Bankruptcy snapshot reveals US filings up 46 percent in 2015

BY Fraser Tennant

The US business bankruptcy landscape saw bankruptcy filings increase by 46 percent in 2015 — due primarily to a challenging energy sector environment — according to a report released this week by BankruptcyData.com, a leading provider of information on companies in bankruptcy.

In the ‘Q4 2015 Business Bankruptcy Filings Report’, which breaks down business bankruptcy filings into factors such as industry, sales volume, company size, liability and asset ranges and public and private filings, a total of 79 publicly traded companies (with $81bn in combined pre-petition assets) are revealed to have filed for Chapter 7 or Chapter 11 protection in 2015.

Furthermore, eight of the 10 largest Chapter 11 filings were initiated by companies operating in the oil and gas, mining and related sectors — a substantial 51 percent of the total public bankruptcies seen in 2015. Overall, 40 of the 79 filings involved oil and gas and mining companies.

However, despite this significant uptick, the total assets entering Chapter 11 in 2015 increased only marginally in comparison with 2014; due, in the main, to the $40bn bankruptcy of Energy Future Holdings.

The analysis also shows that six of the publicly traded filings have assets above $3bn (compared to two filings the previous year) while there were 19 bankruptcies with assets over $1bn (compared to 11 the year before).

Looking forward to what 2016 has in store for the business bankruptcy landscape, many analysts, including distressed securities investor George Putnam, expect to see a further increase in activity in US bankruptcy courts.

"There could be a number of additional companies getting ready to file in 2016," said Mr Putnam. “The face amount of bonds that have not yet defaulted but are trading below 50 cents on the dollar jumped to about $80bn in December, a more than five-fold increase during 2015 and the highest level since the 2008-09 financial crisis."

In terms of overall US Bankruptcy Court trends, the BankruptcyData.com report notes that the 2015 figures represent approximately 33 percent of the business bankruptcy activity seen in 2009.

BankruptcyData.com said: “Low interest rates, a robust capital market with easy access to financing, out-of-court settlement alternatives, a slightly improving economy, the perceived cost of filing for bankruptcy and tighter bank lending decisions have driven the number of bankruptcy filings down over the last six years.

“Additionally, the recession eliminated many of the troubled companies, so the remaining relatively healthy businesses are able to borrow with little fear of raising rates keeping the filing rates down.”

Report: Quarterly Report of Business Bankruptcy Filings - Period Ending December 31, 2015

Financial services firms report strong business growth but sober optimism in new survey

BY Fraser Tennant

Financial services firms are reporting strong growth in business volumes and improving profitability, according to the latest CBI/PwC Financial Services Survey published this week.

The quarterly survey, which reflects the views of 100 financial services firms in the three months to December 2015, reveals that the overall level of business remained “above normal” – despite the fact that business with overseas customers fell to its lowest level in three years.

The survey also found that although there was a marked increase in optimism in the financial services sector in the first half of 2015, this had risen only slightly by the year’s end due to the impact of strong competition on incomes (though tight cost control has helped to support a growth in profitability).

Key findings in the CBI/PwC survey include: (i) 45 percent of financial services firms stated that business volumes were up, while 22 percent said they were down; (ii) 30 percent of firms expected business volumes to increase, while 20 percent said they expect to see a fall; (iii) 14 percent of financial services firms indicated they felt more optimistic about the overall business situation compared with three months ago, while 8 percent said they felt less optimistic; and (iv) 29 percent of respondents confirmed that, in volume terms, their level of business was above normal, while 18 percent stated that it was below normal.

Despite strong growth in profitability driven by easing cost pressures and increasing business volumes, Rain Newton-Smith, CBI Director for Economics, is aware of the downside risks from developments overseas. She said: “The global economic outlook remains uncertain while China rebalances, which is having knock-on effects on emerging markets, amidst continued unrest in the Middle East.

“While investment intentions remain robust in IT, and marketing spend is set to expand as firms seek new customers, elsewhere companies are curtailing their capital spending due to poor returns.”

Over the next 12 months, the survey forecasts that financial firms expect to see weaker growth in business volumes, in addition to flat income and rising costs. In the meantime, employment prospects remain mixed, with banks in particular reporting a fall in employment.

“It’s clear that optimism is muted across the whole (financial services) sector and each sub-sector has its own challenges," commented Kevin Burrowes, UK financial services leader at PwC. “Against this backdrop, the growing spectre of cyber-crime looms large and the threat of major attacks continues to stalk the entire financial services industry.”

Report: CBI/PwC Financial Services Survey December 2015

China's GDP growth reaches 25 year nadir

BY Richard Summerfield

As the world’s pre-eminent emerging market, China has been at the forefront of global economic development. It has played a pivotal role in helping to drive growth internationally over the course of the last decade; however, the days of blockbuster expansions appear to be at an end.

Against a backdrop of substantial capital flight, gradually crashing stocks and a sliding yuan, the Chinese economy endured a tumultuous 2015.

News that China's annual gross domestic product growth dropped to 6.9 percent last year, from 7.3 percent in 2014, has only increased concerns around the health of the world’s second largest economy.

