vicksburg Post

With thenumber ofcommercial bankruptcies and insolvencies expected to rise in the coming months,here are some key Canadian laws and terms that will show up as corporations look to restructure their operations:

A corporation becomes insolvent when it's unable to pay themoney it owes, generallyto suppliers of goods or services. This can stretch on for a long period before the corporationrelies on legislation that governscommercial insolvency and restructuring proceedings in Canada.

Canada's insolvency laws are intended to help return a corporation to a productiveexistence by allowingit to restructure itself (through what's called a Plan of Arrangement) instead of closing operations. The insolvency and restructuring regime consists of two statutes, which are similar to restructurings in Chapter 11 and liquidations in Chapter 7 of the U.S. Bankruptcy Code.

The Companies' Creditors Arrangement Act offers legislative framework for an insolvent company to restructure,with guidance from the courts, typically through an appointed monitor an independent third party who oversees operations and reports back to the court. The act only applies to large capital companieswho owe their creditors more than $5 million. While under CCAA, the creditors are prevented from taking any legal action to collect their owed money, while the insolvent company navigates the next steps for its business, whichcould include a compromise on debts to be voted on by the creditors. Insome instances, theinsolvent companynever files a plan to reorganize, but rather sells off parts, or the entirety, of its assets, sometimes through liquidation.

Filing under CCAA can offer a company a chance to avoid bankruptcy and pay creditors someofwhat's owed.

The framework of the Bankruptcy and Insolvency Actallows a company toeither liquidate assets and distribute the proceeds to creditors in a process overseen by the courts, or allow the insolvent business to avoid bankruptcy by reaching arrangements with its creditors that help reorganize the business.

Sources: Canada.ca, Pwc, Rumanek & Company

This report by The Canadian Press was first published May 14, 2020.

The Canadian Press

Continued here:

Key Canadian bankruptcy laws and terms - Yahoo Canada Finance

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Boeing CEO Dave Calhoun said in an NBC interview on Tuesday that a U.S. airline bankruptcy is likely in 2020. It is a curious comment coming from an executive whose company sells to airlines, but Covid-19 has hit the industry particularly hard.

Looking ahead, Calhouns comment raises two questions for investors: which airline and is that bad for Boeing?

The answer to the second question is: not so much. Many airlines have gone bankrupt in the past and demand for air travelwhich fuels demand for Boeings (ticker: BA) planescontinued to grow year by year.

Covid-19, of course, is unprecedented, cratering demand for air travel like no other event in history. Air travel in the U.S. is down more than 90% year over year. Boeing expects demand to be back to roughly 50% of previous levels by year-end. That assumes the economy reopens and things start to get back to normal. Many Wall Street analysts think it will take years to get back to pre-virus demand.

Boeing shares are down on that expectation, falling about 60% year to date, worse than comparable drops of the Dow Jones Industrial Average and S&P 500. Shares of major U.S. airlines are down, on average, about 60% year to date, too. But if bankruptcy is in the offing, some airline shares might have further to fall.

There are financial instruments that help investors judge the odds of default for any company, namely the credit default swaps, or CDS, that helped catalyze the 2008-09 financial crisis. Buying a CDS literally swaps the risk of a bond default from one investor to another investor. The investor who takes the risk gets paid. The riskier the bond, the higher the price.

Examples among airlines are Southwest Airlines (LUV) and Delta Air Lines (DAL), which have the best balance sheets in the industry and appear to be in the best position to weather the downturn.

Credit default swaps of Southwest and Delta are trading at spread of about 4.7% and 12%, respectively. That means that bondholders wanting to swap the risk of default have to pay $4.70 and $12, respectively, for each $100 of bonds they want to protect.

Those prices are much higher than normal. Protecting Apple (AAPL) bonds, for instance, costs about 30 cents per $100, according to Bloomberg CDS pricing quotes.

American Airlines (AAL) CDS are trading at spreads of 54%. United Airlines (UAL) CDS trade for 24%. JetBlue Airways (JBLU) CDS trade for 1.6%. Investors appear to be most nervous about Americans ability to repay. Thus, its bonds are the costliest to insure.

There is, of course, no guarantee that Calhouns prediction will come true. The federal government is offering support to the airlines, including American, much like the support offered to banks in 2008-09. That is one way airlines might avoid bankruptcy. But the government will take some form of equity in the airlines receiving money, diluting the value of existing shareholder stakes.

