U.S. corporate bankruptcy filings surged in March to levels not seen since the worst days of the COVID-19 pandemic even as the broader pace of casualties during the first quarter of 2021 remains slower than a year ago.
Sixty-one companies entered bankruptcy proceedings in March, nearly doubling February's total and marking the biggest one-month tally since July 2020, according to S&P Global Market Intelligence data. The total includes public companies or private companies with public debt with a minimum of $2 million in assets or liabilities at the time of filing, in addition to private companies with at least $10 million in assets or liabilities.
As of March 31, 138 companies have announced bankruptcies so far in 2021. That is fewer than the 153 filings at the same time in 2020 and a slower pace than all but four of the prior 11 years — 2014, 2015, 2017 and 2018.
Government stimulus and easy access to capital have kept at-risk companies from entering bankruptcy following a jump in filings during the early months of the pandemic in the U.S. But bankruptcies are likely to pick up again later in 2021 as companies confront the aftershocks of the pandemic, experts say.
"There will actually be more corporate '11s' in the fourth quarter of 2021 most likely, possibly in the third quarter, when the dust settles," said Mark Lichtenstein, an Akerman LLP partner, in reference to Chapter 11 bankruptcy filings, a process most commonly associated with corporate restructurings that has recently been on the rise.
The U.S. government has pressured banks for leniency on debt owed by companies and renters, contributing to the slow down in new filings, said Martin Pichinson, co-founder of advisory and restructuring firm Sherwood Partners Inc., in an interview. There is a lot of money chasing deals in the financial world, and that easy access to money is also helping keep companies out of bankruptcy, Pichinson said.
"There is money available almost everywhere wanting to make a score," Pichinson said.
The uptick in March, however, signals a creeping realization that favorable conditions cannot last forever, Pichinson said. Bankruptcy filings could pick up later in the year as banks become stricter and companies confront the long-term changes to consumer behavior ushered in by the pandemic.
"March is just the beginning of people cleaning house," Pichinson said. "Bankruptcies are starting to pick up because people realize that money is not going to fix the wounds of lost customers."
The current state of the economy calls to mind the exuberance that preceded crashes from previous eras like the Roaring '20s and the dot-com bubble of the late 1990s, said Pichinson, who wound down many of the internet companies when the latter bubble burst. Whether a crash or correction is on the horizon now is harder to say, Pichinson said.
Burlingame, Calif.-based AeroCentury Corp., an aircraft equipment leasing company traded on the New York Stock Exchange, was one of the largest filings during the second half of March.
AeroCentury has proposed an auction sale for its assets to fund the repayment of its debts to the company's sole secured lender, Drake Asset Management Jersey Ltd. AeroCentury owned 12 aircraft as of March 29 and may seek access to additional capital as its bankruptcy progresses depending on the length of the pandemic and impact on revenue, according to a March 29 news release. AeroCentury did not respond to a request for comment.
Additional Paycheck Protection Program money and the tremendous amount of capital available have kept bankruptcy levels down across all sectors, said Robert Hirsh, a partner in Lowenstein Sandler LLP's bankruptcy and restructuring department, in an interview. So far in 2021, consumer discretionary industries recorded a higher number of bankruptcies than other sectors. The category includes pandemic-stricken industries like restaurants, hotels and department stores.
In many cases, the pandemic pushed consumer companies to file for bankruptcy about a year sooner than they otherwise would have, Hirsh said. Brick-and-mortar retail was a dying model for years, but the pandemic quickened the pace of bankruptcies for those companies, Hirsh added.
"Other consumer-sector businesses, I think, were humming along, but then the pandemic certainly took a huge toll," Hirsh said.
The real estate world could see more bankruptcies as mall developers and landlords deal with the fallout happening in the brick-and-mortar retail world, Lichtenstein of Akerman LLP said.
The retail sector remains troubled, but some of the most problem-ridden companies have already filed for bankruptcies, Hirsh said.
Hirsh expects total bankruptcies in 2021 to remain below expectations, with a slower pace of filings in the second and third quarters before a possible uptick in the fourth quarter. Access to capital will keep companies out of court, while restructurings and recapitalizations can also be achieved outside of the bankruptcy process, Hirsh said.
"Are there going to be bankruptcies? Yeah, for sure, but definitely less than what people originally anticipated," Hirsh said.
Editor's note: This Data Dispatch is updated on a twice-monthly basis and the last edition was published March 17. Market Intelligence may remove companies from this list if it discovers that their total assets and liabilities do not meet the threshold requirement for inclusion. Click here to download the charts.