Bankruptcies surging as coronavirus levels the U.S. economy
The coronavirus pandemic is setting off a wave of corporate bankruptcies, with thousands of U.S. retailers, energy companies and other businesses succumbing to the recession caused by the pandemic.
Through June 30, there were more than 3,600 Chapter 11 filings this year by companies seeking court protection from their debts — a 26% jump from the year-ago period, according to data from Epiq Global. And in June alone, amid signs the economic recovery is stalling as coronavirus cases surge around the U.S., bankruptcy filings surged 43%, the legal services firm found.
Chuck E. Cheese, Hertz, J. Crew, J.C. Penney, and Neiman Marcus are just a few of the brand-name players that have declared bankruptcy this year after sales slumped during the pandemic. But financial experts think the worst is yet to come, with retailers and oil patch companies particularly vulnerable in what amounts to the sharpest drop in economic growth in decades.
For example, companies such as Texas oil producer Lonestar Resources and Men's Wearhouse parent company Tailored Brands have recently skipped bond payments, a common sign of financial distress.
"As government lifelines to help stabilize the economy begin to expire, bankruptcy provides a shield for households and companies facing intensifying financial distress," said Amy Quackenboss, executive director for the American Bankruptcy Institute, which also tracks filings. "We anticipate filings to begin increasing as a result."
Bankruptcy doesn't necessarily spell a company's doom. Court supervision is designed to help companies shed or restructure their debt, restructure their business, and emerge from Chapter 11 as a more competitive company.