Warren Buffett recently made headlines when he said his Berkshire Hathaway (BRK.A) sold all the airline stocks it held. He explained at the companys annual meeting that it wasnt anything that the airlines had done strategically. He makes a good point. No one saw the virus coming, nor its devastating impact on air travel.

Boeing stock fell 2.9% Tuesday afternoon. Shares of large U.S. airlines fell between 3% and 6%.

Write to Al Root at allen.root@dowjones.com

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Boeing Predicts an Airline Bankruptcy. Heres a Way to Calculate the Odds for Each. - Barron's

A pumpjack sits idle at sunset in Falls City, Texas, Thursday, April 23, 2020. The oil industry continues to suffer due to the ongoing COVID-19 outbreak. (AP Photo/Eric Gay)

Houston oil and gas companies are reporting billions in losses for the first quarter of 2020, and the next few months are not looking much better. As Texas oil continues to hover around $20-25 per barrel, companies are slashing budgets and cutting workers.

Houston-based Diamond Offshore Drilling has already filed for Chapter 11 bankruptcy amid the conoronavirus pandemic. And experts who watch the industry say more bankruptcies are on the way.

Charlie Beckham specializes in oil and gas bankruptcies at Haynes and Boone in Houston. He spoke with energy reporter Kyra Buckley about why companies are vulnerable during the oil price crash.

You can listen to the interview above. Here are some highlights, edited for length and clarity:

What are some of the things oil companies do to prevent being in the position to go bankrupt?

One way is to have no debt. Unfortunately for all of the companies that are in the industry, except for a very few, they all have some amount of debt for their continuing operations. Its a common aspect of the industry that an exploration and production company borrows money. I think many, many of the oil companies here in Houston and across the country have been caught with a decrease in the price for the oil that they sell compared to the amount of debt theyre carrying on their books.

The oil and gas industry was still recovering from the 2015 price crash. Does that mean some companies may be in more vulnerable situations?

The challenge for so many companies that were able to survive the downturn in the 2015 to 2017 era is that they didnt eliminate all of the debt on their books. They kept what many consider to be a manageable amount of debt for purposes of operations. That was all premised on a belief that by 2019, 2020, commodity prices would return to a manageable level.

Some have said companies are in this situation also because of so-called cheap debt. Can you explain what they mean by that?

Where you saw a lot of the interest in the oil and gas industry over the last 10 years was from investors who flooded money into the only gas industry generally on a junior basis meaning they loaned money to oil and gas companies at generally low interest rates with an expectation that there was such tremendous cash flow in the oil and gas industry that it would be easy for companies to repay those loans on a timely basis. That simply has not happened.

Instead, youve had what weve seen the last month of oil going negative, which was an anomaly. But still oil is low today, in the $20s, and its simply not high enough to repay the billions of dollars of debt that was invested in the industry over the last decade.

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Oil And Gas Companies Have Begun Filing For Bankruptcy. Heres Why More Could Be On The Way. - Houston Public Media

The most vulnerable companies include the thousands of restaurants and retailers that shut down, many of them more than a month ago.

The billions of dollars in coronavirus relief targeted at small businesses may not prevent many of them from ending up in bankruptcy court.

Business filings under Chapter 11 of the federal bankruptcy law rose sharply in March, and attorneys who work with struggling companies are seeing signs that more owners are contemplating the possibility of bankruptcy.

Companies forced to close or curtail business due to government attempts to stop the virus's spread have mounting debts and uncertain prospects for returning to normal operations. Even those owners receiving emergency loans and grants aren't sure that help will be enough.

The most vulnerable companies include the thousands of restaurants and retailers that shut down, many of them more than a month ago. Some restaurants have managed to bring in a bit of revenue by serving meals for takeout and delivery, but even they are struggling financially. Small and independent retailers, including those with online stores. are similarly at risk; clothing retailers have the added problem of winter inventory that they are unlikely to sell with spring here and summer approaching.

Independent oil companies whose revenue was slammed by the collapse in energy prices also are strapped, as are other companies that were already burdened with high debt levels before the virus struck.

