The overall trend in bankruptcy filings fits the narrative of boom times in America, according to a new report from BankruptcyData. This years’ corporate bankruptcies, at a year to date total of 9,901, are well below the peak of 2009, when BankruptcyData recorded 22,889 filings. Similarly, personal filings have been trending down for a full 10 years and are at historical lows.
Cheap money begets rising debt and there’re are no dearth of charts showing an upward slope in credit obligations over the same period. But neither the impressive performance of the equity markets cannot mask a recent uptick in business bankruptcy activity, whose low point was 2017.
BankruptcyData pays close attention to Public Company filings because we think these are a proxy for the general economy. These are, in theory, the businesses with the most access to credit and financing, so any signals that they are seeking bankruptcy protection from creditors in increasing numbers may presage a change in economic conditions.
The bankruptcy action kicked off in 2019 with a bang. PG&E filed for protection under Chapter 11 of the federal bankruptcy code in the Northern District of California on January 29th, becoming in the process a bankruptcy court repeat offender. This was the company’s second visit to bankruptcy court, earning this filing moniker of a Chapter 22. (Two times Chapter 11 equals Chapter 22 in the mathematics and argot of the restructuring industry.)
The filing was notable as it ranked as the 6th largest in history (as measured by pre-petition asset size…for full listing see BankruptcyData.com). At stake are $71.4 billion in pre-petition assets, as listed in PG&E’s filing petition.
PG&E’s first trip to bankruptcy court back in 2001, with $36 Billion in pre-petition assets, was already in the top 20 of all time. (That 2001 filing now ranks as the 13th largest.)
This latest PG&E filing is the first we have added to the list of largest bankruptcies of all time since 2014, when Energy Future Holdings, another electric utility company, found itself under bankruptcy protection with just under $41 billion in assets.
But does one swallow a summer make? There are reasons to think it might. Through December 24 there were 63 bankruptcy filings by publicly traded companies compared to 58 filings a year ago. Of more significance still is the amount of assets going into bankruptcy in 2019. At an aggregate of 150 billion, this is the highest number since 2009.
So, apart from California’s largest utility, where was the action in 2019?
Headlines focused on the “retail apocalypse”, just as they did in 2018. On the face of it, however, at least for public market impact, the activity was relatively minor. Only 4 retail industry filings corresponded to publicly traded entities. Companies like Fred’s and FTD are old companies and may resonate with many, but the private sector restaurants and retail names Forever 21, Barneys New York and Perkins & Marie Callender's, LLC were the names that carried more mainstream ‘oomph.’
The impact on markets however is not from the removal of a handful of equity listings. Follow on effects will materialize, for example, in the holdings of REITS (i.e., lease rejections via the bankruptcy process from high rent, high square foot tenants will be hard to compensate for). Direct lenders, whose exposures as creditors are likely under-reported, may similarly feel uncomfortable heat in 2020.
Other sectors with significant bankruptcy activity included chemicals (nine public filings), telecommunications (five), healthcare and transportation (four each). It is also worth noting that the five largest filers came from five different industries (utilities, mortgage finance, telecommunications, oilfield services and travel).
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