U.S. Bankruptcy Tracker: Brazos Bust Spotlights Texas Menace
(Bloomberg) -- The first major bankruptcy from the Texas power crisis highlights growing risk in the energy sector. It followed the busiest week for large Chapter 11 filings since October.
Brazos Electric Power Cooperative filed in Texas on Monday after racking up an estimated $2.1 billion in charges following a polar vortex that left thousands without power. It’s just one of several companies rocked by a crisis that forced them to buy electricity at sky-high rates during the freeze.
The Electric Reliability Council of Texas, which operates the state electricity grid, incurred $55 billion of wholesale power charges during a seven-day period last month, court papers show. Fitch Ratings put all retail and wholesale electric utilities operating within Ercot on watch for possible downgrade, citing concerns regarding funding requirements and liquidity in the near term.
There were seven Chapter 11 filings from firms with at least $50 million of liabilities in the week to Feb. 27, according to data compiled by Bloomberg. That’s the most since the week ended Oct. 31. There were 15 filings last month, up from 12 in January.
Belk Inc. was among those that sought Chapter 11 protection last week. The department store chain broke the record for the fastest pre-packaged bankruptcy filing ever, with just 17 hours elapsing from commencement of the case to a judge’s verbal approval of the restructuring.
Pre-packaged bankruptcies like Belk’s are attractive to troubled companies because they cut the time spent in court and associated costs.
“Bankruptcy adds a layer of scrutiny, an additional layer of expense,” Larry Katz, an attorney at law firm Hirschler Fleischer said in an interview. “If lenders are willing to work with you, you’re much better off doing a pre-pack or pre-arranged bankruptcy.”
Last week saw more real estate and hospitality firms seek court protection from creditors. The Williamsburg Hotel, which offers views of Manhattan from the hip Brooklyn neighborhood, listed liabilities of as much as $100 million in its bankruptcy petition.
The Covid-19 pandemic helped push about $146 billion of commercial real estate into distress, serious risk of bankruptcy or default at the end of last year, according to data compiled by Real Capital Analytics, a commercial real estate data firm. That stands in contrast to the ever-dwindling pile of distressed corporate bonds, which stands at about $82 billion, just a fraction of its 2020 peak.
Corporate bankruptcy activity is likely to remain muted compared with the five-per-week pace seen last year as firms try get through the economic uncertainty of the pandemic, said Patrick Collins, partner at law firm Farrell Fritz. Lenders worried about the value of collateral are willing to wait for improvement, he said.
“White hot” credit markets give struggling borrowers a pass, said Scott Greenberg, partner at law firm Gibson Dunn. “There is a lot of competition among credit funds to put money to work.”
The amount of traded distressed bonds and loans fell to about $105 billion as of Feb. 26, down 4.5% week-on-week. Troubled bonds fell by 4.9% while distressed loans dropped 2.9%.
Click here for a worksheet of distressed bonds and loans
There were 283 distressed bonds from 153 issuers trading as of Monday, according to Trace data. That’s little changed from a week earlier and well below the 1,896 troubled bonds at the March 23 peak.
Diamond Sports Group LLC had the most distressed debt of issuers that hadn’t filed for bankruptcy as of Feb. 26, Bloomberg data show.
|Top 5 Distressed Issuers||Debt ($B)|
|Diamond Sports Group LLC||4.8|
|Odebrecht Offshore Drilling Finance||2.5|
|AMC Entertainment Holdings Inc||1.8|
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