Bankruptcy/Chapter 11 / Bonds / Post-Bankruptcy Stocks

2016 Bankruptcy Review: More & Bigger

The increase in bankruptcy activity that began in 2015 accelerated in 2016.  The number of publicly traded companies filing for bankruptcy this past year jumped to at least 95 from 79 in 2015, and the total assets of public companies going into Chapters 7, 9 and 11 during 2016 rose by nearly $27 billion to almost $104 billion.  Both of these numbers were at the highest level since 2009.  The 2016 crop of filings included nine with assets above $3 billion compared to six in 2015 and only two in 2014.  Similarly, there were 25 bankruptcies with assets over $1 billion in 2016 versus 19 in 2015 and 11 the previous year.

Energy and mining companies dominated the large corporate bankruptcies once again in 2016.  Eleven of the top 15 Chapter 11 filings were by companies in the oil & gas, mining and related sectors.  This doesn’t even include the largest filing in 2016, SunEdison, which is involved with a different form of energy – solar.  However, it appears that the energy-related bankruptcies are slowing and more filings are coming from other sectors.  In the second half of 2016 more than two-thirds of the bankruptcies came from industries outside of energy.

While we believe that overall bankruptcy activity will remain at a high level for the foreseeable future, we think that filings in the energy sector may have peaked.  They won’t dry up overnight however, and we anticipate that energy bankruptcies will gradually decline over the next 12 to 18 months.

We expect much of the focus in the bankruptcy world to shift to companies in a variety of industries that have taken on too much debt during the exuberant markets since 2009 and are now facing looming maturities.  Roughly $1.5 trillion  of lower quality corporate debt (a combination of high yield bonds and so-called “leveraged” bank loans) comes due over the next five years.  Even if the debt markets stay strong, some small percentage of that debt will need to be restructured, much of that through Chapter 11.  If the debt markets get more selective, a larger percentage of the maturing debt will fail to get refinanced, leading to even more bankruptcies.

We are optimistic that the increasing bankruptcy activity will provide some very attractive opportunities for turnaround investors.  Some of these opportunities will be in distressed debt, but there will also be a number of attractive post-reorganization equities.  We are beginning to see some especially interesting post-bankruptcy equities in the energy sector as several coal and oil & gas companies have recently emerged from Chapter 11.  We will feature some of these opportunities in upcoming issues of The Turnaround Letter as these stocks begin to trade more actively.

Largest Bankruptcies of 20161

Company

Assets2
($Mil.)

Filing
Date

SunEdison, Inc.

$11,500

4/21/16

Peabody Energy Corp.

11,021

4/13/16

LINN Energy, LLC

9,977

5/11/16

Arch Coal, Inc.

8,430

1/11/16

Breitburn Energy 

4,872

5/15/16

Energy XXI Ltd.

4,691

4/14/16

Republic Airways Hldgs.

3,494

2/25/16

Halcon Resources Corp.

3,459

7/27/16

Paragon Offshore plc

3,253

2/14/16

SandRidge Energy, Inc.

2,991

5/16/16

Through 12/26/16 | 2 Assets at year-end prior to filing

Source: BankruptcyData