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Pandemic Bankruptcy Battles: Looking Back and Beyond

  • Bankruptcy
  • 5 min read

Over the past two years, the number of bankruptcies filed has fluctuated due mostly to circumstances created by the pandemic. Organizations across every industry were not prepared for such a crisis and scrambled to lessen the financial fallout. Industries hit the hardest at the start of the pandemic included retail, entertainment, travel, hospitality, restaurants, and energy. While there are still many unknowns going forward, businesses are trying their best to recover. However, most government aid has ceased or is winding down, and rising inflation and tightening monetary policies will threaten some companies’ ability to remain financially strong. This allows for more realistic 2022 predictions – and what is likely on the horizon is an increase in bankruptcy filings.

2020 and 2021 Bankruptcy Review

During this chaotic and uncertain time, organizations in all industries had to reconfigure operations to adapt as best they could. Individuals across the world changed patterns, including how often they left their home, how to spend money, and employment paths. The global economic downturn commenced. This situation coupled with government stimulus caused some unusual bankruptcy activity. Here is a recap of major bankruptcy trends seen throughout the pandemic:

  • In 2020, there was a 40% increase in commercial filings. Mandatory shutdowns beginning in March 2020, adversely affected many businesses as they experienced a sudden drop in demand for their products and services. Three industries hit hard were retail, energy, and restaurants. Bankruptcy filings especially soared during the second and third quarters as many businesses could not survive the effects of the pandemic. *
  • Many predicted that commercial bankruptcy filings would remain high in 2021, however, that was not the case. Economic conditions began to improve in early 2021 due to a number of events including the widespread introduction of vaccines, fewer restrictions on businesses and customers, lower unemployment rates, historically low interest rates, and more government aid dispersed. The result was a record low year for commercial bankruptcy filings, according to statistics gathered by Epiq, which decreased by 50% from the prior year. While some challenged organizations took a wait-and-see approach and hoped that government aid would extend, others avoided bankruptcy by revamping operations to keep their business afloat. For example, many retail and dining establishments enhanced their online presence or created curbside and contactless options.
  • Most of the commercial bankruptcy filings in 2021 were low and middle market companies, as the Chapter 11 Sub Chapter V small business statistics gathered by Epiq confirm. There were very few mega or large Chapter 11 cases filed in 2021. With access to a robust capital market and readily available financing, large organizations were able to amend and extend maturities on their loans. One exception was the Chapter 11 filing of Nordic Aviation, a regional aircraft lessor. A December filing allowed Nordic to restructure $6.3 billion in debt.

2022 Bankruptcy Predictions

There are still many unknowns as the pandemic continues, but overall, people are getting back to work and looking at the realities of the economy’s slow recovery. Organizations that lost aid or were holding off to see how things would pan out now need to make tough financial decisions. For many, restructuring could be the best solution to continue successful operations or avoid crippling losses. Here are some 2022 predictions that feed off the pandemic bankruptcy trends seen thus far:

  • The economy will recover slowly and in waves. Organizations operating in industries where the articulated risk factors for bankruptcy are higher will see the most filings this year and in the near future, until the pandemic’s effects subside and economic conditions improve. These risk factors include labor shortages, supply chain disruptions, interest rate hikes, pricing inflation, and lack of virtual offerings. Surges of potential coronavirus variants can also increase bankruptcy risk for those operating off models involving physical presence, as many in the entertainment and travel sectors have been hanging by a thread. Taking all these factors into account, the industries most vulnerable to bankruptcy hikes include retail, hospitality, and travel.
  • Healthcare has been a crucial industry during the pandemic, as there has been an acute need for hospitals and other medical facilities to remain afloat during emergent conditions. Healthcare bankruptcies were relatively low in 2021, with only 13 filings among companies with debt of more than $10 million. One of the largest filings in 2021 was Golf Coast Health Care, LLC that operates 28 skilled nursing and assisted nursing facilities in Florida, Georgia, and Mississippi. The industry was, however, experiencing financial pressures pre-pandemic and hospital and healthcare system revenue have declined sharply because of the COVID 19 pandemic. Hospitals have postponed elective surgeries, and many have put off screenings, as well as primary and other specialty care visits. At the same time, the cost of acquiring PPE and other equipment has sharply increased. Those organizations that have been able to put off a restructuring might need to explore bankruptcy options this year.
  • Some analysts believe there is a student loan bubble about to burst. Federal student loan payments were recently deferred again until May, and it is unclear whether there will be another extension or payments will resume at some point this year. If there is no further extension, a fair prediction is that the bubble bursting theory may become reality. Inflation, along with other individual debts becoming due, will make it harder for many to make these payments in the same way they could pre-pandemic.

This is the year for organizations to take a hard look at their financial state and create a viable plan. Bankruptcy can be a useful tool to reorganize debt and strengthen operations to achieve a better path to profitability.

If you enjoyed this, consider reading The Future of Student Loans and Bankruptcy – Is There a Bubble Waiting to Burst?

Note:  Statistical commercial bankruptcy filing information shared is provided by Epiq Bankruptcy Analytics.

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