The impact of COVID-19 is becoming evident in the accelerating Chapter 11 filings. The amount of Chapter 11 bankruptcy filings in the third quarter, which are tracked in the newest Polsinelli-TrBK Distress Indices Report, have hit the highest level since 2010. This trend is expected to continue into 2021.
The third quarter shows clear signs of the pandemic’s impact on bankruptcy filings and is a continuation of the filing spike from the prior quarter. The filings occurring now are either defensive – to stop creditor enforcement actions – or offensive – to implement a restructuring agreement with creditors. This is the sixth consecutive quarter where Chapter 11 distress has measured over 50 points; the Index hasn’t seen that level of distress since 2011.
“We’re starting to really see the impact of the pandemic and resulting shutdown on overall Chapter 11 bankruptcy filings over the last few quarters,” said Polsinelli Shareholder Jeremy Johnson, a bankruptcy and restructuring attorney and co-author of the report. “Although it’s difficult for anyone to predict what the economy will do the rest of 2020 and into 2021, we do anticipate filings continuing this momentum as we deal with the fallout from the pandemic. We recommend that companies avoid filing unless they have an exit strategy or their hand is forced by a creditor.”
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 third quarter, the Real Estate Index shows the distress levels remain relatively stable, but it’s anticipated that 2021 could see a rise in filings if landlords and tenants cannot reach resolution.
In the health care space, the third quarter brought the 14th consecutive quarter of high distress (an increase of more than 100 points). In fact, there were fewer than 15 filings in all of the third quarter.
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 81.17 for the third quarter of 2020. The Chapter 11 Index increased more than 12 points since the last quarter. Compared with the same period one year ago, the Index has increased more than 26 points and compared with the benchmark period of the fourth quarter of 2010, it is down approximately 19 points.
- The Real Estate Distress Research Index was 29.12 for the third quarter of 2020. The Real Estate Index decreased approximately one point since the last quarter. Compared with the same period one year ago, the Index has increased almost four points and compared with the benchmark period of the fourth quarter of 2010, it is down approximately 70 points.
- The Health Care Services Distress Research Index was 468.33 for the third quarter of 2020. The Health Care Index decreased 42 points since the last quarter. Compared with the same period one year ago, the Index has increased more than 86 points and compared with the benchmark period of the fourth quarter of 2010, it is up more than 360 points. This Index has exceeded the benchmark score for the last 20 quarters 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.