Turnaround Investing Blog

George Putnam, one of the country's leading turnaround and distressed investing professionals, shares his timely insight on the economy and turnaround investing opportunities.

Bankruptcy/Chapter 11 / Energy / Post-Bankruptcy Stocks

2015 Bankruptcy Recap: 46% Increase Fueled by Oil & Gas/Mining Industry--Further Uptick Predicted

BankruptcyData.com's analysis indicates that public* company bankruptcy filings increased by 46% in 2015—primarily driven by surging Energy sector filings. A total of 79 publicly traded companies filed for Chapter 7/Chapter 11 protection last year with $81 billion in combined pre-petition assets**. Despite that dramaticenergy bankruptcy uptick, total assets going into Chapter 11 in 2015 increased only slightly over 2014's due to Energy Future Holdings' $40 billion bankruptcy.

The 2015 crop of publicly traded filings includes six with assets above $3 billion compared to only two the previous year. Similarly, there were 19 bankruptcies with assets over $1 billion in 2015 versus 11 a year ago. Eight of the ten largest Chapter 11's were initiated by companies in the Oil & Gas, Mining and related sectors—and a remarkable 51% of 2015's total public bankruptcies came from those industries.

Many Wall Street analysts, including The Turnaround Letter's George Putnam, see a further increase in U.S. Bankruptcy Court activity. Putnam explains, "There could be a number of additional companies getting ready to file in 2016. The face amount of bonds that have not yet defaulted but are trading below 50 cents on the dollar jumped to about $80 billion in December, a more than five-fold increase during 2015 and the highest level since the 2008-09 financial crisis."

Putnam continues, "Some meaningful percentage of those issuers will not be able to refinance their debt and be forced to restructure when their debt matures, even if the high yield debt market strengthens again. If the junk bond market is weak for a while, the number of defaults and restructurings is likely to be even larger."

Although the Oil & Gas/Mining stampede to U.S. Bankruptcy Court did not kick off until early March, the sector's dominance continued to mount right up until the final moments of 2015—with Swift Energy's $2 billion New Year's Eve filing capping off the year. This upward trend and its direct relation to the decline in crude oil prices is discussed below. Not only was the volume of public company bankruptcies from this sector (40 of the total 79 filings) noteworthy, so too was the size of companies seeking U.S. Bankruptcy Court protection. As indicated in the chart below, 13 of 2015's Oil & Gas/Mining debtors listed pre-petition assets greater than $1 billion, and nine of those were over $2 billion.

 

2015 Billion-$ Oil & Gas/Mining Bankruptcies

 

Company

 

Description

Assets** ($Mils)

Alpha Natural Resources, Inc.

Coal Producer & Marketer

10,736

Samson Resources Corporation

Oil & Gas Expl. & Production

5,608

Walter Energy, Inc.

Coal Producer & Marketer

5,386

Offshore Group Investment Ltd.

International Offshore Drilling

3,507

Molycorp, Inc.

Rare Earth Materials Mining

2,576

Sabine Oil & Gas Corporation

Oil & Gas Expl. & Production

2,438

Swift Energy Company

Oil & Gas Expl. & Production

2,173

Patriot Coal Corporation

Coal Producer & Marketer

2,072

Hercules Offshore, Inc.

Oil & Gas Expl. & Production

2,002

Magnum Hunter Resources Corp.

Oil & Gas Expl. & Production

1,670

Allied Nevada Gold Corp.

Gold & Silver Production

1,513

Energy & Exploration Partners, Inc.

Oil & Gas Expl. & Production

1,308

Quicksilver Resources Inc.

Oil & Gas Expl. & Production

1,037

 

As the chart below reflects, the Oil & Gas/Mining bankruptcy rush gained speed after March 2015, pronouncedly spiking in 4Q15 as oil prices plummeted. The sector felt even more pressure when the junk bond market melted down in December 2015. Energy-related bankruptcies skyrocketed in December 2015, with seven of the month's eight public filings Oil &Gas related.

oil & gasOf course, many Oil & Gas/Mining sector companies did manage to limp through 2015, but none emerged unscathed. Looking to Wall Street, the Energy Select Sector Index was down more than 23%; and many of the smaller capitalization exploration & production and mining stocks were down a lot more than that. Similarly, the Energy industry was also the big spoiler in the high yield bond arena in 2015. Energy bonds, which had grown to be nearly 20% of the high yield index 18 months ago, were crushed--with many dropping down to 20 or 30 cents on the dollar or less.

Turning our focus to overall U.S. Bankruptcy Court trends, although public company filings rose dramatically, the broader business bankruptcy sector, in general, did not. Consistent with the past several years, the downward spiral of total business bankruptcies continued through 2015, with a 14% decline compared to 2014. 2015's filing totals reflect the sixth consecutive decline. Remarkably, the 2015 figure represents roughly 33% of the business bankruptcy activity docketed in 2009. It is interesting to note, however, that we have recently seen a marked reduction in this year-over-year decline: Between 2010 and 2014, business bankruptcies dropped an average of 22% year-over-year—versus the 14% seen between 2014 and 2015.

