Things may be getting slightly better in the US economy and, paradoxically, that makes it more likely companies will be pushed into bankruptcy in coming months. For one, the largest US banks posted surprisingly strong profits during the first half of the year. That has made them more willing to foreclose on deadbeat debtors, pushing them into bankruptcy.
It is a marked change from the end of 2008, when lenders were so anxious to keep losses off their books that they extended loan deadlines for struggling companies.
"The calls (for restructuring advice) have slowed up," said Lawrence Adelman, co-founder of restructuring advisory firm AEG Partners. "But it is a lull. Banks have had time to get their reserves in balance and they're in a better position to take a writeoff."
"The commercial real estate market is starting to fall apart now," Adelman added.
In addition, media and auto-related companies are about four times more like to file for bankruptcy in the next year than companies in other industries, according to a study by Audit Integrity, which tracked liquidity, debt levels and other risk measures at more than 2,500 companies.
And most restructuring professionals say retailers, particularly those in the women's apparel and jewelry sector, are at risk of collapse.
"There will be more Chapter 11s, more out-of-court workouts," said Richard Mikels, a partner at law firm Mintz Levin. "The deleveraging that we need so badly, it's starting to happen."
Top restructuring experts, bankruptcy attorneys and distressed investors will address the outlook for struggling companies at the Reuters Restructuring Summit in New York and London next week. The specialists will also address which industries might be next in line and what steps can be taken to shore up weakened firms, as well as attractive investment opportunities.
What's next?
The past 12 months brought the bankruptcies of such American icons as automaker General Motors Corp and outdoor apparel maker Eddie Bauer.
Bankruptcy filings have slowed somewhat. In August, there were just 10 public-company Chapter 11 filings, compared with 20 filings in July, according to bankruptcydata.com. But there are more to come, especially for any industries that are hurt by slower consumer spending.
"A lot of the retailers are truly hanging on by a thread," said Daniel Alpert, a managing director at Westwood Capital LLC, who advises distressed companies on restructuring measures.
New bankruptcies may not be as large or as recognizable but their impact will still ripple through the economy, bringing unemployment and balance-sheet losses.
"More jobs are lost, money is lost, banks and lenders have to take more loss," said Adelman. "People are affected."
