U.S. bankruptcies are on pace to hit their worst levels in 10 years, with experts expecting even more companies to suffer as the coronavirus pandemic stifles economic activity.
A total of 424 companies have gone bankrupt this year as of Aug. 9. This exceeds the number of filings during any comparable period since 2010 as the U.S. economy contracts and the coronavirus takes its toll on numerous industries, especially those relying on consumer spending.
S&P Global Market Intelligence's bankruptcy analysis includes public companies or private companies with public debt. Public companies included in the list of companies with public debt must have at least $2 million in either assets or liabilities at the time of the bankruptcy filing. In comparison, private companies must include at least $10 million.
Companies that have gone bankrupt recently include Men's Wearhouse owner Tailored Brands Inc., which filed a Chapter 11 petition Aug. 2; Prysm Inc., which develops large display screens; oil driller Fieldwood Energy Inc.; and Summit Gas Resources Inc., which acquires, explores and develops domestic onshore natural gas reserves.
Apparel retailer Tailored Brands filed for bankruptcy after securing a restructuring agreement that could cut the company's debt by at least $630 million, with more than 75% of its senior lenders. Prysm sought bankruptcy protection with a prepackaged reorganization plan, under which Texas-based investment company ESW Capital LLC has agreed to acquire its cloud-hosted collaboration software business for at least $12 million.
Summit Gas Resources filed for Chapter 11 bankruptcy protection in July with assets of $33.72 million and liabilities of $6.24 million at the time of filing. Fieldwood Energy filed a Chapter 11 petition in August, marking its second turn to bankruptcy after its first filing in 2018.
Bankruptcies have impacted a wide swath of sectors so far in 2020 amid the coronavirus pandemic, though consumer-focused industries were disproportionately hurt.
Over 100 consumer-focused companies went bankrupt this year. This included high-profile filings of retailers like Ascena Retail Group Inc., J.Crew Group Inc., Lord & Taylor LLC, J. C. Penney Co. Inc. and Neiman Marcus Group Inc.
Some of the companies that sought bankruptcy protection were already facing issues before coronavirus, and the crisis accelerated the pressure, experts said.
"Anybody who was more physical or in trouble in the retail space to begin with got hammered and they're there," John Blank, chief equity strategist for Zacks Investment Research, said in an interview.
Melanie Cyganowski, a partner at New York-based law firm Otterbourg, said via email that the pandemic also affected companies in sectors such as energy and industrials, demonstrating that the "economic impact is deep and far-reaching."
Industrials and energy combined account for nearly 100 bankruptcies, including filings from the likes of car rental firm Hertz Global Holdings Inc., marine transportation service provider American Commercial Lines Inc., and oil and gas companies Fieldwood Energy LLC and Ultra Petroleum Corp.
Overall, 35 companies that filed for bankruptcies year-to-date reported more than $1 billion in liabilities. These companies include in-flight entertainment provider Global Eagle Entertainment Inc., which filed a Chapter 11 petition July 22 with plans to sell all its assets to lenders including Apollo Global Management Inc.; small-engine maker Briggs & Stratton Corp., which filed for bankruptcy with a pre-agreed sale of assets to KPS Capital Partners LP; and oil and gas producer Chesapeake Energy Corp.
Experts expect to see more bankruptcies, especially in consumer-facing industries.
"Brick-and-mortar retail is not gonna work out," Blank said, adding that airlines and regional banks with overexposure to retail could "blow up" without government assistance.
The year is going to "see more pressure on the retail sector coming on as well as small businesses," Lauren Henderson, economic analyst at Stifel, said in an interview. The analyst also expects leisure, hospitality and transportation companies to feel pressure in the second half of the year.
Quincy Krosby, chief market strategist for Prudential Financial, also noted the increased pressure on consumer-focused companies. "The question is whether or not these companies have enough balance sheet strength to get to the other side of the pandemic," she said in an interview.
Krosby said another development is that certain private equity firms have shown interest in companies that have either gone bankrupt or are on the brink of it. Sycamore Partners Management LP has reportedly offered $1.75 billion to buy J.C. Penney out of bankruptcy.
"[T]he private equity push typically comes later in the cycle," Krosby said. "That said, this cycle is not the ordinary cycle."