If we are correct and the pace of defaults pick up, this will create a wealth of opportunities for distressed debt investors.
QUINCY, Mass. (PRWEB)
January 11, 2018
Year-end analysis by New Generation Research’s BankruptcyData indicates that the uptick in public* company bankruptcy filings since 2014 reversed this year, with 2017’s count decreasing 28%. That reduction marks a sharp departure from the respective 25% and 48% gains seen in 2016 and 2015.
Despite this year’s decline, many economic analysts, including George Putnam—Publisher of The Turnaround Letter, Distressed Company Alert and BankruptcyData—anticipate that Chapter 11 activity will tick higher in 2018. Putnam explains, “Much of the unprecedented amount of debt that has been raised during the exuberant markets since 2009 comes due soon. Roughly $1.5 trillion of lower quality corporate debt (a combination of high yield bonds and so-called ‘leveraged’ bank loans) comes due over the next five years. Even if the debt markets stay strong, some small percentage of that debt will need to be restructured, much of that through Chapter 11. If the debt markets get more selective, a larger percentage of the maturing debt will not be able to be refinanced, leading to even more bankruptcies.”
Commenting on U.S. Bankruptcy Court activity and its Wall Street impact, Putnam notes, “If we are correct and the pace of defaults pick up, this will create a wealth of opportunities for distressed debt investors. Also, the large number of companies, particularly energy companies, emerging from Chapter 11 has created interesting opportunities in post-reorganization stocks.”
Despite 2017’s declining public company bankruptcy counts, however, the combined assets** of Chapter 7 and Chapter 11 petitioners rose slightly, fueled in large part by the high asset figures of two of the year’s largest Chapter 11 filings: Seadrill Limited (SDRL), $21.7 billion, and Walter Investment Management Corp. (WAC), $16.8 billion.
Interestingly, the largest bankruptcy of 2017 was not initiated by a company, and it technically might not even be a “bankruptcy” at all. When the Commonwealth of Puerto Rico defaulted with a total estimated $73 billion of debt earlier this year, it was ineligible to seek protection under the U.S. Bankruptcy Code…