A wave of corporate bankruptcies has  claimed 3,604 businesses  in the first half the year, up from 2,855 from the same period last year, according to Epiq Global, a firm that tracks data from US bankruptcy courts. With no vaccine for the virus yet, the coronavirus is still holding back the US economy, and bankruptcy filings are likely to accelerate, experts say.

“Companies in sectors like energy, retail and hospitality will continue to be under substantial pressure and see a lot of bankruptcy filings,” said Peter Friedman, a leading bankruptcy and restructuring litigator at law firm O’Melveny.

A pullback in consumer spending has hit retail stores hard, which were already facing tough competition from e-commerce giants like Amazon. Energy companies have also been hurt as the crisis sapped the demand for oil after travel and economic activity came to a screeching halt.

Under the Paycheck Protection Program, an aid program for small and mid-sized businesses, the government has issued 4.9 million loans totaling $521 billion as of June 30.  The program was set to expire on June 30, but Congress has extended it to Aug. 8.

Experts aid can help sustain businesses, but this model can’t be the panacea.

Despite receiving PPP loans, many companies are still going bust. Toojay’s, a popular Florida-based deli chain that had received $6.4 million in stimulus funds, is one of them. Almost one out of every 12 companies that have gone bankrupt since early April got PPP loans, according to a research firm bankruptcydata.com.

“PPP obviously can be helpful, but fundamentally if there is a loss in revenue or too much leverage on the business, it’s a different picture,” said Friedman.

Many debt-saddled firms could begin to file for bankruptcy under Chapter 11 if the economy doesn’t rebound.

Chapter 11 of the US bankruptcy code allows a troubled company to restructure its debt while continuing to operate. If the company fails to pay its creditors, its assets are liquidated under Chapter 7. June was a particularly bad month for companies this year. Commercial Chapter 11 filings were up 43% over June of last year, with 609 new filings, Epiq Global said. A total of 1,0121 companies were liquidated under Chapter 7 filings this year so far.

One of the biggest corporate casualties under Chapter 11 was Hertz, after stay-at-home orders   whacked its business. Already sitting on $17 billion in debt, the company gave in.

Household retailer J.C. Penney also filed for bankruptcy, after it struggled to service $4 billion in debt. The company has announced to close its 250 stores by the end of summer 2021.

“Going into recession with a heavy amount of debt is almost a recipe for bankruptcy,” Anthony Karydakis, Adjunct Professor at New York University’s Stern School of Business, said.

Karaydakis said companies that managed to survive the intense lockdown period, “are still not out of the woods yet.”

The piling up of debt and falling revenue has left companies teetering on the brink of bankruptcy.  Victoria’s Secret and Best Buy are among many that are on the edge.

US companies have piled on more than $11 trillion in debt over a decade, fueled in part by low interest rates from the Federal Reserve. For companies looking to raise funds, low interest rates make debt attractive because they lower borrowing cost. Cheap debt drives firms to take more debt at low interests from their creditors. But accumulating too much debt can be dangerous, especially when the economy slows.  Experts say many companies are likely to default on their debt payments now that the pandemic has hurt sales.

“Taking debt when the economy is doing ok is relatively manageable, but debt starts becoming a threat to the existence of certain companies when the economy slows down,” Karydakis said.

“Companies can’t hang around without making payments on their debt.”

Karydakis also says as more companies go bankrupt in the coming months there will be more job losses in the US. At 11.1%, unemployment still remains higher than at any point during the Great Recession. Karydakis noted it’s possible bankruptcies could keep unemployment elevated for months to come.

“Companies are going to lay off as more bankruptcies pile up. This will slow the pace of recovering the job market. This is a story that is not going away,” he added.

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To survive the crisis, Disney borrowed $11 billion by selling bonds, joining a growing list of investment-grade companies that have issued over $1 trillion in the first five months of the year.  The amount, equivalent to the worth of bonds sold in 2019, adds to the $10 trillion of the US corporate debt and worries economists, who say some of the debt will blow up and make the economic recovery tough.

 “Corporate debt issuance is crazy at the moment,” said Anthony Karydakis who teaches financial markets at New York University’s Stern School of Business.

