LAYOFFS, BAILOUTS, AND BANKRUPTCIES


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The current economic panic first took a large swath of low-wage jobs – fast-food workers, hotel maids, and retail clerks.
Now the layoffs are reaching higher.
Businesses that sent office workers home to continue their jobs are now furloughing them as business disappears. Corporate lawyers reportedly are shrinking in numbers. Health care employees not on the front lines of the virus battle are being let go. Even government workers are being laid off as people are unable to pay property taxes and sales tax revenues vanish in the shadow of shuttered stores.
June’s unemployment rate will reach 13 percent and as many as 14.4 million jobs will be erased in the next few months, according to a Wall Street Journal survey of 57 economists.
Gregory Daco, chief U.S. economist at Oxford Analytics, expects more than 27 million jobs will be lost, with eight to ten million disappearing from industries not ordered to close.
Oxford expects March’s unemployment report to show that 3.4 million business-service employees have lost their places – architects, lawyers, and consultants, for example – and 100,000 information workers.
The 400-lawyer firm of Cadwalader Wickersham & Taft cut its associates’ salaries by 25 percent and partners are now not taking salaries.
The online Zip Recruiter job placement service laid off a third of its 1,200 workers at the end of March. A survey of the service’s job-seekers show about 39 percent have been laid off from professional-level jobs, about the same proportion as in retail and wholesale trades.
The City of Cincinnati has laid off 1,700 “non-essential” workers.
If public freedoms are restored by late spring, the economy could restore half the lost jobs by the end of summer, according to economist Adam Kamins at Moody’s Analytics. Even then, the economy would still be in a recession, he cautioned.
The states of Colorado and Washington require large companies to specify whether layoffs are permanent or temporary. In those states, 70 percent of recent layoffs were characterized as temporary, compared to about 1 percent at the beginning of the Great Recession.
Still, economist Amy Crews Cutts of AC Cutts and Associates warns that the jobs market could take more than five years to fully return. The jobs lost so far are “an extraordinary number to put back into the economy,” she said.
New York City Loses $10 Billion in Taxes
New York City will lose $9.7 billion in taxes over its next two fiscal years because of the economic lockdown, the city’s Independent Budget Office has reported.
The city also could lose 475,000 jobs by next March, the report added, including 100,000 in retail, 86,000 in restaurants and hotels, and a combined 26,000 in arts, entertainment, and recreation.
About 60,000 jobs will disappear over the next ten weeks, according to the report.
The city also has delayed raises for 80,000 workers, a decision that unions are contesting.
In January, Mayor Bill de Blasio proposed a $95.3 billion budget for the city’s next fiscal year. That figure is now being revised.
De Blasio noted that even as revenues fall, the city needs to add programs and services, such as emergency food deliveries, to see residents through the current economic and public health crisis.
“We’re not going to be able to provide services and have a normal society if we don’t get help from the federal government,” the mayor said.
TREND FORECAST: As state and city municipalities lay off and furlough more workers, tax payers will begin to demand that public servants who are not at work but being paid must be taken of the payrolls. Further, there will be growing anti-tax movements for lowering school and property taxes as personal incomes decline and debt burdens elevate.
Bailouts Fly to Bigs
Ten of the 12 largest U.S. airlines have agreed to accept aid from the $2.2-trillion federal rescue fund and have said they will use the money primarily to pay workers and prevent layoffs.
Republic Airways and Spirit Airlines said they are still in discussions with U.S. treasury representatives.
The four largest domestic carriers – American Airlines Group, Delta Airlines, Southwest Airlines, and United Airline Holdings – have accepted help.
The federal fund’s set-aside for the airline industry allots $25 billion to the companies to pay wages, salaries, and benefits.
The airlines will receive aid equivalent to 76 percent of their payroll costs in 2019’s second and third quarters. Thirty percent of the money will be in the form of a ten-year loan. The loans’ interest rate is based on a technical calculation and will increase by 1 percentage point for the loan’s second five years.
JetBlue will receive $685 million as a grant and a $251 million loan. American Airlines’ grant totals $4.1 billion in addition to a $1.7-billion loan. It also will apply for a $4.75-billion loan through a different federal aid program.
Delta’s allotment is a $3.8 billion gift and $1.6-billion loan. Southwest’s $3.2-billion helping hand includes a $1-billion loan.
Under the bailout’s terms, the largest carriers are obligated to issue stock warrants to the government on 10 percent of the loans’ portion above $100 million. As a result, the U.S. government ultimately could own as much as 12 percent of American Airlines, about 1 percent of Delta, and 0.5 percent of Southwest.
The airlines had lobbied for all of the money to be given as grants with no loans involved.
Robin Hayes, JetBlue CEO, expressed gratitude for the help but fretted that the loan “adds to the significant debt we are taking on as we burn through our cash reserves.”
“This is an essential step,” Delta CEO Ed Bastian wrote in a message to employees, “but just one of many that will get us through the next several months.”
The Air Transport Association, airlines’ trade group, predicted that the world’s passenger airlines will lose about $314 billion this year, with revenues about 55 percent less than in 2019.
