The coronavirus pandemic has pushed many struggling companies into bankruptcy. Stay-at-home orders have forced many nonessential businesses to close as the demand has fallen massively. The number of bankruptcy filings has risen sharply with little revenue coming in. According to report from American Bankruptcy Institute, bankruptcy filings have risen by 26% from last year.
COVID-19 has led to disruptions of many industries. The economic slowdown caused by novel coronavirus has forced many startups and SMBs to shut because of the limited resources, revenue, capital and high debt prior to the pandemic. Not only this, many big companies are also gradually being pushed towards the bankruptcy.
The result is that it has increased layoffs across many industries. Huge number of people have been laid off resulting into unemployment. For the last two months, 36.5 million people have filed for jobless benefits. This all ultimately resulting into economic crisis.
Unable to cope with the loss, not only startups but many established firms are left with option but file the bankruptcy. The companies filing bankruptcy are mostly from aviation industry i.e. airlines, clothing lines and oil & gas companies. Some of them are big players like Virgin Australia, Neiman Marcus, J.Crew, Diamond Offshore Drilling and Whiting Petroleum.
Here are some of the major companies dealing with the financial fallout due to COVID-19.
Diamond Offshore Drilling
On April 26, the contract drilling services company, Diamond Offshore filed for Chapter 11 bankruptcy. The Houston-based company provides contract drilling services to the energy industry around the globe. But it filed bankruptcy due to low oil demand and the price war between OPEC and Russia as it caused its business to decline amid the coronavirus outbreak
Diamond Offshore has $5.8 billion of assets and debts of more than $2.6Bn. The company filed bankruptcy 10 days after it missed an interest payment on $500Mn worth of bonds and said it was working with advisers on various options for its future. The company also recently drew down $400 million under a revolving credit facility.
In 2019, Diamond Offshore reported revenue of $981 Mn. The company had employed 2,500 workers at the end of last year. According to company’s statement, Diamond Offshore currently has enough capital about $435 million of cash on hand to continue normal operations as it undergoes restructuring efforts.
On April 21, Australia’s second-biggest airline Virgin Australia became the world’s largest airline to seek bankruptcy protection since the coronavirus shutdown created a debt crisis. The COVID-19 has affected the travel industry as airlines seek government due to restrictions on travel.
Virgin Australia was rejected for a 1.4 billion Australian dollar ($897 million) government loan before entering into the Australian equivalent of Chapter 11 bankruptcy proceedings. However, Virgin Australia was struggling even before the corona crisis. It has been suffering an annual loss for seven consecutive years.
The company currently has debt of AU$5 billion ($3.2 billion). On the other hand, more than 10 parties have expressed interest in restructuring the company. Founder of Virgin Group and major shareholder of Virgin Australia, Sir Richard Branson stated that the company would work towards proper steps to make Virgin Australia healthy again.
Virgin Australia constitutes share of around one-third of Australia’s domestic airline market. The company employs 10,000 people directly and 6,000 people indirectly. If the company ceased operations, its rival Qantas Airways would have a virtual monopoly.
On April 14, the national phone and the high-speed internet company Frontier Communications initiated its bankruptcy proceedings by filing for Chapter 11 Bankruptcy. The company announced that it was proceeding with the sale of its Washington, Oregon, Idaho and Montana operations and assets to Northwest Fiber for around $1.35 billion in cash.
The company made its restructuring plan to reduce its debt by more than $10 billion. It has also received $460 million in debtor-in-possession financing. Frontier has more than $1.1 billion in liquidity including the company’s more than $700 million revenue in cash. Also the DIP financing will help it meet operational needs.
With this financing, the company plans to continue providing quality service. Frontier has fiber-optic and copper networks in 29 states. The company said it had $8.1 billion in annual revenue in 2019, according to an SEC filing.
On May 4, one of the most popular fitness chains Dallas-based Gold's Gym filed for bankruptcy protection under Chapter 11 of the country's bankruptcy code. Gold’s Gym plans to permanently close around 30 company-owned gyms but its franchised locations will reopen as coronavirus restrictions are lifted.
