The New York Times - USA (2020-07-31)

B6 Y THE NEW YORK TIMES BUSINESS FRIDAY, JULY 31, 2020

VIRUS FALLOUT

Complicating matters, the
change would be most damaging
to lower-wage workers given 70
percent of their previous earnings
would amount to a meager pay-
out. Thanks to the $600 weekly
supplement, many of those work-
ers have been receiving more
than they were earning from their
jobs — a data point that Republi-
cans cite when arguing that the
program is too generous and dis-
courages workers from seeking
employment. But economists say
those payments have provided a
vital financial cushion to the un-
employed at a moment when re-
turning to work is still not an op-
tion for many people.

It would be difficult to change
the benefit system.

Under a bill that Senator Charles
Grassley, Republican of Iowa and
the finance committee chairman,
released Monday, the weekly $600
check would fall to $200 through
August and September. On Oct. 5,
it would be replaced by a formula
that starts with the amount of
state benefits a worker would nor-
mally receive for unemployment
and then adds federal dollars to
bring the total to 70 percent of the
worker’s former wages.
States would have the option of
proposing an alternative system,
or continuing flat payments to
each worker, that would allow for
the average benefit to match 70
percent of lost wages.
Such a structure would be far
more cumbersome for state un-
employment offices than the cur-
rent system. Part of the challenge
is that each state agency has its
own benefit formula and maxi-
mum benefit amount. That means
each person will need to get an in-
dividual determination about
what their federal-level benefit
will need to be so that their total
benefit package is equivalent to
about 70 percent of their pre-pan-
demic income.
In states with low maximum
amounts — like Arizona, at $240
weekly — the federal benefit will

need to be much higher. “They will

have to figure out a way to set up

the system to figure out the differ-

ences,” said Michele Evermore, a

senior policy analyst for social in-

surance at the National Employ-

ment Law Project.

The National Association of

State Workforce Agencies, a

group representing state unem-

ployment offices, said it expects

states’ implementation schedules

to vary widely, from four to 12

weeks or more, according to an

agency document that analyzed

several policy proposals.

“If such a policy solution is cho-

sen, the effective date should be

set well in the future,” the agency

said in the document, “with a con-

tinuation of a flat amount until

that future effective date.”

Self-employed and gig workers

present a larger challenge.

There are other complications for

self-employed people and others

who aren’t typically eligible for

benefits, including those with lim-

ited work histories. Under the ex-

panded system, many of these in-

dividuals can collect checks

through the so-called pandemic

unemployment assistance pro-

gram.

But they do not necessarily

have to submit proof of earnings

to be eligible for that program’s

minimum benefit — and getting

the minimum qualifies them for

the $600 federal benefit.

So if the new federal benefit is

based on actual earnings records,

each state would need to build a

system to receive and analyze

wage data from self-employed

people. “The state may not have

good documentation about what

they were earning,” Ms. Ever-

more added, “as the documenta-

tion requirements to get the min-

imum P.U.A. are less stringent.”

Other jobless workers receiving

benefits may not have any earn-

ings history at all. Workers who

had job offers that were rescinded

because of the pandemic, for ex-

ample, can still receive checks

even though they didn’t have any

income.

Archaic computer systems

aren’t helping.

States already had trouble repro-

gramming their systems to de-

ploy the expanded benefits pro-

vided under expansion under the

CARES Act. Many states adminis-

tering unemployment benefits are

relying on archaic systems, which

were quickly overwhelmed by the

influx of claims. Some are using

aging mainframe computers pro-

grammed using a language called

COBOL, which is more than 50

years old, and some states, like

Connecticut, had to recruit retir-

ees who knew how to program in

the antiquated language.

Only 16 states have fully mod-

ernized their unemployment in-

surance systems, according to re-

cent testimony by Rebecca Dixon,

executive director at the National

Employment Law Project, and

many of those that did update

their system still experienced

problems.

“I would be very surprised if a

state could get a new system to

pay a percentage replacement up

in two months,” Ms. Evermore

added, “given everything else

they have to deal with right now.”

Low-wage workers lose while

red states win.

If states were somehow able to

make the shift, it would carry the

side effect of subsidizing states

with less generous unemploy-

ment benefits, funded by lower

taxes — a set of states that is heav-

ily Republican. It is the opposite

dynamic from another sticking

point in the negotiations over the

next stimulus bill: Republicans

have resisted sending direct aid to

states with large budget shortfalls

amid the crisis because they say

they do not want to subsidize

high-tax Democratic states.