Bankruptcies Ripple Across Industries
Pace Industries, a multi-state company based in Arkansas, has filed for bankruptcy.
Pace supplies metal parts to Caterpillar, General Electric, Harley Davidson, Toyota, Whirlpool, and several other major U.S. manufacturers.
The company has presented a bankruptcy plan that would give holders of its $232 million in bonds virtually all of the company’s equity. Shareholders, including the Macquarie Group and Antares Capital, will be wiped out and bondholders will recoup 60 to 70 cents on the dollar.
In return, the creditors – which include Cerberus Capital Management and the Bank of Montreal – will provide the company with $175 million, so it can operate during the bankruptcy process.
Pace has been ailing for more than a year. Its $560 million in 2019 revenues reflected pre-virus business slowdowns among several of its customers. A labor strike at General Motors and problems with a new vehicle clutch Pace was making also hobbled profits.
In March, the company’s situation turned “dire,” it said, when the pandemic struck and customers’ workers were ordered home.
Pace has closed five of its seven U.S. die-cast plants and laid off 70 percent of its workforce, leaving just 730 employees on the job.
The Chicago-based LSC Communications, a multinational commercial printing company, also has filed for Chapter 11 bankruptcy after defaulting on $972 million in debts.
The company, said to be the largest book printer in the U.S. as well as a major supplier of catalogs and other printed items, has plants in 28 states, Canada, Mexico, and the UK.
The company has seen declining sales in recent years as materials that have traditionally been printed on paper move online.
Since last 19 July, LSC has shut eight of its plants.
J.C. Penney, which closed its stores in March “temporarily,” failed to make a $12-million debt payment due 15 April. It has a 30-day grace period to still make the payment.
The company said it will use the grace period to “continue ongoing discussions with lenders and maximize financial flexibility.”
The $388 million in bonds on which Penney missed the payment were trading at 8.5 cents on the dollar last week.
Penney entered 2020 carrying $3.7 billion in debt and was continuing a plan to abandon selected stores as shoppers move either online or to Walmart and other downmarket stores.
Some analysts have reported that Penney is in discussions with advisors about using bankruptcy to restructure its business.
Penney’s stock was trading at 28 cents a share on 17 April and is in danger of being delisted from the New York Stock Exchange.
Retailers Neiman Marcus and J. Crew also are on the bankruptcy “watch list.”
FTS International, which provides fracking and well completion services to oil and gas drillers, has hired Lazard Ltd., a financial advisor, and top law firm Kirkland and Ellis to guide it in restructuring its finances.
The company’s work has vanished as shale oil producers have halted new drilling after oil prices collapsed to 20-year lows and oil storage facilities reached capacity.
FTS owes $375 million in bonded debt that matures in 2022. On 13 April, the bonds were trading at 28 cents on the dollar, down from 68 cents six weeks ago.
FTS has furloughed its work crews and cut executive salaries by more than a third.
TREND FORECAST: Again, as the “Greatest Depression” worsens, bankruptcies big and small in the retail sector will rapidly rise. The bottom line: the Bigs will get bigger and the small business entrepreneur sectors will shrink.
Cable News Ratings Up, Revenue Down
Cable television news networks’ ratings have soared during the virus pandemic and economic lockdown but that gain hasn’t translated to increased ad dollars.
Since the beginning of the crisis, CNN’s ratings are 57 percent higher than in 2019’s fourth quarter. Fox News is up 50 percent.
The spurt has moved CNN into a close second place behind Fox in viewership among the 25-to-54-year-olds that advertisers covet.
But as the crisis has expanded audiences, it has crumpled corporate ad budgets.
CNN had forecast a double-digit gain in ad revenues this year, due in part to the presidential election; now it contemplates a significant decrease in ad sales.
Overall U.S ad sales related to the presidential election dove from $119.8 million during the last week of February to $4.8 million during March’s final week, a time when the Democratic primary election was still in play.
Now, with the Presidential Reality Show® out of the news and campaigns not spending, instead of reaching its projected $1.7 billion in revenue, CNN could see a double-digit contraction, warns S&P Global Market Intelligence.
Cable news executives have said the decline in sales this year could surpass that during the Great Recession or following the September 11 terrorist attacks.
CNN’s digital division hopes to lure advertisers by offering to match their paid public service announcements with free ads highlighting the companies’ social responsibility.
“Huge chunks of the advertising market are going to disappear in the second quarter,” said Craig Moffett of MoffettNathanson, a media analysis firm.
TREND FORECAST: From TV to radio, from the internet to print media, the great advertising contraction will escalate as the “Greatest Depression” worsens.
Moreover, when advertising dollars come back, considering the psychological and economic costs of the politically-led lockdowns that crippled businesses and personal incomes, new advertising strategies and messages must be developed and implemented in targeting the whole, new post-COVID-19 world.
 For those interested in how to identify and execute new on-trend opportunities to reach targeted audiences and increase sales, click here for The Trend Research Institute’s consulting services.

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