Business bankruptcies keep rising; no relief in sight

McClatchy NewspapersDecember 12, 2008 

WASHINGTON — As the curtain falls on one of the most devastating financial years on record, business bankruptcies — both large and small — continue to soar.

The nearly 58,000 commercial bankruptcies filed nationwide through November of this year exceed the year-end totals of every year since Congress overhauled the bankruptcy laws in 2005, according to Automated Access to Court Electronic Records, an Oklahoma City bankruptcy data company.

The 11-month figure is also 35 percent more than the nearly 43,000 business petitions filed in all of last year, the company's data show.

The combination of massive job losses, stagnant consumer spending, tighter credit and the sub-prime mortgage crisis have hammered businesses coast to coast.

Victims include Lehman Brothers and Washington Mutual, the two largest corporate bankruptcies in U.S. history.

Thousands of smaller companies also have been forced to liquidate or restructure through bankruptcy. They include car dealerships such as Ernie Haire Ford of Tampa, Fla., home remodeling firms such as Accurate Kitchens of Clifton, N.J., and natural gas marketers such as Catalyst Energy of Atlanta.

When the recession began last December, businesses nationwide were filing an average of 206 bankruptcy petitions a day. That average has increased steadily since June, reaching 318 per day in November.

Commercial bankruptcy filings are up 111 percent in Oregon, 91 percent in Utah and 83 percent in California, which leads the nation with nearly 12,000 business filings this year.

Things look even worse for next year, when business filings are likely to increase 40 to 50 percent, said Dan North, chief economist at Euler Hermes ACI, an Owings Mills, Md., firm that insures more than $150 billion in U.S. trade transactions each year.

North expects a wave of retail bankruptcies in the first quarter of 2009, as struggling businesses run out of gas after hanging on for the holiday shopping season.

Some retailers, such as KB Toys, have decided not to wait, hoping that the holiday season will help them liquidate their inventories. After filing for bankruptcy this week, KB Toys will begin going-out-of-business sales at all its stores. The company blamed a "sudden and sharp decline in consumer sales" for its downfall.

Earlier this month, the nation's largest poultry producer, Pilgrim's Pride, sought Chapter 11 bankruptcy protection.

"Over the past year, Pilgrim's Pride has faced a number of significant challenges including high feed-ingredient costs, an oversupply of chicken, weak market pricing and softening demand," said a statement by Clint Rivers, the company's president and chief executive officer. "Chapter 11 filing was a necessary and prudent step and the best way to obtain the financing necessary to maintain regular operations and allow for a successful restructuring."

In Delaware, where many out-of-state companies file incorporation papers, bankruptcies have jumped 243 percent from last year. Many companies file in Delaware because the bankruptcy process tends to move faster there, said Gregory R. Stone, an assistant finance professor at the University of Nevada, Reno.

Last year, in the New York-Delaware region, there was one major business filing per quarter. "Two or three at the most," said Mark Indelicato, a bankruptcy lawyer and partner at Hahn & Hessen law firm in New York. "Now you're seeing multiple filings per week."

The situation wouldn't be so bad if access to credit weren't so tight. In previous years, companies with operational and cash problems had little trouble getting emergency loans.

"There was enough liquidity in the market — the availability of cheap dollars — to chase deals, so you could always correct a problem by refinancing it and getting a different level of debt in there," Indelicato said. "But ever since the sub-prime crisis hit, these parties have hit a wall and they can't get financing anymore,"

The Federal Reserve's most recent quarterly survey of senior bank-loan officers found that 81 percent have made it more expensive for large firms to borrow. Seventy-one percent did the same for small firms. The response rates were the highest ever recorded in the survey, said North of Euler Hermes ACI.

The uncertainty shows no sign of abating.

The Distressed Company Alert, a weekly newsletter about troubled public companies, typically adds five to 10 companies a week to its list.

These days, it's adding 18 to 24 a week.

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McClatchy Newspapers 2008

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