By Becky Yerak
The number of chapter 11 business bankruptcies rose 29% last year even as plunging consumer bankruptcies kept overall U.S. filings at their lowest level since 1986.
More than 7,100 business entities filed chapter 11 petitions last year as the coronavirus pandemic and government-imposed lockdowns crimped revenues, according to legal-services provider Epiq Systems Inc.
Although individual filings were down substantially last year, consumer bankruptcies are typically a trailing economic indicator and are expected to rise significantly in the second half of 2021, said Epiq Senior Vice President Chris Kruse.
Judah Gross, director at Fitch Ratings, said he believes chapter 11 filings could continue to increase as troubled companies last year were able to avoid a bankruptcy filing thanks to the federal government's economic interventions.
Likewise, Mr. Gross said, individual filings might rise when mortgage forbearance programs and other coronavirus relief for consumers begin to expire.
The December jobs report is expected to show the labor market ended the year on weak footing, with employers adding 68,000 jobs. That would be a cooling from 245,000 jobs added in November, and the slowest month of job creation since the labor recovery began in May.
James Kane, co-chair of the financial institutions group for Vedder Price, said he expects restaurant and travel and tourism sectors to continue to face hardships, partly because owners' personal assets are dwindling. He said clients are asking his firm to do work that can precede bankruptcies, such as reviewing loan files to check on liens.
Last year's bankruptcy statistics, however, also show the effect of government aid programs and market interventions meant to stabilize the U.S. economy.
Last year had the lowest number of bankruptcy filings across all chapters since 1986, with a total of 529,068, Epiq said.
Individual chapter 7 filings were down 22% last year, to 348,428. Individual chapter 13 filings fell 46%, to 147,144.
In December, there were 34,304 total bankruptcy filings, the lowest monthly total since January 2006.
Chapter 11 filings last year were roughly half of what they were around the 2007-09 recession, said David Hillman, co-head of the private credit restructuring group at law firm Proskauer Rose LLP. He said lenders and private-equity firms are holding large amounts of dry powder that have translated into plentiful capital for otherwise shaky borrowers.
In contrast, the prior recession involved a crisis of capital, Mr. Hillman said.
"More restructuring is occurring in the conference room rather than the courtroom," and lenders are more willing to "amend and extend," he said.
"Lenders are kicking the can down the road to buy time to allow companies' operating performance to return to pre-Covid levels," Mr. Hillman said.
Write to Becky Yerak at becky.yerak@wsj.com
(END) Dow Jones Newswires
01-05-21 1800ET