It would also be a particularly

large blow to workers in Demo-

cratic states, who would lose the

most money per week out of their

benefit checks. The federal gov-

ernment would kick in signifi-

cantly more support to bring the

benefit up to 70 percent for work-

ers in a low-benefit state like Ari-

zona than in a high-benefit state

like Washington.

Low-wage workers will be hurt

the most. They have been receiv-

ing the most, compared to previ-

ous earning, from the $600 weekly

federal supplements. (That also

means they are the workers Re-

publicans fear are being discour-

aged from returning to the work-

place, because they’ve been earn-

ing more from unemployment

than from their former jobs.)

The move to reduce benefits via

the formula change also comes as

the composition of America’s un-

employed is changing to include

more nonwhite workers, because

employers are rehiring whites at a

more rapid pace than Black or La-

tino workers, continuing a trend in

America after recessions.

“There is a racial element to

this — there is absolutely a racial

element,” said Ms. Edwards, who

favors extending the $600 per

week enhancement, citing re-

search showing it has buoyed con-

sumer spending in a sharp down-

turn while not deterring workers

from taking jobs if offered them.

“We are in an unprecedented level

of unemployment right now, and

rather than focus on how to miti-

gate those scars, we’re debating

the work ethic of the unem-

ployed.”

Politics may be the biggest

impediment

Democrats, led by Senator Ron

Wyden of Oregon, the party’s top-

ranking member of the finance

committee, have criticized the

wage-replacement proposal and

called it unworkable. Earlier this

year, though, such a system was

Democrats’ goal — in discussions

with the Trump administration

over an economic rescue package

in March, Mr. Wyden and others

pushed for an enhanced unem-

ployment benefit that would re-

place 100 percent of workers’

wages.

Labor Department officials told

them such a plan was not work-

able for states. The $600 addi-

tional payment was selected as a

compromise — it is the average

gap between state unemployment

benefits and a typical unemployed

worker’s former pay. Because it is

an average, the payment has al-

lowed millions of Americans to

earn more from unemployment

that they were earning before be-

ing laid off.

Given the challenges involved

with transitioning to a wage-re-

placement system, policy watch-

ers expect Congress to ultimately

agree to a $400 per week compro-

mise that splits the difference be-

tween what Democrats and Re-

publicans support.

Change to Unemployment Payments Could Take Months

FROM FIRST BUSINESS PAGE

Senator Chuck Grassley’s proposed unemployment benefit would equal 70 percent of a worker’s former wages.

ERIN SCHAFF/THE NEW YORK TIMES

U.S.-based versions of the Pimco
hedge fund. It turned around and
borrowed $13.1 million from the
Fed program by pledging a bundle
of debt as collateral. Investors in
the Pimco hedge fund ultimately
stand to profit from the transac-
tion.
The Pimco example is not
unique — other foreign investors
have put money into U.S.-based
funds that are tapping the Fed
program. That they found a way to
participate in a program re-
stricted to American borrowers
highlights that financial firms are
looking to make money from the
Fed’s market rescue programs,
even if doing so means maneuver-
ing around congressional limita-
tions on eligibility.
The Fed’s program is intended
to keep credit flowing through the
economy, but its design has pro-
vided an opportunity for global fi-
nancial players to profit from an
initiative backed by taxpayer
funding. That side effect could
draw further scrutiny to the Fed’s
rescue efforts, which are already
prompting questions from law-
makers about who benefits, and
on what terms.
The lending programs “drag the
Fed into political crossfire,” said
Mark Spindel, chief investment
officer at Potomac River Capital
and an author of a book on the poli-
tics of the Fed. “The Fed is seen as
the honest broker in town — but
just because you’re the honest

broker today, doesn’t mean you’re

not going to face questions down

the road.”

The goal of the Fed program in

question, known as the Term As-

set-Backed Securities Loan Facili-

ty or TALF, is to bolster a critical

corner of U.S. debt markets, one

where loans are bundled and sold

off to investors who are willing to

take on risk in exchange for inter-

est payments. That helps to keep

the market for commercial mort-

gages functioning, and allows stu-

dent loans and credit card debt to

continue flowing to end-users.

The program was not created to

make money for investment vehi-

cles or the investors they repre-

sent. But because of the way

TALF works, financial firms like

Pimco’s hedge fund can make a

profit from it.

It operates by encouraging in-

vestors to buy securities built on

bundles of consumer and business

debt — called asset-backed secu-

rities — and offering them as col-

lateral for a cheap loan from the

Fed. Firms can borrow directly

from TALF, or like Pimco’s fund

did, they can set up an investment

vehicle to do the same thing.

