US public firms seek bankruptcy at fastest 1Q rate since 2010

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The number of bankruptcies among publicly traded U.S. companies has climbed to the highest first-quarter level for five years, according to a Reuters analysis of data from research firm bankruptcompanynews.com.

Plunging prices of crude oil and other commodities is one of the major reasons for the increased filings, and bankruptcy experts said a more aggressive stance by lenders may also be hurting some companies.

While U.S. stocks have climbed to near record levels and the jobless rate has fallen to a six-year low, 26 publicly traded U.S. corporations filed for bankruptcy in the first three months of 2015. The number doubled from 11 in the first quarter of last year and was the highest since 27 in the first quarter of 2010, which was in the immediate aftermath of the financial crisis.

In addition, many of the bankruptcies were large. Six companies had reported at least a billion dollars in assets when they filed in the first quarter of this year, the most in the first quarter of any year since 2009.

The $34 billion in assets held by the 26 companies is the second highest for a first quarter in the past decade. The highest was the $102 billion held by the public companies that filed in the first quarter of 2009 when the crisis was at its worst.

Restructuring and turnaround professionals said their phones are ringing more often after some of the slowest years ever in the business. For all of 2014, only 54 publicly traded corporations filed for bankruptcy, the lowest number since at least 1980, according to the research firm.

The bulk of the bankruptcies have links to resources, particularly oil prices that have fallen by about half since the middle of last year. Commodity-related bankruptcies included Allied Nevada Gold, BPZ Resources, Dune Energy, Quicksilver Resources, Sierra Resource Group and USA Synthetic Fuel.

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"Come down to Houston," said William Snyder, the Texas-based leader of the Deloitte Corporate Restructuring Group in reference to America's energy capital. "You'll see there is just a stream of consultants and bankruptcy attorneys running around this town."

The bankruptcies included the operating unit of the largest U.S. casino company, Caesars Entertainment, retailer RadioShack and Altegrity, a security services firm.

Many of the public companies filing for bankruptcy are the walking wounded of corporate America. Caesars operating unit, for example, has been unprofitable for five years.

Body Central, a chain of 265 Body Shop and Body Central women's clothing stores and the owner of the Sexy Stretch and Lipstick Lingerie labels, was too broke for bankruptcy. It opted for a state court process known as an assignment for the benefit of creditors - essentially a cut-rate liquidation.

Bankruptcy filings had plunged since the U.S. Federal Reserve slashed interest rates during the 2008-09 financial crisis. The Fed's quantitative easing program, which pumped trillions of dollars into the economy between 2008-2014, also led to an easy money environment.

Bankruptcy specialists said this allowed weaker companies to limp along and others to boost earnings by piling on debt -- and risks. When a shock arrives, such as a plunging commodity prices, the companies are unable to cushion the blow.

Pulling the plug

Many bankruptcy professionals said lenders are becoming quicker to pull the plug than they were several years ago.

"In a better economy banks are in better position to take losses," said Greg Segall of Versa Capital Management, which buys assets out of bankruptcy. "The value of loan collateral has risen."

The experts are divided on whether the figures indicate a turning point or whether the first quarter reflects a temporary blip.

If the pace of the first quarter continues, 2015 will end with more than 100 public company bankruptcies. The last time they reached that level was the 106 recorded in 2010, though in 2009 they soared to 211. The median number over the past decade is 86.

Bankruptcy filings, though, are just one measure of corporate distress. Restructuring specialists said many more companies are trying to renegotiate looming debt maturities or loan covenants, particularly energy companies that are hoping oil prices will rebound.

"There is a ton of activity under the water," said Jon Garcia, the global leader of McKinsey RTS, a firm that provides turnaround management services. He said a sharp rise in the U.S. dollar was squeezing American exporters, creating another potential strain.

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Firms such as Garcia's and rivals AlixPartners, Alvarez & Marsal and FTI Consulting often provide managers who are brought into a company to help head off trouble that could lead to a Chapter 11 bankruptcy filing.

For firms like these, recent years have been marked by layoffs and belt-tightening. Now some are ready to hire again.

Garcia said he now spends about a third of his time on recruitment. Nathan Cook, a managing director at AlixPartners, said his firm is looking to add people in energy and healthcare, where shifts in government and private insurers' reimbursement rates have piled pressure on hospital finances.

There is a marked increase in troubled situations "primarily as a consequence of the drop in oil prices," said Tim Coleman, who heads restructuring and reorganization at Blackstone, an investment and advisory firm.

Among those hurt by the lower energy prices was marine contractor Cal Dive International. It was doing manned underwater construction work on offshore oil platforms in Mexico last year when bad weather hit, pushing back the completion and an expected payment of $72.5 million for the project.

As the company sought cash to carry it over, it got hit again, this time by tumbling oil prices that spooked its lenders, eventually forcing it into bankruptcy in March.

"It wasn't necessarily that their project and business outlook were materially impacted in the near term but they were unable to refinance," said Suzzanne Uhland, a bankruptcy attorney with O'Melveny & Myers who is representing Cal Dive.

More bankruptcies obviously carry costs. The recent filings by retailers Alco Stores, Body Central,Cache, dElia*s, Deb Shops, RadioShack and The Wet Seal, many of which were sunk by aggressive Internet competition, eliminated about 33,000 full-time and part-time jobs.

But Kenneth Buckfire, the president of Miller Buckfire, an investment bank that specializes in corporate restructuring, said there is also a cost to propping up companies. While that protects shareholders, who generally lose their investment in Chapter 11, it prevents an ailing company from retooling.

"Companies are paying down debt or managing cash rather than investing in new products," said Buckfire.