Trends in Financial Restructuring
Illinois have growing debts and this resulted in delayed Medicaid payments to nursing homes and problems in paying up pension obligations. These poor financial conditions resulted in the bankruptcy of retail companies in Chicago such as Sears and the need for financial restructuring and financial capitalization.
1. US loan defaults would remain historically low.
- Leveraged Commentary and Data (LCD) surveyed various portfolio managers about their sentiments regarding loan defaults and found that there is a consensus forecast of lower default rates for the US economy as a whole. The loan default rate is expected to be at 1.82% by March 2020, a 30 bps reduction from the previous quarter’s read.
- 25% of the investors in the December 2018 survey believed that loan default rates would remain historically low until 2020.
2. Chicago and the state of Illinois is having problems paying up pension obligations.
- The state of Illinois is having difficulty paying up its pension obligations despite massive tax increases.
- Chicago has $42 billion in debts, with $28 billion caused by unfunded pension liability. It means that 70% of the city's liabilities are in the form of pension underfunding.
- According to Forbes, Chicago is nearing Detroit's debt levels, which resulted in Detroit declaring bankruptcy.
- Even private companies such as Sears, an Illinois-based retail chain, declared bankruptcy and will close 142 stores despite enjoying multiple tax breaks.
3. Bankruptcy is a growing problem for seniors.
- There is also the growing problem of elders declaring bankruptcy which has had a direct effect on nursing homes and retirement homes. By 2050, almost a quarter of Americans will be senior citizens and data suggests that the bankruptcy trend will continue.
- The rate of people aged 65 and older that are declaring/filing bankruptcy has tripled since 1991. (s2)
4. There is room for growth in restructuring nursing homes in Chicago.
- Bria Healthcare, which owns nine nursing homes in the Chicago area, were hurt by delayed Medicaid payments. Banks refused to lend them money because the company will not be able to return the money.
- Restructuring experts told Reuters that Illinois nursing facilities waited up to nine months to receive Medicaid payment.
- BMO Harris Bank’s Real Estate Finance Group announced a $51 million recapitalization to senior care development in Illinois.
- Eighty four percent (84%) of voters in Illinois say that quality of care among nursing homes in Illinois should be a top priority.
5. Despite healthy profits and strong performance, large US companies are restructuring.
- GM announced a restructuring plan that resulted in the layoff of 14,000 employees all over the US despite strong financial performance.
- This move by GM resulted in increased savings and better agility and flexibility.
- Ford is also cutting 7,000 white collar jobs despite healthy profits. While restructuring, Ford announced a recapitalization of $1 billion for plant improvements in its Chicago South Side area factories.