First, J. Crew. Now
Get ready for what could be the most jarring stretch of corporate bankruptcies in memory. The coronavirus has crushed the life out of some venerable household names.
For many troubled companies, like luxury retailer Neiman Marcus Group Inc., which filed on Thursday, the lockdown super-charged the effects of pre-existing problems like debt overloads and the inability to please fickle consumers. For others, the debt they rack up while the pandemic rages may prove insurmountable once the health threat is over.
Few industries have been spared.
“Everyone’s distressed watch list has become so big that it doesn’t even make sense to call it a watch list -- it’s everyone,” said
The numbers look nauseating and will probably get worse before they improve. Here’s a sampling: The amount of debt classified as distressed in the U.S. surged 161% in just the last two months to more than half a trillion dollars. In April, corporate borrowers defaulted on $35.7 billion of bonds and loans, the fifth-largest monthly volume on record, according JPMorgan Chase & Co. And so far in 2020, the pace of corporate bankruptcy filings in the U.S. has already surpassed every year since 2009, the aftermath of the global financial crisis, Bloomberg data show.
Even the bankruptcy process has been complicated by the virus, with social distancing making it impossible for companies to conduct
And though Washington is tossing out life preservers to select industries -- a total of $19.4 billion in federal aid has been doled out to the four biggest U.S. airlines -- the flood of filings is expected to continue.
“The wild ride of Covid-triggered restructurings is really just beginning,” said
The wave of post-virus bankruptcies kicked off April 1 with shale driller
“So far, the vast majority of bankruptcy cases we’ve seen are cases that would’ve come anyway,” said
J. Crew had been acquired in 2011 by
The future of its 181 J. Crew stores worldwide, its 140 Madewell stores and its 170 factory stores, along with 13,000 employees, is
Neiman Marcus, sold in 2013 to
For Gold’s Gym, 2019 was the strongest year for worldwide growth in its 55-year history, the company said. Then came Covid-19.
“This has been a complete and total disruption of every one of our business norms, so we needed to take quick, decisive actions to enable us to get back on track,” the company said in an online statement that accompanied its May 4 bankruptcy filing.
Gold’s Gym said it will complete its pre-negotiated Chapter 11 process by August. Though it permanently closed 30 locations, about 700 will be ready to open as stay-at-home rules are relaxed, it said.
“We’re absolutely not going anywhere,” the company said on its website.
Men’s fashion brand
Two-thirds of Hertz Global Holdings Inc.’s
To make matters worse,
The 118-year-old J.C. Penney Co. has nearly 850 stores that have all
“Many companies aren’t paying rent or vendors either right now, so they’re just accumulating liabilities to deal with later,” said Perry Mandarino, head of restructuring and co-head of investment banking at
As the coronavirus continues to spread, a new wave of debt has come up for sale.
Carnival attached to its issuance a coupon of 11.5%, one of the highest ever offered by a company with an investment-grade rating. The company didn’t immediately respond to requests for comment.
The borrowers may be setting themselves up for future failure, said Meghji of M-III Partners.
“There’s a large universe of companies that have been massively affected by Covid-19 and it’s unclear whether the slope of recovery will be fast enough for them to avoid bankruptcy,” Meghji said. “The debt they are taking on now will put that much more pressure on their finances going forward.”
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