Of the $1.038 trillion, debt worth $706 billion was issued by the investment-grade companies between late March and May. The frenzy triggered by Federal Reserve chief Jerome Powell’s announcement that the bank will buy corporate bonds to prop up companies hit hard by the economic shutdown induced by the coronavirus outbreak.

A total of  724 businesses filed for bankruptcy in May, up 48 % as compared to the same month in 2019, said a report by legal-services firm Epiq Global. Among them were major companies like J.C. Penney Co., Neiman Marcus Group Inc., J. Crew Group Inc. and Hertz.

Karydakis said Fed’s “unprecedented” decision to buy corporate bonds was like a “lifeline” to the troubled companies who went on a borrowing binge.

Embattled aircraft maker, Boeing, raised $25 billion in its April offering while oil giant, Exxon Mobil sold $18 billion in bonds after oil prices tanked. General Motors, Ford, General Electrics and others have issued debt in enormous proportions.

Jim O Sullivan, Chief US Macro Strategist at TD Securities, said more corporate debt is “adding to the financial instability down the road.”

“The companies know the Fed is going to keep the interest rate zero for years and years. This helps the borrow at low interest,” said Sullivan. “Already the level of corporate debt was a record high and more borrowing would add to the vulnerability.”

Karydakis and Sullivan agree that Fed’s decision was much needed to salvage the corporations, but they say risk down the road is that some of the debt will blow up.

“You don’t have only GM and other investment-grade companies, but also less-than-stellar rated companies. If they are not outright junk but borderline junk. Some of that debt at some point will not make it,” Karydakis said.

The bonds of many investment- grade companies, like Royal Caribbean, were downgraded to junk status after the pandemic wrought havoc with their business. After raising $3.3 billion, the cruising line has announced to borrow more.

Investment grade is a rating assigned to a company’s bond, which means it involves a low risk of default. Junk bonds are a high-risk debt issued by a financially troubled firm or a start-up. They are also called high-yield bonds.

The Fed has said it will buy investment-grade as well as junk bonds.

Issuance in the US junk bond market through June 12 was a 15-year record high. It was tracking at its busiest pace for any June on record, with $23.88 billion priced through June 12, accordingto S&P Global.  It’s not the only beleaguered business but healthy companies that are scooping up low-interest loans.

Netflix, which benefited from the growing subscribers due to the lockdown, issued $1 billion in bonds to finance more shows and movies. The streaming giant has been issuing bonds before to boost its liquidity. Oracle also raised $20 billion by issuing investment-grade bonds.

Karydakis said if debt issuance stops now, the chances of the US economy to survive will be grim.“Jerome Powell (the Fed chief) has identified this as a risk but didn’t make it as an argument that he would like the debt issuance to stop,” he added.

“It’s a little bit of a trap situation. He is in the middle of throwing the kitchen sink at the whole thing to keep the economy floating,” he said.

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 The three-month shutdown and precipitous fall in revenue have clobbered the business, which before the pandemic averaged around $100,000 in sales each month.   

“The money I am making now is 8% of what I was making before the pandemic,” said owner James Daniel, who reopened his once-thriving restaurant two weeks ago.   

 Social distancing efforts have devastated New York City’s restaurant industry but the crisis is just beginning. Outdoor dining reopens on Monday with the start of Phase 2, but experts still expect to see a wave of closures in the coming months as government aid efforts fail to meet the needs of these businesses.  

 Two-thirds of restaurant owners said in a survey that they would need a 70 % occupancy rate in order to reopen and survive, according to the non-profit NYC Hospitality Alliance. 

 It’s the smaller, independent eateries that are suffering the most. Local bars and restaurants lack the financing options available to large chains that can tap bank loans and investors for more cash.  

 In April, the federal government introduced a $349 billion forgivable loan package called the Paycheck Protection Program to give “mom and pop” shops emergency funds. But less than 20% of requests by small businesses were approved in New York state by May, according to a report by the Federal Reserve Bank of New York.   

 But even those that do receive the money find it coming up short. 

 Daniel said he received a $25,000 loan for Bedford Manor under the PPP, and a $10,000 loan from the Small Business Administration.  

