While the changing dynamics of today’s Chapter 11 process and financial landscape have led to an increase in pre-packaged bankruptcy filings, “free fall” cases have grown more pronounced, according to an analysis in the March edition of the ABI Journal .

“The corporate restructuring industry saw an acceleration of the Chapter 11 process in recent years, with pre-packaged and pre-planned, and often quick-sale, filings becoming an increasingly preferred choice of corporate debtors, lenders and other stakeholders,” Dennis A. Meloro of Greenberg Traurig, Randall G. Reese of Chapter 11 Dockets and Travis K. Vandell of UpShot Services write in their article “The Fast and Laborious: Chapter 11 Case Trends.”

Although pre-packaged cases are considered by some experts to be the new normal, the authors examine research that shows that “free-fall” cases that proceed in the standard chapter 11 process are taking longer to wind their way through the court system.

Looking at the results of a study from UpShot Services and Chapter 11 Dockets, the authors extrapolated a few significant conclusions about the potential causes and driving forces behind shorter cases getting shorter, and longer cases getting longer, by factoring in: the value, real or perceived, of the debtor’s estate and business as a going concern; the growing complexity of companies’ capital structure with multiple, competing tiers of debt; and the challenge of resolving collective bargaining issues within chapter 11.

“The increase in pre-planned and prepackaged cases is largely driven by relatively solvent, viable companies that are seeking to restructure without the potential unknowns of a long, drawn-out chapter 11 case,” Meloro, Reese and Vandell write. “Furthermore, they chose this route to avoid spiraling administrative and professional costs as well as to promptly resume business as usual.”

From their research, the authors found:

  • Less than 40% of chapter 11 cases that were filed in 2008 were pre-packaged; by 2012, that percentage had grown to more than 60 percent of cases filed.
  • Large Chapter 11 cases filed at the end of 2012 were expected to reach their key resolution points (confirmation of a plan, approval of a sale, conversion to Chapter 7 or dismissal) approximately 25 percent faster than large Chapter 11 cases filed at the beginning of 2008.
  • Conversely, the authors’ research also showed that “free fall” cases are taking longer to reach a resolution.

    “The typical large ‘free-fall’ case filed in late 2012 is expected to take approximately 13% — or 49 days — longer than the time that a large free-fall case filed in early 2008 took,” they write. “As key parties-in-interest are reaching negotiated frameworks for restructurings before a chapter 11 filing in a larger percentage of cases, today’s pool of ‘free fall’ debtors includes the cases with the thorniest and most complex restructuring issues.”