Large U.S. corporate bankruptcies have accelerated in recent weeks as the economic slowdown claims more victims, according to Reuters, citing research from BankruptcyData.com. The report states more companies with assets of more than $1 billion have filed for bankruptcy protection in the past month than in any four-week period all year.
In June alone 18 public companies filed for bankruptcy, bringing the year-to-date total to 124 public company bankruptcy filings, according to BankruptcyData.com. Moreover, in the past four weeks eight public companies with assets of more than $1 billion have filed for bankruptcy protection, compared with five multibillion-dollar corporate bankruptcies in the preceding four-week period, according to Reuters.
Among the companies filing for bankruptcy are long-term lodging facility operator Extended Stay Inc, which had assets of $7.13 billion before its bankruptcy, and theme park operator Six Flags Inc, which had assets of roughly $3.03 billion.
Auto giant General Motors also recently emerged from bankruptcy proceeding and is now more than 60% owned by the U.S. Treasury.
“Corporate revenue is down in the United States and when topline revenue is down, there’s less money to spread through expenses,” said Brian Hamilton, Co-Founder and CEO of financial information company Sageworks Inc.
The economic slowdown has taken such a toll on corporations and individuals that bankruptcy courts are struggling to manage the load, notes Reuters. In fact, the report points out that Barbara Lynn, Chair of the Bankruptcy Committee of the Judicial Conference of the United States, recommended that Congress authorize 13 new permanent bankruptcy judgeships and make 22 temporary bankruptcy judgeships permanent. “In the 12-month period ending March 31, 2009, there were approximately 1.2 million bankruptcy petitions filed - nearly double the number of petitions filed in 2006,” Lynn said.
Boosting Legal Budgets on Bankruptcy Issues
Businesses also 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.
Amid the trend, Kramer Levin Naftalis & Frankel LLP added a new Partner who focuses on complex transactional, litigation and advisory work relating to restructuring, commercial finance, Chapter 11 bankruptcy cases, workouts, and “pre-packaged” Chapter 11 matters in the firm’s Corporate Restructuring and Bankruptcy Department, according to the Metropolitan Corporate Counsel.
Philadelphia-based Morgan Lewis & Bockius recently announced it added 11 corporate finance lawyers, including five partners who will focus their practice on corporate finance and restructuring. “Particularly in light of the difficult credit markets faced by both our lender and borrower clients, there is an ever-increasing need for us to be able to provide additional top-flight financing expertise across a multitude of industries,” said Morgan Lewis Chairman Francis M. Milone.
Accountants in Demand
Accounting firms are also seeing an upswing in business related to the surge corporate bankruptcies. PricewaterhouseCoopers already racked up more than $201 million in accountant and auditor fees from six cases, according to BankruptcyData.com. Ernst & Young LLP follows with 13 cases for a total of $74,373,503 in fees. Deloitte & Touche LLP comes in third with eight cases totaling $33,463,070. BDO Seidman, LLP’s seven cases also brought in fees totaling $15,182,207.
“The global economy will see more bankruptcies but not on the scale of U.S. carmaker General Motors Corp.” Reuters quotes a Mike Starr, Chief Operating Officer of Grant Thornton as saying. “There is a chain effect that is taking place. We have seen the large bankruptcies, now we are going to see that cascading,” said Starr.
Experts predict there are more corporate bankruptcies to come. Reuters quotes Hamilton of Sageworks as saying he expects to see more bankruptcies this year for companies in the auto or real estate industries. 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.
KPMG already named a new head to its U.S. Restructuring Services Group, which works with companies, lenders and other stakeholders to help provide stability, restore confidence, and improve performance and recovery in stressed and distressed situations.
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.