  “That’s $35,000, which I used to make in a week before March,” said Daniel. “I pay $10,000 monthly rent and I don’t even make even a fraction of it. How long can I survive? Maybe another 6 weeks.”   

 Daniel had 13 employees before the pandemic and now has only two.   

 Bedford Manor isn’t alone. New York City has about 26,000 restaurants that employed 169,000 people through February, but employment has since fallen to only 21,000 in April.  

 Laura Gemelli, 36, lost her job at ilili Restaurant in Flatiron after it halted operations in March. 

 “I am surviving on my unemployment benefit, but how long? The restaurant won’t hire in full capacity when they have no customers,” Gemelli said.   

 Some restaurant advocacy groups like Independent Restaurant Coalition are pushing Congress to sign a new $120 billion relief package to salvage the industry. The National Restaurant Association, a powerful lobbying group, has called for Congress to provide $240 billion in urgent relief directly to restaurants.  

 “The government must give another package,” Daniel said, adding that he is afraid customers won’t return due to fear of the virus. 

Fred Jackson, the manager at Mo’s Fort Greene, bar and lounge in Brooklyn, said he applied for a PPP loan but never received any funds. He hopes that when outdoor dining reopens on Monday, enough customers will return to bring the business back to life.  

 “If they don’t come, we can’t survive for more than three months,” Jackson said.  

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“It’s so bad here. The entire market has incurred a monthly loss to the tune of $4 to $5 million,” said Raju Patel, the president of Travel World, a travel agency and president of the Jersey City Asian Merchant Association, an advocacy group for local Asian-owned businesses.

Located along a one-mile stretch on Newark Avenue, India Square has about 95 outlets that range from Indian restaurants and jewelry stores to bars and grocery shops. About 10% of Jersey City’s population is Indian American, a major contributing factor to the thriving businesses at India Square. 

 Once a bustling market thronged by hundreds of patrons every day, it’s now deserted.  High rents and few customers due to the coronavirus, has created huge losses. Store owners said it would take them a  over a year to recover losses incurred during the three-month shutdown. 

 Patel’s travel and tour business has done no business since mid-March. 

 “Who do you think will travel even after the government reopens?” asked Patel.

 The restaurants at India Square have also taken a hit. They didn’t do any business in April. Although many of them started takeout and delivery services in May, their sales were only about 20-25%. 

“We won’t see even a nominal increase in the revenue when we reopen,” said  Satinder Saggar, the owner of Rasoi, a restaurant.

“Why would people come out and eat when there is a threat of the coronavirus?” 

Before the pandemic, Rasoi saw about 70 to 80 patrons on weekdays and over 150 people visited the restaurant on weekends. But business in May dropped 75%. 

“How can a restaurant survive with only 25% of business after making no money for two months? We will survive because we are old in the business,” said Saggar who owns two other restaurants in Jersey City and New York City.    

In phase two of reopening, restaurants are allowed to have only outdoor sitting .   None of the restaurants at India Square have outdoor space so they will continue to have to depend on takeouts and deliveries. 

 Sagar said when Rasoi reopens he would be able to hire back only seven of the  12 employees he had before the outbreak. 

Many business owners said they are pinning their hopes on a  vaccine to salvage their businesses. 

 Some jewelry stores at India Square are facing closure. 

 “Why would someone buy jewelry during this time?  With wedding and other functions being postponed and canceled there is no chance we will get sales,” said Wahid Akbari, 48, who owns Sara Jewelry.  

 The only stores thriving are the square’s grocery stores. 

 “The only thing we worry about is the supply chain that might get affected due to the rising number of coronavirus cases in India,” said Sushma Patel, 41, owner of Apna Bazaar grocery store. 

 Jayesh Modi, who owns a home appliances store, said that the Paycheck Protection Program loan,  a forgivable loan program introduced by the coronavirus stimulus bill,  wouldn’t be of much help if stores don’t do business.

“I got a $15,000 loan. It can help me survive for a while but I need business,” Modi said. “Never have I seen such destruction. Let’s see how many stores reopen on June 15. Some might never(reopen). India Square won’t be the same again.

