Bankruptcy filings surpassed pandemic peak even before bank crisis took hold
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8 months ago
SIMONE DEL ROSARIO: ON TUESDAY – RICHARD BRANSON’S SATELLITE-LAUNCHING COMPANY VIRGIN ORBIT FILED FOR CHAPTER 11 BANKRUPTCY.
THE COMPANY FAILED TO FIND A FUNDING LIFELINE AND IS NOW LOOKING TO SELL ITS ASSETS.
WHEN A PUBLIC COMPANY LIKE VIRGIN ORBIT GOES BANKRUPT, THERE ARE NO SHORTAGE OF HEADLINES.
BUT THERE’S AN UNDERCURRENT HAPPENING RIGHT NOW IN THE BANKRUPTCY WORLD THAT ISN’T GETTING AS MUCH ATTENTION.
THIS YEAR, RESEARCH SHOWS PRIVATE COMPANIES ARE FILING FOR BANKRUPTCY AT RATES THAT EXCEED WHAT WE SAW AT THE HEIGHT OF THE PANDEMIC.
UBS SAYS A LOT OF THESE BANKRUPTCIES ARE AT SMALLER FIRMS FOR NOW, SO THE IMPACT ON ASSETS AND EMPLOYEES IS NOT AS EGREGIOUS AS THE SHEER NUMBER OF FILINGS.
EXPERTS SAY REAL ESTATE IS ONE PLACE THEY’RE SEEING A BANKRUPTCY BOOM, WHILE HEALTHCARE, RETAIL, CONSTRUCTION, RESTAURANT AND FINANCIAL SECTORS ARE ONES TO WATCH.
I WANT TO BRING IN THE HONORABLE KEVIN CAREY, A FORMER BANKRUPTCY JUDGE AND CURRENT PRESIDENT OF THE AMERICAN BANKRUPTCY INSTITUTE.
SIMONE DEL ROSARIO: If this was happening prior to the banking crisis, you said that it’s been ticking up for the past couple of months. And we knew that credit was already tightening prior to that as well. What does a potential looming credit crunch do on top of that for businesses?
KEVIN CAREY: we’ve been talking about for really a long period of time now for the recession to happen. And so a lot of the lending is on hold. You know, investors don’t want to put money into a volatile economy. When it looks like there’s uncertainty, the banking. You know, I read today that in his message to shareholders, Jamie Dimon at JPM Chase, said, you know, the banking crisis isn’t over yet. He says it’s not like it’s going to like it was in 2008. But there’s still reason to worry. Look, and it’s not just in the US, look what happened with Credit Suisse and UBS, in Europe. So that’s also I think, creating some air of uncertainty that we found out with Silicon Valley is that once a run on a bank starts, it can’t be stopped.
SIMONE DEL ROSARIO: You’ve overseen a lot of bankruptcies and I’m wondering, with your expertise, what happens to businesses when capital is harder to come by?
KEVIN CAREY: Well, and you put your finger on it, it’s liquidity, right. Once liquidity runs out, companies are faced with very few choices. And of course, so many of the chapter elevens now are filed for the purpose of conducting the going concern sale of the business. You know, seemingly Long gone are the old traditional chapter elevens where a company would stay in for a while, restructure, fix some business problems or, you know, rehabilitate some business units, fix its balance sheet. Now, it’s so frequently said plead to get a sale. And of course, sale orders signed by a bankruptcy judge have great value for for buyers, who know they’re getting a business free of liens and other interests, which otherwise might hold the business back.
SIMONE DEL ROSARIO: You know, we haven’t really seen much of an impact of this uptick in bankruptcies and the unemployment numbers yet, but if you consider that more than half of the privately employed workforce works in those small and medium sized businesses, what do you foresee happening this year?
KEVIN CAREY: We’ll see that’s, you know, that’s one of those, you know, factors that kind of swirls around, you know, unemployment continues to be down. You know, there are other factors like high inflation that that are negative influences on the economy. It really, it just depends on on what a particular businesses issues are, you know, whether a business is in an industry that’s growing or not growing, and whether the business is over leveraged. So many of the businesses that find their way into chapter 11, are over levered. And businesses find themselves in a situation in which there’s just no way out. But to sell the company.
SIMONE DEL ROSARIO: You touched on this, everybody seems to be waiting for that recession to come. You know, the Feds been walking such a tightrope trying to bring down inflation, they predict unemployment is gonna go up about another percentage point this year, they are hoping to still avoid a recession. But what is your read?
KEVIN CAREY: So I think everybody hopes to avoid a recession, except maybe those in the restructuring industry for whom that supplies work. But I, you know, look, I know a lawyer, old bankruptcy practitioner who likes to say I predicted the last three recessions seven times. So even when it seems apparent, even when it seems apparent that we’re headed in that direction. Often we don’t get there. I mean, the government’s look what the government did with Silicon Valley. I mean, it’s, it can still play a major role in affecting the economy one way or the other. And I always wonder whether if something looks like it’s going to happen, what the government will do, can be a game changer.
SIMONE DEL ROSARIO: The Honorable Kevin Carey, president of the American Bankruptcy Institute, thank you so much for your time today.
KEVIN CAREY: You’re very welcome, Simone.