wolfstreet.com / by Wolf Richter / Jul 6, 2017
Bankruptcies surge as the “credit cycle” exacts its pound of flesh.
Commercial Chapter 11 bankruptcies – an effort to restructure the business, rather than liquidating it – jumped 16% year-over-year in June to 581 filings across the US. Total commercial bankruptcies of all types, by large corporations to tiny sole proprietorships, rose 2% year-over-year to 3,385 filings, according to the American Bankruptcy Institute. This was up 39% from June 2015 and up 18% from June 2014.
Commercial bankruptcies topped out at 9,004 in March 2010. By that time, credit conditions had been easing for a year, and liquidity was chasing yield. Not much later, even zombie companies – if they were large enough – were able to refinance their debts and borrow more to fund their operations and keep creditors happy. Bankruptcies fell sharply: In September 2015, they bottomed out at 2,217 filings.
Then the energy bust hit. Oil-and-gas companies along with coal companies began toppling, and bankruptcy filings surged. But in 2016, oil prices more than doubled off their lows. New money began pouring into the sector again. And drillers that had been cash-flow negative for two decades and had lost dizzying piles of money were able to refinance their debts and get new money to drill into the ground and live another day. And the waves of energy bankruptcies receded.