2016 Business Bankruptcy Filings Up 26% Over 2015 | Free Bankruptcy Report Available

BankruptcyData published its Q4 and Full Year 2016 Report of Business Bankruptcy Filings. A full PDF of the report, which is summarized below, can be downloaded directly to browsers at BankruptcyData.

Even though Q4 2016 business bankruptcy filings were down compared to the previous three quarters, the year as a whole saw an increase for the first time in quite a while. The number of filings has dropped significantly since the 2008 recession but 2016 experienced a 26% increase over 2015 and the most filings since 2013. Despite the big increase, the 2016 bankruptcy total is less than half of the 2011 and 2010 figures. The most significant gains in 2016 were seen with Chapter 7 and Chapter 13 bankruptcies, while Chapter 11 reorganizations rose less sharply.

Publicly traded companies, as a subset of overall bankruptcies, generated 25% more filings in 2016 than 2015 and this is on top of the 46% year-over-year rise seen in 2015. A total of 99 public companies filed for Chapter 7/Chapter 11 protection in 2016 with just under $105 billion in combined pre-petition assets, and 2016’s petitioners include an impressive 25 with assets greater than $1 billion—compared to 19 in 2015.

Continuing the trend we saw in 2015, 17 of 2016’s 25 largest public company Chapter 11’s were initiated by companies within the Oil & Gas, Mining and Energy sectors—and more than 41% of 2016’s total publicly traded company bankruptcies came from those industries. Over the last two years alone, more than 80 public companies operating within the energy sector filed for U.S. Bankruptcy Court protection, with 30 of those petitioners listing more than $1 billion in pre-petition assets. These statistics do not include SunEdison, the largest bankruptcy of 2016. With nearly $12 billion in assets, SunEdison categorizes itself within the Electronics industry in SEC filings; however, this renewable power plant operator could certainly be considered an additional Energy sector bankruptcy.

* Pre-Petition Assets $Mils

If we include SunEdison in the list, the five largest public Chapter 11 filings of 2016 are all energy related: (1) SunEdison, Inc. – $11.5 billion; (2) Peabody Energy Corporation – $11.0 billion; (3) LINN Energy, LLC – $10.0 billion; (4) Arch Coal, Inc. – $8.4 billion and (5) Breitburn Energy Partners LP – $4.9 billion.

Getting back to overall business bankruptcy trends, 2016 saw Texas dethrone California as the state that generated the largest percentage of overall bankruptcies. The close to 30% of all energy filings coming out of the Lone Star State moved it into the number one spot followed by California, New York, Delaware and Florida. With the filings of energy giants like Peabody Energy Corporation and Arch Coal, Inc., Missouri saw the largest percentage increase in number of filings in 2016 compared to the previous year. Approximately 75% of energy bankruptcy filings were filed from the states of Texas, Missouri and Delaware. California – Central, New York – Southern and Delaware were the top three Districts that handled the highest percentage of overall filings for both Q4 and the year.

The Service industry, our economy’s largest employer, generated the largest percentage of overall bankruptcies in Q4 2016 with 27% and 28% for the full year. The 2016 percentage is down 20% from 2015 and has been dropping consistently since 2013 reflecting the relative health of this sector compared to others. The Finance, Insurance and Real Estate industry which has seen its full year percentage of overall bankruptcies jump from 14% in 2013 to 18% in 2016. Though not showing up in the top five, the Mining industry generated 7.47% of overall bankruptcies in 2016 and 6.17% in 2015; these figures compare to 1.36% in 2014 and 0.42% in 2013.

Small businesses (less than $2.5 million in sales) generated 72% of all bankruptcies in Q4 2016 and 68% for the full year. These figures are down compared to 2013-14 where we had significantly fewer large companies filing. 63% of companies filing for bankruptcy reported less than $1 million in sales in 2016. This compares to 79% in 2014.

Low interest rates, easy access to financing, out-of-court settlement alternatives, an improving economy, the perceived cost of filing for bankruptcy and tighter banking lending decisions had driven the number of bankruptcy filings down for a number of years. But the tides turned in 2016 and we expect the bankruptcy activity to remain at the 2016 level moving forward. Energy and related sector filings probably have peaked and should decline over the next 12 to 18 months, but they will not dry up overnight—as evidenced by the Bonanza Creek Energy, Homer City Generation and Memorial Production Partners filings in January of this year.

We expect much of the focus in the bankruptcy world to shift to companies in a variety of industries that have taken on too much debt during the exuberant markets since 2009 and are now facing looming maturities. Roughly $1.5 trillion of lower quality corporate debt (a combination of high yield bonds and so-called “leveraged” bank loans) comes due over the next five years.  Even if the debt markets stay strong, some small percentage of that debt will need to be restructured, much of that through Chapter 11. If the debt markets get more selective, a larger percentage of the maturing debt will fail to get refinanced, leading to even more bankruptcies. Therefore, we anticipate an active bankruptcy season in 2017 and beyond.

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