Special Report

Shutdown: The Coronavirus

Corporate bankruptcy: ‘A story that’s not going away’

Car rentals have taken a big hit during the pandemic. Photo by @TonyTheTigersSon via Twenty20

Large companies have fallen, and the list is long. It ranges from 112-year old car rental company Hertz and retail brand J. Crew to oil giant Chesapeake and NPC International, the operator of 1,200 Pizza Hut restaurants.

A wave of corporate bankruptcies has  claimed 3,604 businesses  in the first half the year, up from 2,855 from the same period last year, according to Epiq Global, a firm that tracks data from US bankruptcy courts. With no vaccine for the virus yet, the coronavirus is still holding back the US economy, and bankruptcy filings are likely to accelerate, experts say.

“Companies in sectors like energy, retail and hospitality will continue to be under substantial pressure and see a lot of bankruptcy filings,” said Peter Friedman, a leading bankruptcy and restructuring litigator at law firm O’Melveny.

A pullback in consumer spending has hit retail stores hard, which were already facing tough competition from e-commerce giants like Amazon. Energy companies have also been hurt as the crisis sapped the demand for oil after travel and economic activity came to a screeching halt.

Under the Paycheck Protection Program, an aid program for small and mid-sized businesses, the government has issued 4.9 million loans totaling $521 billion as of June 30.  The program was set to expire on June 30, but Congress has extended it to Aug. 8.

Experts aid can help sustain businesses, but this model can’t be the panacea.

Despite receiving PPP loans, many companies are still going bust. Toojay’s, a popular Florida-based deli chain that had received $6.4 million in stimulus funds, is one of them. Almost one out of every 12 companies that have gone bankrupt since early April got PPP loans, according to a research firm bankruptcydata.com.

“PPP obviously can be helpful, but fundamentally if there is a loss in revenue or too much leverage on the business, it’s a different picture,” said Friedman.

Many debt-saddled firms could begin to file for bankruptcy under Chapter 11 if the economy doesn’t rebound.

Chapter 11 of the US bankruptcy code allows a troubled company to restructure its debt while continuing to operate. If the company fails to pay its creditors, its assets are liquidated under Chapter 7. June was a particularly bad month for companies this year. Commercial Chapter 11 filings were up 43% over June of last year, with 609 new filings, Epiq Global said. A total of 1,0121 companies were liquidated under Chapter 7 filings this year so far.

One of the biggest corporate casualties under Chapter 11 was Hertz, after stay-at-home orders   whacked its business. Already sitting on $17 billion in debt, the company gave in.

Household retailer J.C. Penney also filed for bankruptcy, after it struggled to service $4 billion in debt. The company has announced to close its 250 stores by the end of summer 2021.

“Going into recession with a heavy amount of debt is almost a recipe for bankruptcy,” Anthony Karydakis, Adjunct Professor at New York University’s Stern School of Business, said.

Karaydakis said companies that managed to survive the intense lockdown period, “are still not out of the woods yet.”

The piling up of debt and falling revenue has left companies teetering on the brink of bankruptcy.  Victoria’s Secret and Best Buy are among many that are on the edge.

US companies have piled on more than $11 trillion in debt over a decade, fueled in part by low interest rates from the Federal Reserve. For companies looking to raise funds, low interest rates make debt attractive because they lower borrowing cost. Cheap debt drives firms to take more debt at low interests from their creditors. But accumulating too much debt can be dangerous, especially when the economy slows.  Experts say many companies are likely to default on their debt payments now that the pandemic has hurt sales.

“Taking debt when the economy is doing ok is relatively manageable, but debt starts becoming a threat to the existence of certain companies when the economy slows down,” Karydakis said.

“Companies can’t hang around without making payments on their debt.”

Karydakis also says as more companies go bankrupt in the coming months there will be more job losses in the US. At 11.1%, unemployment still remains higher than at any point during the Great Recession. Karydakis noted it’s possible bankruptcies could keep unemployment elevated for months to come.

“Companies are going to lay off as more bankruptcies pile up. This will slow the pace of recovering the job market. This is a story that is not going away,” he added.

