Business Bankruptcies Continue To Climb As Defaults Increase
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The number of businesses seeking bankruptcy protection hit its highest level in more than two years in March, as the recession sends more companies into financial crisis. The 7,843 commercial bankruptcy filings last month represent a 23.2% jump from the 6,365 filings in February. It's also the highest monthly total of business filings since at least 2006, according to Automated Access to Court Electronic Records, or AACER. Other data from AACER, a private firm that tracks bankruptcy filings, show that in the first quarter of this year, 20,251 businesses sought either Chapter 7 or Chapter 11 protection - a 52.4% increase over the 13,291 business bankruptcy filings during the same period last year. The seizing up of the global credit markets and the U.S. recession caused bankruptcy filings to spike last year and to remain high into 2009. Many U.S. companies are strapped for cash and are unable to refinance, leading them to default on their debt obligations. According to Standard & Poor's, 68 junk-rated issuers have defaulted so far this year - more than double the number of speculative-grade defaults in all of 2007. The ratings agency said 25 of the 68 defaults have resulted in bankruptcy filings. That includes chemical company Chemtura Corp., recreational-vehicle maker Fleetwood Enterprises Inc. and plastics processor Milacron Inc. Bankruptcy filings by large publicly traded companies are up sharply, according to Lynn M. LoPucki, a law professor at the University of California, Los Angeles. LocPucki expects 121 such companies to seek bankruptcy protection in 2009, a big jump over the current record of 97 in 2001. Most of the large public companies that have sought bankruptcy protection this year are manufacturing companies, LoPucki said Friday. Many of these companies, he said, haven't had time to plan out a restructuring before they're forced into bankruptcy. "This new set of companies are free-fall bankruptcies," he said. "They don't plan to sell the business, and they don't know exactly where they're going. They're seeking shelter in the bankruptcy courts and not indicating how long they plan to stay." These companies, however, face a challenge once they're in bankruptcy court. The credit crisis has dried up all forms of bankruptcy financing, including debtor-in-possession loans and bankruptcy-exit loans. Unwilling to fund a drawn-out reorganization amid the financial crisis, many lenders are forcing companies to either quickly find a buyer or liquidate. But buyers aren't necessarily lining up to purchase troubled companies and keep them operating. "There aren't companies out there looking to buy companies right now," LoPucki said. Without a lender or buyer, he said, many of these companies will use bankruptcy to ride out the storm. "They don't want to get out quickly because they don't yet have the solution to the problems," he said. "They're hoping the economy will get better." |
