Q3 2015 sees US corporate bankruptcies plateau

BY Fraser Tennant

The prevalence of corporate bankruptcies in the US – which has been declining steadily over the past seven years – has now largely levelled off according to new figures released this week by BankruptcyData.com.

The ‘Q3 2015 Business Bankruptcy Filing Report’ – which provides a snapshot of the most recent quarter's business bankruptcy landscape – reveals that there were 22,680 corporate bankruptcy filings in the first three quarters of 2015, a 16 percent drop in comparison to Q3 2014 (26,992 filings).

Furthermore, the BankruptcyData.com report highlights the fact that there has been an average of 120 filings per business day so far in 2015, with March proving to be a particularly busy month for bankruptcies among public and private companies.

Drilling-down, the filings in the report are broken down into elements such as industry, sales volume and company size, so that insight into the most recent activity in the business bankruptcy sector can be drawn.

In terms of industry, key findings in the report include the disclosure that: (i) the service industry (the US economy's biggest employer) generated the largest percentage of overall bankruptcies in Q3 2015 with 34.78 percent; and (ii) the service industry's 2015 year-to-date bankruptcy figure of 35.95 percent is down 10 percent from the same time period in 2013, reflecting the relative health of the industry compared to other sectors like manufacturing and finance/insurance/real estate – the bankruptcy percentage figures of which have grown over the past year.  

The report’s figures also highlight the recent surge in mining and energy–related bankruptcies, with the mining sector recognised as having generated 10 percent of overall bankruptcies in Q3 2015 (typically this figure is 1 to 2 percent).

Elsewhere in the report, the small business sector, often considered the ‘backbone of the economy’ in the US, is revealed as having seen the most bankruptcies in Q3 2015, with 75 percent of all business bankruptcies filed by companies with $2.5m in sales or less. Likewise, businesses with less than 50 employees generated 84 percent of all bankruptcies in Q3 2015.

Additional key findings include that for the first time in several quarters, New York has surpassed California as the state that contributes the largest percentage of overall bankruptcies, generating 14.53 percent in Q3 2015. The state of Virginia also experienced a large jump in their percentage of overall bankruptcies: moving from 1.76 percent of all bankruptcies in Q1 2015 to 7.59 percent in Q3 2015.

Whilst forecasting that the downward spiral of bankruptcies seen in recent years is likely to continue, the BankruptcyData.com report does provides a word of warning for sectors and industries: “Other factors could lead to an eventual increase in bankruptcies across all sectors: interest rates will eventually rise and reach a point at which they will prevent the small to mid-sized business owner from taking on more debt and bankruptcy will have to be considered. The number of over-leveraged balance sheets continues to grow, which means a distressed cycle may not be too far off.”

Report: BankruptcyData.com – QUARTERLY REPORT of Business Bankruptcy Filings

US corporate bankruptcies down

BY Richard Summerfield               

According to a report from BankruptcyData.Com, a division of New Generation Research, the number of firms falling down the slippery slope to bankruptcy in the US has dwindled over the last two quarters.

Business bankruptcies in the first half of 2015 were 19.2 percent lower than the first six months of last year and  68 percent lower than the first six months of 2010.

Despite the trend, public companies are still struggling. The report indicates that the number of Chapter 11 filings by public companies in H1 2015 reached its highest midyear level since 2011, and the total assets of companies entering bankruptcy, with the exception of financial companies, are at their highest levels since 2009. Furthermore, the 10 non-financial Chapter 11 filings involving assets above $1bn so far in 2015 is the highest at this point in the year since 2009.

Unsurprisingly, SMEs accounted for the majority of bankruptcy filings in the first half of the year, although the number of small companies encountering financial difficulty has begun to trend downwards. Seventy-six percent of all business bankruptcies recorded in the first half of 2015 were filed for by companies with $2.5m or less in gross sales revenue; though this figure is still high, it compares favourably with 2013 and 2014 which respectively saw 81 percent and 87 percent of bankruptcy filings stemming for smaller companies .

The bankruptcy filing of Caesars Entertainment, the largest unit of Casino giant Caesars Entertainment Corp, was the largest Chapter 11 filing of the first half of 2015. The company entered bankruptcy protection in January listing assets of $1.5bn.

The service industry was responsible for the most bankruptcy filings in Q2, at 31 percent. However, this figure is down from Q2 2014 and Q2 2013, which saw the service industry generate 37 percent and 43 percent of filings.

Report: Q2 2015 Business Bankruptcy Filing Report

Portugal fights bank collapse

BY Matt Atkins

To the relief of anxious investors, Portugal’s central bank has announced measures to prevent the collapse of one of its biggest lenders, Banco Espirito Santo (BES). On Sunday 3 August, the board of directors at Banco de Portugal laid out plans for the €5bn rescue of BES, pulling it back from the brink and easing fears of contagion across Europe’s banking sector. The announcement comes days after the Banco de Portugal offered assurances that BES could raise enough money from private investors to recover from a first-half loss of €3.58bn.

