Commercial vs Household Bankruptcies in May 2020

One way in which the current recession looks nothing like the last one is that businesses have been a lot more affected financially than households. This is due to the extraordinary stimulus and rescue packages that came out of the government to a) keep people employed b) offer increased unemployment benefits c) announce forbearance initiatives to stop foreclosures and put rent payments on ice and d) make direct deposits to taxpayers.

Here’s the American Bankruptcy Institute (ABI) on what the results of that look like:

Total commercial chapter 11 filings in May 2020 increased 48 percent from the previous year, according to data provided by Epiq Systems, Inc. Commercial chapter 11 filings totaled 722 in May 2020, elevated from the May 2019 total of 487. Conversely, total commercial filings decreased 28 percent in May 2020, as the 2,578 filings were down from the 3,558 commercial filings registered in May 2019. The 39,969 total bankruptcy filings in May 2020 were down 42 percent from the 68,860 total filings in May 2019. Total consumer filings decreased 43 percent in May 2020, as the 37,391 filings fell from the 65,302 consumer filings registered in May 2019.

“Companies that tried to shore up their balance sheets at the beginning of the year represent the initial wave of chapter 11s due to the economic crisis brought about by the COVID-19 pandemic,” said ABI Executive Director Amy Quackenboss. “The CARES Act and other swift government measures have been successful in keeping consumers afloat during the crisis. As this relief runs its course, however, mounting financial challenges may result in more households and companies seeking the shelter of bankruptcy.”

Josh here – here’s an example of this in real life: Simon Property Group, one of the leading mall operators in America, is now suing one of its biggest tenants, Gap Stores, for $66 million in unpaid rent. In the meanwhile, it is likely that Gap employees, unable to work in the stores all this time, are not having as much trouble paying their bills as they might have in a previous recession because of Congress acted quickly and comprehensively.

The expanded unemployment benefits will sunset this summer, unless extended, but there has been an expansion in the payroll protection plan’s time period for paying back loans or applying for forgiveness. Keeping more people and companies from filing for bankruptcies will mostly depend on the reopening and the pace of rehiring from here on out. There is some better news on that front. According to Peter Boockvar’s glance at this morning’s claims numbers:

Initial jobless claims totaled 1.877mm, a touch above the estimate of 1.833mm but down from 2.126mm last week. It’s the 9^th straight week of moderation but still remains at very high levels. The trend will continue to slow as things reopen. Continuing claims, delayed by a week, were 21.5mm, up from 20.8mm in the week prior.

Of course we want to see the initial claims number fall, but it is the continuing claims number that really tells the story of what’s going on out there.

We don’t know if Congress and the White House will be able to (willing to?) pass a new tranche of relief aimed specifically at municipalities and states that have gone deeper into debt in order to keep services running while tax revenues have fallen off a cliff.

This is sure to be the next discussion as the bill for the statewide shutdowns comes due.

Source:

American Bankruptcy Institute