Due to the financial fallout from the COVID-19 pandemic, the number of U.S. bankruptcy filings by companies with over $100 million in assets was 84 percent higher during the first three quarters of 2020 compared to the same period last year, according to a new report from Cornerstone Research. The report, entitled “Trends in Large Corporate Bankruptcy and Financial Distress: 2005-Q3 2020” (here), shows that the increase in the number of bankruptcies was particularly pronounced for “mega bankruptcies” (involving companies with over $1 billion in reported assets). However, the report also suggests that the number of bankruptcy filings by companies with over $100 million in assets may have peaked in July. Cornerstone Research’s October 28, 2020 press release about the report can be found here.

The report is based on a database of 1,138 Chapter 7 and Chapter 11 bankruptcies by companies with over $100 million in assets filed between January 1, 2005 and September 20, 2020.

According to the report, in the first three quarters of 2020, 138 companies with over $100 million in assets filed for bankruptcy, compared with 75 during the same period last year, representing an increase of 84 percent.  All but one of the 138 bankruptcy filings in 2020 involving companies with over $100 million in assets were Chapter 11 filings.

In the first three quarters of 2020, 34, 55 and 49 companies with over $100 million in assets filed for bankruptcy, respectively, compared to a quarterly average number of 19 equivalent quarterly filings during the 2005-2019 period. The 55 bankruptcy filings by companies with over $100 million in assets during the second quarter is the second-highest total for any quarter during the period 2005-2019, behind only the first quarter of 2009, when there were 65 bankruptcies by companies with over $100 million in assets.

From April 2020 to September 2020, the average number of monthly bankruptcy filings by companies with over $100 million in assets was 17, which is significantly higher even that the monthly average at the beginning of the global financial crisis; in 2008, the monthly average number of bankruptcy filings by companies with over $100 million in assets was 11, and the monthly average in 2009 was 13.

The monthly number of bankruptcy filings by companies with over $100 million in assets seems to have peaked in July 2020. In July, 24 companies with assets over $100 million filed for bankruptcy, four times the average monthly average of 6 filings during the period 2005-2019. The July filings represented the second-highest monthly number of filings by companies with assets over $100 million during the period 2005-2019, second only to the 25 bankruptcy filings in March 2009. The number of monthly filings by companies with assets over $100 eased after somewhat after July; by comparison to the 24 filings in July, there were 14 filings in August and 11 in September.

The increase in the number of bankruptcy filings during the first three quarters of 2020 was particularly notable with respect to “mega bankruptcies” (involving companies with over $1 billion in assets).There were 52 mega bankruptcies in the first three quarters of 2020, more than the total annual number of mega bankruptcies in any year during the period 2005-2019, excepting only 2009, when there were 75 mega bankruptcies. In the second quarter of 2020, there were 31 mega bankruptcy filings and in the third quarter there were 15 mega bankruptcies, compared to a 2005-2019 quarterly average of 5 mega bankruptcy filings. The 2020 mega bankruptcy filings were concentrated in two industries, mining, oil and gas; and retail trade. These two industries accounted for 58 percent of the mega bankruptcies during the first three quarters of 2020.

The largest bankruptcy filing in the first three quarters was the May 22, 2020 filing by The Hertz Corporation, which has assets of nearly $26 billion. (The Hertz bankruptcy is the seventh largest bankruptcy by assets since 2005.) Six of the bankruptcies in the first three quarters of 2020 were among the 20 largest non-financial bankruptcies since 2005.

Consistent with prior years, the venue with the highest number of bankruptcy filings during the first three quarters of 2020 was Delaware, with 49 of the 138 bankruptcy filings by companies with assets over $100 million. However, for the first time since 2005, the Southern District of Texas accounted for the second largest number of bankruptcy filings by companies with assets, largely as a result of the number of bankruptcy filings by companies in the Mining, Oil, and Gas Industry.

Discussion

Although it was a point of emphasis in my review of the Cornerstone Research report above, it bears repeating that the Cornerstone Research report focuses exclusively on bankruptcy filings by companies with over $100 million in assets. Obviously, this focus excludes bankruptcies involving smaller companies.

In that regard, it is very important to note that the 138 bankruptcy filings in the first three quarters of 2020 by companies with assets over $100 million represents only a small fraction of the total number of business bankruptcies during that period. Thus, according to statistics on the American Bankruptcy Institute website (here), there were a total of 5,529 Chapter 11 Commercial Bankruptcy Filings in the U.S. during the first nine months of 2020, suggesting that the 138 bankruptcy filings by companies with assets over $100 million represented less than 3 percent of commercial bankruptcy filings during that period.

The report’s focus on companies with assets over $100 million could also contribute to some important differences in terms of analysis and conclusions as well. For example, by comparison to bankruptcy filings by companies with assets over $100 million, which seem to have peaked in July, overall Chapter 11 commercial bankruptcy filings were at their highest monthly levels of the year so far in September. This difference could be significant; the number of filings by companies with assets over $100 million seem to be in a downward trajectory, whereas the fact that the number of filings overall was at its highest level in the most recent month could be interpreted to suggest that the overall peak could be yet to come.

In any event, as the public health emergency phase of the COVID-19 outbreak continues to drag on, and the economic recovery phase is delayed or suppressed, the pressure on businesses continues, which unfortunately may mean that we will continue to see further significant numbers of bankruptcy filings in the months ahead, particularly if Congress fails to adopt further stimulus measures. The overall toll, particularly for companies in certain vulnerable sectors, could be grim.