A hedge fund like Pimco’s can

put money into a U.S.-based vehi-

cle, which then buys asset-backed

securities using some combina-

tion of cash and short-term loans.

The investment vehicle takes the

securities to the Fed and gets a

TALF loan.

Those TALF funds can be used

to pay back whatever the invest-

ment vehicle borrowed to buy the

asset-backed securities, so that its

holdings are funded mostly by the

cheap Fed loan, and a sliver of its

own money (what is known as a

“haircut” in financial parlance). It

essentially earns the difference

between what it makes in interest

from the securities and what it is

paying on the Fed loan.

Because investors have just a

small amount of money at stake,

returns on each invested dollar

can be quite high. Investors said

they anticipated high single-digit

returns in 2020, far lower than the

double-digit returns in 2008 but

still generous.

The Fed has so far released de-

tailed data only on TALF’s first

round of loans, though the pro-

gram has since finalized another,

larger round. In all, it had made

$937 million in loans as of last

week, mostly against commercial

mortgage and small business

loan-backed securities. A third

round closes on Thursday, and the

Fed will most likely release addi-

tional data in mid-August.

Pimco’s Cayman Islands-based

fund, which has borrowed via a

U.S.-based entity called TOCU IX,

is one of several foreign investors

using an American investment ve-

hicle to gain access to TALF. The

pension plan of the Oxford Univer-

sity Press Group will tap the pro-

gram through a fund set up by the

New York-based investment man-

ager MacKay Shields. A Singa-

pore-based fund is a material in-

vestor in an offering by the giant

financial firm BlackRock, accord-

ing to the Fed’s first round of de-

tailed disclosures.

The fact that some investors

based overseas can make money

from TALF does not break Con-

gress’s rules, but it may fall shy of

what some lawmakers intended.

They specified that loans, ad-

vances and asset purchases made

under the Fed’s programs should

be restricted to “businesses that

are created or organized in the

United States or under the laws of

the United States.” But they said

nothing about who could ulti-

mately benefit.

“There are going to be people

who focus on this like a laser,” Pe-

ter Conti-Brown, a Fed historian

at the University of Pennsylva-

nia’s Wharton School, said of the

fact that foreign investors in some

cases benefit from Fed programs.

But the reality, he pointed out, is

that financial markets are global.

“Others are going to say that

there’s no way to provide liquidity

without benefiting international

counterparties.”

And while Pimco’s fund and

other foreign investors may profit

by participating in the program,

their investment is also helping to

keep more money flowing into the

Fed’s program, smoothing over

U.S. securitization markets.

That reality has presented a

challenge for the Fed, which has

had to walk a fine line between

creating emergency programs

that are effective while also mak-

ing them politically palatable.

Lawmakers want the Fed to help

the economy, but have also

warned the central bank against

allowing companies to take ad-

vantage of taxpayer-backed fund-

ing.

When Republicans and Demo-

crats were hammering out the de-

tails of their coronavirus rescue

package in March, congressional

leaders agreed to give the Treas-

ury Department $454 billion to

back up Fed emergency pro-

grams.

The Fed requires a Treasury

backstop for many of those ef-

forts, to insure against losses in

case borrowers default. But be-

cause the Fed did not expect to

lose every dollar it lent out, it

could use the $454 billion to field a

huge rescue: potentially more

than $4 trillion in loans to busi-

nesses, states and cities.

The ability to supersize the co-

ronavirus response package was

an attractive proposition. But

many lawmakers in both parties

were wary about handing the Fed

and the Treasury so much money.

Many remembered the 2008 bank

bailouts and the bad taste they

had left behind. They did not want

a repeat.

So Steven Mnuchin, the Treas-

ury secretary, and key lawmakers

agreed to terms that attached

strings to the funding. Companies

borrowing direct loans might be

asked to try to maintain their pay-

roll. Those who borrowed directly

would also be banned from mak-

ing dividend payments, and exec-

utives would face compensation

limits. Only U.S. companies could

borrow.

Those requirements are gener-

ally guidelines rather than bind-

ing rules, given the way the pro-

grams work. The Fed has found it-

self being hammered on both

sides — some lawmakers have

questioned whether the central

bank is precluding companies

from using its programs by being

too strict, while others have

warned it against letting big cor-

porations and Wall Street firms

benefit.

Foreign investor participation

in the TALF program could raise

similar questions from lawmakers

and the oversight groups set up to

police where the funds are going.

