According to a new report from Cornerstone Research, the number of large corporate bankruptcies “surged” in the first half of 2023 compared to the number of filings in the most recent years. The report, which is entitled “Trends in Large Corporate Bankruptcies and Financial Distress: Midyear 2023 Update” reports that the number of large corporate bankruptcy filings in the first half of this year already exceeds the total number of filings for the full year 2022. Cornerstone Research’s September 26, 2023, press release can be found here. The report itself can be found here.
The report examines trends in Chapter 7 and Chapter 11 bankruptcy filings for large corporations between January 2005 and June 2023. The bankruptcies analyzed in the report involve public and private companies with over $100 million in assets at the time of the bankruptcy filings.
According to the report, there were a total of 72 Chapter 7 and Chapter 11 large company bankruptcy filings in the first six months of 2023, compared to 20 in the first half of 2022 and 53 for the full year of 2022. The number of large company bankruptcy filings in the first half of 2023 is already more than three times the number of large company bankruptcies in the first half of 2022. The 72 large company bankruptcy filings in the first half of 2023 is just short of the 2005-2022 annual average number of large company bankruptcy filings of 77.
The surge in filings in the year’s first half marks a “reversal from a gradual decline in filings since the start of 2021.” The number of large company bankruptcy filings in the first six months of 2023 is already larger not only than the number in the full year 2022 (53) but also for the full year 2021 (70).
While the number of bankruptcy filings increased in the first six months of 2023, the average asset size of the 1H23 filings, $780 million, was well below the 2005-2022 average asset size of $2.05 billion and the 2022 average of $1.62 billion.
Though the average bankruptcy asset size declined in the first six months of 2023, there were a significant number of “mega” bankruptcies (that is, bankruptcies involving companies with over $1 billion of reported assets) during the year’s first half. There were 16 mega bankruptcies in the 1H23 matched the full-year total for 2022and higher than the 2005-2022 half-year average of 11.
During the first six months of 2023, bankruptcy filings increased most notably in the Retail Trade, Services, and Manufacturing sectors. On the other hand, bankruptcy filings in the mining, oil, and gas sectors declined. The largest bankruptcy filing in the first half of 2023 was SVB Financial Group, with $19.68 billion in assets. The largest non-financial firm bankruptcy in the first half of 2023 was Bed Bath & Beyond Inc, with $4.40 billion in assets.
The increase in the number of large company bankruptcies in the first half of 2023 and the reversal of the trend toward a gradual decline in the number of bankruptcies in the immediately preceding period are both items that will concern D&O insurers. Bankruptcies are a fruitful source of D&O claims, and larger bankruptcies, of the type analyzed in the Cornerstone Research report, are even more likely to be the source of significant D&O claims.
It was already the case that D&O insurers were watchful of and wary of a number of current macroeconomic trends; economic inflation, rising interest rates, continue labor supply and supply chain disruption; all items of concern to D&O insurers, and indeed have been (as I have noted on this site) themselves the source of D&O claims.
The increase in the first six months of this year in the number of large company bankruptcies suggests that many of these macro factors may be taking their toll on companies. The increase in bankruptcies also suggests that the favorable impact during preceding periods of coronavirus-related government stimulus may be wearing off.
Given the numerous macro factors and given that the stimulus effects are subsiding, it arguably is no surprise that companies are under a certain amount of stress. However, for the D&O insurers, the rise in the number of large company bankruptcies, even if not entirely unexpected, is still a worrisome and even ominous sign.
Expect to hear more in the months ahead from the insurers about the economic stress and the rise in the number of large company bankruptcies. For those inclined to assert that recent D&O insurance price decreases are not sustainable, these new statistics about the surge in the number of large company bankruptcies will be grist for the mill.