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Summary

  • Chapter 11 bankruptcy filings are down slightly but combined assets are up.
  • Energy Future Holdings (EFH) is easily the largest bankruptcy of 2014.
  • EFH could be one of the more interesting bankruptcies of the last decade.

Over the course of the first half of the year, we've seen one of the slowest periods for large bankruptcy filings in recent memory, as well as one of the busiest. Beginning in December 2013 and running until early February 2014 there were no public companies filing for bankruptcy, which is unprecedented over the last several decades. Then in March and April, eleven public companies, all of which had assets in excess of $300 million, filed for Chapter 11 bankruptcy, culminating with the massive ($41 billion in assets) filing by Energy Future Holdings on April 29 (see the table below). This flurry of activity ended rather abruptly, and May and June saw few additional filings.

Largest Bankruptcies of 20141

Company

Assets2($Mil.)

Filing
Date

Energy Future Holdings Corp.

40,970

4/29/14

Genco Shipping & Trading Ltd.

2,957

4/21/14

Momentive Performance Materials

2,694

04/13/14

USEC, Inc.

2,266

03/05/14

First Mariner Bancorp

1,377

02/10/14

James River Coal Company

1,204

04/07/14

Revel AC, Inc.

1,148

06/19/14

Tuscany Intl Drilling, Inc.

645

02/02/14

Sorenson Communications, Inc.

645

03/03/14

MModal Holdings, Inc.

626

03/20/14

Global Geophysical Svcs, Inc.

552

03/25/14

Dolan Company, The

449

03/23/14

1 Through 6/24/14

2 Assets at year-end prior to filing

Source: BankruptcyData.com

Despite these extreme periods, when you look at the half year as a whole, it looks fairly similar to the last several years. Fewer companies filed in the first half of 2014 than in comparable periods of previous years, but they had more assets--largely as a result of the Energy Future Holdings bankruptcy (see the table below).

Public Bankruptcies1: 2006 - 2014

Year

Number of Companies

Assets* ($Mil.)

2007

66

7,245

2008

125

65,028

2009

165

344,506

2010

85

22,099

2011

82

58,256

2012

80

44,401

2013

67

33,108

2014**

25

55,541

*Aggregate of total pre-filing assets of all publicly traded companies filing for Chapter 11

**Through 6/24/14

1Excluding financial companies

Source: BankruptcyData.com

Energy Future Holdings, which was formerly known as Texas Utilities or TXU, could be one of the more interesting bankruptcies of the last decade. The company was the subject of the largest leveraged buyout in history in 2007, which saddled the company with at least 66 classes of debt spread out over several different entities, both regulated and unregulated.

There are a number of major investment firms currently jockeying for position across the capital structure. Because of this intense scrutiny from professional distressed securities investors, many of the bonds have moved up quite a bit since the bankruptcy filing, and so there aren't any obvious bargains right now in any of the Energy Future bonds (and it has no publicly traded stock). But if the bankruptcy drags on for a while, it could create "bondholder fatigue" and push some securities down to interesting levels. We still believe that bankruptcy filings will pick up in the not-too-distant future. While the balance sheets of most of corporate America are in relatively good shape, there are still quite a few companies that are overleveraged--some because of debt issued before 2008 and others because of debt raised in the recent high yield boom--and we expect many of them to be forced to restructure over the next few years.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.