Insight: U.S. public companies seek bankruptcy at fastest 1st-qtr rate since 2010
14/04/2015 20:52
By Tom Hals
WILMINGTON, Del, April 14 (Reuters) - The number of
bankruptcies among publicly traded U.S. companies has climbed to
the highest first-quarter level for five years, according to a
Reuters analysis of data from research firm
bankruptcompanynews.com.
Plunging prices of crude oil and other commodities is one of
the major reasons for the increased filings, and
bankruptcy experts said a more aggressive stance by lenders may
also be hurting some companies.
While U.S. stocks have climbed to near record levels and the
jobless rate has fallen to a six-year low, 26 publicly traded
U.S. corporations filed for bankruptcy in the first three months
of 2015. The number doubled from 11 in the first quarter of last
year and was the highest since 27 in the first quarter of 2010,
which was in the immediate aftermath of the financial crisis.
In addition, many of the bankruptcies were large. Six
companies had reported at least a billion dollars in assets when
they filed in the first quarter of this year, the most in the
first quarter of any year since 2009.
The $34 billion in assets held by the 26 companies is the
second highest for a first quarter in the past decade. The
highest was the $102 billion held by the public companies that
filed in the first quarter of 2009 when the crisis was at its
worst.
Restructuring and turnaround professionals said their phones
are ringing more often after some of the slowest years ever in
the business. For all of 2014, only 54 publicly traded
corporations filed for bankruptcy, the lowest number since at
least 1980, according to the research firm.
The bulk of the bankruptcies have links to resources,
particularly oil prices that have fallen by about half since the
middle of last year. Commodity-related bankruptcies included
Allied Nevada Gold Corp, BPZ Resources Inc, Dune Energy Inc,
Quicksilver Resources Inc, Sierra Resource Group Inc and USA
Synthetic Fuel Corp.
"Come down to Houston," said William Snyder, the Texas-based
leader of the Deloitte Corporate Restructuring Group in
reference to America's energy capital. "You'll see there is just
a stream of consultants and bankruptcy attorneys running around
this town."
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic showing public company bankruptcy filings:
http://reut.rs/1ND44BC
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The bankruptcies included the operating unit of the largest
U.S. casino company, Caesars Entertainment Corp, retailer
RadioShack Corp and Altegrity Inc, a security services firm.
Many of the public companies filing for bankruptcy are the
walking wounded of corporate America. Caesars operating unit,
for example, has been unprofitable for five years.
Body Central Corp, a chain of 265 Body Shop and Body Central
women's clothing stores and the owner of the Sexy Stretch and
Lipstick Lingerie labels, was too broke for bankruptcy. It
opted for a state court process known as an assignment for the
benefit of creditors - essentially a cut-rate liquidation.
Bankruptcy filings had plunged since the U.S. Federal
Reserve slashed interest rates during the 2008-09 financial
crisis. The Fed's quantitative easing program, which pumped
trillions of dollars into the economy between 2008-2014, also
led to an easy money environment.
Bankruptcy specialists said this allowed weaker companies to
limp along and others to boost earnings by piling on debt -- and
risks. When a shock arrives, such as a plunging commodity
prices, the companies are unable to cushion the blow.
PULLING THE PLUG
Many bankruptcy professionals said lenders are becoming
quicker to pull the plug than they were several years ago.
"In a better economy banks are in better position to take
losses," said George Segall of Versa Capital Management, which
buys assets out of bankruptcy. "The value of loan collateral has
risen."
The experts are divided on whether the figures indicate a
turning point or whether the first quarter reflects a temporary
blip.
If the pace of the first quarter continues, 2015 will end
with more than 100 public company bankruptcies. The last time
they reached that level was the 106 recorded in 2010, though in
2009 they soared to 211. The median number over the past decade
is 86.
Bankruptcy filings, though, are just one measure of
corporate distress. Restructuring specialists said many more
companies are trying to renegotiate looming debt maturities or
loan covenants, particularly energy companies that are hoping
oil prices will rebound.
"There is a ton of activity under the water," said Jon
Garcia, the global leader of McKinsey RTS, a firm that provides
turnaround management services. He said a sharp rise in the U.S.
dollar was squeezing American exporters, creating another
potential strain.
Firms such as Garcia's and rivals AlixPartners, Alvarez &
Marsal and FTI Consulting often provide managers who are brought
into a company to help head off trouble that could lead to a
Chapter 11 bankruptcy filing.
For firms like these, recent years have been marked by
layoffs and belt-tightening. Now some are ready to hire again.
Garcia said he now spends about a third of his time on
recruitment. Nathan Cook, a managing director at AlixPartners,
said his firm is looking to add people in energy and healthcare,
where shifts in government and private insurers' reimbursement
rates have piled pressure on hospital finances.
There is a marked increase in troubled situations "primarily
as a consequence of the drop in oil prices," said Tim Coleman,
who heads restructuring and reorganization at Blackstone, an
investment and advisory firm.
Among those hurt by the lower energy prices was marine
contractor Cal Dive International. It was doing manned
underwater construction work on offshore oil platforms in Mexico
last year when bad weather hit, pushing back the completion and
an expected payment of $72.5 million for the project.
As the company sought cash to carry it over, it got hit
again, this time by tumbling oil prices that spooked its
lenders, eventually forcing it into bankruptcy in March.
"It wasn't necessarily that their project and business
outlook were materially impacted in the near term but they were
unable to refinance," said Suzzanne Uhland, a bankruptcy
attorney with O'Melveny & Myers who is representing Cal Dive.
More bankruptcies obviously carry costs. The recent filings
by retailers Alco Stores, Body Central, Cache Inc, dElia*s, Deb
Shops, RadioShack and The Wet Seal Inc, many of which were sunk
by aggressive Internet competition, eliminated about 33,000
full-time and part-time jobs.
But Kenneth Buckfire, the president of Miller Buckfire, an
investment bank that specializes in corporate restructuring,
said there is also a cost to propping up companies. While that
protects shareholders, who generally lose their investment in
Chapter 11, it prevents an ailing company from retooling.
"Companies are paying down debt or managing cash rather than
investing in new products," said Buckfire.
(Reporting by Tom Hals in Wilmington, Delaware; Editing by
Martin Howell)
((thomas.hals@thomsonreuters.com; +1 610 544 2712; Reuters
Messaging: thomas.hals.thomsonreuters.com@reuters.net))
Keywords: USA BANKRUPTCY/INCREASE