The company said in a statement that the move has been taken in an effort to facilitate the financial restructuring of the company. Due to lockdowns imposed in many countries to contain the spread of COVID-19, gyms are forced to remain shut during this period. Thus, it has become difficult for them to continue their operations.
The company expects to emerge from bankruptcy by August 1. The company said that has been a complete and total disruption of every one of their business norms. So they needed to take quick, decisive actions to enable them to get back on track. Gold’s Gym was bought in 2004 by TRT Holdings for $158 million.
On May 13, the satellite operator Intelsat announced that it filed for Chapter 11 bankruptcy protection. The company reported almost $15 billion in debt at the end of 2019 and started struggling when it skipped a $125 million interest payment in April. Intelsat had revenue of $2.1 billion at the end of 2019.
Intelsat provides satellite services to customers in the media and government sectors but because of because of coronavirus crisis, the company saw significant reductions in demand that eventually led to filing of bankruptcy. However, it secured $1 billion in debtor-in-possession financing to help provide liquidity during the restructuring process.
On May 4, the New York apparel company J.Crew filed for bankruptcy after struggling with declining sales and huge debt. The retailer had roughly $2.5 billion in annual sales. The company faced low demand as all its locations were forced to close temporarily to contain the spread of Covid-19.
J.Crew tried to lower some of its debt burden by taking its more successful Madewell brand public. As part of the bankruptcy proceedings, J.Crew’s lenders will convert around $1.65 billion of its debt into equity. The retailer also secured $400 million financing from current lenders in order to continue its operations during its restructuring.
John Varvatos Enterprises
Another menswear brand John Varvatos filed for Chapter 11 bankruptcy on May 6 as part of an agreement to sell all of its business and assets to British private equity firm Lion Capital. John Varvatos stated that along with the rest of the luxury retail industry, it has been greatly impacted by the negative effects of the coronavirus pandemic. The outbreak has forced the company to temporarily close its stores.
As part of the sale agreement, Lion Capital will provide debtor-in-possession financing that will help support John Varvatos operations when combined with its projected cash flows. Lion Capital was already an investor in John Varvatos. It had purchased a majority stake in the company in 2012.
On May 10, Stage Stores, which operates department stores under brands such as Gordmans, Bealls and Goody’s, filed for bankruptcy and is now terminating its operations. According to a company statement, it is looking for potential buyers of its business and assets,
Earlier Stage Stores struggled with competing against large-scale retailers as well as e-commerce sellers. Then, the pandemic burdened the retailer by causing Stage Stores to temporarily close all of its 738 locations. For reconstruction, the retailer is now in the process of beginning to reopen stores to conduct liquidation sales.
Stage Stores operates the chains in mostly rural areas across 42 states. The company had roughly 13,600 full-time and part-time employees as of February 2019 and reported revenue of $1.58 billion in sales in the last fiscal year.
True Religion Apparel
On April 13, True Religion Apparel, an American denim retailer, filed for Chapter 11 bankruptcy for the second time in less than three years. The company has struggled in recent years with competition from other retailers. With the retail industry hard hit by the coronavirus, True Religion stated that simply could not afford to wait out the financial instability and stay-at-home restrictions.
ABL and Term Loan are the company’s largest lenders. They are providing more capital to help with its restructuring. True Religion had assets and liabilities ranging from $100 million to $500 million. Until its stores open up, the company plans to continue focusing on its e-commerce sales. True Religion was taken private when it was bought by investment management firm TowerBrook Capital Partners in 2013.
On April 30, the energy company, Ultra Petroleum filed for bankruptcy for the second time and agreed to a balance-sheet restructuring with its creditors. Ultra Petroleum previously entered Chapter 11 proceedings in 2016. Ultra Petroleum has approximately debt of $2 billion as of Dec. 31 and business disruption from the coronavirus has caused the bankruptcy.
