New Generation Research’s Quarterly Report of Business Bankruptcy Filings reveals that the overall number of bankruptcies crept up during Q1 2016 as March was the busiest filing month since April of 2014. March 2016 also marked the 4th straight month where we saw an increase in filings. The Q1 2016 filing figure represents a 23% increase over the previous quarter. The 27 Q1 2016 public company bankruptcy filings is on pace with where we were last year at this time, and the $25+ billion in assets of public companies in bankruptcy is a little less than last year’s figure. The 2015 and 2016 bankruptcy figures are significantly higher than 2014 and are the highest since 2009. The increase in public company filings over the last two years can be attributed, in part, to increased filings in the energy sector due to low oil prices.
As in the past, small businesses are the largest contributors to overall bankruptcy filings with 65% of business bankruptcies in Q1 2016 having less than 10 employees. This figure is significantly less than the 80% recorded in Q1 2014. The increase in larger public company filings over the last couple of years has resulted in smaller business filings making up a decreasing percentage of the overall
The service industry, our economy’s largest employer, also generated the largest percentage of overall bankruptcies with 30% coming from this sector in Q1 2016. This figure is down however from the Q1 2015 and 2014 figures which hovered around 40%. This decrease, in part, can be attributed to the increase in bankruptcies of larger companies in the energy sector. Mining which generated less than 1% of overall bankruptcies in Q1 2014, generated 6.46% in Q1 2016. Specific service and manufacturing sectors that support the energy industry saw significant increases as well.
The increase in large public company filings has resulted in Delaware being pushed back to the top of the list of states that generate the largest percentage of the overall corporate bankruptcies. More than 60% of public companies incorporate in Delaware due to the efficiency and clarity of their corporate statutes the quality of their corporate judicial system. Missouri also saw a big increase in business bankruptcies—most notably the large public Chapter 11’s of energy and mining companies Arch Coal, Noranda Aluminum Holding and Abengoa Bioenergy US Holdings. These three bankruptcy filings alone represent well over $10 billion in assets and employed nearly 8,000 workers, which has a profound impact on the state’s overall economy, unemployment figures and smaller companies both within and removed from the energy and mining sectors. This regional uptick is likely to continue following Peabody Energy’s April 13th Chapter 11 filing, which added an additional $11 billion in assets and nearly 8,000 workers to Missouri’s bankruptcy casualty list. Puerto Rico continues to see an increase in their business bankruptcies reflecting the slowing of their economy. Illinois and California saw the largest decreases in overall bankruptcy percentage.
Low oil prices, over-leveraged corporations, a slowed Chinese economy and the threat of increased interest rates most likely means we will see the continuation of the trend of increased bankruptcies for mid to large businesses and corporations. Some experts are predicting that 35% of the oil and gas companies could file for bankruptcy in 2016. However, we anticipate the continued flattening of smaller business bankruptcies (though they will continue to make up the largest percentage of overall bankruptcies due to their sheer numbers) as a lot of the marginal small business were shaken out during the recession leaving just the stronger companies who have a greater chance of surviving the slow economy that is predicted for the balance of 2016.