The Polsinelli-TrBK Distress Indices Monitor on Rolling Four-Quarter Basis
An increase in overall Chapter 11 bankruptcy filings – the second highest level in seven years – shaped U.S. economic distress in the first quarter of 2020, a trend that is detailed in the newest Polsinelli-TrBK Distress Indices Report. For the first time since 2014, the Distress Indices show that Chapter 11 distress has measured over 50 points for four straight quarters.
Although the economy has been devastated by the COVID-19 pandemic and resulting shutdown, the increase in Chapter 11 filings is actually unrelated to the coronavirus. In fact, there was a significant slowdown in filings in March 2020, when the virus first impacted the U.S. and its economy.
“It’s actually quite common to not see an immediate increase in bankruptcies during an economic crisis. With so much market volatility, it’s difficult predict what will happen next, so it’s difficult to develop your exit strategy,” said Polsinelli Shareholder Jeremy Johnson, a bankruptcy and restructuring attorney and co-author of the report. “We anticipate a significant increase in filings going forward dealing with the fallout, but there are no solutions yet. Avoid filing unless you have an exit strategy or unless your hand is forced by a creditor.”
The report, released today by Am Law 100 firm Polsinelli, also highlights the ongoing distress in the health care industry. Although the health care distress increased only eight points from the last quarter, it’s still 133% above the benchmark. Q1 signifies the 12th straight quarter of health care distress of more than 100 points over the benchmark period. As in the past, this distress was caused by overexpansion and potential payment and reimbursement delays.
“We’ve also noticed increased distress in the real estate sectors, with steady increases the last three quarters. This is also unrelated to COVID-19, but we again expect COVID-19 will exacerbate the existing distress,” said Johnson. “Distress in real estate has been relatively stable the last several quarters, but there’s a definite trend of increased filings in that sector.”
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 54.49 for the first quarter of 2020. The Chapter 11 Index increased four points since the last quarter. Compared with the same period one year ago, the Index has increased nearly eight points and compared with the benchmark period of the fourth quarter of 2010, it is down approximately 45%.
- The Real Estate Distress Research Index was 30.82 for the first quarter of 2020. The Real Estate Index increased three points since the last quarter. Compared with the same period one year ago, the Index has increased over eight points and compared with the benchmark period of the fourth quarter of 2010, it is down approximately 70%.
- The Health Care Services Distress Research Index was 233.33 for the first quarter of 2020. The Health Care Index increased eight points since the last quarter. Compared with the same period one year ago, the Index has decreased approximately 138 points and compared with the benchmark period of the fourth quarter of 2010, it is up approximately 133%. This Index has exceeded the benchmark score the last 12 quarters and has continued 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.