In terms of publicly traded bankruptcies, 2015's average per-filing pre-petition asset figure fell 23% from $1.33 million to $1.03 million, once again largely as a result of the Energy Future Holdings case. Incidentally, that 2014 asset count was the highest seen since 2011. Although 2015 saw several billion-dollar Chapter 11's, none of this year's filings were large enough to rank on the largest historic bankruptcies list.

 

10 Largest All Time Public Bankruptcies (Excluding Financial Companies)

 

Company

Bankruptcy Date

 

Description

Assets** ($Mils)

WorldCom, Inc.

07/21/02

Telecommunications

$103,914

General Motors Corporation

06/01/09

Auto Mfg./Retailer

91,047

Enron Corp.

12/02/01

Energy Trading/Gas

65,503

Energy Future Holdings Corp.

04/29/14

Electric Utility Company

40,970

Chrysler LLC

04/30/09

Auto Mfg./Retailer

39,300

Pacific Gas & Electric Co.

04/06/01

Electricity & Natural Gas

36,152

Texaco, Inc.

04/12/87

Petroleum & Petrochemicals

34,940

Global Crossing, Ltd.

01/28/02

Global Telecommunications

30,185

Lyondell Chemical Company

01/06/09

Global Chemical Mfg.

27,392

Calpine Corporation

12/20/05

Integrated Power Company

27,216

 

The Oil & Gas/Mining sector's extraordinary dominance of the 2015 corporate bankruptcy landscape represents a marked departure from the past several years, during which a wider range of industries were more equally represented. Despite this most recent activity, it is not at all unusual to see a bankruptcy cycle defined by a particular industry (or industries)—although that percentage is typically dramatically lower than the 51% Oil & Gas/Mining filings experienced in 2015. For example, 2000-03 and 2008-09, were respectively dominated by Telecom/Technology and Financial Service industries.

Looking back at 2015, BankruptcyData.com's research reveals a 14% decline in overall business bankruptcies but a 46% uptick in public company Chapter 11 filings—with a striking 51% of those filings coming from the battered Oil & Gas/Mining sectors. Looking forward, economic indicators point to further increases in corporate bankruptcy, in general, and Energy-related filings, in particular. Just a few days into 2016, this viewpoint has already been validated by Arch Coal's long-awaited $8 billion Chapter 11 filing—and continuing oil price plummets severe enough that OPEC's President, Emmanuel Kachikwu, has confirmed that an emergency meeting is likely necessary to address "shattered" economies.

For those in the distressed arena, this could result in contrarian investing opportunities. Commenting on these U.S. Bankruptcy Court trends and their Wall Street impact, Putnam sees the silver lining: "We believe that there will be many good investment opportunities among the current crop of distressed securities. If oil prices were to rebound from their current level of about $35 per barrel to $60 to $70 per barrel—still well shy of the June 2014 price of around $100 per barrel—many of the oil & gas bonds currently trading for pennies on the dollar would soar. Moreover, the near panic selling that we've seen in many corners of the high yield bond market in the last few months has a number of bonds in a variety of industries ripe for a significant rebound."

 

Public Companies/Assets Filing for Bankruptcy

 

 

Year

 

Filings

Assets**

($Mils)

Avg. Assets** ($Mils)

1980

62

$1,671

$27

1981

74

4,703

64

1982

84

9,103

108

1983

89

12,523

141

1984

121

6,530

54

       

1985

149

5,831

39

1986

149

13,033

87

1987

112

41,503

371

1988

122

43,488

356

1989

135

71,371

529

       

1990

115

82,781

720

1991

123

93,624

761

1992

91

64,226

706

1993

86

18,745

218

1994

70

8,337

119

       

1995

85

23,107

272

1996

86

14,201

165

1997

83

17,247

208

1998

122

29,195

239

1999

145

58,760

405

       

2000

187

100,882

539

2001

265

267,203

1,008

2002

229

401,063

1,751

2003

176

100,214

569

2004

93

47,802

514

       

2005

86

133,843

1,556

2006

66

22,257

337

2007

78

70,525

904

2008

138

1,159,351

8,401

2009

211

593,733

2,813

 

 

 

 

2010

106

89,109

840

2011

86

103,990

1,209

2012

87

70,843

814

2013

71

42,641

600

2014

54

71,918

1,332

 

 

 

 

2015

79

81,246

1,028

 

 

* BankruptcyData.com defines publicly traded as those companies with common stock and/or bonds that are publicly traded on U.S. markets.

** Total asset figures are pre-petition and taken from each debtor's most recent Annual Report filed with the Securities and Exchange Commission (SEC).

Disclaimer: BankruptcyData.com collects its information from the U.S. Bankruptcy Court and SEC. Although sources are believed to be reliable, accuracy cannot be guaranteed. New Generation Research thoroughly analyzed and audited all bankruptcy figures and statistics; however, certain details may require adjustment pending untimely SEC reporting and/or delayed U.S. Bankruptcy Court docketing.

 

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