The plan will see BES split into two. Problem assets will be held by the ‘bad bank’ BES. The remaining assets will be held by a ‘good bank’ – the newly formed Novo Banco, run under the supervision of Banco de Portugal. Novo Banco will be made up of BES’s core business of taking deposits and lending to home-buyers and companies. The bank will be receive an initial €4.9bn cash injection from Portugal’s bailout fund and eventually be sold off, with the proceeds used to pay back the loan.

As yet, it is unclear what will happen to the ‘bad bank’, most of which relates to other businesses in the Espirito Santo Group, including tourism, health and agriculture. Shareholders and creditors have been warned, however, that they may stand to lose all of their money.

Banco de Portugal has said customers of BES will be able to conduct transactions normally, and employees will be transferred to the new entity, which will retain the company logo.

“For our customers and staff only one thing has changed — their bank is now stronger and safer than it was before,” said Victor Bento, who will head Novo Banco. “The key uncertainties that have been hanging over the institution for some time have now been removed.”

Press Release: The application of a resolution measure to Banco Espírito Santo, S.A.

Argentine default deal falls through

BY Matt Atkins

Latin America's third-biggest economy Argentina has defaulted for the second time in 12 years, after failing to strike a deal in time to meet a midnight deadline for a coupon payment on exchange bonds.

Argentina had sought in vain to gain a last-minute suspension of a ruling by US District Judge Thomas Griesa in New York to pay holdouts $1.33bn plus interest. Judge Griesa ruled Argentina could not service its exchange debt unless it paid holdouts at the same time.

The consequences for the struggling economy are dire. Even if the default is a relatively short one, Argentina will see raised borrowing costs, further pressure on the peso, and a drain on foreign on reserves. The default will also pour fuel on the country’s soaring inflation rates.

While the current situation is bad enough, Argentina has faced worse. Today’s troubles are a world apart from the crisis of 2001, when the economy collapsed, causing millions to lose their jobs. This time around, while the country is already in recession, the country’s government is solvent. It must now attempt to extricate itself from its obligations as quickly as possible to avoid further harm to the economy.

Argentina’s failure to strike a deal with hedge funds will not have any great impact on the global economy. The country has been isolated from global credit markets since its 2002 default on $100bn. US ratings agency Standard & Poor's has downgraded the country's long- and short-term foreign currency credit rating to ‘selective default’, which will stand until Argentina makes its overdue 30 June coupon payment on its discount bonds maturing in 2033.

News: Argentina declared in default by S&P as talks fail

Russia pays price for playing dirty

BY Matt Atkins

Shareholders of the now defunct oil giant Yukos celebrated on Monday after an international arbitration panel ordered Russia to pay $50bn in damages for bankrupting the company.

The Hague court said Russian officials had manipulated the legal system to bankrupt Yukos, and jail its founder, Mikhail Khodorkovsky, for 10 years.

The court of arbitration rejected the Kremlin’s argument that the asset seizure was due to unpaid taxes, and described Russia’s actions as “devious and calculated expropriation". The Russian finance ministry has hit back, saying said the ruling was "flawed", "one-sided" and "politically biased". The ministry added that the Permanent Court for Arbitration in The Hague "had no jurisdiction to consider the questions it was given". The country is expected to appeal against the ruling.

The claim against the state was filed by a subsidiary for the financial holding company GML, once the biggest shareholder in Yukos Oil Co. "The majority shareholders of Yukos Oil were left without compensation for the loss of their investment when Russia illegally expropriated Yukos," said GML's Executive Director Tim Osborne. "It is a major step forward for the majority shareholders, who have been battling for over 10 years for this decision."

Responding to the news, Mr Khordorkovsky, who was at one point Russia's richest man, said it was "fantastic" that shareholders were "being given chance to recover assets". Mr Khodorkovsky forged  Yukos into Russia's largest investor-owned oil company following the collapse of the Soviet Union. He was arrested in 2003 and spent a decade in jail after being convicted of fraud and tax evasion but was pardoned last December. At the time of his arrest, he had been seen as a potential political rival to Vladamir Putin.

The question now is whether Russia will pay up. The Kremlin denies any wrongdoing, and payment of the fine under the ruling would prove an acceptance of defeat. Even if the state does not voluntarily accept the ruling, it can be enforced by shareholders seizing assets abroad. Shareholders of GML, however, have said that they are prepared to discuss the matter with Russia, according to a company spokesman.

News: Yukos shareholders say would talk to Russia over $50 billion compensation