Daily Archives: April 11, 2020

Economists expect coronavirus shutdowns will cause bankruptcies to surge in the coming months, a new report says.

Federal Reserve researchers predict the number of virus-related bankruptcies could jump by 200,000 to nearly 1 million unless government programs help stem the tide, Bloomberg Law reported Friday.

Bankruptcy expert Edward Altman reportedly expects the dollar value of bankruptcies to set a new record amid the pandemic because there are much greater amounts of debt outstanding now than in any prior downturn.

Whether its corporate bankruptcies or personal, this is unprecedented, Altman told Bloomberg Law.

Economists at the Fed dont expect the number of bankruptcies to climb as high as during the Great Recession, when personal bankruptcy filings peaked at 1.5 million in 2010, according to Bloomberg.

But that prediction might not hold because the economy could deteriorate more than what we assume, St. Louis Fed economist Juan Sanchez told the news service.

The central bank researchers estimates also didnt account for medical bills that could weigh heavily on some Americans during the health crisis, according to the report.

The bankruptcy fears come amid a surge in unemployment fueled by coronavirus-related lockdowns and business closures. Nearly 17 million Americans applied for jobless benefits in just three weeks, and some experts such as St. Louis Fed president James Bullard say the unemployment rate could climb as high as 30 percent in the second quarter.

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Coronavirus could lead to surge in bankruptcies, experts warn - New York Post

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Gov. Tom Wolf on Friday announced more than $450 million in low-interest loans meant to keep hospitals afloat as they continue to lose revenue amid the coronavirus pandemic.

Hospitals statewide have canceled elective surgeries and non-urgent procedures to free up bed space and limit the spread of covid-19. At the same time, they have shifted medical equipment and other resources to meet the states virus needs.

Wolf said that combination of increased costs and decreased revenue has shaken hospitals financially.

We cannot allow our hospitals to go bankrupt, he said.

The loan package the Hospital Emergency Loan Program will provide immediate funding to hospitals, according to the governors office. The funding is from the Pennsylvania Infrastructure Investment Authority (PennVEST) and will be administered by the Department of Community and Economic Development.

Though some may be struggling more than others, hospitals statewide have seen their revenues drop by an average of 40% in the weeks since the statewide shutdown and cancellation of elective and non-urgent procedures, the Hospital Association of Pennsylvania reports.

We see the same type of impact that hospitals across the state and across the nation see from the reduction of elective services, said Richard Chesnos, chief financial officer of St. Clair Hospital, a 329-bed facility about six miles south of Downtown Pittsburgh that supports 120 physicians and employs about 2,500.

Hed like to see the state go a step further and create an emergency response fund to support the continuum of care including not only hospitals but also other providers such as physicians practices, long-term care facilities and post-acute care centers.

Another big help would be for the state to cancel the next two monthly quality assessments effectively a fee or tax paid by hospitals to the state. Doing so for the payments due May 1 and June 1 would save St. Clair Hospital more than $3 million, Chesnos said.

As of 4 p.m. Friday, more than 2,000 people were hospitalized with the virus across the state, and nearly 600 were on ventilators, according to Department of Health data.

Hospitals across Pennsylvania should be focused on saving lives, not worrying about how to make ends meet until federal relief funds arrive months from now, said state Treasurer Joe Torsella, whose office must approve any investments made by the PennVEST board.

The maximum loan for any one hospital is $10 million, with an interest rate of 0.5%.

St. Clair Hospital, with about $365 million in annual operating income and more than $450 million in net assets, is in a stronger position than a lot of the hospitals are, Chesnos said. Hed like to avoid taking on interest payments unless absolutely necessary.

The state program is meant to provide hospitals relief until federal funding through the Coronavirus Aid, Relief and Economic Security Act (CARES Act) is made available.

Its a good start, said Chesnos, but there still needs to be additional legislation to help hospitals, both at the state and federal levels.

Federal funding begins flowing to all hospitals

Separately, officials learned that U.S. hospitals and health care providers will share in $30 billion from the first round disbursed via the CARES Act federal governments coronavirus relief stimulus package.

A total of $100 billion is earmarked for health care providers in the legislation.

