In the U.S., some sectors are faring much worse than others, with restaurants, retailers, entertainment companies, real estate firms and oil and gas ventures filing for protection in far greater numbers than in previous years, according to New Generation Research. Bankruptcies filed by entertainment companies in 2020 nearly quadrupled, and filings nearly tripled for oil and gas companies, doubled for computer and software companies and were up 50 percent or more for restaurant owners, real estate companies and retailers, compared with 2019. Among those industries most affected, there were 5,236 Chapter 11 filings in 2019 but 6,917 last year, a tally at least 30 percent higher than any of the previous four years.
Economists are predicting strong economic growth this year overall. But the bankruptcy data show that despite $3.7 trillion in federal stimulus spending and another $1.9 trillion by President Biden, businesses in certain industries have become particularly vulnerable.
Because bankruptcy filings lag other signals of
economic distress, experts say the worst may be yet to come. Bankruptcies
stemming from the 2007 financial crisis didn’t peak until 2010.
“Bankruptcies don’t cause damage to the economy," said Ed Flynn, a consultant to the American Bankruptcy Institute. "The damage has already been occurred when the bankruptcy is filed. Higher bankruptcies are more a symptom of economic harm than the cause.”
Hundreds of bankruptcies that have already taken
place are clearly a by-product of the pandemic and its nearly year-long squeeze
on the economy. Many of them will not recover. Over the summer, chain retailers
became some of the biggest names to file for Chapter 11, among them J. Crew, Neiman
Marcus, J.C. Penney, Brooks Brothers and Lord and Taylor. In June and July,
there was an average of more than two corporate bankruptcy filings per day,
according to S&P Global.
When one looks at the top 15 bankruptcies filed in
2020 it becomes clear that these businesses were struggling long before the
pandemic hit. For all of them, a combination of some or all the typical and
painful remedies against financial insolvency—layoffs and budget cuts, sales of
assets, refinancing or restructuring of debt—ensued. The top 15 were as
follows:
15) NEIMAN
MARCUS GROUP
Country:
United States
Liabilities:
$6.79 billion
The American chain of luxury department stores,
which also owns New York landmark Bergdorf Goodman, became the first
highest-profile retailer to apply for bankruptcy protection when it filed for
Chapter 11 on May 7.
Neiman Marcus had been struggling financially for a
long time. Yet, the Dallas-based group proves that bankruptcy can be an
opportunity to refocus and reorganize the business. Under a restructuring plan
which eliminated more than $4 billion of its debt, the group managed to emerge
from Chapter 11 in September.
14) J.C.
PENNEY
Country:
United States
Liabilities:
$7.16 billion
Over 840 locations across the United States, 90.000
employees, 118 years in business. On May 15, barely a week after Neiman Marcus,
J.C. Penney filed for Chapter 11 bankruptcy protection.
Like its upscale rival, the discount store chain has announced it emerged from bankruptcy after being acquired by mall owners Simon and Brookfield. One-third of its stores will be closed and 20,000 workers laid off, but that is the high price of survival. A majority of J.C. Penney's workforce will get to keep their jobs.
13) AVIANCA
Country:
Colombia
Liabilities:
$7.27 billion
Founded in Colombia in 1919, the world’s
second-oldest carrier (behind the Dutch KLM) and Latin America’s second-largest
filed for Chapter 11 in New York on May 10. Along with many historic airlines,
Avianca had been facing competition from low-cost operators for years. To stay
in business, it plans to cut routes and let go of up to 40% of its fleet.
12) NORWEGIAN
AIR
Country:
Norway
Liabilities:
$7.34 billion
Norwegian Air, the pioneer in discounted
transatlantic flights, entered into administration in December. Years of
aggressive, credit-fuelled expansion left the company vulnerable to shocks. In
the second quarter of 2020, the carrier’s passenger numbers collapsed by 99%
due to the pandemic and it became impossible for them to make debt payments in
full and on time.
11) SEADRILL
LIMITED
Country:
United Kingdom
Liabilities: $7.3 billion
The crash in oil demand prompted by lockdowns and travel bans forced numerous energy firms to declare bankruptcy. Seadrill—a rig contractor managed from London but incorporated in Bermuda for tax purposes and controlled by Norwegian billionaire John Fredriksen—filed for Chapter 11 in December.
10) DIGICEL
Country:
Jamaica
Liabilities:
$7.4 billion
Digicel mobile phones are ubiquitous in the Caribbean. Yet, the company has been battling declining revenues and increasing operating costs for years. The reason? The industry-wide trend of declining high-margin voice revenue versus increasing low-margin data usage among its subscribers. Digicel cable television and broadband businesses, also, have not been able to offset the losses in phone operations.
