Tag: COVID-19 bankruptcy

10 Retailers to Watch for a Bankruptcy Filing in the Second Half of 2021

The tide has turned from last year! Slowly, the global pandemic is coming to an end. In its wake, the retail industry has been forever changed with technological innovations and advancements, including online ordering and delivery/pickup, warehousing, automation, and mobile self-check-out. Although most landlords and tenants have worked together during the adversity, there are still a number of problem tenants that may not be able to recover or who may now use the bankruptcy process to get rid of debt and actually restructure.

Following is our top 10 retailers to watch for possible Chapter 11 filing(s) in the year ahead.

  1. AMC – Why Go to the Movies When You Can Stream? According to the Motley Fool, despite the more than $917 million in cash infusion from the investors at the beginning of the year, there is still numerous obstacles for the movie theater company. The rise in streaming services, slow return of consumers to theaters, as well as a significant portion of their current debt being nonconvertible are all signs that there is a high likelihood of a bankruptcy filing to restructure the debt.

  2. Nine West – Footwear Company Walking into a Chapter 22? The women’s footwear company owned by Premier Brands Group Holdings previously filed for bankruptcy in 2018. At the time it reduce debt and sold the Anne Klein trademark. However according to Business Insider, the pandemic is caused a significant drop in revenue. The company looks poised for a Chapter 22 filing – a second Chapter 11 bankruptcy within a few years of the first filing.

  3. LA Fitness – A Footprint Reduction? The Wall Street Journal reports that although gyms are now re-open, the pandemic upended the fitness industry. However, out of all the gyms that suffer through the pandemic, LA Fitness seems to be in the best position to use the bankruptcy process to reduce its footprint and renegotiate leases.

  4. Jo-Ann Stores – Private Equity Debt. According to USA Today, the private-equity owned company has significant debt. This scenario is a classic reason for filing for bankruptcy – remember Toys R’ Us.

  5. Regal Entertainment Group – Significant Rent Arrears. CNBC reports that Regal’s reopening of approximately 500 locations on April 2 to limited capacity was a significant decision for the theater chain. However, like AMC, its owner, Cineworld Group PLC faces significant debt, streaming services and slow return of customers. In addition, numerous outlets report significant rent arrears to landlords.

  6. Barnes and Noble – Can It Survive? The acquisition of Paper Source was meant to create synergies between the two. However, the company is heavily reliant on food concessions as well as in-store customers. Have buyer habits changed for good due to the Pandemic? Forbes still has it on its list of specialty retailers to watch for a Chapter 11 filing.

  7. Rite Aid – A Healthier Population Hurts Business. com notes that the US pharmacy chain with 2,500 stores in 19 states, had a rough go during the Pandemic, as fewer people came down with colds or coughs as they sheltered at home. According to Moody’s, the company is in danger of default as it holds $1.5 billion in outstanding high-risk debt.

  8. Equinox – Another Gym Filing? According to Crain’s New York, landlords are pursuing the private health club for more than $6 million in back rent. Bloomberg noted in February 2021 that the company reached a deal that released it from a limited guarantee of SoulCycle’s $265 million credit facility with lender HPS Investment Partners. Still, the heavy back rent, multiple locations and other debt issues make the gym a perfect candidate for a Chapter 11 restructuring.

  9. The Children’s Place – Losses Keep Piling Up. According to the Forbes, the pandemic accelerated apparel filings. One retailer listed at the top of the list for this year is The Children’s Place. The largest children apparel retailer is on track to close more than 300 stores. Although the company negotiated about $13 million in rent abatements in the fourth quarter 2020 for the COVID-closure period, it may not be enough to avoid a filing.

  10. The Gap – Fall Into Bankruptcy? S. News & World Report’s notes that the company’s long-term debt increased from 1.24 billion to 2.21 billion in 2000 due to the pandemic. Although its business is expected to recover as malls reopened and shoppers return, there is still a concern of the decline in mall traffic long-term.

COPYRIGHT © 2021, STARK & STARK
For more articles on bankruptcy, visit the NLRBankruptcy & Restructuring section.

Executive Summary: COVID-19 Pandemic Spurs Wave of Mega Corporate Bankruptcies

The COVID-19 pandemic has disrupted the global economy and triggered a wave of large corporate bankruptcies. In particular, the number of mega bankruptcies (over $1 billion in reported assets) increased dramatically in the second and third quarters of 2020.

