Debt Settlements Newsroom

Large and Small Companies Exhibit Diverging Bankruptcy Trends

Publicly traded companies filed for bankruptcy at a record pace in 2001. This trend reflects a more challenging economic environment but nevertheless stands in contrast to overall business bankruptcy trends. Profits at large companies have declined while leverage has increased, and losses from large credits have risen at insured institutions. Now the question is the degree to which credit losses may spread from large company credits to small company credits and consumers and what effect thismay have at insured institutions that rely on such lending as a source of income. 

FDIC, Division of Insurance 2 Large and Small Companies Exhibit Diverging Bankruptcy Trends Publicly Traded Companies File a Record Number of Bankruptcies The number of bankruptcy filings by publicly traded companies has risen sharply since 1997. A record 257 publicly traded companies filed for bankruptcy in 2001, representing a 46 percent increase over the prior year’s record of 176 filings (see Chart 1).1 These companies brought some $258.5 billion in
assets into bankruptcy, more than double the assets of public company bankruptcy filings in 2000. In all, 45 companies with assets greater than $1 billion filed for Chapter 11 bankruptcy protection in 2001, more than double the prior year’s record of 21 filings.

These data include Enron’s recent bankruptcy filing, the largest filing in history at $63 billion. Bankruptcies among publicly traded companies began to run counter to the trend of declining business bankruptcies around 1997. Chart 1 indicates that total business bankruptcy filings after the 1990—1991 recession peaked at 72,650 in 1992 and fell to a cyclical low of 36,910 in 2000. The annualized filing rate based on data through the third quarter of 2001 indicates that business bankruptcy filings in 2001 should rise slightly to nearly 40,000, which would still remain far below historic highs reached during the 1980s.

Analysts at BankruptcyData.com indicate that, aside from a concentration in the telecom industry, the number of bankruptcy filings by publicly traded companies was distributed fairly evenly across industry sectors in 2001. The telecom industry accounted for 36 of the 257 filings, or 14 percent. The remainder came mainly from firms in the manufacturing sector and other “old economy” firms that are highly leveraged.