Jennifer Bennett, who closed one of her San Francisco restaurants on Wednesday, was still waiting for the financial aid she sought from the federal, state and city governments. Even with the money, she doesnt know if the revenue will cover the bills when shes finally able to reopen Zazie especially if shes required to space tables six feet apart for social distancing.

Our occupancy is going to be cut 60 percent to 65 percent, Bennett says. I fear bankruptcy is a possibility.

Other small companies have similar anxieties, says Paul Singerman, a bankruptcy attorney with Berger Singerman in Miami.

There is no reliable visibility into when business operations will be able to resume the pre-COVID normal, Singerman says.

Even larger companies are in trouble, including already struggling retailers who had to shut their stores.

The jeans company True Religion filed for Chapter 11 earlier this month, saying extended closures of its stores in the pandemic have hurt its business. Recent reports say department store chains Neiman Marcus and J.C. Penney, which has struggled for years with slumping sales, could soon file for bankruptcy protection.

The number of Chapter 11 filings rose 18 percent in March from a year earlier, a dramatic swing from the 20 percent decrease in February, according to the American Bankruptcy Institute, a trade organization for attorneys and other professionals involved in bankruptcy proceedings. The numbers dont break out filings by company size, but given that the vast majority of companies are small to mid-size, it does give an indication that smaller companies are struggling.

The federal government has already approved or given out more than 2 million loans and grants to small businesses totaling nearly $360 billion; another $310 billion is on the way to one of the programs. Still, the money may be at best a stopgap for companies with little to no revenue coming in. And the new funds are expected to go so quickly that thousands of owners wont get loans.

Theres no way to predict how many companies will file for bankruptcy. There were over 160,000 bankruptcy filings from 2008 to 2010, during the Great Recession and its aftermath, according to statistics compiled by the federal court system. The numbers dont break out filings by company size. The majority were for liquidations. although some companies restructured their debt and continued operating under Chapter 11.

Many companies, however, just shut their doors, and thats likely to be the case again, Singerman says. According to some estimates, 170,000 companies failed during the recession.

But the Small Business Reorganization Act, which took effect in February, may encourage more companies to seek Chapter 11. The law is aimed at allowing owners to retain their ownership rather than lose their companies to their creditors; that is generally what happens in Chapter 11. The law also streamlines the reorganization process so a company is not wiped out by attorneys fees, said Edward Janger, a professor at Brooklyn Law School in New York whose expertise includes bankruptcy law.

Another change under the law is that a bankruptcy judge can approve the reorganization over creditors objections, Janger says.

Business owners will try to avoid bankruptcy by seeking leniency from landlords, lenders and vendors, bankruptcy attorney David Wander says. But with their companies financial troubles beyond their control because of the virus outbreak, many will file for Chapter 11 because the stigma that bankruptcy has long held will be gone, said Wander, a partner at Davidoff Hutcher & Citron in New York.

The tsunami is going to happen in the coming months and its going to be ongoing, Wander said.

Read more:

A flood of bankruptcies likely in months ahead - GoErie.com

Editors note: In an interview with News Bureau business and law editor Phil Ciciora, University of Illinois at Urbana-Champaign law professor Robert M. Lawless, a leading consumer credit and bankruptcy expert, discusses the potential for a surge in consumer bankruptcy filings due to the coronavirus pandemic.

Are we likely to see a rash of consumer bankruptcies in the U.S. due to the COVID-19 pandemic?

Its hard to say whats going to happen. Most everyone expects consumer bankruptcies to increase, and I think thats probably right. The question is what the shape of the curve will look like. Will it be a gradual and steady increase, or will it be a sharp spike?

I doubt there will be a surge in consumer bankruptcy filings in the next few months. There is a foreclosure moratorium on all federally backed mortgages, which are two-thirds to three-quarters of all mortgages. Student loan collections have stopped. There is a lot of support for state moratoriums on debt collections and rent evictions. All of these initiatives will reduce the immediate pressure for people to declare bankruptcy.

In the long run, more people will file bankruptcy as their financial problems accumulate. One thing we know from our research is that most people say they struggled financially for two to five years before filing bankruptcy. Most people wait and try to weather the financial storm before filing. Also, it makes little sense to file bankruptcy if debts are only going to continue accumulating even after you file. For these reasons, it may be after economic recovery when we start seeing a surge in bankruptcy filings.