More than 12,600 Pennsylvania health care facilities will receive a total of $1.25 billion via the initial round, according to U.S. Sens. Bob Casey, D-Scranton, and Pat Toomey, R-Lehigh Valley. It was not clear late a Friday precisely how much each hospital will get.

That will ease some of the pain, but theres so much more to do, Chesnos said.

Excela officials said they were disappointed that the funding formula used for the first round did not follow a proposal of $25,000 per hospital bed, as advocates by the American Hospital Association. They pointed out that the Centers for Medicare Services excluded Medicare Advantage revenue from the formula.

This will significantly reduce funds received by all Western Pennsylvania hospitals, which has one of the highest percentages of Medicare Advantage enrollees in the United States, Excela CEO Tom Albanesi said in a statement. We are hopeful that we can persuade CMS to correct this oversight in the next round of supplemental funding by utilizing a formula that acknowledges areas with heavy Medicare Advantage penetration.

UPMC spokeswoman Erin Hare said officials still are evaluating the amounts and types of funding that their facilities may be getting or seeking. She expected to have more details by next week.

Megan Guza and Natasha Lindstrom are Tribune-Review staff writers. You can contact Megan at 412-380-8519, mguza@triblive.com or via Twitter @meganguzaTrib. Contact Natasha at 412-380-8514, nlindstrom@triblive.com or via Twitter @NewsNatasha.

Categories:Coronavirus | Health | Local | Pennsylvania | Regional

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Fearing hospital bankruptcy, Gov. Wolf offers $450M in loans to financially strapped providers - TribLIVE

Bankruptcies related to COVID-19 shutdowns will set records in the next 12 months, according to Edward Altman, the professor emeritus at New York Universitys Stern School of Business who developed a widely used method called the Z-score for predicting business failures.

Whether its corporate bankruptcies or personal, this is unprecedented, Altman said in an interview. We will break the record in dollar amounts because there are much greater amounts of debt outstanding now than in any prior downturn.

At this point, he isnt predicting record-breaking bankruptcy rates in the next year despite the surge in unemployment. Almost 17 million Americans filed jobless claims over three weeks following nationwide business shutdowns.

New research from economists at three Federal Reserve banks shows coronavirus-related bankruptcies could rise by 200,000 to reach almost 1 million, unless government stimulus programs offset the increase.

By comparison, personal bankruptcies peaked at about 1.5 million in 2010 near the end of the Great Recession.

The model created by the economists at the regional Fed banks Juan Sanchez in St. Louis along with Kartik Athreya in Richmond and Jose Mustre-del-Rio in Kansas City doesnt predict that the number of U.S. bankruptcy filings will be as high as after the financial crisis.

But it could happen because the economy could deteriorate more than what we assume, Sanchez said. And their model doesnt take into account medical bills, which could be a big factor for some households during this public-health crisis depending on how much the government helps with these expenses.

Personal bankruptcies were rising in some places even before the coronavirus began wreaking havoc on jobs and finances, according to a report on first-quarter filings released this week by the American Bankruptcy Institute.

The U.S.-China trade war hit Iowa farmers and their communities hard, while diminished shale drilling led some Texas energy companies to cut jobs.

People in the southern U.S. Americas poorest region were more apt per capita to file petitions than in other parts of the country, according to the report. Its also an area where some scientists expect to see higher rates of sickness and death from coronavirus.

We definitely think that we will see a significant increase in filings, the magnitude of which will depend on how long and deep the economic crisis goes on, said Amy Quackenboss, the bankruptcy institutes executive director.

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Bankruptcies expected to soar in next year | Business - Huntington Herald Dispatch

Kevork Djansezian | Getty Images News | Getty Images

Less than 24 hours after the Treasury Department formally extended cash grant offers to the six largest airlines in the U.S., the union representing 120,000 flight attendants is blasting the move with a dire warning.

"This will lead to airline bankruptcies," said Sara Nelson, president of the Association of Flight Attendants union. "The Treasury Department is destabilizing the industry, not helping save it."

Nelson's anger is fueled by the Treasury Department deciding to make30% of each cash grant offer a low interest loan payable to the federal government.

That move, which caught many airline executives by surprise, means the $25 billion approved by Congress for immediate cash grants will actually be$17.5 billion. The other $7.5 billion will now be loans airlines will be required to re-pay.

