The Year In Bankruptcy: 2021

• Published date: 28 January 2022
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Insolvency/Bankruptcy
• Law Firm: Jones Day
• Author: Mr Mark Douglas

One year ago, we wrote that, unlike in 2019, when the large business bankruptcy landscape was generally shaped by economic, market, and leverage factors, the COVID-19 pandemic dominated the narrative in 2020. The pandemic may not have been responsible for every reversal of corporate fortune in 2020, but it weighed heavily on the scale, particularly for companies in the energy, retail, restaurant, entertainment, health care, travel, and hospitality industries. Mandatory shutdowns beginning in the spring of 2020 wreaked havoc on the bottom lines of thousands of companies confronting a precipitous drop in demand for their products and services. Many were able to weather the worst of the storm with packages of government assistance or by adapting their business models to meet the unique challenges of the pandemic. Others could not and either closed their doors or sought bankruptcy protection to attempt to restructure their balance sheets or sell their assets.

At the end of 2020 and into early 2021, it was widely anticipated that the unprecedented pressure the pandemic brought to bear on the U.S. economy would lead to a boom in corporate bankruptcy filings. That boom never materialized. Instead, business bankruptcy filings in the United States plummeted in 2021. The reasons for the decrease (discussed in more detail in "Recent Trends in Corporate Debt and Reorganizations: Laying the Groundwork for Future Large Chapter 11 Cases or Just More Runway?") included:

• Improvement in the U.S. economy in the spring of 2021 that coincided with the widespread deployment of vaccines;
• A 10 percentage point drop in the unemployment rate from the height of the pandemic;
• Fewer restrictions on businesses and their customers;
• Historically low interest rates, robust capital market access and other readily available financing;
• The willingness of lenders to forbear and extend maturities on loans; and
• Government assistance during the pandemic.

The drop-off persisted despite the highest inflation rate in 40 years (as of November 2021), a malfunctioning supply chain, and continuing pandemic uncertainty due to variants Delta and Omicron as well as vaccine hesitancy.

Business Bankruptcy Filings

According to New Generation Research, Inc.'s BankruptcyData.com, there were 6,691 commercial bankruptcy filings in 2021, compared to 11,375 in 2020 and 10,056 in 2019. The real estate sector led the charge in 2021, with more than 1,100 filings. Other industries with the greatest volume of filings in 2021 included construction and supplies, health care and medical, banking and finance, restaurant, and transportation.

There were 3,587 commercial chapter 11 filings in 2021, compared to 6,870 in 2020 and 5,236 in 2019. One hundred fifty-seven debtors filed petitions for recognition in the United States of foreign bankruptcy cases under chapter 15 of the Bankruptcy Code in 2021. Three municipalities filed petitions to adjust their debts under chapter 9.

Bankruptcy data and research firm Reorg similarly reported that 2021, with a total of 275 chapter 11 filings by companies with at least $10 million in liabilities, was the slowest since 2012 and the first in at least six years to record fewer than 300 cases. Of those 275 chapter 11 filings, companies in the real estate (28%), consumer discretionary (20%), health care (10%), energy (9%), industrials (8%), and financials (5%) sectors recorded the largest number of cases. Filings by companies in all sectors decreased from 2020, except for the utilities sector, which experienced increased activity in the wake of Winter Storm Uri in Texas.

Public Company Bankruptcies

According to BankruptcyData.com, bankruptcy filings for "public companies" (defined as companies with publicly traded stock or debt), after reaching the highest level in more than a decade in 2020 (with 110 filings), plummeted to 22 in 2021. At the height of the Great Recession, 138 public companies filed for bankruptcy in 2008 and 211 in 2009.

The combined asset value of the 22 public companies that filed for bankruptcy in 2021 was $19.2 billion, compared to $292.7 billion in 2020. By contrast, the 138 public companies that filed for bankruptcy in 2008 had prepetition assets valued at $1.2 trillion in aggregate.

Companies in the oil and gas sector grabbed the brass ring in public company bankruptcy filings in 2021, with 23% (five cases) of the year's 22 public company bankruptcies. The other sector with a significant number of public company filings in 2021 was banking and finance, with four cases (18%). Other industries with public filings in 2021 included telecom, construction and supplies, transportation, computers and software, apparel and textiles, chemicals and allied products, aviation, retail, hotel and gaming, automotive, restaurant, and mining (each with one case).

The year 2021 added only eight public company names to the billion-dollar bankruptcy club (measured by value of assets), compared to 51 in 2020.

The largest public company bankruptcy filing of 2021-oil and gas exploration and production company Seadrill Limited, with $7.3 billion in assets-did not even make it onto the top-50 list of the largest public bankruptcies of all time. By asset value, the remaining public companies among the 10 largest bankruptcy filings in 2021 were real estate investment trust Washington Prime Group Inc. ($4.0 billion in assets); internet services and infrastructure company GTT Communications, Inc. ($2.8 billion in assets); gas utility company Ferrellgas Partners, L.P. ($1.7 billion in assets); coffee shop chain Luckin Coffee Inc. ($1.2 billion in assets); multi-utility company Just Energy Group Inc. ($1.09 billion in assets); hotel, resort, and cruise line owner Carlson Travel Inc. ($1.0 billion in assets); application software company Riverbed Technology, Inc. ($1.0 billion in assets); hotel operator Grupo Posadas S.A.B. de C.V. ($946 million in assets); and oil and gas exploration company HighPoint Resources Corp. ($826 million in assets).

Eighteen public companies with assets valued at more than $1 billion exited from bankruptcy in 2021, compared to 25 in the previous year. Continuing a trend begun in 2012, many more of those companies reorganized than were liquidated or sold. More than half of the chapter 11 plans confirmed in 2021 by billion-dollar public companies were in prepackaged or prenegotiated bankruptcy cases.

Notable exits from bankruptcy in 2021 included:

• The Commonwealth of Puerto Rico, which largely wrapped up its four-year restructuring when the island territory's legislature voted on November 7 to approve a deal that settles $35 billion in debt;
• Car rental company Hertz Global Holdings Inc., which obtained confirmation of a chapter 11 plan in June that paid unsecured creditors in full and distributions to stockholders due to the company's rare status as solvent debtor; and
• Pan-regional Latin American multinational airline company LATAM Airlines Group S.A., which exited bankruptcy in December after obtaining confirmation of a chapter 11 plan that restructured $7.3...