The COVID-19 pandemic continues to wreak havoc on a number of industries, as we began discussing in our June blog. Presented below is updated data on the 10 industries hardest hit from COVID-19 through August, sorted by overall increase in filings.
Number of Chapter 11 Filings
| Industry | Jan - Mar | Apr - Aug | Increase | % Increase |
|---|---|---|---|---|
| Retail | 70 | 323 | 253 | 361.4% |
| Oil/Gas | 272 | 484 | 212 | 77.9% |
| Healthcare | 106 | 291 | 185 | 174.5% |
| Restaurant, Food & Beverage | 153 | 315 | 162 | 105.9% |
| Airline / Airline Parts / Services | 6 | 153 | 147 | 2450.0% |
| Telecommunications / Cable | 23 | 162 | 139 | 604.3% |
| Entertainment / Recreation | 64 | 180 | 116 | 181.3% |
| Manufacturing | 33 | 115 | 82 | 248.5% |
| Business Services | 35 | 104 | 69 | 197.1% |
| Automobile/ Auto Parts / Services | 48 | 95 | 47 | 97.9% |
| All Other | 822 | 900 | 78 | N/A |
| Total | 1,632 | 3,122 | 1,490 | N/A |
Not surprisingly, retail suffered the largest increase in Chapter 11 filings. Given that states have largely reopened and school is now back in session for millions of students, it is anticipated that some retail sectors will rebound; however, if a new wave of state closures were to reoccur, the economic effects may be severely damaging for the industries noted above.
The breakdown below demonstrates the number of Chapter 11 filings by asset size through August. The number of new filings spiked in May but remained elevated beyond the state mandated closures that occurred in March through July 2020. However, the August 2020 number of filings was slightly below the pre-COVID months (defined as January to March), which may be reflective of the positive effect of state reopenings.
Source: Nationwide Research Company – United States Bankruptcy Chapter 11 filings.
Both Congress and the Federal Reserve have acted quickly to provide much needed aid. The CARES Act provided financial support for many businesses affected by the pandemic; however, it is unclear if this aid is simply a temporary bandage for a much larger problem. We may be experiencing only the tip of the iceberg at the current moment. Business leaders must continue to be agile and embrace change to avoid being another Chapter 11 reorganization statistic. The next few months will be key to understanding how industries respond once government aid ends.
Another key area to watch is a company’s ability to manage its debt commitments. Banks are bracing for a wave of defaults. Factors such as an uncertain economy, the continued health crisis, civil unrest and the presidential election will only make it harder for businesses to raise cash.
Contact Andy Jordan or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.