Since March, economic lockdowns have forced more and more companies — including well-known names like Hertz, J. Crew and Neiman Marcus — to file for bankruptcy protection. But the bankers and lawyers who help troubled companies repair their balance sheets and guide them through Chapter 11 reckon that the worst is still to come, as reported in today’s DealBook newsletter.
About 3,600 companies filed for Chapter 11 in the first half of 2020, more than any year since 2012, according to the American Bankruptcy Institute. The past few weeks alone have brought filings by the fracking pioneer Chesapeake Energy, the Japanese home goods company Muji USA and the retailer New York & Company.
But the pace of filings slowed last month. Advisers cited the huge federal government programs for stabilizing the economy, as well as efforts by companies to bolster their cash by drawing down their credit lines and issuing trillions of dollars’ worth of new bonds. Earlier-than-expected reopenings have bolstered some businesses’ performance, allowing them to bring in some sales — critical to servicing their debts.
Yet as coronavirus cases surge again, an uptick in filings may follow. “We’re starting to see the pendulum swing back toward fear again,” William Hardie, a managing director in Houlihan Lokey’s financial restructuring group, said in a telephone interview.
What comes next could be ugly. Many companies that saved themselves by borrowing more money are now in a bind: They have mortgaged nearly all their available assets, leaving little wiggle room. And while creditors may be willing to give borrowers concessions on existing loans, they not be so generous on requests for more cash.
That could lead to more companies will be taken over by lenders, who would convert their loans into equity. So far, advisers say, talks between debtors and creditors have been sanguine, with relatively few of the disagreements that often complicate Chapter 11 cases. “There’s no finger-pointing,” Mr. Hardie said. “Everyone realizes this is no one’s fault.”