9) VALARIS
Country:
United Kingdom
Liabilities:
$7.85 billion
Many oil and gas firms have defaulted on their debt. Among them, the largest offshore and well drilling company in the world, London-based Valaris, which filed for Chapter 11 bankruptcy protection on August 19.
8) MCDERMOTT
INTERNATIONAL
Country:
United States
Liabilities:
$9.86 billion
McDermott International to default on its loans. A
casualty of low prices and record-breaking debt, McDermott entered Chapter 11
reorganization in January. It has since then emerged from proceedings through a
restructuring plan that included the sale of its subsidiary Lummus Technology.
7) THAI
AIRWAYS
Country:
Thailand
Liabilities:
$10 billion
Thailand's national carrier used to be known for
having the best service among Asian airlines. Not anymore, according to its
customers, and that might have to do with the fact that Thai has recorded net
losses for seven of the past 10 years, making it difficult to invest on the
necessary improvements and upgrades. In May petitioned for bankruptcy
protection (or “debt rehabilitation,” as it is called in Thailand) claiming
an estimated debt burden of 300 billion baht at the time of the filing, roughly
equivalent to $10 billion.
6) CHESAPEAKE
ENERGY CORPORATION
Country:
United States
Liabilities:
$11.79 billion
A decade ago, Oklahoma City-based Chesapeake Energy
helped turn the US into a global powerhouse by pioneering fracking, the
technique of extracting oil and gas from rock formations by injecting
high-powered water and chemicals. By the end of June this year, buried under a
mountain of debt, it was bankrupt and delisted from New York Stock Exchange.
5) ASCENA
RETAIL GROUP
Country:
United States
Liabilities:
$12.5 billion
What can amass more debt than a large retail chain?
An umbrella company that owns several retail chains, of course. That is the
case of Ascena, which filed for bankruptcy in July, and counted among its
subsidiaries household names such as Ann Taylor, Loft, Lou & Grey and Lane
Bryant. In November, Ascena announced that the private equity firm Sycamore
Partners had agreed to acquire and relaunch the portfolio of brands with the
commitment to retain about 900 of the 1,500 retail locations throughout the
U.S.
4) INTELSAT
Country:
Luxembourg
Liabilities:
$16.8 billion
The global pandemic forced the already struggling
Luxembourg and Virginia-based satellite operator to file for Chapter 11 in May.
What does Covid-19 have to do with satellites? Most
broadcast and cable tv providers in the U.S. rely on Intelsat to distribute
their programming, but the near-total absence of live sporting events had a
major impact on the company. The ban on traveling weighed on its revenues as
well, as an important portion of the business is represented by communication
services to aviation and maritime industries.
3) LATAM
AIRLINES
Country: Chile
Liabilities:
$17.96 billion
It is the largest airline in South America and the largest to enter into administration this year globally. With its affiliates in Brazil, Peru, Colombia, Ecuador and the U.S., Latam Airlines filed for Chapter 11 bankruptcy protection in New York in May. It faced many of the same problems by its counterparts in the region and around the world during the pandemic, except its pile of debt was much, much greater.
2) FRONTIER
COMMUNICATIONS
Country:
United States
Liabilities:
$21.86 billion
The internet, TV and phone company initiated
business rescue proceedings in April. With a debt burden—according to
consultancy firm BankruptcyData—close to $22 billion, it is the biggest telecom
bankruptcy since the Worldcom Inc. fiasco in 2002.
Frontier operates in 29 states across the U.S. in
predominantly rural areas and small and medium-sized cities. Amid costly
acquisitions and countless complaints of poor-quality service, its financial
collapse has been several years in the making. Bankruptcy proceedings, while
likely to save the company, won’t make customers’ wifi any faster.
1) HERTZ
Country:
United States
Liabilities:
$24.3 billion
“The impact of Covid-19 on travel demand was sudden
and dramatic, causing an abrupt decline in the company's revenue and future
bookings,” said Hertz Global Holdings in a statement on May 22. The same day,
the company—which began in Chicago in 1918 by renting a dozen Model T Ford
cars—filed for Chapter 11 in Delaware. By then, Hertz had already furloughed or
laid off 20,000 employees, or about one-half of its global workforce.
There are also others in Malaysia which may survive
because of cash infusions by the Government or “work-outs” with banks. Recovery
and vaccines will determine fate of many. Meanwhile, over 60,000 SMEs may have collapsed
up to early this year. Some may never come back and others may return with new
entrepreneurs, who have not seen any scary downturns. Remain cautious and
vigilant.
References:
1. The wave
of Covid bankruptcies has begun, Jonathan O’Connell and Anu Narayanswamy,
The Washington Post, Feb 26, 2021
2. The
world’s biggest bankruptcies in 2020, Luca Ventura, Global Finance, Dec 29,
2020
No comments:
Post a Comment