The continued acceleration in Chapter 11 filings is a clear sign that business owners should prepare for the pandemic’s impact to last longer than was originally planned, even as the COVID-19 vaccine becomes more available. Chapter 11 bankruptcy filings increased again in the fourth quarter, as seen in the newest Polsinelli-TrBK Distress Indices Report.
“We always knew the ongoing pandemic would create a rapid rise in Chapter 11 filings, but we didn’t expect that the filing data would look so similar to the recession of 2011. However, we do anticipate more general filings and distress throughout 2021, with spikes in real estate and health care,” said Polsinelli shareholder Jeremy Johnson, a bankruptcy and restructuring attorney and co-author of the report. “We recommend that companies avoid filing unless it’s a defense matter (disallowing a creditor from taking enforcement action) or offensive (to implement a deal with lenders or other creditors).”
The report, released today by Am Law 100 firm Polsinelli, also highlights economic distress in both the real estate and health care industries. In the fourth quarter, the Real Estate Distress Index remained relatively steady, possibly due to the potential halt in rent collection. Distress in health care remains high, but showed signs of slowing in the last two quarters of 2020, likely due to the significant financial support health care providers received during the pandemic.
The Polsinelli-TrBK Distress Indices are the backbone of a quarterly research report series that uses Chapter 11 filing data – bankruptcies with more than $1 million in assets – as a proxy for measuring financial distress in the overall U.S. economy and breakdowns of distress specifically in the real estate and health care services sectors. It is the only current measurement that tracks both Main Street and Wall Street statistics.
Other significant updates in the report include:
- The Chapter 11 Distress Research Index was 86.74 for the fourth quarter of 2020. The Chapter 11 Index increased just over five points since the last quarter. Compared with the same period one year ago, the Index has increased more than 36 points and compared with the benchmark period of the fourth quarter of 2010, it is down nearly 14%. The Index has increased six of the last seven quarters, with the highest amount of distress since Q2 2011.
- The Real Estate Distress Research Index was 28.09 for the fourth quarter of 2020. The Real Estate Index has remained steady since the last quarter. Compared with the same period one year ago, the Index increased just one point and compared with the benchmark period of the fourth quarter of 2010, it is down nearly 72%. The Index displayed an upward trend in the last three quarters; 2020 was generally much higher than 2019.
- The Health Care Services Distress Research Index was 416.67 for the fourth quarter of 2020. The Health Care Index was down more than 51 points since the last quarter. Compared with the same period one year ago, the Index has increased 191 points and compared with the benchmark period of the fourth quarter of 2010, it is up 216%. This Index has experienced 15 quarters of continual distress (more than 100 points in a quarter) and continues to track significantly higher than the other indices.
The Polsinelli-TrBK Distress Indices track the increase or decrease in all Chapter 11 filings with more than $1 million in assets since the fourth quarter of 2010. Unlike the public markets, the Polsinelli-TrBK Distress Indices include both public and private companies, creating a broader economic view and one that may show developing trends on Main Street before they appear on Wall Street.
To access the full report, graphs and all past analysis, visit www.distressindex.com.
Polsinelli is an Am Law 100 firm with 900 attorneys in 21 offices nationwide. Recognized by legal research firm BTI Consulting as one of the top firms for excellent client service and client relationships, the firm’s attorneys provide value through practical legal counsel infused with business insight, and focus on health care, financial services, real estate, intellectual property, middle-market corporate, labor and employment and business litigation. Polsinelli PC, Polsinelli LLP in California.