Growth in the fourth quarter of 2015 fell to just 6.8 percent. Steel output fell 2.3 percent to 802.8m tonnes, while power generation fell by 0.2 percent. Coal production dropped for the second consecutive year. These declining numbers combined to see China record its lowest period of growth since 1990, according official statistics released on Tuesday.

The data comes during a period of great uncertainty around the Chinese economy, which has had an enormous effect on global markets. However, China’s markets largely cheered the country’s latest GDP figures, noting they were in line with predictions.

While many western economies would welcome news of 6.9 percent GDP growth, for China it represents a backwards step, albeit not a surprising one. The economy has been beset with issues over the last 12 to 18 months. Weakening exports, slowing investment and an overcapacity of both housing stock and factory space have all had a detrimental effect.

All this piles more misery on the Chinese government, which is attempting to reform the nation’s economy. Beijing intends to transition away from a centrally planned, manufacturing economy, embracing a somewhat market driven model more dependent on services and consumption. But this transition looks set to be a painful one.

There are also question marks over the reliability of the data released by the Chinese government,with some analysts suggesting that things may be far worse than Beijing is willing to admit.

To counter the slowdown, Chinese officials have said the government is looking to increase deficit spending in 2016 to generate growth.

News: China's growth hits quarter-century low, raising hopes of more stimulus

Cyber jobs boom

BY Richard Summerfield

Thanks to the increasing sophistication of cyber criminals and the technological weapons available to them, instances of cyber crime and terrorism have increased exponentially in recent years.

Though firms have been aware of the nascent threat of cyber crime for some time, many of them are largely unprepared to tackle the problem. However, with more and more high profile cyber breaches occurring, firms are beginning to fight back.

Organisations worldwide are looking to bolster their cyber security defences, and though the demand for competent and effective cyber security professionals is high, there is still a serious skill shortage. In the US alone, more than 209,000 cyber security jobs are currently unfilled, and job postings for cyber professionals are up 74 percent over the past five years, according to a 2015 analysis from the Bureau of Labour Statistics by Peninsula Press.

Globally, the figure for cyber security job openings is believed to be around one million, according to a new report from Cisco.

Cisco’s report notes, however, that the hiring of a raft of new cyber security officials should form just part of a wider cyber response plan. The report recommends that all organisations establish a separate security incident response team. The importance of this response team is likely to increase as organisations become more reliant on technology.

The Internet of Things (IoT) will also have a profound impact on the way companies conduct business. With the IoT security market expected to grow from $6.89bn in 2015 to nearly $29bn by 2020, the opportunities for cyber security professionals in the near future will be plentiful. As more connected or smart devices find their way into our personal and professional lives, the size of the market will grow exponentially.

However, the growth of IoT will present a number of challenges in the years to come. Organisations will need to marry IT and operational technology, in turn giving adversaries new targets such as vehicles, buildings and manufacturing plants, according to Cisco.

Moving forward, the report recommends that companies look to appoint a varied and diverse number of cyber security professionals. The modern chief information security officer should have at her disposal skilled security professionals covering a range of areas. This is particularly important given consumers' growing awareness of cyber and data security issues.

Report: Mitigating the Cybersecurity Skills Shortage

Biopharma M&A expansion to continue in 2016 claims new report

BY Fraser Tennant

Following a record-breaking 2015 which saw deals total $300bn, mergers and acquisitions (M&A) activity within the biopharmaceutical industry is set to continue at a “brisk” pace in 2016, according to the new EY ‘Firepower Index and Growth Gap Report’ published this week.

The EY Index, which measures the ability of biopharma companies to fund M&A transactions based on the strength of their balance sheets and their market capitalisation, reveals that the drivers of biopharma M&A last year included payer consolidation, rising healthcare costs and the intensification of companies’ growth imperatives throughout the industry.  

Among the key findings highlighted in the Index are that: (i) deal activity in early 2015 was driven by specialty pharma companies with a majority of deals by total valuation in the specialty or generics sector (big pharma grabbed the limelight later in 2015 while biotech experienced more modest deals); (ii) big pharma’s aggregate growth gap – the revenue shortfall below global biopharmaceutical sales growth – remained stuck at near $100bn due in part to foreign exchange headwinds; and (iii) specialty pharma’s firepower, has decreased by nearly 50 percent following a recent series of debt-fuelled acquisitions and falling equity valuations.

“While we can’t predict more large transformational deals over $100bn in 2016, we do expect a continued brisk pace for acquisitions and a continuation of the robust divestiture environment, as companies seek to focus on and gain scale in their chosen therapeutic areas,” said Glen Giovannetti, EY’s Global Life Sciences leader. “Three times as many companies now possess at least $3bn in firepower than a year ago, meaning more competition for targets as well as a longer list of potential acquirers for divestitures.”

However, while the Index makes it very clear that biopharma companies continue to benefit from an era of increased drug approvals and healthy pipelines, there are a number of challenges and considerations likely to drive M&A in 2016. These include a renewed focus on value-based drug pricing, staunch competition across key therapeutic battlegrounds and consolidated payer clout, which may exacerbate existing growth gaps and result in a continued feverish deal environment.

“These pressures may make the lofty heights of $200bn in annual M&A the new normal for the foreseeable future,” concluded Jeffrey Greene, EY’s Global Life Sciences Transaction Advisory Services leader.

Report: EY’s Firepower Index and Growth Gap Report 2016