One thing to keep in mind: Its important to distinguish between bankruptcy and being financially distressed. Just because we dont see an increase in bankruptcies doesnt necessarily mean that everyone is doing fine. People can be hurting financially and not end up in bankruptcy court.

Are there any parallels or lessons to be learned from how bankruptcies were handled during the Great Recession?

Historically, increases in bankruptcies havent always coincided with recessions. For example, the high-water mark in the U.S. for bankruptcy filings was in the late 1990s when the economy was booming.

When you think about the current situation, its just so unprecedented. Theres no past analog that we can look to as a model for how the consumer bankruptcy system is going to be affected. The financial devastation of the Great Depression unfolded over many years. The closest precedent is the Spanish flu pandemic of 1918, but the consumer credit system didnt exist then like it does today. When it comes to making predictions about consumer debt and the pandemic, there is no historical precedent on which to draw.

Is the consumer bankruptcy system as currently constructed ready to potentially handle an influx of new filings?

Among bankruptcy professionals, there certainly has been discussion about gearing up for a surge in consumer bankruptcies, but again, we just dont know the timeline for when we might see this surge. Also, there is a lot of slack in the consumer bankruptcy system right now in terms of capacity. Before the pandemic, we were at historically low levels of bankruptcy filings, suggesting there is capacity in courtrooms and law offices to add cases.

The Coronavirus Aid, Relief, and Economic Security Act will provide many Americans with a one-time cash payment to help cover household expenses i.e., rent, food, utility bills. How will these stimulus payments affect debtors going through the bankruptcy process? Can they be seized?

Yes, the funds can be seized. The CARES Act itself has no protections for stimulus payments from creditors. If there is a garnishment order against a bank account, a creditor could seize those funds.

Some banks have said theyre not going to seize funds to pay debts owed to the bank itself, but they would have to obey a garnishment order from an outside creditor. The Treasury Department easily could have protected the stimulus payments from creditors in the same way that Social Security payments already are protected. It wouldve been a very simple administrative fix, but for whatever reason, policymakers chose not to do it.

Since Treasury didn't do that, the stimulus payments are just like any other money coming into the bank. If the bank or some other creditor wants to seize the payment, it may be able to do so. There are protections for the stimulus payment in a bankruptcy case, but outside of bankruptcy, the general rules apply.

The CARES Act provides some other measures to help consumer debtors in bankruptcy. Are those likely to be enough, or will we likely see further measures the longer the economy continues to stagnate and shed jobs?

The CARES Acts changes to the bankruptcy law were helpful but very limited. The most significant change was to allow debtors in bankruptcy who were affected by COVID-19 to pay creditors in a Chapter 13 plan over seven years instead of five. A more useful change might have been to limit how much a debtor had to pay, instead of just making them pay for longer. The change also only applies to cases already in the bankruptcy courts and will not apply to cases filed in the future. It is likely there will be further changes to the bankruptcy laws as the crisis unfolds, the most significant of which will make it easier for consumers to pay their attorneys.

Read more:

What effect will COVID-19 have on consumer bankruptcies? - University of Illinois News

Photograph: Shutterstock

Earlier this week, fast-casual chain Cosi filed a lawsuit against the U.S. Small Business Administration over its inability to get a Paycheck Protection Program (PPP) loan. Cosi wanted $3.7 million but was kept from applying because it had filed for bankruptcy and had yet to emerge.

In its lawsuit, Cosi pointed out that several other companies received such funding, only to file for bankruptcy immediately afterward.

Like clockwork, a restaurant chain did just that. The Florida-based TooJays filed for bankruptcy this week, shortly after receiving $6.4 million.

The question of bankruptcy has become yet another thorn in the side of a fund that thousands of restaurant companies had hoped would become their saving grace.

The agency has been taking steps to correct some of these issues. It is now reviewing loans of $2 million or moreafter small businesses complained that too many loans were going to large companies that can more easily find alternative sources of financing.

It has also indicated that public companies would not normally be able to receive such loans because they, too, have other sources of financing. The rule change led many publicly traded restaurant companies, including Pollo Tropical owner Fiesta Restaurant Group, J. Alexanders and Potbelly Sandwich Shop, to return their funds.

