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J.Crew Files For Bankruptcy. More Retailers Are Expected To Follow

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When J crew filed for bankruptcy yesterday it got a lot of attention in part. Because it's the first major retailer to fall prey to this pandemic. The company was forced to close five hundred stores and furlough all but two thousand of its thirteen thousand employees but this might not be the end. Other companies are very likely to go under in these times. And let's turn to David Wessel director of the Hutchins Center at Brookings Institution. David Hope you're well good morning so talk to me about J. crew going to bankruptcy court and what what exactly the company is going to be experiencing here well when a company files for protection of the Bankruptcy Court under chapter eleven of the law. It's allowed to not pay its debts. So it can continue to operate in business in the case of J. Crew which also owns a company called made. Well it worked out a deal with its creditors before it went to court. People who'd lent the company nearly two billion dollars essentially get control the company squeezing out to shareholders. Then it borrows more money about four hundred million dollars so we can keep going It's online businesses functioning. And it's planning to open. At least some of its stores. When the Corona virus receives the whole point of chapter eleven is to allow a debt laden company to reorganize and and stay in business. So is this an option that other retailers other companies are going to follow. We're GONNA see more. Companies seeking protection absolutely. American businesses borrowed a lot of money fifteen trillion dollars by one recent estimate when times were good. Many of them are going to have trouble keeping up the payment. It's hard to stay current on your debt when your revenues drive up. Gold's gym filed for bankruptcy this week already the Wall Street Journal says that both Neiman Marcus and JC. Penney have missed some interest payments. And they're talking to lenders about a bankruptcy filing hurts. The car rental company has hired advisors and in the oil and gas industry. Low Oil prices are pushing a lot of the little companies towards the bankruptcy court as well. David you've talked on a program about the hundreds of billions of dollars that Congress approve to try and help small businesses. Wasn't that supposed to try and avoid this. It was and all that aid is GONNA keep some companies out of bankruptcy. But it's not enough for all of them particularly that were already kind of over-borrowed before the corona virus hit and the problem here is this is going to overwhelm the bankruptcy courts. And that's going to have unfortunate side effects. Some companies are going to have trouble finding the money you need to borrow temporarily to keep going while you're in bankruptcy and history suggests when they're lots of business bankruptcies as I expect there will be. The courts tend to put their attention on reorganizing. The big ones and that means little people a little companies had filed for bankruptcy just end up liquidated they sell off their assets with the court supervision and essentially go out of business. What other options out there David to to try and save a company in these times? Well the best option. Of course we'll get the economy going when the virus receipt so they can start selling again. Joe Stiglitz Nobel laureate suggests a super chapter eleven kind of one size fits all plan. David scale a law professor at Paneth suggested that Congress legislate a moratorium on debt payments giving companies and even some families the immediate benefits of bankruptcy without having go through the court and Peter or Zag was the White House budget director in the Obama administration says that because bankruptcy can have such a big effect on suppliers. He suggests government lending to what he calls firms that are two connected to fail doing. Essentially what the government did for GM and Chrysler during the great recession? But none of this is painless. That that is that is true. As we know. David Wessel from the Hutchins Center Brookings. Thanks so much you're

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