2016 bankruptcy review

March 2017 | DEALFRONT | BANKRUTPCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Though the number of bankruptcy filings since the financial crisis has fallen sharply in recent years – due to a combination of low interest rates, easy access to financing, an abundance of out-of-court settlement alternatives and an improving economy – they are still an ever present feature of modern corporate life. Indeed, 2016 was a notable year for business bankruptcies in the US, according to a new report from BankruptcyData, a division of New Generation Research, Inc.

In BankruptcyData’s latest report – ‘Quarterly and Annual Report of Business Bankruptcy Filings 2016’ – there was a 26 percent increase in both public and private business bankruptcies compared with 2015.

There was an increase in Chapter 7 and Chapter 13 bankruptcies. While the number of Chapter 11 reorganisations continued to rise, it was by less than other types of filings. In total, 99 public companies with around $105bn in assets filed for Chapter 7 or Chapter 11 protection last year – the largest number of public company filings since 2010. Delaware remained a popular location, seeing the largest percentage of public Chapter 11s, with the court in Wilmington presiding over 42 percent of all public proceedings in 2016.

Sixty-eight percent of the largest Chapter 11 bankruptcies in 2016 came from the oil & gas, mining and energy sectors. More than 80 public companies operating within these sectors filed for bankruptcy protection.

Texas saw the greatest percentage of overall bankruptcy filings, thanks, in part, to the large number of energy filings in the state. Thirty percent of all energy filings last year came from firms in that state. Moreover, the five largest public company Chapter 11 filings of 2016 were all energy-related. SunEdison, Inc, – though SunEdison categorises itself as being from the electronics industry – led the way with assets of $11.5bn, followed by Peabody Energy Corporation with $11bn, LINN Energy, LLC with $9.9bn in assets, Arch Coal, Inc. with $8.4bn and Breitburn Energy Partners LP with $4.9bn.

As a result of the bankruptcies of industry heavyweights such as Peabody Energy Corporation and Arch Coal, Inc., the largest percentage increase in number of filings in 2016 compared to the previous year was in Missouri. In total, Texas saw 12.13 percent of all bankruptcy filings, California 11.60 percent and New York 10.23 percent.

The service industry, the US’ largest employer, generated the highest percentage of bankruptcies in Q4 2016 at 27 percent, with 28 percent for 2016 overall. This was down 20 percent from 2015 and has been dropping consistently since 2013. The finance, insurance & real estate industry generated 18.18 percent of 2016 filings, while the retail space accounted for 12.99 percent. Smaller companies – those with less than $2.5m in sales – generated 68 percent of all bankruptcies.

BankruptcyData believes that, for now at least, filings in the energy sector may subside. George Putnam, founder and publisher of New Generation Research, Inc.’s The Turnaround Letter and BankruptcyData, wrote: “While we believe that overall bankruptcy activity will remain at a high level for the foreseeable future, we think that filings in the energy sector may have peaked. They won’t dry up overnight however, and we anticipate that energy bankruptcies will gradually decline over the next 12 to 18 months”.

Looking ahead, BankruptcyData expects 2017 to maintain the level of activity recorded last year. Though some sectors, such as energy, will likely become less active in 2017, BankruptcyData still expects a flurry of activity as companies with too much debt in 2009 begin to face ominous maturities. “We anticipate an active bankruptcy season in 2017 and beyond”, predicts Linzee Brown, president of New Generation Research.

Richard Summerfield