Despite Rules, Global Firms Are Making Money on America’s Virus Crisis

FROM FIRST BUSINESS PAGE

Federal Reserve Chair Jerome Powell, left, testified during a House Financial Services Committee hearing on the coronavirus in Washington last month.

Right, the Newport Beach, Calif., offices of the Pacific Investment Management Company, which runs a hedge fund registered in the Cayman Islands.

POOL PHOTO BY TASOS KATOPODIS MIKE BLAKE/REUTERS

UNITEDSTATESBANKRUPTCYCOURT
SOUTHERNDISTRICTOFNEWYORK
In re: THE NORTHWEST
COMPANY,LLC, et al.^1
Debtors.

Chapter 11
Case No.20-10990 (MEW)
(Jointly Administered)
NOTICE OF AUCTION AND SALE HEARING
PLEASETAKENOTICEOFTHEFOLLOWING:

1. On April 18, 2020, the above-captioned debtors and debtors in
   possession (the“ Debtors ”),each filed voluntary petitions for relief pursu-
   ant to chapter 11 of title 11 of the United States Code (the“ Bankruptcy
   Code ”) in the United States Bankruptcy Court for the Southern District of
   NewYork(the“ BankruptcyCourt ”).


2. On July 14, 2020, in connection with the proposed sale (the
   “ Sale ”) of certain assets (the “ Purchased Assets ”) of the Debtors to
   Cathay Home,Inc.(the“ Stalking Horse Bidder ,”or the“ Purchaser ,”as
   defined in the Stalking Horse Agreement) or any other successful bidder
   (the “ Successful Bidder ”) at an auction for the Purchased Assets (the
   “ Auction ”), the Debtors filed a motion (the “ Motion ”), seeking, among
   other things, (i) entry of an order (the “ Bidding Procedures Order ”)^2
   approving the bidding procedures (the “ Bidding Procedures ”) gov-
   erning the Sale; (ii) establishing procedures for the assignment and
   assumption of executory contracts (the“ Assumption and Assignment
   Procedures ”); (iii) payment of the Bid Protections to the Stalking Horse
   Bidderincertaininstancesand(iv)grantingrelatedrelief[DocketNo.184].


3. On July 23, 2020, the Bankruptcy Court entered the Bidding
   Procedures Order [Docket No. 213]. As part of the Bidding Procedures
   Order,the Bankruptcy Court approved the Bid Protections provided to the
   Stalking Horse Bidder. Pursuant to the Bidding Procedures Order, if one
   or more Qualified Bids are received before the Bid Deadline, the Debtors
   and the Committee will jointly conduct an auction (the “ Auction ”) to
   determine the highest or otherwise best Qualified Bid, beginning on
   August 5, 2020 at 10:00 a.m. (prevailing Eastern Time) at the offices
   of Sills Cummis & Gross, P.C., 101 Park Avenue, 28th Floor, New York, New
   York 10178, or such other place and time and manner (including via
   video or any similar manner) as the Debtors shall notify all Qualified
   Bidders that have submitted Qualified Bids (including the Stalking
   Horse Bidder) and the Committee and its counsel. Only the Debtors, the
   Committee, the Consultation Parties, and parties that have submitted
   a Qualified Bid, as set forth in the Bidding Procedures Order, by no later
   than August 3, 2020 at 4:00 p.m. (prevailing Eastern Time) (the“ Bid
   Deadline ”) may participate at the Auction. Any party that wishes to take
   part in this process and submit a bid for the Debtors’assets must submit
   their competing bid prior to the Bid Deadline and in accordance with the
   Bidding Procedures. If no Qualified Bids other than the Stalking Horse Bid
   are received prior to the Bid Deadline,then the Auction will not occur,the
   Stalking Horse Agreement will be deemed the Successful Bid,and,subject
   totheterminationrightsundertheStalkingHorseAgreement,theDebtors
   will pursue entry of an order by the Bankruptcy Court approving the
   Stalking Horse Agreement and authorizing the Sale to the Stalking Horse
   Bidderassoonaspracticable.


4. A hearing to approve the Sale (the “ Sale Hearing ”), if needed,
   will be held at 11:00 a.m. (prevailing Eastern Time) on August 7,2020 ,
   unless otherwise continued by the Debtors pursuant to terms of the
   Bidding Procedures. The Sale Hearing will be held in the United States
   Bankruptcy Court for the Southern District of New York, One Bowling
   Green,New York,NY 10004. The Sale Hearing may be adjourned without
   further notice other than by announcement in the Bankruptcy Court or on
   theBankruptcyCourt’scalendar.


