The week in GRC: Investors eye employee benefits amid Covid-19, and tussle looms over pandemic liabilities
– The Guardian reported that J Crew was the first major US retailer to file for bankruptcy protection during the Covid-19 shutdown. The brand’s parent company made the Chapter 11 bankruptcy filing in a Virginian federal court as it plans to hand control over to its lenders in exchange for the cancellation of $1.65 billion of debt. J Crew Group CEO Jan Singer said the move was a ‘financial restructuring’ that would enable the business to thrive for years to come.
Singer described the agreement with lenders as ‘a critical milestone in the ongoing process to transform our business,’ adding: ‘As we look to reopen our stores as quickly and safely as possible, this comprehensive financial restructuring should enable our business and brands to thrive for years to come.’
– According to The Wall Street Journal, Senate Republicans’ efforts to protect companies from liability during the pandemic is setting up a battle with Democrats as allies of businesses and labor fight over the terms under which the economy will emerge from its partial shutdown.
Senators returned to Washington, DC this week to start planning the next round of relief for households and businesses. Senate majority leader Mitch McConnell, R-Kentucky, has called liability protections a must-have ‘red line’ for Republicans, saying he won’t support Democrats’ call for further state and local aid without it. ‘We don’t need an epidemic of lawsuits in the wake of the pandemic,’ he said.
– The nine justices of the US Supreme Court were scheduled to participate in oral arguments in 10 cases this week and next week conducted remotely by teleconference rather than in person, Reuters noted. The action, the first time it has been taken, was designed to combat the spread of the coronavirus. In another break with tradition, the court was also providing a live audio feed of the arguments to the news media.
– The WSJ reported that, according to people familiar with the matter, Elliott Management Corp is financing a patent lawsuit against streaming service Quibi founded by Jeffrey Katzenberg. Elliott has agreed to fund a suit brought by interactive video company Eko, which alleges that Quibi is violating its patents and has stolen trade secrets, the people said. Elliott would end up with an equity stake as part of the financing, the people said.
In a statement, a Quibi spokesperson denied that the company infringed on Eko’s patent, calling the lawsuit meritless.
– The SEC announced that it is providing temporary, conditional relief for established smaller companies affected by Covid-19 that may want to meet urgent funding needs through an offering under Regulation Crowdfunding. The changes are designed to expedite the offering process for eligible companies by providing relief from certain rules regarding the timing of a company’s offering and the financial statements required. The relief will apply to offerings launched between the effective date of the temporary rules and August 31, 2020.
– CNBC reported that WeWork co-founder Adam Neumann filed a lawsuit against SoftBank Group and its Vision Fund for terminating a $3 billion tender offer to the office-sharing company’s shareholders. The tender offer was part of a $9.6 billion rescue financing package that SoftBank agreed with WeWork in October and gave it control of the company. Last month, SoftBank said it would not go ahead with the tender offer because several preconditions had not been met, frustrating WeWork’s minority shareholders, who were expecting a payout.
SoftBank’s chief legal officer Robert Townsend called Neumann’s claims ‘meritless.’ Under the terms of the agreement, he said, SoftBank had ‘no obligation’ to complete the tender offer in which Neumann – the biggest beneficiary – sought to sell nearly $1 billion in stock.
– New York Attorney General Letitia James said she has asked 11 major US banks to clarify how they had issued loans tied to the federal government’s $660 billion program to rescue small businesses from the impact of the coronavirus pandemic, Reuters reported. The Paycheck Protection Program (PPP) was intended to help small firms cope with the biggest economic crisis in decades but has been hampered by missing paperwork, technology failure and a misdirection of funds to big companies.
James said she is seeking information on the practices, marketing and procedures that banks undertook when they issued those loans. Also of interest is whether some companies had used their lobbying power to influence how banks dispensed the loans, she said. A spokesperson for James declined to name the 11 banks that had received a letter from the office.
– According to the WSJ, law firms are preparing for a rush of bankruptcies caused by the Covid-19 pandemic. The slowed pace of corporate Chapter 11 bankruptcy filings – which numbered 13,700 in 2009 and was about half that number in recent years – had led restructuring firms to shed bankruptcy lawyers and advisers. But now major law firms are looking to hire bankruptcy lawyers at locations across the country, said Dan Binstock, a partner at Garrison & Sisson who is president of the National Association of Legal Search Consultants.
Restructuring advisory firms are also staffing up. Even as firms shift resources, the pool of available talent is shallow because the bankruptcy practice has been mostly quiet in recent years.
– Reuters reported that Wells Fargo & Co said US agencies are probing its handling of PPP for coronavirus relief. The bank has received ‘formal and informal inquiries from federal and state governmental agencies regarding its offering of PPP loans,’ it said in a regulatory filing without elaborating. A spokesperson declined to comment on the nature of the probes.
Wells Fargo started taking applications for the $350 billion rescue fund on April 4. As of April 27, the bank had submitted more than 100,000 PPP applications to the Small Business Administration for review, a Wells Fargo spokesperson said.
– The European Commission said it wants to boost the EU’s ability to fight money laundering after a series of scandals made the region a financial crime center, according to the WSJ. A proposal laid out by Valdis Dombrovskis, vice president of the commission, calls for either a new supervisory body or new powers for the European Banking Authority (EBA). Member states have already given the EBA some autonomy to deal with the issue, but the EC said this was not sufficient and is seeking the supervisory authority to, for instance, conduct on-site inspections at banks. It will officially roll out the proposal early next year.
– Reuters reported that Sinclair Broadcast Group agreed to pay a $48 million fine to the Federal Communications Commission (FCC) to settle a probe into the company’s abandoned deal to buy Tribune Media. The FCC said it was its largest-ever civil penalty.
The FCC in June 2019 disclosed that it had opened an investigation into whether Sinclair engaged in misrepresentations or a lack of candor in the Tribune deal. The civil penalty also resolves FCC investigations into whether the company met its obligations to negotiate retransmission consent agreements in good faith and its failure to identify the sponsor of content, the FCC said. The FCC said Sinclair has agreed to ‘abide by a strict compliance plan.’
Sinclair CEO and president Chris Ripley said in a statement that the company was pleased with the resolution: ‘Sinclair is committed to continue to interact constructively with all of its regulators to ensure full compliance with applicable laws, rules and regulations.’
– According to the WSJ, companies face pressure from investors to improve employee benefits after the Covid-19 pandemic exposed weaknesses in US labor policy. Investors have looked at how US companies have managed their workforces during the crisis to determine how ready they are for future global emergencies, taking into account issues such as offering paid sick leave, counseling, protective equipment, flexible work and the option to work from home.
‘The current crisis has brought human capital-management strategies to the fore,’ said Ray Cameron, head of BlackRock's investment stewardship team in the Americas. He added that companies are ‘understanding that how they treat their employees today will have a direct impact on their social license to operate in the future.’