"This is not what Congress approved," said one industry executive who asked not to be identified given the ongoing discussions between airlines and the Treasury Department. "The aid was supposed to be $25 billion in cash grants and $25 billion in loans."

While Congress may have intended for $25 billion in immediate cash assistance to be money airlines would not have to re-pay,the CARES Act gaveTreasury Secretary Steven Mnuchin the latitude to set terms and conditions for the cash grants.

"It is our objective to make sure, as I have said, that this is not a bailout, but to make sure that airlines have the liquidity to keep their workers in place," Mnuchin told CNBC on Thursday as the Treasury Department was finalizing the grant offers.

When the offers came on Friday, they included the stipulation airlines accepting grants not lay off employees before September 30th, a requirement all carriers have already committed to meeting. Still,executives at multiple airlines told CNBC they were surprised by the loan component in the grants. They say it meansTreasury will award just over half of the money they requested to cover their payrolls for the next six months.

When airlines submitted their grant applications, they included Form 41 documents which are filed regularly with the Department of Transportation detailing payroll obligations. For the industry, the total payroll obligations April 1st through September 30th is approximately $31 Billion. If Treasury awarded $25 Billion in immediate cash, it would cover 80% of airline payroll needs. The Treasury Department's current plan to award $17.5 Billion in cash grants covers 56% of the $31 billion the airlines requested.

Nelson says reducing the immediate cash amount airlines will not have to repay amounts to Treasury taking money Congress earmarked to immediately pay airline workers and turning it into a loan airlines may opt not to take. Nelson and her team spent Friday trying to reach members of the a Treasury Department to discuss Secretary Mnuchin's plan for awarding grants. "We have called, we have sent e-mails, but there has been no conversation with Treasury," she said.

The leadership teams of airlines have spent much of the weekend discussing whether or not to take the grants. "It's starting to not be worth it," a senior airline executive told CNBC when asked if they would accept the cash grant. "I could see airlines just laying people off because it's cheaper."

Critics of the $50 billion airline bailout say U.S. carriers should not receive cash grants from the federal government and should instead restructure in bankruptcy or borrow billions more in order to have the liquidity needed to withstand the the rapid drop in business.

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'This will lead to airline bankruptcies' flight attendant union furious with Treasury bailout offers - CNBC

The Swiss government announced Thursday that it will look at temporarily amending its bankruptcy laws during the coronavirus crisis to help companies that have encountered cash-flow problems and mounting debt.

The government warned on Wednesday that the Swiss economy could shrink as much as 10.4 percent this year. Justice minister Karin Keller-Sutter said that companies that were previously safe are now being threatened.

The measures are meant to help companies hurt by coronavirus over the hump, but not to keep failing operations on life support. The measures are also meant to help Switzerlands exporters, which are being impacted due to a failing demand from other countries.

The government said that a halt on debt collections and a court holiday would end on April 19, and that it would look at moving civil court proceedings to a teleconference platform to maintain the operation of the justice system.

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Switzerland to amend bankruptcy laws to aid companies during COVID-19 pandemic - JURIST

All Chinese businesses, large and small, have struggled since COVID-19 emerged at the beginning of this year, forcing stores, restaurants, and factories to cut down on hours or completely shutter. While the full economic impact of the outbreak on Chinas economy is still uncertain, popular business writer W Xiob detailed in a recent report that about 247,000 Chinese companies declared bankruptcy in the first two months of 2020.

Wu Xiaobos financial blog revealed(in Chinese)that Guangdong was the most impacted province, with over 30,000 firms going out of business in January and February, followed by Shandong, Jiangsu, Sichuan, and Zhejiang.

The observation echoes a string of previous surveys showing many Chinese companies, especially small businesses, feeling the pinch as the pandemic brought consumer activity to a halt. Almost 36% of the private-owned firms that responded to a survey conducted by Tsinghua University in February said that they were hammered by the economic fallout from the outbreak and did not expect to survive after a month. In another survey released in February, more than 60% of the small and medium-sized enterprises in Shandong said that they could only hold out for a maximum of three months under current conditions.