Bankruptcy is a more difficult scenario. For a chain such asCosi, which filed for debt protection in February, PPP funds could be a critical lifeline that ensures it can make it through the process.

At the same time, however, such companies were already at risk.

The administration, in consultation with Treasury Secretary Steve Mnuchin, determined that providing PPP loans to debtors in bankruptcy would present an unacceptably high risk of an unauthorized use of funds or non-repayment of unforgiven loans.

Yet why allow companies to get funds and then file for federal bankruptcy protection afterwards?

Cosi argued in its lawsuit that the PPP loans would actually have more protection if they were made to companies already in bankruptcy. No possible justification exists for a scheme that permits a debtor to obtain a PPP loan on the very eve of its bankruptcy case, while denying that same loan to a debtor subsequent to its petition date, the company said.

Indeed, some law firms have noted that the SBAs stand is strange.

Some judges have taken a similar view. So did Cosis, reportedly, but not enough to keep the judge from denying the chains request to enable it to apply for such funds. Several companies have sued the SBA over its position.

The SBA appeared to clarify its rule somewhat this week, saying in the federal register that companies that file for bankruptcy after submitting an application, but before receiving the funds, have an obligation to notify the lender and request cancellation of the application.

Failure by the applicant to do so will be regarded as a use of PPP funds for an unauthorized purpose, the agency said.

As weve said before, Congress provided relatively little in the fund originally, at least for the number of companies that could potentially apply. That has led to numerous fights over who should or should not apply.

Congress put the package together in a hurry and designed it to cover as many people as possible. Much of what is happening now is the result of companies and agencies figuring out what doesnt work.

Yet that process has put a number of companies in an even worse bind than the one they were already in.

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Bankruptcy proves to be another problem for the PPP fund - Restaurant Business Online

PG&E Corp. will sweep out three quarters of its board of directors to start with a mostly clean slate when it emerges from a bankruptcy case triggered by deadly wildfires ignited in Northern California by the utilitys neglected electrical grid.

The decision announced Friday will leave just three of Pacific Gas and Electrics 14 current board members in place if the San Francisco company is able to win bankruptcy court approval of its plan. The plan includes $25.5 billion to cover losses from 2017 and 2018 wildfires that devastated parts of its sprawling service territory.

The purge of its board of directors still falls shy of meeting the demands of Gov. Gavin Newsom and the head of the California Public Utilities Commission, PG&Es chief regulator. Neither Newsom nor the PUC immediately responded to requests for comment Friday.

The board departures include CEO Bill Johnson, who recently disclosed his plan to surrender the reins after just 14 months on the job.

When Johnson departs this summer, he will be replaced by former AT&T executive Bill Smith, one of the three current board members staying on. The others are two executives with past experience in the energy sector: Cheryl Campbell and John Woolard.

One of the departing directors, Jeffrey L. Bleich, left the board Friday. The others will depart after PG&E emerges from bankruptcy, which its aiming to do by June 30 to qualify for coverage from Californias new wildfire insurance fund.

Most of the departing board members assumed their positions after PG&E filed for bankruptcy 16 months ago.

PG&Es choices for its future board will be closely scrutinized. Newsom, PUC President Marybel Batjer and company critics are pushing for directors from California and want them to have safety expertise to help prevent the neglect under past management and led to the wildfires that killed nearly 130 people. PG&E plans to plead guilty this month to 84 counts of involuntary manslaughter for a 2018 fire that destroyed the town of Paradise.

Besides disclosing the board shake-up, PG&E also announced Friday its financial results for the first three months of the year. The company earned $374 million during the first quarter, more than doubling its profit from the same time last year.

PG&E would have made even more more money if not for $219 million in bankruptcy costs and another $226 million in expenses tied to past wildfires.

The company may soon be facing even more costs as part of an ongoing crackdown on its business practices. Thats because a federal judge overseeing a five-year criminal probation from another lethal disaster caused by an explosion in its natural gas lines ordered PG&E earlier this week to hire more inspectors to check on potential problems in its transmission system and also wants other improvements made in the way it trims trees near its power lines.

PG&E has until May 28 to outline its plans for complying with U.S. District Judge William Alsups order.

Excerpt from:

PG&E to Purge Most of Its Board in Fallout From Bankruptcy - NBC Bay Area