NEW YORK–Credit unions will want to keep an eye on a prediction that a “wave of bankruptcies” among large companies is on its wave, as it will affect both employees and perhaps other types of smaller businesses traditionally served by credit unions.
Edward I. Altman, the creator of the “Z Score,” a widely used method of predicting business failures, is estimating that in 2020 will easily set a record for so-called mega bankruptcies — filings by companies with $1 billion or more in debt, according to the New York Times.
And he expects the number of merely large bankruptcies — at least $100 million — to challenge the record set the year after the 2008 economic crisis, the Times added.
Even a meaningful rebound in economic activity over the coming months won’t stop it, the Times quoted Altman, the Max L. Heine professor of finance, emeritus, at New York University’s Stern School of Business, as saying. “The really hurting companies are too far gone to be saved,” he said.
Among the big companies “teetering on the edge” of bankruptcy are Chesapeake Energy, Tailored Brands (parent to Men’s Wearhouse, Jos. A. Bank and K&G), Weatherford International, and others. 24 Hour Fitness, Hertz, Neiman Marcus have already filed for bankruptcy, in many cases due to carrying significant amounts of debt.
Not Just Large Firms
In all, more than 6,800 companies filed for Chapter 11 bankruptcy protection in 2019 and, the Times reported, “this year will almost certainly have more. The flood of petitions from the worst economic downturn since the Great Depression could swamp the system, making it harder to save the companies that can be rescued, bankruptcy experts said.”
But it won’t just be large firms turning to the courts.
“Without reform in the system, ‘we anticipate that a significant fraction of viable small businesses will be forced to liquidate, causing high and irreversible economic losses,’” a group of academics said in a letter to Congress in May, according to the Times. “Workers will lose jobs even in otherwise viable businesses.”
The group of academics recommended increasing budgets to recall retired judges and hire more clerks, and giving companies more time to come up with workable plans to prevent them from being sold off for parts.
Altman is forecasting at least 66 cases with more than $1 billion in debt this year, eclipsing 2009’s mark of 49. He also predicted 192 bankruptcies involving at least $100 million in debt, which would trail only 2009’s record of 242.