By Katy Stech Ferek
Corporate bankruptcies spiked during May as the coronavirus pandemic slammed the U.S. economy, pushing the number of filings to levels recorded in the wake of the 2007-09 recession.
U.S. courts recorded 722 businesses nationwide filing for chapter 11 protection last month, a yearly increase of 48%, according to figures from legal-services firm Epiq Global. In May 2019, a total of 487 businesses filed for that type of bankruptcy, which lets corporations resolve their financial problems and continue operating.
The data also showed a month-to-month increase. May's filings were up 28% from the 562 recorded in April.
The number of corporate bankruptcies this May matches the tally from May 2011, when the scars of the recession were still fresh.
A number of prominent companies filed for bankruptcy last month, including retailers J.C. Penney Co., Neiman Marcus Group Inc. and J.Crew Group Inc., along with the management company behind two leading Lasik surgery brands, the U.S. division of bakery chain Le Pain Quotidien, Gold's Gym International Inc. and generic drugmaker Akorn Inc.
Those bankruptcies and May's filing figures, combined, confirmed that the virus has led to an increase in corporate failures, even as some experts pointed out that big firms often put affiliates into chapter 11 protection, potentially inflating monthly figures.
In recent months, the U.S. has notched record unemployment claims. Unlike more immediate indicators of economic health, chapter 11 filings lag as company executives spend cash, negotiate breaks on debt payments and try to find other ways to avoid filing for bankruptcy.
The spike in filings comes after a period of historic expansion for the U.S. economy, which had led to a lull for the corporate restructuring industry. Some legal experts have called for Congress to increase the number of bankruptcy judges to ease the potential workload.
Deborah Williamson, a San Antonio bankruptcy lawyer with Dykema Gossett PLLC, said she has begun to see an uptick in business from companies caught up in the downturn's ripple effect, including suppliers and firms whose major customers have hit trouble.
Some of the business she has seen indicates more work in the future, Ms. Williamson said, even though some state and local governments have begun to relax stay-at-home orders that kept nonessential businesses closed and consumers out of brick-and-mortar stores.
"Hotels are not going to bounce back quickly. You're going to see a long-term effect on office space," she said. "The consequence of the quarantine around the world...It's not going to magically go away as you reopen."
Bankruptcy lawyer James Conlan, who recently left the Sidley Austin LLP law firm to expand Faegre Drinker Biddle & Reath LLP's restructuring group, said his colleagues kept busy during May with work across a range of sectors, including energy, airlines, aircraft lessors, real estate, top automotive suppliers, hospitality and retail.
While many of those firms struggled because of the pandemic-related downturn, some had borrowed heavily leading up to the trouble, he said.
"I think we're going to see an extraordinary number of large corporate bankruptcies, not just in the U.S. but across the globe," Mr. Conlan said.
Legal experts said they see no reason for the pace of corporate bankruptcies to slow in the coming months, especially as government relief programs taper off. Experts said the pace of filings will also be affected by the patience of lenders and landlords who might be willing to bend contracts and put off foreclosing, keeping firms out of bankruptcy.
"The Cares Act and other swift government measures have been successful in keeping consumers afloat during the crisis," said Amy Quackenboss, executive director of the American Bankruptcy Institute, which represents more than 12,000 professionals, in a statement. "As this relief runs its course, however, mounting financial challenges may result in more households and companies seeking the shelter of bankruptcy."
Write to Katy Stech Ferek at katherine.stech@wsj.com