This report examines trends in Chapter 7 and Chapter 11 bankruptcy filings between January 2005 and September 2020 by companies with over $100 million in assets.[i]

In the first three quarters of 2020, 34, 55, and 49 companies with over $100 million in assets filed for bankruptcy, respectively, compared to the quarterly average of 19 for the 2005–2019 period. The 55 bankruptcy filings in Q2 2020 was the second-highest total for any quarter since 2005, only behind the 65 bankruptcies in Q1 2009.

A total of 138 companies with over $100 million in assets filed for bankruptcy in the first three quarters of 2020. This number is 84 percent higher than the number of bankruptcies (75) filed during the same period last year.

There was a substantial increase in the number of “mega bankruptcies” (i.e., those filed by companies with over $1 billion in reported assets) in Q2 2020. In Q2 and Q3 2020, there were 31 and 15 mega bankruptcies or roughly six and three times the quarterly average (five) during the 2005–2019 period, respectively.

Mega bankruptcies were concentrated in two industries: Mining, Oil, and Gas; and Retail Trade. These two industries accounted for 58 percent of the mega bankruptcies in Q1–Q3 2020.

The largest bankruptcy in the first three quarters of 2020 was filed by The Hertz Corporation, which had an estimated $25.84 billion in assets at the time of filing.

Figure 1: Key Trends in Bankruptcy Filings

2005–Q3 2020

2005–2019
Quarterly Average

Q1 2020

Q2 2020

Q3 2020
Chapter 11 Bankruptcy Filings

18

33

54

49
Chapter 11 Mega Bankruptcies

5

6

31

15
Chapter 11 Bankruptcy Filings by Public Companies

11

8

34

26
Chapter 11 Bankruptcy Filings by Private Companies

7

25

20

23
Chapter 7 Bankruptcy Filings

1

1

1

0
Average Asset Value at Time of Filing (Billions)

$2.21

$0.66

$3.01

$1.52

Source: BankruptcyData

Note: Only Chapter 11 and Chapter 7 bankruptcy filings by companies (both public and private) with over $100 million in reported assets are included. For companies where exact assets are not known, the lower bound of the estimated range is used. Asset values are not adjusted for inflation. Mega bankruptcies are defined as those for companies with over $1 billion in reported assets at the time of their bankruptcy filings.

Read COVID-19 Pandemic Spurs Wave of Mega Corporate Bankruptcies

[i]      This report relies on data obtained from BankruptcyData. It focuses on asset values at the time of bankruptcy filings due to the higher prevalence of missing information on liabilities in BankruptcyData. Some other publications have focused on liabilities due to potential concerns over whether book values of assets overstate valuations for bankrupt firms (see, e.g., Edward Altman, “COVID-19 and the Credit Cycle,” Journal of Credit Risk 16, no. 2 (2020): 1–28 at 13–14). Using available data on liabilities in this report would not meaningfully change any of the findings.

Copyright ©2020 Cornerstone Research

ARTICLE BY Allie Schwartz and Joseph B. “J.B.” Doyle of Cornerstone Research
For more articles on bankruptcy, visit the National Law Review Bankruptcy & Restructuring section.

With Retail Bankruptcies on the Rise, Opportunities for Distressed M&A Increase

While there were already a number of high profile retail bankruptcies in 2019, current economic conditions and pandemic-related market challenges have exacerbated an already difficult retail environment, which has led to a significant increase in bankruptcies in 2020. Year to date, more than 30 major retail and restaurant chains have filed for bankruptcy, which is more than in all of 2019. Furthermore, 2020 is on track to have the highest number of retail bankruptcies in 10 years. Although the Q4 holiday season often provides the strongest quarterly financial performance for many retailers, which may slow the pace of bankruptcy filings, projected holiday sales numbers may be uncertain this year, and additional bankruptcies are still likely to follow by year end.

Despite these bleak statistics, distressed companies may present attractive targets for strategic and private equity buyers with available cash or access to financing on favorable terms. Distressed M&A transactions may offer certain advantages that can be attractive to buyers, such as the potential to purchase at a discounted price or the ability to complete a transaction on an accelerated timetable. Already, the retail market has begun to see the reemergence under new ownership of some shuttered companies that were the targets of liquidation sales and distressed M&A transactions within the past two years. Some of these retailers have relaunched with modified business strategies, such as a significantly reduced number of brick and mortar locations or an exclusively online presence. The distressed M&A transaction opportunities resulting from existing market conditions will likely play an increasingly important role in overall M&A deal activity and could lead to a reshaping of the retail landscape in the near future.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.
For more articles on bankruptcy, visit the National Law Review Bankruptcy & Restructuring section.