Need Grows for Bankruptcy and Restructuring Professionals
Corporate bankruptcies are on track to hit a record high this year. There have been 100 public company bankruptcy filings during the first five months of this year, just shy of the 2002 high for the same time period, according to BusinessWeek, citing research from BankruptcyData.com. The American Bankruptcy Institute (ABI) also reports that business filings surged nearly 65% in the first quarter of 2009. Recent research from the Bain Corporate Renewal Group also predicts an unprecedented surge in U.S. corporate defaults this year with continuing high levels through 2010.
Now, as the number of Chapter 11 filings and corporate defaults continues to grow, executive search firm, A.E. Feldman, is already seeing a surge in demand for candidates with expertise in bankruptcy, crisis management, restructuring and valuation. A.E. Feldman’s CEO, Carol Schwam, says, “Accounting firms and other specialty advisory firms are looking for experts who can consult businesses on bankruptcy and restructuring.” Job opportunities exist for professionals with CPA, CIRA, CTP or CFA certifications.
Business Bankruptcies Jump in Q1
The total number of U.S. bankruptcies filed during the first three months of 2009 increased 34.5% to 330,477 over the same period in 2008 nationwide, according to the ABI, citing data from the Administrative Office of the U.S. Courts. The total filings in the 2009 first quarter also represent a 9.7% increase from the 301,317 bankruptcies filed during the fourth quarter of 2008 (Oct. 1 – Dec. 31).
More specifically, business filings for the first quarter hit 14,319 - a 64.3% jump over the first quarter 2008. First quarter business filings also represent an 11% increase over the fourth quarter 2008 total of 12,901. Business filings for the 12-month period ending March 31, 2009 are also up 59.7% from the same period a year ago.
“Consumers and businesses are increasingly seeking bankruptcy protection in order to shelter themselves from the financial storms brought on by the current economic climate,” said Samuel J. Gerdano, ABI Executive Director. “As unemployment figures continue to rise and financing remains elusive, we expect filings to surge past 1.4 million cases by year-end.”
Corporate Defaults to Surge
A growing number of economists see a GDP turnaround in the U.S. as early as the second half of 2009, but a new corporate default outlook released from the Bain Corporate Renewal Group (Bain CRG) finds that up to 200 companies (that are speculative grade debt issuers (grade B or lower) and possess more than $100 million in assets) will likely default this year, according to RiskCenter.com. The report notes this number of defaults is the equivalent default rate of 11-13% of all speculative grade debt issuers and is historically unprecedented in the U.S., citing Bain CRG’s Spring 2009 Default Outlook. The authors of the report also predict that the rate of corporate defaults will drop only minimally in 2010, reaching 7-9% next year, equivalent to 120-140 total defaults.
“Though some indicators are suggesting an overall improvement in economic conditions, the numbers we’re looking at point to a looming pile up of large company corporate defaults over the next 18-24 months,” RiskCenter quotes Sam Rovit, author of the study and Managing Partner of Bain CRG, as saying. “While consumer cyclical industries remain the most at risk, we are seeing the default virus spread to industries once thought of as safe,” he added.
Media is one of several consumer cyclical industries that faces escalating default pressures, according to the report. It states, “Speculative grade companies make up approximately 83% of the traditional media industry. Of the $400 billion of media industry debt, nearly $250 billion is speculative grade, which is most at risk. Almost $120 billion is due within five years, while at the same time interest payments as a percentage of pre-tax profits are spiraling upward.” Thus, the report concludes, these conditions are a prelude to further media industry defaults on the horizon.
Bankruptcy-related defaults have become the second leading cause for defaults this year, according to the WSJ. The report states, “Defaults have been surging for more than a year as the economy turned south and the credit crunch made refinancing debt much more difficult.” The WSJ notes S&P also expects the global corporate default rate to jump to 14.3% by next March.
Amid the trend, it may come as no surprise that businesses plan to spend more of their legal budgets on bankruptcy and restructuring issues. BTI Consulting Group recently conducted 370 interviews with corporate counsel at Fortune 1000 companies. The results of BTI’s research show that spending for bankruptcy assistance will rise by 2.6%. Michael Rynowecer, President of BTI Consulting, acknowledges however, the bankruptcy figure could end up going much higher as bankruptcy becomes a reality for a growing number of businesses.
Are you working in bankruptcy or restructuring? If you want to grow your career or discuss your firm’s talent needs, contact A.E. Feldman’s President, Mitch Feldman today.
