Energy XXI files for Chapter 11

BY Richard Summerfield

Energy XXI has become the latest oil & gas producer in the US to file for Chapter 11 bankruptcy protection. According to a statement, the company hopes to eliminate more than $2.8bn worth of debt during its restructuring.

Court documents filed in Houston, Texas note that prior to the filing the company had agreed a deal to secure a $1.45bn debt-for-equity swap with a group of its bondholders.

Energy XXI, which employs around 300 people, will continue to honour employee and vendor payments as it has sufficient liquidity of around $180m of cash on hand. Energy XXI will also be able to utilise funds generated from ongoing operations to support the business in the ordinary course during the financial restructuring process.

Much like many of its rivals, Energy XXI has been struggling to keep its head above water for some time; since the collapse of crude oil prices, it has been forced to slash its budget by almost half, reduce costs, cut its workforce from nearly 500 last year, and divest assets. However, these measures appear to have been insufficient. The price of crude has hovered around $40 for some time, and, according to data from Reuters, it needs to be at least $60 for Energy XXI to break even.

In March the company announced that it was delaying an interest payment due on debt of one of its subsidiaries, a decision that began a 30 day grace period. However, discussions between the company and a number of its major unsecured creditors are believed to have begun in summer 2015. At the end of February, the company said it had been warned it could be delisted from the Nasdaq Stock Market as a result of ongoing financial difficulties.

In order to execute the Chapter 11 restructuring, Energy XXI entered into a restructuring support agreement with holders of more than 63 percent of the company’s secured second lien 11.0 percent notes. The agreement will facilitate the removal of all of the company’s debt other than its first lien reserve based loan facility.

Energy XXI must file a reorganisation plan by 16 May and have it approved by the judge overseeing the case by 8 August.

News: Energy XXI Files for Bankruptcy After $5 Billion Expansion

Bankruptcy snapshot reveals US filings up 46 percent in 2015

BY Fraser Tennant

The US business bankruptcy landscape saw bankruptcy filings increase by 46 percent in 2015 — due primarily to a challenging energy sector environment — according to a report released this week by BankruptcyData.com, a leading provider of information on companies in bankruptcy.

In the ‘Q4 2015 Business Bankruptcy Filings Report’, which breaks down business bankruptcy filings into factors such as industry, sales volume, company size, liability and asset ranges and public and private filings, a total of 79 publicly traded companies (with $81bn in combined pre-petition assets) are revealed to have filed for Chapter 7 or Chapter 11 protection in 2015.

Furthermore, eight of the 10 largest Chapter 11 filings were initiated by companies operating in the oil and gas, mining and related sectors — a substantial 51 percent of the total public bankruptcies seen in 2015. Overall, 40 of the 79 filings involved oil and gas and mining companies.

However, despite this significant uptick, the total assets entering Chapter 11 in 2015 increased only marginally in comparison with 2014; due, in the main, to the $40bn bankruptcy of Energy Future Holdings.

The analysis also shows that six of the publicly traded filings have assets above $3bn (compared to two filings the previous year) while there were 19 bankruptcies with assets over $1bn (compared to 11 the year before).

Looking forward to what 2016 has in store for the business bankruptcy landscape, many analysts, including distressed securities investor George Putnam, expect to see a further increase in activity in US bankruptcy courts.

"There could be a number of additional companies getting ready to file in 2016," said Mr Putnam. “The face amount of bonds that have not yet defaulted but are trading below 50 cents on the dollar jumped to about $80bn in December, a more than five-fold increase during 2015 and the highest level since the 2008-09 financial crisis."

In terms of overall US Bankruptcy Court trends, the BankruptcyData.com report notes that the 2015 figures represent approximately 33 percent of the business bankruptcy activity seen in 2009.

BankruptcyData.com said: “Low interest rates, a robust capital market with easy access to financing, out-of-court settlement alternatives, a slightly improving economy, the perceived cost of filing for bankruptcy and tighter bank lending decisions have driven the number of bankruptcy filings down over the last six years.

“Additionally, the recession eliminated many of the troubled companies, so the remaining relatively healthy businesses are able to borrow with little fear of raising rates keeping the filing rates down.”

Report: Quarterly Report of Business Bankruptcy Filings - Period Ending December 31, 2015

Phenomenon of 'too big to fail' banks at an end following regulatory action by FSB

BY Fraser Tennant

In a move that brings about the end of the phenomenon of banks being ‘too big to fail', the  Financial Stability Board (FSB) has this week unveiled its final Total Loss-Absorbing Capacity (TLAC) standard for global systemically important banks (G-SIBs).

The TLAC standard issued by the FSB, the body that coordinates regulation across the Group of 20 economies (G20), is essentially a buffer that will allow a big bank to fail whilst ensuring that no economic disorder ensues, as it did at the height of the 2007-09 financial crisis.

To do this, failing G-SIBs will be given access to sufficient loss-absorbing and recapitalisation capacity available for authorities to implement a resolution that minimises impacts on financial stability, maintains the continuity of critical functions, and avoids exposing public funds to loss.

Furthermore, the TLAC standard states a minimum requirement for G-SIBs bail-in but does not limit authorities’ powers to expose other liabilities to loss through bail-in or the application of resolution tools other than the TLAC. G-SIBs will also need to meet the TLAC requirement alongside the minimum regulatory requirements outlined in the Basel III framework (a comprehensive set of reform measures developed by the Basel Committee on Banking Supervision (BCBS)).

