Reporting from the New York Times suggests that the United States economy may be heading for a “COVID-19 cliff,” in which distressed businesses that have made efforts to amass and conserve cash throughout the COVID-19 pandemic will be forced to spend money at an unsustainable rate as economies reopen and government pandemic relief programs expire over the next 30 to 60 days. This reporting, which includes commentary from leaders of the American College of Bankruptcy and the creator of Z score (a finance-based method of predicting business failure), suggests that hitting the “COVID-19 cliff” will result in an unprecedented number of bankruptcy filings. [N.Y. Times; June 18, 2020]
Bloomberg reports that Irish industrial manufacturing company Trane Technologies has placed two recently created business units, Aldrich Pump LLC and Murray Boiler LLC, into chapter 11 bankruptcy in the United States Bankruptcy Court for the Western District of North Carolina. The reported goal of these bankruptcy filings is to establish a channeling trust for asbestos-related personal injury claims against the debtors. [Bloomberg; June 18, 2020]
Talen Energy Corp. has placed two of its coal-fired power plants into chapter 11 bankruptcy for the third time since 2014, reports the Wall Street Journal. Talen reportedly plans to transfer ownership of the plants to senior creditors that are owed approximately $555 million. [WSJ; June 18, 2020]
The Washington Post reports that lending programs currently being employed by the Federal Reserve in response to the COVID-19 pandemic could lead to an increase in “zombie” firms in the United States. “Zombie” firms are those that do not make enough in profits to cover the cost of debt-service and are required to borrow to stay in business. [WaPo; June 17, 2020]