Our Bankruptcy Outlook – January 2024
The Atlanta Federal Reserve Beige Book for January, 2024 shows a continuation of existing trends. The economy remains on substantially solid footing but the persistence of high interest rates is squeezing a lot of companies whose business models were built on cheaper capital.
Florida Outlook for Chapter 11
The consumer segment is very strong after a reasonably successful holiday season. We’re not seeing too many more retailers tipping into insolvency like we were seeing in the fall. We remain concerned about the reckoning in the commercial office space as corporate America is resigned to the fact that half the workforce will be on some form of work-from-home status. We saw a couple of large fast-food franchises go into Chapter 11 in Florida which seems to be driven by a combination of higher labor and food costs that are eating into the profits of some of the larger groups that took on financial leverage.
Unscrupulous Lenders Squeezing Borrowers
We’re seeing some aggressive behavior by lenders who need to push loans off the books that have interest at rates below their current cost of capital. While this isn’t legal or ethical, there is a lot of behavior that we think may be over the line. Call us if you are experiencing an unusually higher scrutiny of your covenants from your lender and we can talk this over. Bankruptcy judges don’t like to see this behavior and a Chapter 11 might be the remedy needed to restore equilibrium in the relationship.
Trends in Economic Sectors
Labor Markets:
Hiring has slowed for some firms, with challenges in the leisure and hospitality sector. The lack of affordable housing hampers worker attraction. Wage pressures are easing, and some firms are using Generative A.I. to supplement productivity.
Consumer Spending and Tourism:
Consumer spending is normalizing, with mixed holiday sales. Auto sales remain strong, but hotel spending decreased. Retailers are cautiously optimistic for 2024. Tourism outlook is optimistic but normalizing to post-pandemic levels. An interesting note from the Federal Reserve: “Spending on merchandise, food, and services in hotels, however, decreased compared with the same time last year.”
Construction and Real Estate:
Despite lower mortgage rates, home sales are slow due to affordability issues. The office market faces negative absorption rates, a tenant’s market, and rising commercial real estate loan maturities. Transportation and industrial markets experience challenges, with a surplus of square footage leading to higher vacancy levels.
Transportation:
Rail and trucking industries face declines in traffic and freight volumes. Additional trucking capacity is expected to go offline. Supply chain constraints may re-emerge due to conditions in the Panama Canal.
Banking and Finance:
Lending increased, especially for multifamily and home equity loans. Consumer lending contracted, leading to increased delinquencies. Higher funding costs raised earnings concerns for banks, prompting portfolio restructuring.
Agriculture:
Cattle prices rose due to low supply, but avian flu impacted chicken demand. Dairy prices increased with growing domestic demand, while weak cotton demand persisted.
As a bankruptcy firm, understanding these economic indicators is crucial for anticipating industry-specific challenges and providing strategic guidance to clients. Industries such as real estate, transportation, and manufacturing face significant headwinds, necessitating careful consideration and tailored solutions.
If you need business advice on how to position your company to weather potentially volatile times ahead, please contact the experienced financial and bankruptcy attorneys at Jennis Morse.