Why the surge in bankruptcies is just beginning
The pandemic will see “more bankruptcies than in any business person's lifetime,” says one expert.
The 2008 financial crisis led to some of the most high-profile bankruptcies in U.S. history, including those of banking titan Lehman Brothers and car maker General Motors.
But the coronavirus pandemic—and its widespread impact—is giving 2008 a run for its money.
“We are seeing an acceleration in bankruptcies that is unprecedented,” James Hammond, CEO of the company that runs BankruptcyData, told me in my story on bankruptcies in the coronavirus era. That comes as car-rental company Hertz has become the biggest Chapter 11 by asset so far, and as oil-and-gas company Chesapeake Energy becomes the latest large-scale fallout.
Experts also believe it could get worse when the government’s Paycheck Protection Program, which aims to keep small businesses up and running with loans that can be converted to grants, runs out.
“I’m pretty confident we will see more bankruptcies than in any business person’s lifetime,” says Hammond.
Of note—academics are already calling for changes in bankruptcy proceedings to meet a potential surge: “Without reform, we anticipate that a significant fraction of viable small businesses will be forced to liquidate,” one group wrote in a letter to Congress calling for greater flexibility among small businesses during the bankruptcy protection process. Another group of scholars called for beefed-up bankruptcy courts, lest the surge in coronavirus-related filings clogs up the pipelines and eats up valuable time for businesses hoping to restructure.
Here is to hoping that, even with these numbers, lessons from 2008 and before will stick—leading to better handling of the bankruptcies.
America’s second-largest grocer gets a not-so-great IPO: It’s been some 14 years since private equity firm Cerberus first got involved in grocery chain Albertsons, first participating in the breakup of the company in 2006. After a decade and a half, the company is finally going public, but it’s not raising nearly as much as hoped. Initially planning to raise $1.3 billion in proceeds, all of which would have gone to existing investors, the IPO of the company raised $800 million instead. Cerberus, which previously held about 37% of the shares, now holds around 31%.
It’s been a loooong road to an exit for Cerberus: The firm actually doubled down on Albertson’s in 2013, acquiring even more of the chain from one of its partners on the 2006 deal, SuperValu. The private equity firm then tried to take it public in 2015 after merging it with Safeway, but that never materialized.
In short, pandemic or not, it was about time for its backers.
“It’s so difficult to predict what’s happening in the stock market. There’s so much volatility,” CEO Vivek Sankaran told my colleague, Beth Kowitt. “Some of our investors have been with us for 15 years, so we’ve got to monetize some of that.” Read more.
Lucinda Shen
Twitter: @shenlucinda
Email: lucinda.shen@fortune.com
Keep an eye out for the 2020 Fortune/IBM Watson Health 100 Top Hospitals ranking—to be published tomorrow morning—of the top-performing hospitals nationwide.
Tomorrow, our editor-in-chief Clifton Leaf will also lead a conversation with IBM Vice President and Chief Health Officer Dr. Kyu Rhee, American Medical Association Vice President and Chief Health Equity Officer Dr. Aletha Maybank, St. Joseph Mercy Hospital President Alonzo Lewis, American Heart Association CEO Nancy Brown, and Stanford Health Care President and CEO David Entwistle.
They’ll talk about how hospitals should be reimagined so that they’re prepared for the challenges to come. Register for the free virtual event here.