The amount of Chapter 11 bankruptcy filings in the third quarter, which are tracked in the newest Polsinelli-TrBK Distress Indices Report, hit the highest level since 2010. This trend is expected to continue into 2021.
The third quarter showed clear signs of the COVID-19 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 in which Chapter 11 distress has measured more than 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,” Jeremy Johnson, a Polsinelli Shareholder, bankruptcy and restructuring attorney and co-author of the report, said. “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 highlighted economic distress in both the real estate and healthcare industries. In the third quarter, the real estate index showed that 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 healthcare 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 healthcare services sectors.
Other significant updates in the report include:
- The Chapter 11 Distress Research Index was 81.17 for Q3/20. 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 Q4/100, it is down approximately 19 points.
- The Real Estate Distress Research Index was 29.12 for Q3/20. The Real Estate Index decreased approximately one point since the last quarter. Compared with the same period one year ago, the index increased almost four points, and compared with the benchmark period of Q4/10, it is down approximately 70 points.
- The Health Care Services Distress Research Index was 468.33 for Q3/20. The Health Care Index decreased 42 points since the last quarter. Compared with the same period one year ago, the index increased more than 86 points, and compared with the benchmark period of Q4/10, 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.