5. Objections, if any, to the Motion and the Sale of the Purchased

Assets to a Successful Bidder, except objections related solely to the

identity of the Successful Bidder, adequate assurance of future perfor-

mance by a Successful Bidder that is not the Stalking Horse Bidder, and

changes to the Stalking Horse Agreement, must be made by July 31,

2020, at 4:00 p.m., prevailing Eastern Time (the “ Sale Objection

Deadline ”). If a Successful Bidder that is not the Stalking Horse Bidder

prevails at the Auction, objections solely to the identity of the Successful

Bidder, changes to the Stalking Horse Agreement, and adequate assur-

ance of future performance must be made by 4:00 p.m., prevailing

Eastern Time on the date that is one days after the conclusion of the

Auction (the “ Supplemental Limited Sale Objection Deadline ”).

In each case, all objections must: (a) be in writing; (b) conform to the

Federal Rules of Bankruptcy Procedure, the Local Bankruptcy Rules for

the Southern District of New York, and all General Orders applicable to

chapter 11 cases in the United States Bankruptcy Court for the Southern

District of New York; and (c) be filed electronically with the Court on the

docket of In re The Northwest Company LLC, et al. ,Case 20-10990 (MEW) by

registered users of the Court’s electronic filing system and in accordance

with the General Order M-399 (which is available on the Court’s website

at http://www.nysb.uscourts.gov); and (d) be served so as to be actually

received by (i) Sills Cummis & Gross P.C.,101 Park Avenue,28thFloor,New

York,NewYork10178(Attn:S.JasonTeele,Esq.andGregoryA.Kopacz,Esq.);

(ii) the Office of the United States Trustee for Region 2, 201 Varick Street,

Suite1006,NewYork,NewYork10014(Attn:ShannonScott,Esq.andSusan

Arbeit, Esq.); (iii) counsel to CIT Group/Commercial Services, Inc., Hahn &

HessenLLP,488MadisonAvenue,NewYork,NewYork10022(Attn:JoshuaI.

Divack,Esq.);(iv) counsel for the Committee,Lowenstein Sandler LLP,1251

Avenue of the Americas,NewYork,NewYork 1002,Attn:Jeffrey Cohen and

Lindsay Sklar;and (v) counsel for the Committee,Lowenstein Sandler LLP,

One Lowenstein Drive,Roseland,New Jersey,07068,Attn:Michael Kaplan

and Jeremy Merkin). Any party who fails to timely file an objection

to entry of the Sale Order (i) shall be forever barred from objecting

thereto, (ii) shall be deemed to consent to the sale of the Purchased

Assets as approved by the Sale Order, and (iii) shall be deemed to

“consent” for purposes of Section 363(f )(2) of the Bankruptcy Code.

6. This Notice and the Sale Hearing is subject to the fuller terms and
   conditions of the Motion and the Bidding Procedures Order, which shall
   control in the event of any conflict,and the Debtors encourage parties-in-
   interest to review such documents in their entirety. Parties interested in
   receiving more information regarding the sale of all or substantially all of
   the Debtors’assets and/or copies of any related document, including the
   Motion, or the Bidding Procedures Order, may make a written request to
   counsel for the Debtors,Sills Cummis & Gross,P.C.,101 Park Avenue,28th
   Floor,NewYork,NewYork 10178,Attention:S.JasonTeele,Esq.and Gregory
   Kopacz, Esq. In addition, copies of the Motion, the Bidding Procedures
   Order and this Notice can be found through PACER on the Court’s website,
   https://ecf.deb.uscourts.gov (registration required), and are on file with
   theClerkoftheBankruptcyCourt,OneBowlingGreen,NewYork,NY10004.
   Dated: NewYork,NewYork, July24,2020
   SILLS CUMMIS & GROSS P.C., /s/ S.JasonTeele,Esq. ,S.JasonTeele,Esq.,
   Gregory A.Kopacz, Esq., 101 Park Avenue, 28th Floor, New York, New York
   10178,(212) 643-7000 (Telephone),(212) 643-6500 (Facsimile),steele@
   sillscummis.com, [email protected], Counsel to the Debtors and
   Debtors in Possession 1
   The Debtors in these Chapter 11 Cases,along with the last four digits
   of each Debtor’s federal tax identification number, are: The Northwest
   Company, LLC (8132) and The Northwest.com LLC (1339).The location of
   theDebtors’serviceaddressis:49BryantAvenue,Roslyn,NewYork11576. 2
   Capitalized terms not otherwise defined herein shall have the mean-
   ingsascribedtosuchtermsintheMotionortheBiddingProceduresOrder.

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