Unsurprisingly, Wu also noted that new companies were the most vulnerable businesses affected by the crisis. Of the companies that pulled the plug in January and February, roughly 55% were startups under three years old.

When it comes to specific sectors, Wu says that companies in the hospitality and retail industry have been going through a particularly rough time because people were advised to practice social distancing and avoid public places. This is in line with a report released by China Chain Store and Franchise Association (CCFA) about two months ago, which showed that retail shops in China were experiencing a 50% sales drop, with restaurants making only 30% of their normal profits. Other sectors that were seriously impacted by the knock-on effect of the outbreak include rental services, construction, and farming.

While the pandemic is devastating to most companies, some businesses have been thriving in the crisis. According to business data platform Tianyancha(in Chinese), since February, more than 28,000 companies across China have expanded their scope to include healthcare-related services and the manufacture of medical equipment such as thermometers and masks. Internet-based firms have also seized the opportunity to grow as people face a new reality in which online classes and virtual meetings have become the norm.

Wus report also notes that given the large-scale closure of government offices in January and February, a considerable number of companies in serious financial trouble were unable to file for bankruptcy. As China slowly grinds back into activity starting this month, the report predicts that more bankruptcy applications will go through in the next two months and more companies will officially go out of business.

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More than 240,000 Chinese companies declare bankruptcy in the first two months of 2020 - SupChina

More than a million Canadians believe they are on the verge of having to declare bankruptcy, according to the findings of a new poll released Thursday.

The survey conducted by DART & maru/Blue found an even larger group 4.2 million Canadian adults said they consider themselves to be heading towards bankruptcy over the next three months unless their personal financial conditions improve.

Middle-aged and younger Canadians with middle-to-lower incomes appear most vulnerable to bankruptcy, the survey found.

This will be the next wave that we will have to keep a close eye on over the next couple of months

This middle-age, middle-income group is going to get hammered the hardest with the reduction of jobs and lost income, said John Wright, a partner at DART.

This will be the next wave that we will have to keep a close eye on over the next couple of months.

He said his groups polling from the outset of the pandemic crisis in North America has consistently shown that between four and five per cent of the Canadian population believes themselves to be in either dire or desperate circumstances over the next three months.

Geographically, people who consider themselves headed towards bankruptcy in the short-term are most likely to be found in Alberta, Saskatchewan and Manitoba, the survey released Thursday found. This is perhaps not surprising, given that western Canada has been hit by a second economic shock from low oil prices at the same time as the economy ground to a near halt.

With the widespread shutdowns of non-essential businesses halting or crimping paycheques across the country, and government aid just beginning to roll out, many financial institutions have made concessions for their customers during the COVID-19 outbreak. This has included allowing many to defer payments on personal loans including mortgages and credit cards.

Nevertheless, the survey found almost one in 10 primary residence mortgage holders believe default is imminent over the next three months.

After examining their current financial situation over the next three months including all government measures to support them and their home ownership including payment deferrals eight per cent affirm they wont be able to pay the mortgage and will begin to default without greater help, the survey found.

A small fraction of those believe they will have to sell their house because they wont be able to cover any loans.

The poll was released as new unemployment figures showed that Canada lost over one million jobs in March, the largest monthly employment decline ever.

Wright said the unemployment numbers released Thursday are the thin edge of the wedge as cascading effects of the clampdown have yet to emerge in official figures.

I suspect that we will see a widespread increase in these numbers and in bankruptcies, and in (defaults on) mortgages over the next 30 to 60 days, he said. Thats the simple math of how much income people have and how much debt they are carrying.

He added that the number of such financial casualties could increase over the next year, with Prime Minister Justin Trudeau indicating Thursday that restrictions, in some form, could remain in place for a year or more while a vaccine against COVID-19 is developed and made available.

The Dart survey was conducted April 1 and 2 among 3,030 Canadian adults randomly selected from maru/BLUEs online panel. A subset of more than 1,000 who own a primary residence with a mortgage were surveyed, with results of that sub-sample considered accurate to within 3.4 percentage points. The results were weighted by education, age, gender, and region to match the Canadian population, according to Census data.

Email: bshecter@nationalpost.com | Twitter:

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More than a million Canadians believe they are on verge of bankruptcy, new poll suggests - Financial Post