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The opioid crisis has ravaged several families like the Flanagans in New Hampshire. The state is among the top five with the highest fatality rate linked to fentanyl, a synthetic opioid that is 50 times more powerful than morphine. In 2017, 424 people died as a result of opioid overdose in New Hampshire alone.

Opioid addiction runs in Amanda Flanagan’s family. Photo by Gaurav Sharma

It’s a crisis that has become a campaign issue here. In 2016, President Donald Trump made chronic opioid addiction a central part of his election as did his opponents, the Democrats, who continue to raise the issue in the primary debates this year and their campaigns here. .

The number of fentanyl-related death in New Hampshire has declined since 2017 but the crisis still remains an overwhelming one, costing the state’s citizens, businesses, government and the larger economy billions of dollars.  According to a report by the advocacy group, New Futures, this came to a total of $2.36 billion in 2014, which represents over 3 percent of the state’s gross domestic product.

“There is a significant medical and healthcare cost which goes into treating opioid addiction. This leads to a heavy financial and economic impact on the state,” says Jake Berry, Vice President of Policy, New Futures, adding that these are “conservative estimates.”

“It impacts workers’ productivity because they are not able to go to work. They are losing work hours,’’ he said.

Fentanyl, which is normally prescribed to treat severe cancer and post-surgical pain, has replaced heroin and morphine among the drug users. The substance, used to make synthetic opioid, is often produced in Chinese factories, before entering the United States, a supply link that has added to the strain in U.S.-China ties.  Washington has complained that Beijing is not doing enough to halt the flow to the U.S.

Whatever is happening on the global stage, the picture in New Hampshire remains grim.

“Getting opioid is easier than getting … let’s say even weed nowadays,” Amanda Flanagan, who is 20 years old.

Tears well up in Amanda’s eyes when she recalls how her sister, Kaitlyn, 22, who is an opioid addict, was “selling her body” and was arrested when a sex trafficking ring was broken up by law enforcement.

Lisa A. Marsch, a professor of psychiatry and health policy at Dartmouth’s Geisel School of Medicine, said there is easy availability of highly potent fentanyl products in New Hampshire.

“I think we were the main part of the country that saw fentanyl largely as a solo product emerge early on during the opioid crises,” said Marsh.

“As we saw a big surge in prescribing opioid medication, we created a market demand for it,’’ she added. “When those medicines no longer became available in the community, people started seeking out the combination of fentanyl and heroin.’’

She also said that high doses of opioids are prescribed at a far higher rate in New Hampshire than elsewhere in the nation.

“That’s not the only factor,” said Marsch. “There were economic factors, childhood trauma, and mental health factors that have led to this problem.”

In New Hampshire, most of the drugs are smuggled in from bordering Massachusetts.

Alex Casale, the statewide coordinator for drug court programs throughout New Hampshire, said that around six years ago that drug users turned to heroin because it was cheaper than pain killers.

“Around that time fentanyl came into play, people started to mix fentanyl with heroin, and from that time it got worse and worse,” says Casale.

Adding to the difficulty of ending the opioid crisis is the fact that selling fentanyl is a profitable business.

The U.S. Drug Enforcement Administration said that one kilogram of heroin, which costs between $6,000 to $7,000, is worth about $80,000 in the street market while a kilogram of fentanyl, which can be turned into many different pills, costs less than $5,000 and can be sold for $1.5 million to $2 million. .

“You can have a trunk full of pills equal a small bag of fentanyl. You can make fentanyl in a lab if you have the right ingredients and a couple of workers,” Casale said, adding “the overhead cost is extremely low.

“So, fentanyl is not only cheaper to make but you can also smuggle small amounts and decrease the chances of getting caught,’’ he added.

“You just have a massive profit. It’s hard to get pills now. If you press fentanyl into a pill and water it down with things like flour or powder you can take a bag of that and make hundred pills and sell those for large profits,” he said.

Amanda, who works at a restaurant in New Hampshire’s Wilton town and is striving to lead a normal life after her own struggle with drug addiction, says she is worried about another sister, Nicole.

“Kaitlyn knows she’s got a problem, but Nicole doesn’t admit that she is an opioid addict and there are many like Nicole,” said Amanda.

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