Author


Tags


Other Stories in Special Report: Shutdown: The Coronavirus

Life returns to the East Village

Quincy Walter May 5, 2021

Reopening for Ramadan

Hassan Abbas May 4, 2021

And the band played on

Xavier Bartaburu May 2, 2021

Queens residents mourn at Covid vigil

Annie Burky May 2, 2021

Floating for Free: COVID and the Staten Island Ferry

Trish Rooney May 2, 2021

COVID-19 has left many Black and Hispanic landlords in serious debt

Norah Hogan April 24, 2021

Village East movie theater reopens to the public

Inga Parkel April 13, 2021

Chinese adoptions halted by COVID

Inga Parkel March 24, 2021

Remote is the new workplace normal

Courtney Guarino March 24, 2021

One year of COVID-19 in New York City

Michelle Diaz March 16, 2021

COVID long haulers deal with lingering symptoms and doubt

Kaity Assaf March 5, 2021

Pandemic Weddings

Chuyan Jiang March 2, 2021

Pandemic fatigue 101

Chuyan Jiang February 28, 2021

Yankee Stadium becomes COVID-19 vaccine site for Bronx residents only

Michelle Diaz February 24, 2021

The queer community rallies behind their sacred spaces closed because of COVID-19

Inga Parkel February 23, 2021

Street vendors struggle as New Yorkers and tourists stay home

Norah Hogan February 13, 2021

Keeping the faith in COVID-19

Courtney Guarino February 3, 2021

Little Italy’s restaurants need indoor dining to survive pandemic

Michelle Diaz February 2, 2021

Stray pets find homes and love during pandemic

Inga Parkel February 1, 2021

No Actors, But the Show Goes On

James Pothen December 5, 2020

New York City, a place of refuge 

Edith Rousselot December 4, 2020

Commuting in a pandemic world

Michelle Diaz December 3, 2020

Battling food insecurities during a pandemic

Courtney Guarino December 3, 2020

Adaptation

Justin McGown December 3, 2020

Honk!: Cars earn a special spot in 2020

Luana Harumi December 3, 2020

Working out looks very different during a pandemic

Chuyan Jiang December 2, 2020

One kitchen’s transformation in the age of isolation

Isabel Beer December 2, 2020

Nursing homes are filled with sadness and loss during pandemic shut down

Inga Parkel December 1, 2020

The show goes on

Norah Hogan December 1, 2020

Loyal members help keep independent cinemas afloat

Courtney Guarino December 1, 2020

Musicians deal with the reality of no live shows as covid takes center stage

Paola Michelle Ortiz December 1, 2020

 Black Friday’s Aftermath

Sughnen Yongo November 30, 2020

The Spirit of Little Haiti

Savannah Daniels October 14, 2020

Small business owners hope for future relief

Courtney Guarino October 2, 2020

Brooklyn Book Festival held virtually

Chuyan Jiang September 28, 2020

NYC Restaurant owners worry about maintaining business during winter 

Isabel Beer September 27, 2020

The pandemic is causing mental health struggles for many Latinos

Paola Michelle Ortiz September 24, 2020

Politically divided family can agree on one thing, rallies are bad during a pandemic

Michelle Diaz September 23, 2020

New Yorkers are vulnerable to mental issues due to pandemic

Sughnen Yongo September 23, 2020

Healthcare professionals struggle with Trump’s decisions during pandemic

Tori Luecking September 23, 2020

Some Americans Say “Not So Fast” on Operation Warp Speed

James Pothen September 23, 2020

Trump voters unfazed by morality of Trump’s Covid response

Norah Hogan September 22, 2020

Trump rallies continue, despite the rising Covid-19 death toll

Isabel Beer September 22, 2020

Latinos weigh in on President Trump’s management of the pandemic

Paola Michelle Ortiz September 21, 2020

Fast track vaccine causes fear

Kaity Assaf September 21, 2020

It’s business as usual at McSorley’s Old Ale House

Tori Luecking September 20, 2020

Trump defiance to hold indoor rallies amidst COVID-19 sparks polarized responses 

Courtney Guarino September 20, 2020

NYC Cafes and restaurants try and survive the pandemic

Isabel Beer September 19, 2020

A typical afternoon at Shade Bar NYC

Kaity Assaf September 19, 2020

West Village staple, Caffe Reggio, remains open for outdoor dining in the wake of coronavirus restrictions 

Norah Hogan September 19, 2020