Bankruptcy Tsunami Begins: Thousands of Default Notices Are ‘Flying Out The Door’

The comments below are an edited and abridged synopsis of an article by Tyler Durden

There is a correlation between defaults and unemployment rates, and the number of Chapter 11 filings likely to flood the US will be huge.

Bankruptcy Tsunami Begins: Thousands of Default Notices Are ‘Flying Out The Door’ | BullionBuzz
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Retail landlords have been sending out thousands of default notices to tenants, who have had a collapse in sales and cash flow due to Covid-19, and are unable to pay their debt obligations.

Rental landlords are suffering, too. An estimated $7.4 billion in rent for April hasn’t been paid, or about 45% of what’s owed. Only a quarter of expected rent payments have been received.

Receiving a default notice doesn’t mean retailers will get booted anytime soon, especially since no one is waiting in line for the real estate. Some landlords are sending letters to preserve their legal rights while discussing the situation with tenants, and to assure their spot as a creditor once the default tsunami begins in earnest.

US retailers have accounted for the bulk of defaults over the past two months, as they were forced to temporarily close stores in response to the Covid-19 pandemic.

Neiman Marcus, J.Crew and J.C. Penney have already filed for Chapter 11 bankruptcy protection, but the real bankruptcy wave was waiting for the Covid-related grace period to end and for the default notices to start flying.

The default letters began arriving in March and early April, but the rate picked up in late April and early May. Some landlords send letters that are understanding and sympathetic; others strike a more combative tone.

What’s interesting is the inaction by landlords afterward. In many cases, the letters aren’t followed up on; the landlords are simply preserving their legal rights.

Others are taking the law into their own hands: Some property owners have run out of patience and have locked out clients. The only thing worse than being a retailer right now is being a retail landlord.

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