The existence of the TLAC tool follows on from the G20’s request in the wake of the financial crisis for the FSB to undertake a program of reforms such as increasing bank capital requirements, making derivatives markets more transparent and keeping a tighter rein on bankers' bonuses.

“The FSB has agreed a robust global standard so that G-SIBs can fail without placing the rest of the financial system or public funds at risk of loss," said Mark Carney, chair of the FSB. “This new standard, which will be implemented in all FSB jurisdictions, is an essential element for ending too-big-to-fail for banks. The economic impact assessments conducted as part of the detailed policy work shows that the economic benefits of the final standard far outweigh the costs.”

The FSB’s consultation period on a proposed standard on TLAC began in November 2014 in consultation with the BCBS; the final standard (November 2015) features numerous changes made following the consultation and impact assessment studies (also published this week).

In a letter to G20 leaders ahead of next week’s summit in Turkey (15 to 16 November), Mr Carney said that "countries must now put in place the legislative and regulatory frameworks for these tools (the TLAC standard) to be used."

News: G20 finalizes tools for ending 'too big to fail' banks

Q3 2015 sees US corporate bankruptcies plateau

BY Fraser Tennant

The prevalence of corporate bankruptcies in the US – which has been declining steadily over the past seven years – has now largely levelled off according to new figures released this week by BankruptcyData.com.

The ‘Q3 2015 Business Bankruptcy Filing Report’ – which provides a snapshot of the most recent quarter's business bankruptcy landscape – reveals that there were 22,680 corporate bankruptcy filings in the first three quarters of 2015, a 16 percent drop in comparison to Q3 2014 (26,992 filings).

Furthermore, the BankruptcyData.com report highlights the fact that there has been an average of 120 filings per business day so far in 2015, with March proving to be a particularly busy month for bankruptcies among public and private companies.

Drilling-down, the filings in the report are broken down into elements such as industry, sales volume and company size, so that insight into the most recent activity in the business bankruptcy sector can be drawn.

In terms of industry, key findings in the report include the disclosure that: (i) the service industry (the US economy's biggest employer) generated the largest percentage of overall bankruptcies in Q3 2015 with 34.78 percent; and (ii) the service industry's 2015 year-to-date bankruptcy figure of 35.95 percent is down 10 percent from the same time period in 2013, reflecting the relative health of the industry compared to other sectors like manufacturing and finance/insurance/real estate – the bankruptcy percentage figures of which have grown over the past year.  

The report’s figures also highlight the recent surge in mining and energy–related bankruptcies, with the mining sector recognised as having generated 10 percent of overall bankruptcies in Q3 2015 (typically this figure is 1 to 2 percent).

Elsewhere in the report, the small business sector, often considered the ‘backbone of the economy’ in the US, is revealed as having seen the most bankruptcies in Q3 2015, with 75 percent of all business bankruptcies filed by companies with $2.5m in sales or less. Likewise, businesses with less than 50 employees generated 84 percent of all bankruptcies in Q3 2015.

Additional key findings include that for the first time in several quarters, New York has surpassed California as the state that contributes the largest percentage of overall bankruptcies, generating 14.53 percent in Q3 2015. The state of Virginia also experienced a large jump in their percentage of overall bankruptcies: moving from 1.76 percent of all bankruptcies in Q1 2015 to 7.59 percent in Q3 2015.

Whilst forecasting that the downward spiral of bankruptcies seen in recent years is likely to continue, the BankruptcyData.com report does provides a word of warning for sectors and industries: “Other factors could lead to an eventual increase in bankruptcies across all sectors: interest rates will eventually rise and reach a point at which they will prevent the small to mid-sized business owner from taking on more debt and bankruptcy will have to be considered. The number of over-leveraged balance sheets continues to grow, which means a distressed cycle may not be too far off.”

Report: BankruptcyData.com – QUARTERLY REPORT of Business Bankruptcy Filings

US corporate bankruptcies down

BY Richard Summerfield               

According to a report from BankruptcyData.Com, a division of New Generation Research, the number of firms falling down the slippery slope to bankruptcy in the US has dwindled over the last two quarters.

Business bankruptcies in the first half of 2015 were 19.2 percent lower than the first six months of last year and  68 percent lower than the first six months of 2010.

Despite the trend, public companies are still struggling. The report indicates that the number of Chapter 11 filings by public companies in H1 2015 reached its highest midyear level since 2011, and the total assets of companies entering bankruptcy, with the exception of financial companies, are at their highest levels since 2009. Furthermore, the 10 non-financial Chapter 11 filings involving assets above $1bn so far in 2015 is the highest at this point in the year since 2009.

Unsurprisingly, SMEs accounted for the majority of bankruptcy filings in the first half of the year, although the number of small companies encountering financial difficulty has begun to trend downwards. Seventy-six percent of all business bankruptcies recorded in the first half of 2015 were filed for by companies with $2.5m or less in gross sales revenue; though this figure is still high, it compares favourably with 2013 and 2014 which respectively saw 81 percent and 87 percent of bankruptcy filings stemming for smaller companies .

The bankruptcy filing of Caesars Entertainment, the largest unit of Casino giant Caesars Entertainment Corp, was the largest Chapter 11 filing of the first half of 2015. The company entered bankruptcy protection in January listing assets of $1.5bn.

The service industry was responsible for the most bankruptcy filings in Q2, at 31 percent. However, this figure is down from Q2 2014 and Q2 2013, which saw the service industry generate 37 percent and 43 percent of filings.

Report: Q2 2015 Business Bankruptcy Filing Report