Ultra Petroleum secured financing of up to $25 million through the restructuring agreement and a revolving credit facility with an initial borrowing base of $100 million from lenders. The company said it will be able to eliminate $2 billion in debt. Ultra Petroleum’s operations are primarily focused on natural gas reserves in Wyoming. The company had $742 million in revenue for 2019.
On April 1, the oil and gas company, Whiting Petroleum filed for bankruptcy because of the Saudi-Russia price war and the drop in oil demand driven by the Covid-19 pandemic. Both of these factors contributed to its decision to file for bankruptcy according to Whiting Petroleum.
The officials said the company plans to convert more than $2.3 billion in senior notes into new equity which would account for 97% of the reorganized company’s ownership. Whiting will also provide payment in full of its revolving credit facility and expects to be out of Chapter 11 proceedings within five months.
The company said it has $585 million of cash on its balance sheet and will continue normal business operations. Whiting’s business is situated in the Rocky Mountain region of the U.S. It has its largest projects in North Dakota and Colorado. Whiting’s market valuation fell from its peak $15 billion to $32 million in 2011.
The oil and gas company is reportedly preparing a bankruptcy filing after its business took a hit from the Saudi-Russia price war and declining demand for oil amid the coronavirus pandemic. The Oklahoma City-based company was once at the forefront of the U.S. shale boom.
The company was burdened with $9 billion in debt even before the pandemic and price war. Chesapeake is in talks to secure $1 billion in debtor-in-possession financing that would help it fund operations and is considering skipping a $192 million payment due in August. It also faces a July 1 payment of $136 million.
Founded in 1989, Chesapeake has operations in five U.S. states, including Pennsylvania, Texas and Louisiana. It employed about 2,300 people as of the end of 2019.
The car rental company Hertz doubts its ability to continue as a going concern which indicates that it is on verge of bankruptcy. The company’s executives have been trying to postpone the roughly $500 million payment. Yet, it has secured debt restructuring advisers and is preparing for negotiations with creditors over its $17 billion in debt.
The car rental industry has been affected severely due to coronavirus pandemic. Hertz had laid off 10,000 people amid the crisis, incurring employee termination costs of $30 million. The Estero, Florida-based company is now working with restructuring experts at law firm White & Case and investment bank Moelis & Co. in order to address its debt issues.
On May 15, J. C. Penney Company Inc., with its Chapter 11 filing, became the largest retailer in the United States to file for bankruptcy amid the coronavirus pandemic. The Plano, Texas-based company is facing numerous challenges like declining sales and nearly $4 billion in debt. Most of J.C. Penney’s stores have been closed since March 18 because of the coronavirus.
JC Penney had skipped a $12 million interest payment due on April 15 and a $17 million due on May 7. Upon missing the first payment, the company entered a 30-day grace period “in order to evaluate certain strategic alternatives. J.C. Penney plans to secure about $450 million to fund its operations in bankruptcy.
The company operates about 850 stores in the U.S. and employs nearly 90,000 workers. However, the retailer may have to permanently close 200 of these stores as part of its bankruptcy process. Penney saw total net sales for the fourth quarter ended Feb. 1 fall 7.7% to $3.38 billion from last year.
Lord & Taylor
American luxury department store Lord & Taylor is also preparing for bankruptcy and plans to liquidate inventory in its 38 department stores once restrictions to curb the spread of Covid-19 are lifted according to reports. The retailer braces for a bankruptcy process and does not expect to survive the bankruptcy process.
Lord & Taylor, billed as the oldest in the United States, was founded in 1826 and once a major retailer in the U.S. But then it struggled to compete with other rivals such as Macy’s and TJX Companies which operates TJ Maxx and Marshalls. Department stores in general have faced challenges from online retailers and consumers purchasing less apparel.
Le Tote, owner of Lord & Taylor, owes $23.53 million to Hudson’s Bay Company after buying the retailer from the Canadian department store chain for CA$100 million in 2019. Hudson’s Bay maintained possession of some of Lord & Taylor’s real estate and took on responsibility for its rent payments. The company could use a bankruptcy filing to take some of its leases back from Lord & Taylor.
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